Tuesday, September 30, 2008

Waiting for the Sky to Fall?

As I've mentioned before, the evidence of a "credit crunch" has been slim... or the evidence has been completely contrary to what is reported on the national news.

Last night ABC News had an "expert" fund manager yelling that "right now it's impossible for anyone to get a mortgage," which is blatantly false and not what the data say. (Stunts like that earned ABC a boycott from me for the rest of the week).

Mark J. Perry posted these charts yesterday which illustrate that very recently consumer loans, commercial loans at large industrial banks, and real estate loans were at an all time high and moving on a very upward trend. However, you can see on Dr. Perry's charts that things start to level off right at the end of the timeline... and most of these data are already outdated.

Rebecca Wilder posts similarly but then discovers an important issue in the data:
In her words:

The chart illustrates weekly consumer loans broken up into revolving credit (credit cards) and "other" types of consumer loans. Revolving loans account for the smaller share of total consumer loans, roughly 40%, and have been accelerating since July. On the other hand, other loans account for the larger share of total consumer loans, roughly 60%, and have been either constant or falling since the end of July. Therefore, revolving credit has been the driving factor in recent consumer loan growth.


The very end of the timeline, where the two lines cross, tells us that people are seeing the end of access to traditional loans and are instead resorting to credit cards. And as more people do that, the credit card companies get stretched and have begun to raise interest rates, further increasing the cost of borrowing.

So, while the "credit crunch" has been prematurely hyped by the media it appears to be here and will show up as newer data come available.

When will Main Street really start to feel it? A week? A month? I don't know.

Oddly enough, despite yesterday's chaos today was relatively calm. The Volatility Index regressed to a less-frightening level, the TED spread also declined, and the yields on Treasury Bills increased while the yield curve for U.S. Treasuries assumed a steeper slope than what was present at 5pm EST the day Congress voted "No." All of that points to an improving market, not one in decline.

Was that because Congress said they'd try again and get it right this time? Maybe. Was that because the Fed started increasing the money supply and Treasury acted on their part to buy some bad assets anyway under an old housing law? Maybe.

The main question I have for any economist who might drop by here is:

Does it matter that banks aren't lending to each other anymore since they're all now borrowing more cheaply from central banks? What incentive do they have to borrow from each other when the discount rates worldwide are so low?

Someone else has talked about there still being "good bridges" out there -- ie: healthy lenders able to make loans to credit-worthy borrowers. The trick is just for borrowers to find them, it's more difficult for the two to connect now. Seeing as how that seems to be the case, why should we worry? Shouldn't the market eventually bring the borrowers and the healthy lenders together?

Those are my questions.

Monday, September 29, 2008

Bailout Vote #1 - Fail

House rejects bailout package 228-205. Why might that be?

My initial guess is it's the classic problem of collusion. Everyone agrees to do something, in this case to vote "Yes," but everyone has a political incentive to "cheat" and vote "No." If enough people cheat, then the legislation doesn't pass.
(Wikipedia: Cheating: There is considerable incentive to cheat on collusion agreements; although lowering prices might trigger price wars, in the short term the defecting firm may gain considerably.)

Ah, Congressmen behaving rationally and leading to a sub-optimal outcome. Perfect in-class example.

UPDATE: Looks like I might be right. Over on The Economist's blog:
"The word on the politics of the deal is this—Congressional leaders had come to an understanding whereby "safe" members of both parties (those not facing a serious challenge in November) would vote for the bailout and endangered members of both parties would be able to vote against if they chose. For the most part the Democratic breakdown proceeded as anticipated. The Republican caucus, on the other hand, does not seem to have delivered the expected "yea" votes. So, strictly speaking, GOP defections were the proximate cause of the defeat. Whether it will appear that way to voters, amid so complex a legislative scenario, is unclear."

Saturday, September 27, 2008

Thoughts on the First Debate

I thought both candidates did a good job; this was the best debate I've seen in a long time (though many pundits felt it was too "boring"). Obama recited fewer canned stump speeches than McCain. Their foreign policies aren't very different. McCain tries to nitpick or mischaracterize certain things, and Obama did a good job explaining his positions. Obama held his own in McCain's field of expertise, and McCain showed his bristling hostility at times.

I really like Obama's intelligence. His foreign policy outlines were quite conservative, he and McCain differ on little. I am almost completely in agreement with everything Obama outlined in his foreign policy.

But one caveat:
Many Americans may not realize that the candidates are taking a very hawkish position on Russia.
Obama said:
"it is absolutely critical for the next president to make clear that we have to follow through on our six-party -- or the six-point cease-fire. They have to remove themselves from South Ossetia and Abkhazia.

He followed up with (italics mine):
And to countries like Georgia and the Ukraine, I think we have to insist that they are free to join NATO if they meet the requirements, and they should have a membership action plan immediately to start bringing them in.

For a guy who doesn't want preconditions, this is an awfully big precondition. And this is a non-starter for Russia. Russia now officially recognizes the independence of Abkhazia and S. Ossetia. They are committed to keeping troops there. Foreign Minister Lavrov declared Georgia's "territorial integrity" a "case closed" at the UN yesterday. Russia would see NATO membership for Georgia and the Ukraine the same as we would see Russia putting nuclear bombers in Cuba. Some say that this could mean war. Our NATO allies oppose Georgian and Ukranian membership.

McCain takes the same position as Obama and has a Russophobe as an adviser. It will be hard for them to hold Russia to these conditions and not create a Cold War-like atmosphere of distrust.

Russian media I've seen has so far been fairly critical of the candidates' remarks, but also mentioned their comments about "cooperation." Russia bloggers have been mostly ho-hum, nothing was said that hadn't been said previously. Maybe that will change on Monday.

Also, supposedly McCain cursed a couple times while Obama was talking.(See the 4:30 mark Obama talking about McCain's Spain gaffe. You be the judge of whether he said "horse dung[sic]" or not).

