28 February 2013

Smiling Happy People And Coal Rights

Colorado is second only to Hawaii on the Smiling Happy People index.  Grungy grumpy people, in contrast, are the order of the day in West Virginia, which was at the bottom of that list.

Within this distinction is a teachable moment. 

The dramatically different levels of well being between people in West Virginia and the people of Colorado has a great deal to do with the way that the state supreme courts of these respective states resolved a single important but obscure issue of property law about a century ago, give or take.

The Price Of Freedom

When Parliament outlawed slavery in the Britain empire in 1833 (it banned the slave trade in 1807), it did so via the sovereign perogative of eminent domain. 

The Crown paid 46,000 British nationals whose slaves were emanicapted in that year a total of 20 million pounds sterling for their slaves (an average of about 434 pounds per slaveholder).  This  would be about $9,222,000,000 current U.S. dollars in all, which was about 40% of the annual budget of the British government at the time. The payment averaged $200,126 per slaveholder.  Compensation payments were on the order of eight to twenty pounds sterling per slave (i.e. about $4,150 to $9,222 per slave).  Thus, about 1 million to 2 million slaves in the British empire were emancipated in 1833 and the average British slaveholder owned somewhere on the order of 200 and 400 slaves (mostly on plantations).

Below the jump are more details and a review of the comparable American experience.

27 February 2013

Why Are Presidential Killings With Drones Bad?

The Fact That Drones Are Used Is Irrelevant

Jack Goldsmith, quote here, makes a very valid point. 

The use of lethal force against a U.S. citizen in furtherance of the Authorization for Use of Military Force passed by Congress after 9-11 or other inherent authority that he may have as commander-in-chief of the United States armed forced, when authorized by the President of the United States or a suitable person to whom the President has delegated that power, may be morally or legally problematic.

But, it is not morally and legally problematic because the instrument of that use of force is a drone controlled by an active duty military airman operator in Salt Lake City thousands of miles away.  It would be just as morally and legally problematic (or not) if it were carried out by a manned aircraft operated by the Air Force, or an Army soldier on the scene with a sniper rifle or a Marine with a saber.  The debate really isn't about drones at all.

Other Issues

This doesn't mean that it is not a problematic practice.  Unfortunately, our President, despite being a constitutional law professor by trade himself, and a liberal has given short shrift to efforts to take these legal problems seriously.

Below the jump I outline many of the serious legal issues presented by the approach which the administration has failed to adequately engage and the Courts have unfortunately not forced it to address.

Are Diet Benefits Transethnic?

A recently published study of 7,000 people in Spain found great health benefits for a Mediterranean diet.

A group of men and women, ages 55 to 80 at the start of the study, were randomly assigned to a low-fat diet or one of two variations of the Mediterranean diet: one featuring a lot of extra-virgin olive oil (more than a quarter cup a day) and the other including lots of nuts (more than an ounce a day of walnuts, almonds and hazelnuts). . . . Overall, the people consuming the diets rich in olive oil or nuts had about a 30 percent lower risk of having a heart attack, stroke or dying from a cardiovascular cause. In absolute terms, there were about 8 of those problems for every 1,000 person-years in the Mediterranean diet groups compared with 11 per 1,000 person-years in the low-fat diet group.
Clearly, for people of Mediterranean ancestry, a Mediterranean diet improves health relative to a low-fat diet, which has its roots in modern nutrition theory in the observation that many Asian countries with low rates of cardovascular diseases had diets very low in fat and high in carbohydrates. 

But, does a Mediterranean diet work equally well for non-Mediterraneans?

26 February 2013

Personality Isn't Random

All parents are highly attuned to the ways that their children are distinctive and different from each other.  We notice that one child is a bit better at learning a foreign language, while the other is a bit better at sports.  We notice that one child is a bit more of a morning person, while the other is a bit more prone to stay up late at night.  We notice that one child is more aware of what adults in a room are talking about, while the other tends to be relatively oblivious.

But, particularly if a parent doesn't regularly interact with large and diverse groups of children the same age the way that a school teacher or youth group leader or sports coach does, that it is far harder to notice the extent to which your own children are similar compared to children in general. 

But, the psychological make up of children is not random.  A large component of a child's personality in inherited from that child's parents, and siblings tend to have far more in common with each other than two people their age in the general population.

This week, for fun, I had both of my middle school aged children take a Myers-Briggs personality test, which strikingly proved that point, as I note below the break, after explaining the what the test is and what it purports to measure.  After that I discuss a bit about what we do know about the role of inheritance in personality, and a few other bits of anecdotal evidence that I've acquired as a parent.

25 February 2013

Quote of the Day

[T]he most important things about life are overwhelming.  That may be terrifying, or tragic, but that doesn't make it necessarily bad.  And certainly, not something to run away from.

From "Lucid" by Adrienne Stoltz and Ron Bass (2012).

19 February 2013

SCOTUS Handles Supremely Important Trivialities

One of the never ending fascinating aspects of American law is the not at all intuitive to a layperson process by which the U.S. Supreme Court, the highest court in the land, decides which cases to consider.  The vast majority are trivial in and of themselves, but have immense symbolic importance as they guide so many other cases in the system that they have far greater broad relevance in the principles that they declare.

Today's U.S. Supreme Court rulings

Today wasn't unusual. 

One case decided if a search and seizure of drugs from a pickup truck by a drug sniffing dog used by a non-federal Florida policeman was valid (it was, the unanimous court ruled because no evidence rebutting the dog's reliability was offered by the defendant). 

Another case held that the arrest and search of two men without probable cause when there was a warrant outstanding to search a New York State apartment for a particular handgun.  The officers did not know at the time of the arrests and search had just found a gun and drugs in the apartment the two men had just left when the arrest took place.  The U.S. Supreme Court held that an arrest and search five minutes after the men had left the apartment, and a mile away, was not justified by a doctrine allowing the arrest and search of occupants of a searched premises who are in the immediate vicinity of the premises.  It is possible that the Court of Appeals, on remand, may still find that their arrest and search was valid on other grounds.  Three of the nine judges on the Court dissented, arguing that an arrest which was actually just 0.7 miles away and was made as soon as possible as the men departed should have been valid.

In a third case, the State of Georgia and a federal anti-trust agency sued a hospital district formed under Georgia law for anti-trust violations was not barred by sovereign immunity from anti-trust laws where the statute authorizing the hospital district didn't provide for sovereign immunity from anti-trust laws, even though the Georgia legislature had the power to give it this immunity if it had wished to do so.  As a result, the hospital district will have to win an anti-trust court case against both the state and the federal government before it can purchase the second of two hospitals in a Georgia county.

In a fourth and final case, the U.S. Supreme Court allowed an appeal of an order directing an Arkansas man to return his child to his wife from whom he was getting a divorce to Scotland, pursuant to an international treaty, even though the child was now in Scotland and the wife might have the practical ability to ignore the Arkansas courts if the order was reversed on appeal.  A concurring opinion urged Congress to adopt a better law governing appeals in these kinds of cases.

None of the particular cases was important, in and of itself

None of these cases, in and of themselves, were particularly important. 

But for the fact that the U.S. Supreme Court agreed to decide them, none of these cases would have been particularly notable from the eyes of the trial court judge involved.  Each was a bread and butter ordinary piece of criminal or civil litigation.

Tens of thousands of police drug seizures take place every day and as in almost every Fourth Amendent case, the defendants were in fact in possession of contraband or powerful evidence against them, so their factual guilt was not in doubt.  The empire wil not rise or fall on the outcome of these individual drug possession cases.