Friday, September 26, 2008

Post-Palin

McCain is losing--badly--over at InTrade.com. He was projected as winner just over a week ago. What happened?

He was only winning after the Palin bounce, so I don't think it's the financial crisis, I think the Palin bounce ran out of helium and came crashing down. America has had a chance to watch & listen and found her unacceptable.

Americans love to rip apart their celebrities and expose all their flaws. We watched as Charlie Gibson tried to corner Palin-- and she did OK. I've watched Katie Couric corner her all this week with "gotcha" questions. How did her staffers get her to agree to the awkward on-the-street interview edited in with the sit-down interview? Worst series of interviews in the whole campaign so far.
I watched McCain visually flinch when Couric told him Palin said America might be on the road to the Great Depression without the bailout. "Well, it's not all that bad..." cringed McCain.
I watched Palin look out-of-place when talking to Hamid Karzai, event the news media was almost barred from by the McCain staffers.
She looks frightened, pressured, and weak.

Apparently, white Democratic women tried Palin out and found her not to their liking. They have returned to the party and will vote for Obama.

The women readership of mine might enjoy reading this Judith Warner op-ed (liberal alert!) where she compares Palin to the lead character in the Legally Blonde movies and concludes:

"Frankly, I’ve come to think, post-Kissinger, post-Katie-Couric, that Palin’s nomination isn’t just an insult to the women (and men) of America. It’s an act of cruelty toward her as well."

The Joys of Google Reader

The internet is information at your fingertips. What I like about the blogosphere is that the market finds the information for me. I subscribe to about 100 feeds with Google Reader. (If you don't use Reader or some other RSS sorter then you're wasting a lot of time going from blog to blog to see if they've updated yet, and missing out on an easy way to expand your reading base).

During the recent Russia-Georgia conflict I added a bunch of blogs that were covering the action to my Reader. This allowed me to get as close to real-time updates as possible as well as much of the real-time commentating. Many of these blogs post info from other relevant blogs they're reading, so I end up reading what everyone else is reading and am just as knowledgable.

The financial crisis has been great for this. Fortunately, some of the best economists in the world keep their own blogs and many more write frequently in various newspapers. As other economist bloggers link to those articles, as I do, it saves me the time of trying to figure out who is saying what. I don't have to search through the papers to see if any economists have posted, one of the 20+ econ blogs I read has already found it and posted it.

This has allowed me to keep a play-by-play of economic analysis of the proposals as they are released to the news media.

Economists have analyzed, put out critiques and alternative solutions, critiqued those alternatives and accepted/rejected them, and put out new solutions. There's been an incredible amount of brainpower putting out ideas and analysis through the media and blogosphere, some of which filters back to Congress and is also considered by people at the Fed and Treasury.

It makes me happy to live in this present information age. I've learned more about economics and finance in the past week than I would have in a semester or two of class.The really beautiful thing is that people who are already "experts" are also learning. It's a huge collective project.

Thursday, September 25, 2008

Economists wonder- Where is the credit crunch?

President Bush:
"As uncertainty has grown, many banks have restricted lending, credit markets have frozen, and families and businesses have found it harder to borrow money."

Is that statement true? One thing that has bothered me in recent days are that while everyone is talking about credit tightening, the data presented tell a different story. Tyler Cowen cites sources that "consumer loans are up, commercial and industrial loans are up, even real estate loans are up. Overall, total bank credit is up with just a slight sign of leveling off in recent weeks. So where is the credit crunch?"
Mark J. Perry (Carpe Diem) echoes this sentiment here: "At least for consumer credit, and at least through July, the supply of consumer credit has never been higher."

So, is there evidence of credit tightening? Yes, banks are not lending to each other and money market rates are way up.

Shifting gears, let's compare the cost of a recession to a bailout. Morris A. Davis writes
"Suppose the bailout costs 500 billion. Suppose the bailout is effective in avoiding a recession -- The bailout itself costs 3-1/2 percent of GDP. I think you have to go back to 1982, maybe further, to get that kind of contraction in GDP during a recession."
In other words, a recession would be less costly than the bailout if you use GDP as a measure.
(HT: Mark Thoma post with lots of views defending/opposing the bailout).

Leading indicators point to a recession, but that's not the issue. The business cycle isn't completely tamable and it shouldn't be our government's goal to avoid recession at all costs. My biggest issue is that Bush and Treasury are making this out to be a no-costs-later issue, which is incredibly misleading. As posted on Freakonomics today, quoting Jon Stewart about how many McDonald's Apple Pies $700 billion can buy (emphases mine):

"The plan is to give Paulson a $700-billion war chest to purchase securities that have some value.

Now it might be that we are buying truly valuable securities at bargain prices, in which case we all make apple pies (ie: profit in the long run); or it might be that we are buying junk, and the true cost will be several-hundred apple pies each."

(Note: In fairness, someone apparently very close to the situation e-mailed Mankiw with a defense of the Paulson plan versus all other proposed amendments).

One thing I love about the internet is watching the debate over the past several days. Economists putting out ideas, critiquing each other, revising their ideas, and exposing all the costs/benefits. It's been a most educational week for me.

Wednesday, September 24, 2008

*sigh*

I find Bush's argument tonight lacking any real substance.

"I understand the frustration of responsible Americans who pay their mortgage on time, file their tax returns every April 15th and are reluctant to pay the excess costs on Wall Street...(but) given the situation we're facing, not passing a bill now would cost these Americans much more later."


I think this is blatantly false. Passing Paulson's bill as written may cost us more than $700 billion. You will pay for it with higher taxes later. My son will pay because the future wealth of our nation just decreased as its debt payments increased and the burden will be placed on us. He will enjoy less of a growth in standard of living than I have.

There's also no guarantee of eventual "money pouring into the Treasury" or however he phrased it, especially not how the bill is currently written. I felt like that was incredibly misleading. Misleading like "tax cuts pay for themselves."
Also, a lot of smart people think this isn't near as bad as it's being hyped. (HT: Greg Mankiw). The greater danger is more likely our growing national debt, greatly being increased by our government by these bailouts.

This President asked us to go to war but not make any sacrifices to pay for it (something John McCain called "immoral"). Now he wants us to sacrifice our future and our free market in order to stave off a purely Wall Street problem. I'd rather have a long recession now and see us find ways to innovate and save money than pay for this mess later, which is what the President is asking us to do. That's where I stand.

Quote of the Day

In NY Times article on how McCain seeks to delay the first debate in order to go to Washington and work on the crisis.

Mr. McCain made the call after spending more than an hour preparing for Friday’s debate at the Morgan Library and Museumwhich, by coincidence, is where J. Pierpont Morgan bailed the country out of the great financial panic of 1907 by locking the leading bankers of the day in his library and forcing them to come up with a rescue plan.


Ah, the good old days.

Monday, September 22, 2008

A new tune on the bailout

Looks like everyone read Paul Krugman's column this morning and asked for a better deal. Opposition to the bailout proposal's flaws has been refreshingly bipartisan.

Christopher Dodd was on NewsHour tonight singing a slightly different tune about more oversight for Paulson than he was singing yesterday. Here is his new plan, which according to the linked article sounds like it has John McCain's endorsement.

The new plan would create a Treasury panel to investigate the soundness of transactions, and give Treasury an equity stake (ie: partial ownership) equal to the debt it buys from troubled firms.

The not-so-great part in terms of free markets are the restrictions put on CEO pay (no more "golden parachutes") and just the fact that the government will now own the stock and bonds of a lot of companies and have a say in how those companies are run. Doesn't matter if it's setting the minimum wage or "punishing" CEOs, when the government mandates what compensation can be payed to workers it creates big inefficiencies and unintended consequences.

The implied endorsement by McCain signals that the era of free market Republicanism might just be over, wow that happened fast.

This is a sad, sad week for our country.

Sunday, September 21, 2008

Hold the phone on the bailout plan.

At the Naked Capitalism blog there is a must-read post entitled "Why You Should Hate the Treasury Bailout Proposal." It has blown my mind and made me deeply concerned for the future of America.
I'm very concerned as Bush and Republicans are calling on Congress to rush through the package as-written.

Summary of reasons to hate the bailout:
1. The proposed bill gives Paulson unlimited authority and zero oversight. Any actions he takes would not be allowed to be reviewed by any administrative agency or the courts. (Would the Supreme Court strike the bailout down because of the "no courts" clause? If not, does that mean we're now Soviet?)
2. Paulson isn't being honest. He's planning on buying the troubled assets for above-market value. You're essentially "throwing taxpayers money to the financial world," to quote a liberal economist who opposes the plan.
3. It could cost well over $700 billion, that's only the amount Paulson could have outstanding at any one time. The bill gives no cap on the spending limit, it could be as high as he wants.

The real scary stuff is in the long-run. This $700 billion comes on top of the projected $500 billion deficit projected for next year. At what point do foreign countries stop lending us money? As I pointed out last year, we're headed for a huge problem. Over the next 20 years we're facing a huge increase in entitlement and health care spending for the aging Baby Boomers, and massive deficits. Today's bailout simply adds to this (worse if Democrats attach an "economic stimulus" package to it).
At some point America will become like every other deficit-happy country and default on its debt. That would mean China, Europe, Japan, etc. stopping their purchase of U.S. Treasury Bills to fund our deficit. It would mean a huge devaluation of our currency, a collapse of the dollar.

Naked Capitalism speculates that maybe if the bailout legislation gets passed as-is, the world will see the writing on the wall of U.S. default happening very soon and stop loaning us the money.

"We have said more than once that the the US in the same position as Thailand and Indonesia, circa 1996, except we have the reserve currency and nukes. It looks like we will have the opportunity to see how those two assets influence the end game."

My plan is to move away from dollar-denominated assets over the next 10 years as we prepare to make our move to Estonia. Call me crazy, but the odds of inevitable dollar collapse happening soon seem better than ever right now. My generation can't even fathom what America would look like then.

Economists debate how long things can go on just as they are now with no consequences; in other words: How long can America be the exception to the rule rather than a proof of it? That's the $700 billion question.

Friday, September 19, 2008

Class materials

My International Economics class is 90% about trade, as most International Econ classes are. Today we're finishing up a discussion on the welfare effects of tariffs, particularly those set by large countries like the U.S.
I'm not allowed to politic in the classroom, which is fine, but I will be showing the following two campaign ads. If these were the only commercials I'd seen from the candidates then my choice would be 110% clear. First, the Obama ad I saw yesterday:


A John McCain web ad that most Americans have never seen, but includes Spanish subtitles:


I would guess that Obama's ad was made by someone who never took an economics class.They never read Travels of a T-Shirt in a Global Economy and are possibly racist against the Chinese, indicating that it's humiliating to work for a firm that is setting up in China.

McCain's speech at the convention was plain: Those jobs are never coming back. He's offered an increased unemployment insurance and temporary job program for those factory workers (though this will do little). But the overall benefits to our economy, and to other countries' economies, are enormous and outweigh the costs of a few workers temporarily unemployed. It's what the data clearly say. If we want allies in the world then we should encourage poor countries' economic development and that will come by lowering our trade barriers. (McCain and conservatives in general do a bad job of explaining this, among other things).

My students are in college because they don't want to work on a farm, or in a factory or a mill. If we eliminated trade with countries like China they would have fewer possibilities and incentives to pursue higher-skilled careers.

Thursday, September 18, 2008

Wednesday, September 17, 2008

When an open-market country goes to war

Russia's stock market has plummeted and officials have halted trading. They're also in a bad credit crunch as and the government is rushing to provide banks with liquidity. The ruble has pretty much crashed. The NY Times concludes that despite much-publicized autocratic designs of Russia's leaders:

"the response, which rests on conventional support for the banking system, suggests that Mr. Kudrin and other economic liberals in Russia’s government have won, at least for now, the policy debate on how to respond to the crisis."