It isn't entirely clear why it is necessary for federal law and federal agency resources to be invoked in a dispute over the authority of a local government in a dispute between a local government and a state government, and the ultimate decision regarding who should own one of two county hospitals is only barely a legal question at all.  In the worst case scenario, patients in the county will have to drive half an hour or so to the next county over to find a competing provider (and in an emergency, of course, there is no competition, the closest hospital is always your only choice).  The other irony is that a concern about monpolistic pricing and practices is being raised in a market where the patients aren't told the price until they get their bills anyway.  Any outcome of this case would have left both parties with options going forward.

Civil procedure issues related to child custody disputes are rarely the province of the federal courts, but it is customary that the U.S. Supreme Court get involved when two court systems that don't have authority over each other are involved in parallel litigation over the same child, particular when the case has an international dimension as this one did.  These irreconcilable tangles are still rare enough that intervention at the highest level is feasible when they come up.  Realistically, there is every reason to think that the outcome of the case won't change at all when the appeal that the husband was authorized to continue prosecuting in the state court system is resolved on the merits (probably against him).

Each case had broad legal implications for thousands of other cases

Of course, the U.S. Supreme Court didn't take these cases because they were individually important.  It took the cases to clear up broadly applicable matters of principle and thereby insure accuracy and uniformity in the administration of federal laws or the U.S. Constitution, respectively.

The importance of an individual U.S. Supreme Court usually has far more to do with the bureaucratic issues that it poses for the court system as a whole and the clarification it provides to ambiguous laws than it does with the intrinsic importance of the case itself (although some cases that go to the U.S. Supreme Court are intrinsically important).  Each ruling provides a nudge that guides thousands of other cases.

One case on the scope of occupant searchers, or on the means by which a dog sniff can provide probable cause for a search will each guide hundreds of thousands of law enforcement officers and thousands of appellate court panels at both the state and federal level for decades in probably tens of thousands or hundreds of thousands of cases.

The issue of sovereign immunity for local governments will guide legislative drafting practices in all fifty states and guide federal bureaucrats and judges attempting to determine when federal law applies to local governments in hundreds of thousands of situations every year, most of which will never actually be litigated on the merits before a judge.

The Court's ruling on mootness in the context of dueling assertions of jurisdiction in an international child custody case will have application in all manner of jurisdictional mootness disputes in every manner of case (far beyond international custody cases) for decades and may spur Congress or the State Department to attempt procedural reforms of the international custody case regime.

The mere fact that resources can be found to litigate these issues all of the way to the U.S. Supreme Court in relatively mundane cases involving less than well heeled parties is also a hopeful statement that our system does work.

Bring On The Green

I'm probably being ungrateful.  Two and a half decades of living here is probably not long enough to fully understand Colorado's natural rhythms deep down.

But damn!  Is there anything in this state that isn't that pale, yellowish brown?

This weekend, hiking at Rocky Mountain Arsenal, whatever its called now that there isn't supposed to be any nerve gas left, it was like the Cat in the Hat had painted it all the same color the hour before we arrived, or some giant Labrador peed on the whole world. 

When I look out my window at Cherry Creek, that color is everywhere.  In the itty bitty patches of grass between my downtown parking space and my office - yellowish brown.  It covers the mountains I see out of my office window that should be snow capped this time of year but mostly aren't.

One of my private resolutions over the last half of a year or so has been to bring more color into my life.  I have bright, fresh flowers on my kitchen table, art on my walls at home and at work, a multi-colored heirloom family quilt that my mother made on my bed, and even appliances that can't be accurately depicted on a gray scale screen.  But, this yellow stuff is not helping.

For my druthers, spring can't come soon enough.

18 February 2013

Select U.S. Sexual Orientation Statistics And More

Overview of Statistics on Sexual Orientation

According to a 2005 study by the U.S. Center for Disease Control with a very large sample size and good methodology, the percentage of Americans who are homosexual or bisexual as measured by self-identification, lifetime sexual activity, and last year sexual activity, are considerably higher than conservative estimates of closer to 1% or less.  The percentage is, however, very sensitive to the definitions used as discussed below.  It is also worth recalling that in a nation of more than 300,000,000 people, even a characterization that applies to just 1% of the overall population means that it will apply to more than 3,000,000 people in the United States at some point in their lives.

What percentage of Americans are gay, lesbian or bisexual?

About 1.8% of people in the United States aged 15-44 years old self-identify as exclusively homosexual.  About 4% of people are not attacted mostly or exclusively to members of the opposite sex and about 4.1% self-identify as homosexual or bisexual.  But, 8.7% have had some same sex sexual activity in their lifetimes and more than 9% do not self-identify as exclusively heterosexual.  About 11% are not sexually attracted exclusively to members of the opposite sex.  The high end numbers are close to the often criticized, but often quoted, Kinsey report estimate of 10%.  Women and men are almost equally likely to self-identify as something other than hetrosexual.

Other studies that predate the legalization of same sex marriage have shown that about 95% of white men and women marry at some point in their lifetime.  A significant share of those who never married historically, were probably not heterosexual.

People who remain celibate through the age 40-44 age range are less common by far than people who do not self-identify as heterosexual.  Just 1.8% of men and 1.3% have not had opposite sex sexual activity at that point, and a significant share of them (probably half or more) have had same sex sexual activity at that point in their lives.

But, women are more than twice as likely to report some same sex sexual activity in their lifetimes and within the last twelve months.  Some of this difference, however, reflects a less restrictive definition of same sex sexual activity in questionaires for women than for men. The survey defines same sex sexual activity for men largely as anal or oral sex. While other kinds of kissing or touching might qualify as same sex sexual activity for some responding women.  But, a larger proportion of non-heterosexual women self-describe as bisexual, rather than homosexual. 

Many people are bisexual in self-identification or in practice.

Sexually active women who do not have exclusively opposite sex partners are far more likely to be bisexual in practice than sexually active men who do not have exclusively opposite sex partners. Women who do have exclusively same sex partners are about six times more likely to have been monogamous in the last year than men who do have exclusively same sex partners. 

The percentage of people who identify as bisexual, are sexually attracted to both men and women, or have had sexual partners who are both of the same and the opposite sex are of the same order of magnitude or larger than the percentage of people who identify as exclusively homosexual or who have exclusively same sex partners.  This is something that much of the public discussion and academic literature about sexual orientation (particularly in areas like discrimination, law and politics), particularly among men, does not really reflect.

Incarceration has a surprisingly modest influence on same sex sexual activity for men

The link between having had same sex sexual activity and having been incarcerated is very modest, particularly for black men.

15 February 2013

DPS Makes Dramatic Gains In Student Retention

Graduation rates are up and dropout rates are down in the Denver Public Schools

For the 2006-2007 school year, the four year graduation rate in the Denver Public Schools was 38.7%.  Five years later, for the 2011-2012 school year, this rate had improved by 20.1 percentage points (about 70%) to 58.8%, due to improvements each year since 2006-2007. 

Statewide, the four year graduation rate in Colorado is just under 75% - a rate that DPS matchees at its traditional schools. "Traditional high schools in DPS have a significantly higher on-time graduation rate than alternative schools -- 74% versus 12%."

Some Denver high schools saw particularly large improvements in the last year.
Several schools last year marked gains, including South High School, with a 7.8 percentage point improvement in its graduation rate over the prior year. South now has an on-time graduation rate of 66.6%. In addition, Manual High School's rate improved 7.6 percentage points to 75.6%, West High School improved 8.9 points to 61.9%, Montbello gained 4.6 points to 64.7%, and Thomas Jefferson High School improved 4.3% to an 82.6% on-time graduation rate.  Intensive and Multiple Pathways schools (also referred to as alternative schools) have shown growth in their completion rates - up 3 percentage points to 25%.
In the same period, the Denver Public Schools saw its drop out rate decline dramatically. "That rate fell to 5.7% [in the 2011-2012 school year], a nearly 50% decline compared to the 11.1% dropout rate in the district in 2005-06. . . This decline means nearly 2,000 fewer students are dropping out of DPS today than six years ago."