Since Russia's little war with Georgia, Western powers have reacted with horror and investors have pulled their money out very quickly, some $35 billion has fled the country according to Bloomberg.com:

Last month's five-day war, triggered by Georgia's effort to retake South Ossetia, sent equity, debt and currency markets reeling, reflecting investor worries that commercial ties would fray.

``This is a natural alarm clock,'' Igor Yurgens, a board member of the business group and adviser to Medvedev, said in an interview before the meeting. ``It's a concern to big owners, it's a concern to the Russian economy. There are limits to what Russia can do alone if it chooses to be isolated.''

The West is now slow to lend to Russia. Perhaps the market turmoil is what led Russia to complete its pullout from Georgia, and led oligarchs to make peace with BP (HT: Steve Levine).

Russia might be able to deflect the criticism of Western politicians but they aren't able to deflect the fears of Western markets.

The Onion

The Onion is a fake news magazine-- ie: it's funny. I spewed my coffee watching this one:


Portrayal Of Obama As Elitist Hailed As Step Forward For African Americans

Tuesday, September 16, 2008

More on Obama/McCain plans

The good folks at Freakonomics have posted graphics taken from a few different sources illustrating the tax cuts/increases of the respective candidates. The Tax Policy Center has their detailed report here. Good leisure reading.

Monday, September 15, 2008

Laying Blame

The McCain camp, if they were smart (and maybe they're just not), could finally have some good truthful ammunition to use against Obama in a campaign ad. Observe:

Barack Obama's take on the Wall Street turmoil today:
“The challenges facing our financial system today are more evidence that too many folks in Washington and on Wall Street weren’t minding the store,” Mr. Obama said. “Eight years of policies that have shredded consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression.”

The problem with Obama's statement is that he was one of the store-minders who worked against reforming Fannie Mae and Freddie Mac (which I think his statement above encompasses as he's echoed calls of other Democrats saying "where was the administration?"). The Washington Post has a great story here. Starting with Clinton, the need to reform Fannie Mae and Freddie Mac was obvious, but Congress held up reform. The Bush White House, led by CEA adviser Greg Mankiw among others, tried to get the GSEs reformed to follow standard accounting procedures, be required to reduce their risky portfolios, etc. But:

"How did Fannie and Freddie counter such efforts? They flooded Washington with lobbying dollars, doled out tens of thousands in political contributions and put offices in key congressional districts. Not surprisingly, these efforts worked. Leaders in Congress did not just balk at proposals to rein in Fannie and Freddie. They mocked the proposals as unserious and unnecessary."

Whose campaigns did Fannie and Freddie so heftily contribute to? Here's a list. #3 on that list? Barack Obama. Democrats, including Finance Committee chairman Christopher Dodd at #1, make up the majority of the dollars. These are the people who declared Fannie and Freddie "fundamentally sound" (Dem. Rep Barney Frank in 2003). (HT to Greg Mankiw for the GSE info).

So, McCain staffers-- do you think you can create an ad with the above? Fannie Mae bankrolled Obama's campaign and later the taxpayers paid for its bailout. That's truthful. Obama just threw you a softball.
Fannie Mae and Freddie Mac are the classic example of what Obama supposedly is railing against. A huge corporation that played by its own rules, lobbied Congress to look the other way and avoid reforms, succeeded, and ended up costing taxpayers billions. Obama wasn't part of the solution, he was part of the problem. I don't know McCain's stances in any of the previous years, but I doubt you'd find him working against the reforms.

BTW-- I think when McCain says (as he did again today) "The fundamentals of the economy are strong," he is talking about the same thing I am teaching in class, like my previous post. However, without McCain's needed clarification of that comment, people think he's lost his marbles and Democrats are wisely using it as ammunition. McCain's team could answer.

The Beautiful Free Market

Lehman Brothers, a big investment bank, just declared bankruptcy and American Insurance Group (AIG) is not far behind.

I've been teaching in Principles of Microeconomics about the beauty of the price system and creative destruction. While our in-class examples are much less complicated than today's real-life one, the underlying principles are the same. Today's turmoil and consolidations are part of the beauty of the market. Economists even have a nice phrase for events like today: A market correction. Something that was overpriced is now regressing to its true value.

In capitalism entrepreneurs are rewarded/punished for the risks they take. They use scarce resources to provide a service that they think is valued at a higher price than what it costs them to provide it (ie: they think they can make a profit).

I ask my classes:
"What if the entrepreneur is wrong and he goes out of business? Is that bad?"

Students tend to think about this, they usually come back with "Well, for him it's very bad."

"So, what about for us? What about society? What if the government intervened to keep him from going out of business?"

The answer is that it's good for him to go out of business so that the resources he was using to lose value on can be reallocated to a product or service of higher value to society.

If the government kept him in business, we'd be left with a company producing something that people wouldn't value very highly. It would have to use our tax dollars to do so even though we wouldn't want the company's product on the market.

The government would then have to intervene for other businesses, and then there is a moral hazard problem-- people entering a business wouldn't have to worry about using resources efficiently because the government would insure their personal profitability regardless. We'd be left with a whole host of products/services on the market that consumers would prefer not to have, and there would be fewer resources available for entrepreneurs wanting to try other products that consumers might value more highly.

Is it painful for those entrepreneurs and those investors who joined them in the venture? Yes.
But is society better off that they are allowed to fail? Absolutely.

I think one reason people are horrified today is that we see commercials on TV for AIG and Merrill Lynch and we hear "safety and security" practically guaranteed when there is no such thing. If there was no such thing as risk then there would be no rewards for entrepreneurs and therefore no creativity. If you eliminate the destruction then you also eliminate the creation.

Sunday, September 14, 2008

Where's the love?

If you're a Sarah Palin fan then don't read the NY Times today. Besides the editorial page being united in one voice against her merits, there is a 5-page article chronicling some of her controversial behavior as mayor and governor. Right or wrong, it's the best documentation we have to-date:

"Throughout her political career, she has pursued vendettas, fired officials who crossed her and sometimes blurred the line between government and personal grievance, according to a review of public records and interviews with 60 Republican and Democratic legislators and local officials."


Cronyism is the main charge:

"The Wasilla High School yearbook archive now doubles as a veritable directory of state government."


Some of it seems to be nit-picking. Some of it sounds like any other administration. Some of it sounds eerily similar to the problems that plagued Ernie Fletcher's administration in Kentucky. Particularly the college-aged Republican staffers using their position to exact revenge on Democrats (who slighted them all through college).

She sounds to me like a hard-ball politician who trusts few people, is fiercely loyal and demands reciprocated loyalty, and looks down on the opposition as lesser beings. People either love her or hate her, which is a trait of success.

The Spread Offense

Yesterday I attended my first Division II football game as SBU beat up on Harding, 43-31.
I was expecting to see sort of a high school game with better athletes. I expected some veer, some option-heavy attacks, and very run-oriented offense.

Instead, both teams played the spread offense* and it was quite entertaining. Almost every snap was in the shotgun, and almost every run play was a shotgun draw.
Basically, the QB was the most talented athlete on both teams and he had the choice every play of throwing it or carrying it. Running backs were used primarily as blockers and tight ends were primarily pass-catchers, if in the game at all.

So, not only is seemingly every Division-1 team playing a spread, so are D-II teams. Are high school teams switching over as well?

The "purist" in me misses smashmouth football. Line it up in an I formation, overpower your opponent up front. Make it a battle for the clock. Instead, Harding has a 1st-and-goal at the 1 yard line and line up in the shotgun. (The snap went over QB's head and they lost 25 yards on the play, settling for a field goal).

The spread has different variations, but used to be considered a gimmick offense. Hal Mumme/Mike Leach made Valdosta St. the D-2 powerhouse it is today with the BYU spread and continue to use it at D-1.

Urban Meyer runs a spread that includes a whole host of gimmicks successfully at Florida.

Rich Rodriguez used his version of the spread to re-make West Virginia a powerhouse, before turning Michigan into a horrible team with it this season.

Navy runs a weird spread option/run package with great success. It's like the veer on steroids.

Even Tennessee has gone to a full spread offense this season. Coach Fulmer showed he can change with the times.

Ohio State is one of the few teams left that play the old way, and they paid for it last night.

You can still see the Power-I and physical run-oriented offenses in the NFL, which is partly why it's more boring to watch than college, the variety of plays/packages are a lot smaller.

If done well--with good defense!-- the spread is a great way to equalize the advantage a more physical opponent can have on you. I guess players like it more because they like to run and make big plays. It's a flashy WR's game these days.

* there may be much debate about what the spread is/isn't and which teams are running a spread. Phil Fulmer says they now run a spread at Tennessee, though some may disagree with him. What I saw last night was undoubtedly a spread.

Friday, September 12, 2008

Glad I'm not alone

Every Friday, David Brooks and Mark Shields do a political talking point on PBS NewsHour. It's the only time each week I see an intelligent Republican and Democrat sit down and talk civilly and usually come to agreement on something.

Both agree that the McCain ads have been less truthful than the Obama ads, with Brooks (Republican) calling them "depressing" to Shields' "dishonorable." Both also honestly criticize the Obama ads (particularly the new one about how computer-illiterate John McCain is).

I highly recommend listening or reading the transcript.

(Without NewsHour I wouldn't have known about attacks in Iraq or Afghanistan today, what candidates said on the trail today, or anything else in the world besides Sarah Palin talking to Charlie Gibson and Hurricane Ike, which were the only stories on ABC World News Tonight).

Wednesday, September 10, 2008

When Does the Truth Matter? Does Obama really want to teach sex ed to your 5 year old?

I strive to find out what the data say because I value truth above most else. The Church is supposed to be "the pillar and support of truth" (1 Timothy 3:15).
However, Truth is always the first casualty of war and political campaigns.

McCain and Obama have enough clear differences, so why does one feel the need to lie about the other? Because it's effective. Elections are decided on character rather than issues, so smear the character and win the election.

The problem I have is that many that are putting out the lies these past 2 weeks claim to be evangelical Christians. Those who engage in this kind of misinformation would tell you that "the ends justify the means." That's fine for people who don't answer to a higher authority, but Scripture makes it clear that the ends never justify the means. The means tend to be what matter, the ends are in God's hand.

My position on Truth and fact-checking, sadly, puts me at odds with the majority of my peers.

I started this post a couple days ago, but today liberal Paul Krugman sums up the situation well. When a godless liberal like Krugman accurately calls you out for lying then you've essentially lost your salt.

It's also bad when a godless, perverse man (warning extreme profanity) like Bill O'Reilly is held up by Christians as a hero. Google "Bill O'reilly apologizes" and you'll get a long list of untrue things he's said and later apologized for. Remember Matthew 12:36-37 and 15:11.

Monday, it was the McCain camp demanding an apology for a "disgraceful" remark about Sarah Palin, when Obama wasn't talking about Palin (YouTube clip) and was actually quite complimentary of her. YouTube clip Sean Hannity and FoxNews made a big deal about how "shameful" Obama was. It was all a lie.
McCain said the exact same thing about Hillary Clinton's health care proposals last year... with no apology.

Then, it was McCain's ads resurrecting last year's issue that Obama endorsed legislation that would teach comprehensive sex education to kindergartners in Illinois. The Wall Street Journal echoed the ads. Here is the original bill , which was never passed (click "Full Text").
It's your standard sex education guideline. "Students will be taught about statistics, health issues, abstinence, etc..." It was amended to be from 6 to 12th grades to K through 12th grades, and I assume Obama was instrumental in that amendment. But it specifies "age-appropriate" curriculum.
I remember in 1st grade we had a lesson on inappropriate touching and were told what to do if a stranger or relative ever touched us in a way we didn't like. This bill would provide the same training to kindergartners as 1st graders. Every parent has to sign a permission slip to permit their child to participate.
To say Obama wants to teach comprehensive sex education to kindergartners is pretty asinine. Newsweek agrees the McCain attack is "simply false."