14 February 2013

The Morning After Pill And More

When I was in college, back in the early 1990s, my partner and I had occasion to use the "morning after pill" after a condom we were using busted.  At the time, it was an off label use of birth control pills that the campus health service at Oberlin actively promoted in the student handbook, with encouragement from the campus sex cooperative which provided contraceptives, sex toys, lubricant, and practical advice for sexually active people (hetrosexual, homosexual and bisexual) at cost.

The morning after pill (also known as "emergency contraception") is simply a high does of birth control pills taken within five days after unprotected sex or a contraceptive failure (preferrably sooner).  The morning after pill reduces the likelihood of getting pregnant by about 83%-89% if taken within 72 hours, and is more effective if taken within the first twelve hours after having sex.  (Incidentally, douching or similar methods to try to remove semen from the vagina immediately after sex without a contraceptive are almost totally ineffective.)

Insertion of a copper intrauterine device (IUD) by a medical provider in roughly the same time period also operates as a form of emergency contraception but is far less commonly used for the purpose.  Both methods were invented in 1975 and these became widespread off label uses of these forms of contraceptions in the 1980s. 

Since then, a great deal has changed.  The British approved the use of oral contraceptives for "morning after" use in 1984.  On label approval of this use of oral contraceptives in the United States came fourteen years later.  "The FDA approved emergency contraceptive pills in 1998 for use up to five days after intercourse." In 2006, the FDA authorized pharmacists to provide emergency contraception without a prescription to women eighteen or older.  Modifications to the FDA initial regulations later in 2006 allowed it to be purchased by men or women, and a court ruling in 2009 extended the availability of the pill to seventeen year old men and women. 

Young women sixteen or younger, however, still need a prescription to get emergency contraception, even though a young woman as young as twelve or thirteen years old (and in some cases even earlier) can get pregnant.

How often is the morning after pill used?

When it was available only with a prescription, in 2002, only 4% of sexually active women had used it.  When it was an off label use of oral contraceptives in 1995, a few years after I had an up close and personal encounter with emergency contraception, only 1% of women had used it.

Since it has been made available without a prescription for most women (although not always actually available at pharmacies, a story that I shared a staff journalism award with my colleagues covering at Colorado Confidential), 11% of sexually active women ages 15-44 have used it, a 275% increase. 

In truth, this understates the impact of making the morning after pill available without prescription, because morning after pill use is much greater among women who have been young ad unmarried since it became available without a prescription in 2006.

12 February 2013

Long Term Unemployment Still High

Short term unemployment has recovered; long term unemployment hasn't.
The rate of short-term unemployment—six months or less—is almost back to normal. In January it was 4.9 percent of the labor force. That’s only 0.7 percentage point above its 2001-07 average.  
But the rate of long-term unemployment, 3 percent in January, is precisely triple its 2001-07 average, according to a Bloomberg Businessweek calculation based on Bureau of Labor Statistics data. (Those two rates—4.9 percent and 3 percent—add up to the overall unemployment rate of 7.9 percent.) A striking statistic: The long-term unemployed make up 38 percent of all workers without jobs, double the average share and just a few notches down from the 2010-11 peak of 45 percent.
From here (see also here).

College graduates are much less likely to be unemployed, however.

The employment recovery has been very slow by historical standards

The big picture graphic, found here is that five full years after peak pre-financial crisis employment, the total number of people employed is still down 2.4% from the peak and has been that low for four full years. 

Three post-war recessions (including the 1990 and 2001 recessions) never had that much of a reduction in employment from the peak at their worst points - although the 2001 recession from which it took four years to return to peak employment was the recession that took the longest time to return to pre-recession peak employment. 

No other post-World War II recession had such greatly reduced employment for even a full year (it was almost this low for more than a year in 1948 and 1981).

Employment levels have been recovering steadily for the past three years from 6.4% below peak (a post-Great Depression record) to 2.4% below peak now, although month to month, the payroll job gains have been somewhat erratic.  But, at the current rate, employment won't have recovered to pre-financial crisis levels until about December of 2014, leaving us with almost seven full years of reduced employment.

This is quite discouraging.  In almost every other post-World War II recession, the employment recovery has been about the same length of time as the period in which employment declined.  In this recovery, it took two years for employment to hit bottom, so we might reasonably have expected employment to have recovered already a year ago.  But, in fact, employment is on track to take five years to return to pre-recession levels.

Young college graduates earn much less but have fairly low unemployment

A possibly related trend is that the average earnings of college graduates aged 25-34 has fallen.  The peak was about $65,000 in 2005 and it has steadily dropped to about $55,000 in 2011, a decline of about 15% for an entire generation's middle class.

What factors drove financial crisis unemployment?

A technical analysis of the employment losses arising due to the financial crisis using econometric methods shows that declining sales (a.k.a. declining aggregate demand), rather than government regulation and taxes (including uncertainty regarding these factors), and a reduced availabity of credit, were virtually irrelevant by comparison.  The decline is consumer spending, in turn, has its source in the housing market collapse and high levels of consumer debt.

This shouldn't be surpising.  But, it is important to pay attention to the empirical data in the course of distinguishing economists who are telling a story that is credible and reality based, from economists who are operating on ideological and theory that have proved to be out of touch with the facts.

The irrelevance of the availability of funds for investment to economic growth at the moment is further corroborated by the remarkable hoards of cash that big business are accumulating and not spending.
According to the Federal Reserve, as of the third quarter of 2012 nonfinancial corporations in the United States held $1.7 trillion of liquid assets – cash and securities that could easily be converted to cash. By any measure, corporate cash holdings appear to be high and rising.

According to the Federal Reserve, nonfinancial corporations historically held liquid assets of 25 to 30 percent of their short-term liabilities. But this percentage began rising in 2001 and now tends to be in the 45 to 50 percent range. In the third quarter of 2012, it was 44.9 percent.
A recent study by Juan Sánchez and Emircan Yurdagul of the Federal Reserve Bank of St. Louis looked at the ratio of cash to assets at all publicly held nonfinancial, non-utility corporations. They found that, historically, such corporations held cash equal to about 6 percent of their assets, but that began rising in 1995 and is now more than 12 percent, as seen below.
Tax incentives are part of the reason that they are hording cash.  Retained earnings are subject to corporate incomes taxes, but not shareholder level taxes on dividends, creating an enduring incentive to hoard cash (that has been magnified since 1986 when changes in the tax law repealed the General Utilities doctrine that provided a way to avoid this result with a tax loophole).  The tax rules for multinational corporations likewise encourage companies to delay repatriating profits from foreign subsidiaries to the United States because this triggers additional U.S. taxes of those profits.

But, much of the cash hoarding is simply fundamental.  Big businesses have failed to identify business opportunties in which it make sense to invest their capital (also here).

Why has the recovery from the financial crisis been so remarkably slow?

Too Little Stimulus Spending and Too Many Government Spending Cuts

One of the key mistakes that was made in responding to the financial crisis from a policy perspective was a resort to austerity measures when increased government stimulus spending would have been more appropriate.  As one economics blog paraphrases the key observations of Federal Reserve Vice Chair Janet Yellen in a research speech:
Even as the Federal government provided some stimulus, state and local governments cut back significant for four consecutive years. And for the last couple of years, we've also seen austerity at the Federal level - and that will probably continue.
It turns out that President Obama is the only President in the period from the Nixon administration to the present under whom there has been a reduction in annualized real, per capita, federal government spending

Despite Republican charactizations of President Obama as a socialist spendthrift, government spending has fallen by more than 0.5% per year, while it increased by more than 2%-2.75% per year under the Republican Presidential administrations of Nixon-Ford, Reagan, Bush I and Bush II.  Government spending grew by about 2% per year under President Carter and by a bit less than 1% per year under President Clinton (both Democrats).  Contrary to conventional wisdom, Democrats grow federal spending much less rapidly than Republicans do, on average.  President Obama's regime has been particularly austere.  This was not good for the econmic recovery after the financial crisis.