But, it's working.

Worse, from Day 1 of Sarah Palin we've been hearing about how she said "no" to the Bridge to Nowhere, which she didn't, and was one of the top earmark-seeking governors in the U.S. Palin has since dropped it from her speeches. But, the damage is done.

McCain deserves better than what his staffers are giving him and I have to believe he is better than this. *Update*: Maybe he's not. McCain stands by all the above claims on The View today. *sigh*

I got a mass email forwarded to me the other day from an evangelical Christian which included all kinds of misinformation about both candidates' stances on issues and encouraged prayer about who to vote for. Among other things, it claimed Obama would raise taxes on dividends to 39%. As has been pointed out here, Obama is raising the tax to 20%, but only for people whose income is more than $250,000. Odds are sadly better that a McCain presidency will see the Bush tax cuts expire and dividends will then be taxed up to 39% for everyone.

I hate it when Christians forward un-truths to other Christians, whether it's something they heard on Oprah or something they haven't fact-checked themselves.

On cue, 10 minutes ago I got another mass email forwarded to every employee at my university with this YouTube clip whose commentator claims Obama is mocking Scripture. The clip is an ad set to air in key battle ground states. But, here is the full text of the speech. I highly encourage reading it as it's pretty intelligent. Obama is wrestling with the dilemma of James Dobson's conservativism vs. Al Sharpton's black liberation theology and responding to Alan Keyes' claim that "Jesus wouldn't vote for Obama."

McCain can run on his own merits, character, and the strength of his own policy proposals. It sickens me that so many people in the religous right, who shunned McCain for so long, now are trying to further his campaign by spreading lies. It sickens me more that it's probably why McCain is now winning.

Beware the Bears

Just saw this AP headline pop up and had to post it. Wow. I don't know what's funnier, the story or the name of the teacher's school:

Teacher OK after striking bear while riding bike

MISSOULA, Mont. (AP) -- A middle school teacher suffered some bruising and a big scratch on his back after he struck a bear while riding his bicycle to school.

Jim Litz said he was traveling about 25 mph Monday morning when he came upon a rise and spotted a black bear about 10 feet in front of him. He didn't have time to stop and T-boned the bruin.

He tumbled over the handlebars, his helmet hit the bear's back and the two went cartwheeling down the road.

The bear rolled over Litz's head, cracking his helmet, and scratched his back before scampering up a hill above the road.

Litz's wife drove by shortly after the crash and took her husband to the hospital. He hoped to be able to return to teaching science at Target Range Middle School on Friday.

McCain is winning

McCain is now favored to win the election, according to Intrade.com (as of 3:14 pm). What a difference a week and a lot of hard-ball campaigning make.

David Brooks points out that Obama has gone from surprising us to simply pushing old-school Democratic Party policies, and hence he's lost his bite and his right to the title of "Change." The public may be looking for someone to balance the power. He suggests McCain campaign on the premise that:
"The Republicans are intellectually unfit to govern right now, but balancing with Democrats, they might be able to do some good."

Repent

The end of the world is nigh.

Seriously, I had no idea this thing was 17 miles and went under neighborhoods and such.

"The collider is designed to accelerate protons to energies of 7 trillion electron volts and then smash them together, recreating conditions in the primordial fireball only a trillionth of a second after the Big Bang.

The only thing physicists agree on is that they don’t know what will happen — what laws prevail — under those conditions."

More inspiration for me to study calculus a little harder.

Sunday, September 07, 2008

Mankiw's thoughts on candidates' tax proposals

Greg Mankiw... idol...hero...? Always clear and to the point in his writing, gives a different take on Obama's tax plan in his monthly NY Times column today. I color the part that stood out to me.

(Obama) has not been coy about wanting to use the tax code to redistribute income more aggressively....But for dividend income, Senator Obama has proposed only a modest increase in the top tax rate, to 20 percent from 15 percent. That is, the personal income tax would continue to tax dividends at a far lower rate than ordinary income...

Senator John McCain wants to maintain the current tax rate of 15 percent on dividends (while cutting the corporate tax), but it is a good bet that if Senator McCain is elected president, while Congress remains Democratic, Congress won’t give the Republican president what he wants. They would instead let the Bush tax cuts expire, returning the dividend tax for high-income taxpayers to about 40 percent.

By contrast, if Mr. Obama is elected, Congressional Democrats will be less likely to balk at his proposed 20 percent dividend tax rate and thus embarrass the new president from their own party.

This leads to one of the great ironies of the political season. On the issue of dividend taxation, Barack Obama may be the candidate with the best chance of preserving George Bush’s legacy.


Dude. Worth noting that Obama has previously proposed higher taxes on dividends, but his advisers talked him down to 20%. This has made his proposal much more palatable to many economists.

Friday, September 05, 2008

Keeping my faith in the man

McCain said the right things last night. There was as much Milton Friedman in his speech (no doubt co-written by Douglas Holtz-Eakin) as anybody... some parts were close to excerpts from Free to Choose. Some people were looking for a bi-partisan compromise, or a guantlet-like challenge for Obama to respond to. Instead, we got free-market simplicity.

My first posts in support of John McCain were February 23 and 24, 2007. I supported him because he was an American hero who wasn't a lap dog of the Club for Growth or James Dobson crowd, and wasn't a Neocon. He was the only Senator that wasn't porking out on earmarks, one of the few Republicans to criticize Bush's handling of the Iraq war and suggest that Bush's tax cuts went too far. He, and was just close enough to the center to win a general election.

And the Republican party hated him for all the above. Now, they love him for all the above.

David Brooks writes that McCain's closest supporters wanted to go even further in seperating themselves from the traditional Party establishment last night. "He did note that he has fought to change the Republican Party during its period of decay. And he diagnosed that decay Thursday night (to the tepid applause of the faithful)."

I havent read Grand New Party yet, but it's on my wish list.

But mostly, McCain highlighted core old-school Republican ideals and highlighted his own service to country. I heard this and loved it:

1. The market should be free, it works better that way:
"We believe in low taxes, spending discipline and open markets. We believe in rewarding hard work and risk takers and letting people keep the fruits of their labor."
2. Trade should be free, we're better off as a whole for it. "Winners" from trade can help compensate the "losers":
"My opponent wants to bring back old jobs by wishing the global economy away...for workers in industries that have been hard hit we'll make up part of their wages between their old job and a temporary lower-paid, one while they receive re-training that will help them find secure new employment at a decent wage."

3. Market competition is good, and this applies to education as well.
"Parents deserve a choice in the education of their children...some may choose a better public school. Some may choose a private school. Many will choose a charter one. But they will have the choice, and the children will have the opportunity."

4. I've seen war and I hate war. Nobody knows war's horror more than me.
Who else could say that? Nobody, definitely not Obama. That meant a lot to me since we seem to be ratcheting up the rhetoric with Russia on a daily basis, and McCain has been a part of that.

McCain still has my vote. Will he reach out to Democrats like Obama once elected? Absolutely. Independent Joe Liberman will likely be like his right-hand man. He's likely to even have some Democrats in his cabinet. But he can do that with his small-government, free-market principles intact. Will I expect the same from Obama? Nope. As much as I think Obama isn't as liberal as some in his party want him to be (ie: he's not too far from the middle) I feel I can trust McCain to do the right things more than Obama.

Aside note: In my previous post I talked about Obama's tax plan create disincentives for the wealthy people to work as hard. A lawyer wrote a comment on my comparison of the tax plans that I also found insightful:

"In the end, someone like me who is paying a few thousand dollars each month on rent and thousands on student loan repayments ends up owing more than 50% of his hard earned income to the government. Somehow I am still expected to have a savings and prepare myself for retirement in 40 years. This is the kind of policy that makes me want to take a job where I could leave work at 7 each night rather than staying until 10 or 12, and to find a job where weekend work is rare."

Thursday, September 04, 2008

When economists talk about taxes

In the previous post I tried to make sense of the candidates' tax plans. Prominent economists support both candidates and wrote both plans (McCain plan required less writing).

And smart people can disagree. Marty Feldstein co-authored one of the pro-McCain editorials I linked yesterday, and today in the WSJ there is a pro-Obama rebuttal letter written by Jeffrey Liebman, who co-teaches an economics course with Feldstein at Harvard (check out the updated action on Greg Mankiw's blog). You can also see Obama's chief economist debate McCain's on CNBC.

While there's an accounting debate about who pays more, and an economic debate about where the incidence/burden lie, the debates on economic/tax policy always boil down to this question:
Do we focus on growing the size of the economic pie as large as we can, hoping that everyone's share increases as it grows; or do we focus more on equitably dividing up the pie rather than focus so much on its growth?

As mentioned previously, Obama doesn't like the term "redistributionist," and seems to understand the nuances of both sides of the debate. McCain is focused on growing the pie as large as possible but seems sympathetic to altering the division of the pie from time-to-time.

One principle of economics is that people respond to incentives.

If you tax people at a higher marginal rate, they will have less incentive to work. If you know the government will take 50 cents of every additional dollar, you have less incentive to work than if the government took only 34 cents. (That's the exact argument against Obama increasing taxes for the top 2 tax brackets).
These wealthy people are primarily the entrepreneurs who own/operate businesses that employ millions of Americans. They chose their career paths responding to the incentive of profit/reward. When you take away some of that profit/reward, they're less likely to expand their businesses in attempts to make more profits. College students are less likely to pursue those careers as opposed to other careers because they might be able to keep more of their dollar if they earn less, and be better off.

The corporations these people own/manage are also taxed at a rate relatively higher than other developed countries. Ordinarily this would reduce the incentive to generate greater revenue and reduce incentives of businesses from other countries setting up shop here. However, they find ways around the taxes through loopholes, or state subsidies and tax breaks for foreign companies. McCain wants to cut these corporate taxes, Obama would raise them in most cases.

So, Obama's plans reduce the incentives of certain (wealthy) people to work harder.

Taxes on dividends, capital gains, and estates create disincentives to save (which reduces the amount of investment). For most Americans, this isn't changed much- dividends and capital gains will be taxed less than they were in 2003. But for some, the disincentives will be high-- meaning people will have an incentive to consume for today rather than save and create greater economic opportunities tomorrow. McCain generally opposes dividend/capital gains taxes and would leave them unchanged from current levels.

So, Obama's plans tend to reduce the incentives of certain (wealthy) people to save.

Obama's plan (and if you listen to Jason Furman in the CNBC debate above) is all about "the middle class." $1,000 in emergency energy refunds, $500 payroll tax credit, doubling the Hope college credit, eliminating capital gains tax on small businesses, etc. It's essentially a wealth transfer. Grow the middle class, make them better off by taxing those who make > $250,000. A good way to win an election is to give benefits to 99% of Americans by taking them away from the top 1%.

Some economists view this as a bad role for government, others as a natural role of government. You have to decide for yourself what matters.

However, the estimates that Obama's plan adds $3.4 trillion to the debt, and McCain's increases the debt by $5 trillion also bring up a question:

Which plan will end up costing us the most in the long run? John McCain's current plan would cost us more in the long run. By giving us benefits while keeping taxes low, we put the country further into debt. This is a debt that our children will have to pay-- eventually through higher taxes. No President has ever reduced the size of government. Not Reagan, neither Bushes, nobody (at least in the 20th century). I'd like to believe that McCain can, but with the huge increase in entitlement spending that's going to start soon, there's just no way. Can our economy continue to grow faster than government expands to help us pay for the larger government? In the face of growing global crisis, I'm not sure.

So, do you want a plan that gives everyone more incentives to work and save, or a plan that lays a greater burden on the wealthy to provide greater benefits for the less-wealthy?