The federal budget deficit is falling.

Enduring Income and Inventory Effects Of The Housing Bubble Collapse

Yellen also noted in her speech income effects and the lack of a recovery in residential real estate construction (because the problem in the first place was that too much of it had been built in the housing bubble):
During this recovery . . . residential investment . . . has contributed very little to growth since the recession ended. The reasons are easy to understand, given the central role that housing played in the Great Recession. Following an extended boom in construction driven in large part by overly loose mortgage lending standards and unrealistic expectations for future home price increases, the housing market collapsed--sales and prices plunged and mortgage credit was sharply curtailed. . . . the extraordinary collapse in house prices resulted in a huge loss of household wealth--at last count, net home equity is still down 40 percent, or about $5 trillion, from 2005.
As an aside, hotel occupancy rates have now recovered to almost pre-recession levels.

The Eurozone Crisis

Yellen finally noted the negative impact that the Euro-area recession and sovereign debt crisis has had on the economic recovery in the United States.

Bottom Lines

Stimulus spending mattered; interest rates and the money supply didn't.

My observations of a week ago that government fiscal policy (i.e. stimulus spending) matters to the course of business cycles, but that interest rates and the money supply do not, within reason, still stands.

Employment recovery is slow because many peak employment construction jobs aren't coming back.

On the other hand, I think that a focus entirely on federal government policy as the factor that has made the recovery from the financial crisis so slow is misplaced. 

This recovery has been slow, and the financial crisis was so deep, for reasons that are primarily economic rather than policy driven.  The housing bubble created artificially high levels of employment pre-recession that will not be and should not be restored because those employment levels involved jobs that were devoted to building housing that we didn't need.  Statistically, this shows up in the slow state of the housing market recovery.

The long term job losses in this recession are more like the employment losses associated with the declining employment in the United States manufacturing industry that destroyed jobs that will never come back, than it was like a mere "ordinary" cyclical wave in the business cycle.

An employment recovery to housing bubble peak levels is only going to be possible when vast numbers of construction and real estate industry workers retrain themselves and find new customary occupations in fields where the economy is not sated.

Employment recovery is slow because of a one time wealth reduction and debt paydown

Another factor that may be delaying the restoration of aggregate demand and with it employment may be a permanent deleveraging of the U.S. economy.  The financial crisis hit at a point where the U.S. economy had historically high debts levels.  Since then, consumer and business debt levels have fallen dramaticallly. 

On the consumer side, this is to a great extent due to written off mortgage debt the housing bubble collapse devalued collateral for mortgage loans that the borrowers were either not required to pay or were unable to pay upon foreclosure.  To a lesser extent, other kinds of consumer debts have been written off or have been paid off (in part because tightened credit limits have prevented them from incurring charges to make up for the amounts paid off).

On the business side, risk averse businesses in a weak economic climate have refrained from borrowing for new investment until the prospects for a real economic boom are manifest.

To the extent that the loans have been paid, payment of loan principal is a form of savings in lieu of consumption, weakening demand on a one time basis until the amount of debt in the economy has returned to more normal levels.

The Great Depression compared

A global heuristic is to imagine a normal business cycle as something that pushes down a spring with the weight of bad news, after which the spring bounced back.  But, the spring has a maximum load it can handle.  If pushed too hard, it deforms and loses its spring to some extent. 

The Great Depression and the post-financial crisis Great Recession, can be intepreted as instances when the economy exceeded its breaking point, and thus exceeded the range of circumstances in which it could recover as quickly as it declined.  The economy is only so robust, and we have in these two natural experiments empirically determined its breaking point.

11 February 2013

Civil Unions Bill Moves To Colorado State House

Colorado Senate Bill 13-0011 creating civil unions for same sex couples in Colorado (basically, a domestic partnership with all of the state law legal incidents of marriage other than the name "marriage" which is prohibited by the state constitution of the State of Colorado) was approved by the state senate today.

It now moves to the Democratic Party controlled House of Representatives where it will be assigned to a committee on a first reading, referred back to the full house for a committee of the whole reading where amendments may be offered after passing in committee, and then will face a final vote on passage on the floor of  the state house.  If any amendments to the bill pass in committee or in the committee of the whole, then either the state senate must readopt the version amended by the state house without amendment, or the matter must be referred to a conference committee to work out a version acceptable to both houses.  The most likely outcome is that the state house will pass the bill without further amendment.

Once the bill clears both houses, it will be effective when signed by the Governor who has stated that he will sign the bill.  An almost identical bill had enough votes to pass last session on the final days of the 2012 regular legislative session but failed to become law because the Republican leadership chose to end the session.  The bill was then killed in a gerrymandered committee to which it was referred in a 2012 special session of the Colorado General Assembly was convened by the Governor to address the matters left hanging as a result of the premature ending of the regular session, after the regular session ended.

The bottom line is that sometime in 2013, Colorado will join the ranks of states that have either gay marriage or civil unions.

07 February 2013

Ohio Repealed Its Estate Tax This Year

Ohio repealed its estate tax effective January 1, 2013. (See also here).  Prior to repeal, in 2012, the state level estate tax was 6% on the portion of estates greater than $338,333 but less than $500,000, and 7% on the balance, exclusive of any amount passing to a surviving spouse.  This was not a "pickup tax" of the kind once in effect, in which states were effectively allowed to take a share of federal estate tax collections.  Prior to its repeal, Ohio's estate tax was one of the highest for estates smaller than the federal threshold.

In contrast, in 2012 and 2013 the federal estate tax was imposed on estates over $5,000,000 (plus an inflation adjustment), exclusive of any amount passing to a surviving spouse, at a rate which was 35% in 2012 and is 40% in 2013.  When I started practicing law, the federal estate tax threshold was $600,000. 

In both cases, with proper planning, the amount that can be passed to heirs tax free with only the most minimal of lifetime or testamentary trust arrangements (no longer required in most cases at the federal level), can be roughly doubled for married couples before engaging in any really involved estate planning.

(Of course, it is more complicated than that, but the numbers do reflect a very meaningful difference.)

State Inheritance and Estate Taxes in General

State estate and/or inheritance taxes are found in every Mid-Atlantic and New England state except Vermont.  North Carolina, Tennessee and Kentucky are the only Southern or border states with estate or inheritance taxes.  In the Midwest, Indiana, Illinois, Iowa, Minnesota and Nebraska have them.  In the West, Washington, Oregon and Hawaii have estate taxes.

Details vary.  At both the state and federal levels, inheritance and estate tax rates tend to be on the same order of magnitude as income tax rates for upper middle class to wealthy taxpayers.  State level estate and inheritance taxes frequently impact more estates than the federal estate tax.

The federal estate tax has a quite high threshold of taxation at the moment that excludes from any estate taxation even many multimillion dollar estate of quite affluent upper middle class or even marginally rich decedents, and its current tax rate is quite a bit lower than a top 55% marginal rate with a 60% bubble rate to make up for the benefits of lower rates for much of the early part of my career as a trusts and estates attorney (I also practice in other areas).

An estate tax is formally imposed on the deceased person's assets and collected by the executor.  Whether or not a tax is imposed, and the rate of tax if it is imposed, is typically based on the wealth of the decedent rather than the sized of the inheritance received by an individual.  Estate taxes are usually best views as a tax in lieu of an income tax on heirs consolidated for adminitrative convenience outside the income tax system.  The consolidation of the tax at the decedent's level also makes the decisions someone makes about who to leave their estate to less tax driven (apart from the incentives not to disinherit a surviving spouse). 