Do you want a plan that distributes wealth more "equitably" in the eyes of the distributor while trying to keep the debt low, or a plan that provides for more economic freedom at the expense of our children's future wealth? It's not an easy question.

The answer to your question depends greatly on what you demand from government. What do you want your government to do for you?

Wednesday, September 03, 2008

Comparing McCain's and Obama's Tax Plans

I was asked if I had articles comparing the candidates' economic plans (other than the links I've posted previously). I've been trying to sort through the details of the tax plans myself. Unfortunately (oddly) as I write this, the websites of the two non-partisan analyses most widely cited are down.

It's one of those things where two smart people can see things totally different. For example, one person might say Obama's plan simplifies the tax code (1), others say it greatly complicates it (4). Obama's tax code changes are bracket-specific, and there are some phase-outs that depend on how much income you make (5).

Here's a summation of points mostly related to income taxes. Sources are numbered and linked at the bottom. I've colored elements I think sum it up. I've left some things out, you can follow the links to get the details:

I. Obama would raise income taxes on the top two tax brackets to pre-Bush levels of 36.9 and 39% respectively (1). (The top rate is currently 34% for people who earn more than $250,000).
Obama would also impose an additional 2 to 4 percent tax on earnings for some over the existing Social Security wage cap, and bring back the phase-out of the personal exemption and certain itemized deductions for higher-income taxpayers. When added up, the top effective marginal tax rate rises by 12 to 14 percentage points, from 37.9 percent to roughly 48 to 50 percent (2).

Obama would also raise capital gains taxes on people earning >$250,000 to 20%, which is more than today but less than it was before 2003 (1,3).

McCain would keep the top tax rates, dividends, and capital gains taxes where they're at (6).

II. Obama would raise corporate income taxes, but cut them for business that "invest in creating jobs in America" and eliminate capital gains tax for small businesses and start-ups (7).

McCain would lower corporate income taxes (6).

Note: Corporate tax rate is currently 35%, higher than most OECD countries. But there are a lot of loopholes in the tax code that keep corporations from actually paying the 35%. Obama says we need to close the loopholes (no source for this, i heard him say it on TV).

III. McCain would double the personal exemption for families with children from $3,500 to $7,000 (6).

Obama would give a $500 payroll tax cut to workers. He also would double the Hope credit for college to $4,000 from $2,000 and make it fully refundable (7, 8).

IV. McCain would eliminate the tax exemption on employer-provided health care (raising taxable income) but would provide a tax credit of $2,500 (singles) or $5,000 (couples) to more than offset the proposed tax increase. Any of the credit not spent on insurance could be put into a health savings account.

Obama would give tax credits to businesses that provide health care to employees (1). Other aspects of his health care plan would supposedly reduce health care costs by $2,500 per family (9).

V. McCain wants to abolish the estate tax for everyone(this is a Republican plank).

Obama would eliminate the estate tax for 99.7 % of estates. He would increase the top estate tax rate ($3.5 million per person, $7 million for couples) to 45% (2,9).

VI. Obama's plan would add $3.4 trillion to the government debt over the next ten years (2) according to the Tax Policy Center (website down).

Senator McCain's plan would add roughly $5 trillion to the debt (2).

Note: Worth noting that both candidates say they will cut government programs. Obama says he'll go through the budget "line by line" (8), McCain says he will veto earmarks and cut Congressional spending (multiple sources). Obama pays for most of his programs through the tax hikes on incomes over $250,000. McCain doesn't pay for most of his other than saying he'll reign in government spending.

(There are plenty other differences in the area of tariffs, gasoline taxes, subsidies for alternative energy etc. You can research those yourself or follow the Labels on the right for various posts on the subjects).

1- "The Obama Tax Plan" by Obama advisors Austan Goolsbee and Jason Furman in the WSJ.
2- "Questions About the Obama Tax Plan" by Robert Carrol at The Tax Foundation blog.
3- "We Can't Tax Our Way Out of the Entitlement Crisis" by former Bush adviser R. Glenn Hubbard in the WSJ.
4- Allen Viard as quoted by Greg Mankiw on his blog.
5- "The Folly of Obama's Tax Plan" by Alex Brill and Allen Viard for The American.
6- "John McCain has a Tax Plan to Create Jobs" by Martin Feldstein and John B. Taylor in the WSJ.
7- origin.barackobama.com/taxes
8- "How Obama Reconciles Dueling Views on the Economy" by David Leonhardt for the NY Times.
9-http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf

Tuesday, September 02, 2008

Remembering where I'm not

Carpetblogger is one of my favorite blogs. On days where I get whimsical and wish I were back in Eastern Europe or Central Asia (this is pretty much every day... several times a day, actually) his blog does a great job of making me laugh and be thankful for not being there. He's been to a lot of the same haunts I have, we speak the same languages.

It's Ramazan (Ramadan) time and Carpetblogger hates it:
"Ramazan in September is not at all popular with Carpetblogger because it gets light around 5:30 am. That means the drums start pounding the streets at 3 am, waking people up so they can eat the morning meal before the sun comes up. It's still hot out and closing the windows at night isn't practical. This morning's drummer probably knew we'd kept our neighbors awake until 3 am with all manner of haraam foolishness Saturday night at The Producer's 40th Birthday party, so stood extra long beneath our windows as payback...Since last year, we spent most of Ramazan in Kyiv which is pretty much the opposite of a Muslim country in all the important ways (ample pork, booze and scantily clad devushkas), Allah must be punishing us this year."

Monday, September 01, 2008

Jimmie's Good Luck Charm



Elias wore one of his Jimmie Johnson onesies to church yesterday. Daddy is so proud!

Later that evening Jimmie won the Pepsi 500 on his hometown track, dominating the race by leading 228 of 250 laps.

The Chase starts next week as Jimmie goes for his third straight NASCAR Sprint Cup Championship.

On a different note, my favorite part of yesterday was Myron Pryor. UK 27, ul 2. That's what I'm talking about.