Estate taxes also provide a rough justice way to make up for capital gains tax revenues forgone at death by an income tax law that eliminates capital gains taxes on the difference between the purchase price of the asset with certain adjustments and its fair market value on the date of death that would otherwise have had to have been paid by the heirs when the asset was ultimately sold (the rule that applies to lifetime gifts of appreciated assets).

In contrast, an inheritance tax is formally imposed on the person receiving the inheritance.  Inheritance taxes are typically based on how much benefit an individual receives and are lighter on small bequests.  Inheritance taxes also often vary based on the nature of the relationship between the heir and the decedent with closer family typically taxed at lower rates than more distant relations.

Inheritance taxes tend to have much less generous complete exclusions from taxation than estate taxes which tend to focus only on larger estates.  Even Ohio's comparatively very low cutoff prior to 2013 excluded the vast majority of decedent's estate, something that is often not the case with inheritance taxes particularly in the case of an unconventional scheme of distribution to unrelated or distantly related people.  Nebraska, Iowa, Indiana, Kentucky, Tennessee, Pennsylvania, Maryland and New Jersey have inheritance taxes.  Maryland and New Jersey have both estate taxes and inheritance taxes.

Inheritance taxes more close track the tax in lieu of an income tax concept that drives both estate and inheritance taxation, but tend to be viewed as less elegant and more old fashioned approaches from a good government or statutory drafting quality perspective.

Some state estate taxes parallel the federal estate tax and thus require little or no additional planning despite increasing the tax burden on heirs, while many state level estate or inheritance taxes are very different, driving up the costs of compliance in estate planning as two very different sets of rules must be considered simultaneously.

Many states with state inheritance or estate taxes also have more onerous probate court proceedings.

The Invisible Middle Class Estate Tax

Also, every state, or at least almost every state, in order to be eligible for Medicaid funds under federal Medicaid regulations as a result of a 1993 law, has established a Medicaid estate recovery system that seeks to recover Medicaid expenditures (mostly or entirely for nursing home care) from the probate estates of (and via Medicaid liens on real estate during life) from Medicaid beneficiaries.  The basics of the program are summed up in a 2005 white paper.  The current law is basically the same, in broad strokes, as it was in 2005.

According to a 2007 follow up study by the AARP as of that time:
Fifty of the 51 states (including the District of Columbia) have a Medicaid estate recovery program. As of this writing, Michigan had no program, and Georgia was in the process of implementing one. New Mexico reported an inactive program. . . .
Amounts collected through estate recovery represent between 0.01% and 2.09% of total state long-term care Medicaid expenditures, with only six states above 1%. The average proportion has remained constant at 0.61% (FY 2005), compared with 0.63% (FY 2003) two years earlier, as reported in the 2005 study. The amount recovered nationally in FY 2005 was $411,133,981—almost $81 million more than in FY 2003. The average state recovery was $8,061,451, compared with $6,477,206 in FY 2003.
Administrative collection costs to impliment this program have a public sector cost of about 10%-20% of revenues generated.  Of course, this omits the burden this program places on modest income families with fragile elders in nursing homes who subsequently pass with a modest estate in order to plan for and comply with the requirements of the program for hundreds of thousands of families every year.  If the private sector compliance burden is more than even a modest $350 per family, the transaction costs associated with the program are about 50% of the revenue generated.

Some states, however, choose to make collections in these cases a higher priority than others, so in some states the probability that the state will bring recovery claims is a near certainty, while in others, only seemingly egregious cases or just unlikely scapegoats are targeted for recovery actions.

The main battle on this front is between the children of middle class homeowners who receive Medicaid nursing home assistance and have no surviving spouse and Medicaid seeking reimbursement out of the house which was not a disqualifying asset during the receipient's life.  (Medicaid is rarely able to recover from an estate if there is a surviving spouse.)

Retired or nearly retired children who are heirs to a modest middle class house and nothing more are much more likely to lose their inheritance to government coffers than heirs to estates of several million dollars.

The Medicaid estate recovery program affects vastly more people than any federal or state estate tax, produces very modest revenues to state at the cost of high enforcement costs, and drives a lot of legal expenses of middle class and working class families seeking to pass on home equity to their children despite parents who needed nursing home care that they couldn't afford while keeping their homes.

Upper middle class and wealthy families, who typically have long term care insurance and/or significant financial assets, generally don't qualify for Medicaid nursing home coverage and often don't make a serious attempt to engage in the kind of planning that would make it possible to qualify for Medicaid nursing home coverage, because the amounts of money at stake aren't worth the hoops one would have to go through to obtain it. 

This is probably the main reason while the issue isn't a priority for law makers.  Empirically, law makers are very responsive to the concerns of the upper middle class and affluent, but not so attuned to middle class and working class concerns, even if much greater in the number of people affected.  More affluent people are more politically active, contribute to campaigns more often, volunteer more for politicians, are more reliable voters, and are more aware of what their elected officials are doing.  Politics are a luxury that few less affluent people can afford in terms of time and effort, or money for campaign contributions.

UPDATE:  This is a bit stale information from a May 9, 2006 post at this blog but provides some useful specificity by quantifying the issues.  Due to changes in the law since then, far fewer people are subject to federal estate taxes and the revenue generated by them is perhaps half as great.  But, the basic magnitude of the numbers in both cases is similar and the Medicaid nursing home care figures are probably not all that different in 2012 to what they were in 2006.  If anything, more people are subject to its provisions because fewer can afford nursing home care.
There are about 8,000,000 Medicaid nursing home beneficiaries at any given time. About 400,000 estates of Medicaid nursing home beneficiaries face estate recovery actions each year (based on data from Massachusetts on collection rates and national beneficiary numbers, as Massachusetts has 33,000 Medicaid nursing home beneficiaries at any given time and about 1,600 estate recoveries per year).  
In contrast, only 62,000 federal estate tax returns were filed in 2004, of which tax was due on fewer than 30,300. The Medicaid number will be larger, and the estate tax number will be smaller in 2006, due to an aging population increasing Medicaid enrollments, and increased estate tax exemptions reducing estate tax filings, in 2006.  
Yet, the estate recovery program produces far less revenue. Nationwide, the estate recovery program recovers only about $362 million a year, about 1% of the collections of the estate tax and only about 0.8% of Medicaid nursing home spending. The average estate tax return where an estate tax is due produces about $1,000,000 in federal revenues. The average Medicaid estate tax recovery results in about $1,000 of revenue, although the bite is harsher in a significant minority of case that not infrequently result in the loss of homes and farms.
Ending the Medicaid nursing home estate recovery program should be an area where Democrats and Republicans can agree.

Physical Media Still In Decline

* Barnes and Noble, the last major book store chain in the United States, has plans to shut down almost a third of its locations in an effort to staunch the declining profitability of its core dead tree book business and the failure of its Nook entry into the e-book world to replace those profits.
[O]ver the next decade, the chain will reduce its outlets by about twenty a year to reach a figure of about 450-to-500 consumer stores, down from a peak of 726 in 2008. A separate chain of 674 college bookstores (which thrive on tchotchkes and their exclusive franchises) is not part of that calculation. . . .  [Their CEO] disputes the notion that bookstores will be unable to hold their own in the digital era, despite the chain's need to downsize where rents or locations are hurting the prospect of acceptable profitability. Only a handful of the stores--fewer than twenty--are actually losing money, he told the Wall Street Journal's Jeffrey Trachtenberg.
The fact that 97% of its stores are at least breaking even is less impressive when you consider the the demise of most of its competitors has left it with a dominant market share of retail store based dead tree book sales, and that his calculation presumably does not allocate debt incurred at the company-wide level to finance projects like its investment in the Nook to individual stores.

I still like to buy hard copy books and check them out from the library, but there are lots of reading materials that I used to read on paper and now read on a computer screen for both work and pleasure.  I read hundreds of academic journal articles and opinions in court cases a year, but I haven't read more than half a dozen academic journal articles on paper since the early 1990s.  The last time that I read an opinion in a court case out of a book was probably at least a decade ago.

* Colorado Academy, a secular private school in the Denver metropolitan area, is replacing almost all of its dead tree textbooks with tablet computer based electronic media next year.  They've downsized student lockers in their new building as a result.

* Blockbuster consolidated into one chain all but a handful of independent stores into its retail store based movie rental business in the United States, although it does not control kiosks rentals for new DVD releases, DVD rentals by mail and download via Netflix and a few other companies, and DVD sales in a variety of outlets.  Since that consolidation and following a bankruptcy, it has then dramatically trimmed the number of retail locations that it operates itself and has devoted almost no resources to making those locations desirable.  The remaining retail stores (just one in all of Denver) mostly seem to be ways to lure people in to receive Dish TV marketing and liquidate inventory that closed stores didn't manage to shed.  The result is that it is now much harder to get older movies on DVD if they aren't available at a library.

* The United States Post Office announced this week that it will soon be discontinuing Saturday mail delivery to save about $2 billion a year in expenses, despite a lack of clarity on what authorization it must secure to do so.

A few years ago, this seemed like a hardship.  These days, I feel as if I will hardly miss it.  Apart from Christmas cards, bills, and a few magazine subscriptions (none of which are so time urgent that Saturday mail delivery matters), no one gets the mail at the office on Saturdays, and I get very little non-junk mail these days at home.  I correspond regularly with family and all sorts of other people via e-mail and text, but I can't recall the last time I wrote a personal letter on paper that didn't accompany a package.

* It has been quite a few years since I mailed in a tax return or a filed a physical court document (with the exception of one collections action in one small claims court that has since converted to e-filing and a few original Wills).

* Scanned copies of documents transmitted via e-mail have almost entirely superseded the slightly less emphemeral fax machine over the past few years, at least in my world practicing law.  Some industries (like adversising promotion companies) appear to still routinely use faxes, but their ranks are waning.

* The only reasons I use removable media in my computer these days are to install new hardware, to transfer very large volumes of files in litigation, and to access DVDs and CDs that I have checked out from the library.  I have a physical backup hard drive (for some of my data, a cloud based backup for other parts of it, and a LAN server for yet other parts), but use a USB connection or Ethernet connection to hook up my computers to these resources when I am actually using them.


05 February 2013

How Important Is Monetary Policy?

Krugman's Case That Macroeconomic Policy Matters
[I]t’s quite possible for economies to get into a snarl that can be solved by printing more money, or having the government spend more.

I know that this is a conclusion many people hate. They really, really want to believe that bad things must have good causes — that if you are suffering from high unemployment and low output, it must be because there is something deeply wrong, probably the fault of liberals. But what was deeply wrong with the US economy in late 2008 that wasn’t true of the US economy in late 2007? Recessions happen, and any halfway plausible story about how they happen is likely to suggest that non-fundamental government interventions, like printing money, can make things better.

It’s important to emphasize the conditionality here. The haters love to claim that people like me view more demand, more money printing, as the solution to all problems. But of course that’s not true. Aggregate demand won’t solve a problem of low productivity, or inadequate productive capacity, or for that matter extreme inequality due to technology or market power. But it can solve certain problems, which happen to be the problems we have now.
- Paul Krugman (February 4, 2013 post).

Economists Focus Too Much On Monetary Policy And Fiscal Policy

The issue the Krugman presents in the post quoted above goes to the core of the validity of the work done by applied professional economists and their academic counterparts.

I don't disagree that microeconomics has some very solid analytical and quantitative insights that have held up time and time again in the face of tests of their empirical validity.

But, macroeconomists have a far less solid empirically validated track record of making correct consensus predictions, and offering consensus policy prescriptions for a given set of facts that consistently work, despite making up a very large share of all applied professional economists, despite dominating a large share of the academic publications in the field.

In a nutshell professional macroeconomists are inappropriately obsessed with monetary policy and fiscal policy at an aggregate amount level.

Despite the theoretically broad scope of their mandate, in practice, macroeconomists devote a very large share of their efforts to a very small number of big issues: (1) the impact of the money supply of GDP and employment, (2) the impact of government intervention in relation to interest rates on GDP and employment, and (3) the impact of aggregate levels of government spending and aggregate government budget deficits on GDP and employment.

Economists, in real life, are extremely oriented towards the role of government intervention in the financial and investment sectors on the health of the real economy. It is something of an article of faith among them that monetary policy, interest rates and fiscal policy at the grossest level are instrumental to the course of wise management of business cycles in a national economy.

But, this article of faith simply isn't true.

Monetary Policy Is Not Very Important

My general predisposition is to say that two-thirds of that isn't true, that the other third requires more fine tuned analysis to handle sensibly, and that many factors that are critically important to the wise management of business cycles are virtually ignored by mainstream professional economists.

I am deeply skeptical of the proposition that government involvement in managing the aggregate money supply and interest rates is particularly important to the management of business cycles.

These tasks aren't completely irrelevant to the health of the economy.

It is possible to really screw up the economy with unexpected extreme expansions of the money supply (hyperinflation) or unexpected extreme reductions in the money supply (deflation) relative to the size of the GDP. Basically, the value of the dollar is through a highly involved and diffuse process a function of how much money (the aggregate money supply) is chasing how many goods and services (GDP) and unexpected serious price level shocks of either kind are bad in an economy like that of the U.S. whose history of relatively stable monetary policy in recent decades has given rise to transactions in the private sector that aren't well tuned to be adapted to anything other than historically expected fairly steady low levels inflation that are incorporated via interest rates into deals structured in nominal dollars rather than more inflation sensitive benchmarks.

Likewise, government intervention that successfully distort interest rates from the natural inclination of the private market participants, can screw up the economy by leading to inappropriate levels of investment and debt, and can be very costly to maintain while providing few benefits to the economy.

But, it is my contention that within a wide range of "reasonable" choices regarding monetary policy and interest rate interventions, these decisions are merely secondary or tertiary contributors to the course of business cycles, at best. These are the two-thirds of the factors that economists obsess about are vastly overrated in importance.

Fiscal Policy Is Considered In Too Little Detail And Is Useful Mostly To Prevent Economic Resources From Being Underutilized During Recessions

Fiscal policy is another matter. Unlike monetary policy and interest rates, which basically just set units of economic exchange in a way that has slight incidental impacts when the rate of change in prices is unexpected, making these tools basically irrelevant to non-financial sector sourced woes in the economy, fiscal policy involves intervention in the "real economy." Government pays people to generate genuine goods and services that actually do directly impact GDP and employment.

In a nutshell, good fiscal policy, which is to say government spending and tax expenditures that cause goods and services to be produced with idle resources, and cause people who would otherwise not be engaged in gainful work to be working in a way that creates goods and services, clearly is valuable any time that a failure of the private sector entrepreneurs to find worthwhile activities for idle productive resources to be devoted to, is present.

As long as the goods and services that the government pays for have any value, dead weight waste in the economy arising from a failure to but economic factors of production that are available to use have been avoided by this public sector entrepreneurship. Value of those goods and services relative to their price could be lower than it is in private sector economic activity during economic booms. But, almost by definition, during a recession the private sector doesn't have worthwhile ways to employ idle economic resources so some value is better than no value, especially if the goods and services produced are of a kind that won't cut into future private sector production, for example by tying up the relevant resources through the next economic boom.

So, well managed fiscal policy, i.e. government stimulus spending during a recession to address a genuine shortage of aggregate demand does work, although insufficient attention is devoted to what particular kinds of government stimulus spending provide the most value in terms of goods and services produced and people employed for the money spent. The how is often almost as important as the how much, yet professional economists tend to be over focused on the how much question.

What Caused The Great Recession?

Going back to Krugman's question about the relevance of the pillars of macroeconomic policy, "what was deeply wrong with the US economy in late 2008 that wasn’t true of the US economy in late 2007?"

As someone who is focused on the non-fiscal aspects of the macroeconomy, my answer would be that:

1. The housing bubble collapsed.  The collapse was inevitable once a bubble developed.  Bubbles almost always collapse dramatically, rather than gradually wrecking havoc in the process if they are big enough.  The root problems were the factors that allowed the housing bubble to develop.

Macroeconomists should know this as a matter of repeatedly proven empirical fact.  But, they often seem baffled by this reality.

2.  Why was there a housing bubble (which was the real problem that its collapse only made us feel)?

a. The housing bubble was primarily a defect in a particular set of commodity prices in a fairly small number of states that either had de facto non-recourse mortgages pursuant to particular state laws, or derived most of their real estate financing from states that had non-recourse mortgages whose existence led to real estate sector investment policies for investors based on non-recourse state analysis that was applied injudiciously to state without non-recourse lending.  This created a heads I win, tails you lose approach to risk taking by thinly capitalized residential real estate buyers. 

Economists should have sounded the alarm and identify this key source of risk but didn't.  Few economists even after it all fell apart have any sense of how important a factor this was in giving rise to the housing bubble and as a result, the problems caused by the bad incentives this creates remain and could return in the future to cause future housing bubbles.

b. The housing bubble was also facilitated by the availability of inadequately regulated securitized financing sources for which a broken system of complexification and poor disclosure of loan risks which who industries bought into as sufficient via industry group think and self-dealing incentive. In other words, finance professionals developed elaborate ways to finance real estate at rates that did not reflect the real risk by obscuring the risks.  This was basically a case of regulatory capture and its private sector equivalent in securities ratings agencies and due diligence firms. 

Macroeconomists should have been far more concerned about the effectiveness of the functioning of national economic institutions beyond Congress, the OMB, and the Federal Reserve.

c. Another factor was that tax incentives encouraged high risk leverage structures over equity investments and encouraged loosely underwritten second liens to low equity borrowers over better underwritten mortgage insurance policies where firms recognized and more accurately assessed the risks and priced their products appropriately. 

A highly leveraged economy is far less robust than a less leveraged economy, something that macroeconomists should be acutely sensitive to, but were not sufficiently alarmed by in the actual fact.

d. In short, the real estate financing with bad incentives and regulations produced obviously excessive real estate prices that in turn produced bad allocations of resources in the real economy to housing construction that wasn't needed and starved investments that really were needed of funds at the margins. 

Macroeconomists spend to little time connecting the dots to realize that the real villain in most collapsing bubbles that cause huge economic downturns is market failure in the pricing of something that is important in the economy, which leads to a massive misallocation of resources.  It is the misallocation of resources, and not the intermediate mechanism that cause this misallocation, that is the ultimate problem.

e. The price bubble was unsustainable and like all price bubbles, it built up over a much longer period of time than it collapsed.  Basically, we all woke up one day and realized that our economy was stupidly paying people to construct unneeded real estate developments and then stopped doing that all at once.

One of the extremely important concerns in the business cycle which is a uniquely macroeconomic problems that microeconomists largely assume away in their models, is that group think in an industry can have catastrophic consequence for the economy as a whole; overcoming the usual protections that market forces provide in an economy against inappropriate pricing of goods and services.

3. The collapse of the housing bubble in these markets financed via national securities markets and financial institutions produced such huge losses that a financial crisis from overleverage and poor valuation of these financial assets resulted, and these losses together with housing losses, led to a recession as misallocations of resources caused by inappropriately prices real estate and real estate financing investments were corrected when the prices returned to normal. The imbalance was so massive and pervasive that it has had a global impact and a long duration.

Macroeconomists devote too few resources studying what circumstances cause isolated problems in one part of the economy to propagate across the entire economy.

4. The financial collapse and housing bubble bust caused the collapse of aggregate demand which reduced spending and thus caused the Great Recession. 

Aggregate demand is the mechanism by which price bubble collapses led to generalised recessions.  People reduce their spending on goods and services when their wealth declines in a way that seems permanent.

5.  Decline aggregate demand wasn't adequately compensated for by the right kinds of stimulus and was aggravated by inappropriate and counterproductive government austerity programs. So, a failure of entrepreneurs to come up for new uses for economic resources that were misallocated at the wrong prices caused economic resources to be wasted and thus caused GDP to contract and unemployment to rise.

Knowing that aggregate demand shortfalls translate asset price collapses into recessions should led economists to devote more resources to devising "automatic stabilizers."  This is one of the most generalized ways that policy makers can respond to early signs of a recession. An aggregate demand means of translating industry woes to economy-wide woes provides a natural point of genetic intervention akin to prescribing ibuprofin for a fever, regardless of the cause.

A lack of consensus among economists regarding the relative desirability of austerity and fiscal stimulus when the conclusion should be obvious to them did not reflect well on the macroeconomic profession.  Politics triumphed over good empirically based social scientific analysis here, and it continues to do so.

Thus, in 2007 the economy was rotten but the shoe hadn't dropped, and in late 2008 the house of cards based on unsustainable commodity prices and excessively low interest rates for risky real estate investments collapsed.  And, professional economists, collectively, weren't doing the right things to prevent it or address it.

There Was Nothing Wrong With The Parts Of The Macroeconomy Economists Obsess Over

What is the take away point here?

Yes, government produced a horrible disaster in the economy.  Dispropoprtionately, the problems were poor state and local government regulation of the real estate markets in key states, deficient securities market regulation, and poor federal income tax incentive, which acting together created massive systemic risk in the U.S. economy.  These risks were eventually and inevitably realized.

But, none of the core matters that professional economists worry about: the money supply, risk free interest rates in the economy as a whole, or aggregate levels of federal spending and deficits prior to the housing market bust, played meaningful roles in causing the Great Recession. And, neither management of the money supply, nor the risk free interest rates in the economy as a whole, were particularly relevant to getting the U.S. economy out of the Great Recession. This task is nearing its end but is still not completed as we still haven't returned to the pre-collapse, pre-bubble baseline.

If economists had been looking at the right things, instead of the things that they are in the habit of worrying about even though they are rarely important, they could have done us some good.  But, the big problem in the profession of macroeconomics leading up to the Great Recession was that macroeconomists were overwhelmingly focusing on the wrong things and not paying attention to what was really important.

The Fundamental Problems That Caused The Great Recession Solved Themselves, For Now

The fundamental problems that lead to the Great Recession were (1) excessively high pricing of real estate in selected important markets, and (2) excessively inadequate pricing of the returns on the financial investments that financed real estate purchases.   Together these led to a massive misallocation of resources and extremely high levels of leverage in the U.S. economy.  But, through market forces, these fundamental problems solved themselves almost immediately, at least in the short to medium term.  (It isn't clear that the legislative remedies that address the root causes of these problems were adequate.)

The investment of investors in firms contributing most heavily to the problems (real estate finance companies and investor owed investment banks and AIG) were promptly obliterated in a market driven punishment.

New legislation enacted by Congress has partially, although probably not sufficiently, addressed some of the regulatory failures and incentives that brought about the housing bubble and financial crisis that caused the Great Recession. The last mop up operations in the aftermath of these huge losses to enforce the debts created and defaulted upon during the bubble period are in their final stages with just a few years to go.

We Still Need Stimulus Spending Rather Than Austerity Right Now

Krugman notes that "Aggregate demand won’t solve a problem of low productivity, or inadequate productive capacity, or for that matter extreme inequality due to technology or market power."

Stimulus spending can still address inadequate aggregate demand in the economy and fiscal cliff legislation that did the opposite by enforcing austerity measures was probably a case of doing the right thing at the wrong time. But, risk free interest rates and the money supply have never been the problem and thus, not surprisingly are not very relevant to the solution.

But, we have also been dragging our feet another measures that can address inadequate aggregate demand.  For example, liberalizing immigration laws for individuals who can generate aggregate demand in the economy by making positive economic contributions with their intellectual resources and willingness to work, that could address aggregate demand problems in the same ways that stimulus spending does.

Bottom Line: The Economics Profession Hasn't Learned Its Lessons From The Recession

One of my big concerns is that economists, as a profession, still haven't internalized the reality that they spend most of their collective resources paying attention to the wrong problems. 

They continue to obsess over the money supply and risk free interest rates.

They continue to turn a blind eye to far more important issues like how to address herd behavior in financial and commodity markets, how to reduce systemic risk so that our economy can be made more robust, and casting a wide net to identify all economic indicators in the real economy that suggest that something is out of whack and needs to be address before it sows the seeds of the collapse and resulting recession.

Unless macroeconomists can start to develop a much more detailed descriptive understanding of the national and regional regulatory and policy choices that collectively drive the macroeconomy, they are doomed to deny us the value of wise macroeconomic guidance that they claim to be in the business of dispensing.  And, there is little to no indication that the profession is inclined at all to move in this direction.

Reflections On Names

Should you change your name when you marry, as I did (from Willeke to Oh-Willeke)? Should you do what one of my assistants did and take as your last name your birth name, then a space, then your spouse's hyphenated name? I'm curious what my children who share that hypenated name will do. Both my son and my daughter have mentioned the possibility of ditching their hypenated names when (and if) they marry. Their long hyphenated surname and double barrelled Korean middle names were important reasons that we chose short, easy to spell, easy to pronounce, gender unambiguous first names for our children.

who didn't take her husband's name, discusses the issue at the Huffington Post in a column worth reading.

The main downside of a hyphenated name during a stable marriage, is that socially inept computer programmers for large companies and institutions everywhere make it impossible to put a correctly punctuated name in their systems. My name routinely shows up run all together, with an apostrophe (even college graduates often don't know what the word "hyphen" means), or with a space and no puctuation. The article aptly sums up the struggles involved. (Then again, the first time I ordered a business card for my solo practice of law, they got my last name right, but misspelled "Andrew". Since then the same thing has happened at least one other time at a different business card company. Go figure.)

Then again, it is very convenient for everyone in the family, parents and children alike to have the same last name. A hypenated name is more memorable (always a marketing plus), especially for men (although you do have to develop a spiel to explain it to people), and it makes it much easier to get an e-mail address that is your name or to be found in a google search. In my case, moving up in the alphabet from W to O has been delightful. I never knew how bad I had it until I moved up the ranks.

The hard parts are not so much having the name itself, whatever it turns out to be, because you get used to it. It is the transitions - taking it, and, if a relationship ends, thinking about whether or not to keep it. The younger you are when you marry, the easier the initial transition is for you. Keeping a "professional name" isn't an issue when you have not yet established yourself in a profession. But, once you've invested a couple of decades of personal contacts, your children's names, and all of your professional life in a name, the decision is far harder.

Claudia has struggled with her choice mostly because she is thirty, old enough to have established a professional identity, but not so old that she is all that deeply vested in it.  She describes the options:
[T]here are many last name options out there for brides-to-be (exasperating my struggle):
· Happily change last name to husband's name [ed. the Anglo-American common law norm considered to be mandatory by most until relatively recently.]
· Keep maiden name [ed. this is the norm in Spain and Korea]
· Hyphenate both names [ed. this is what my wife and I did when we married.]
· Keep maiden name professionally but change it legally (Katy Perry legally became Mrs. Brand, Jennifer Garner is legally Mrs. Affleck, even Demi Moore legally took Kutcher)[ed. the construction Mrs. Affleck, for example, isn't necessarily incorrect even if the wife retained her maiden name; etiquette diehards would insist that Mrs. Affleck to address the wife of Ben Affleck is a shortened version of "Mrs. Ben Affleck", not "Mrs. Jennifer Affleck."]
· Make maiden name new middle name and take husband's as last name [ed. this is what my mother did.]
· I even met a couple that blended their two names together to create a new married name that they both legally changed theirs too. (This seemed kooky, but good for them for thinking outside the box) [ed. my wife and I considered, but ultimately did not choose the option of selecting an entirely new surname for us. My mother's patriline immigrant ancestor who arrived in his teens before many of his siblings wisely chose a fresh surname when he arrived from Finland, because his birth surname had unfortunate connotations in English (it sounded like a synonym for urine in English when spoken), and then convinced his later arriving family members to adopt the surname he had chosen).]
· Change your last name years into the marriage. Who knew, but you can change your name at any time [ed. in Colorado, the case law provides that you can take a new name at common law simply by being addressed by it without objection on a regular basis, so this can even happen by default without any bureaucratic action.]
· Some men take their wife's last name (rare, but it happens)
One of my first clients after I passed the bar exam was a man who changed his name to his wife's last name and then kept it after they were divorced. In his case, the reason for his choice was that it spoofed efforts to link him to his ample secret police file in the country that they had lived in before the emigrated to the United States.

If any of my female readers are considering the same question, I will not for your edification based on my years of practicing law, that almost every woman who does not have the same surname as her husband will inevitably be addressed as if she had frequently enough that she will sometime give up on trying to correct someone in the interests of etiquette and avoiding fuss, so that her first name and her husband's surname will inevitably become at least an alias for her and will probably even show up in her credit record whether she likes it or not.

It is also worth noting that genuine, automatically inherited surnames themselves are not terribly old. In many places they were not fixed until the 19th century following an interim period in which patronymics, matrinymics, and identifiers based on the particular individual's current customary profession, or geographic location with which he was associated, or individualized identifier (e.g. Pliny the Younger, or Alexander the Great) were the norm. Even now, the royal family of the British Commonwealth has to improvise a surname that fits in the plebian system by using appellations like "Harry Wales" which aren't truly surnames in the conventional sense, because bureaucratic systems other than libraries have a very difficult time coping with naming cultures like theirs (the customary surname to use in these situations traditionally changes at a couple of other points in the life of a British Prince).

For what its worth, the bother of having to understand an entirely separate system of naming for the British royalty is still considerably relaxed from the situation of royalty in Japan and when it had a royal family, in Korea, where there were an entire set of honorifics, pronouns, relationship names, and grammatical structures reserved for members of the royal court.

Also, many places that do have surnames now, such as China, Korea, and most of Latin American, at least, have rather botched the job by having a very small number of surnames (in each case about twenty or so) that belong to a very large share of the popuation. This, of course, defeats the main purpose of a surname, which is making it possible to easily distinguish people with the same first name from each other and truly bollocks things up in Korea where marrying someone with the same surname is usually prohibited in a primative form of incest regulation.  In Spain and Portugal, this issue is sometimes overcome by simply having children inherit multiple surnames from their parents (protocal regarding the order is still required) which are all part of a surname but are separated by spaces rather than hyphens. But, while upper class Latin Americans sometimes follow this practice, in the less illustrious ranks, the practice of assigning a single surname of the father to his children is still the norm.

First names aren't inviolate either.  I know many people who somewhere in their childhoods or young adult years ceased to use the name on their birth certificates in lieu of another name entirely: sometimes a middle name, sometimes a varient version of their original name, sometimes a nickname that sticks (particularly in the case of people with "foreign sounding" names or the same name as one or more of their ancestors), sometimes as a stage name or pen name, sometimes to try on a new identity when living in with a new set of people upon entering college or entering the workforce or the military, sometimes following a religious conversion (for example, the man formerly known as Cat Stevens), or sometimes for other reasons that are simply unfathomable (e.g. the man with the stage name "Prince").

Of course, one could go even further. Someone who takes holy orders in the Roman Catholic church takes an entirely new first name, and changes it again should that person be elevated to be the Pope, a practice also associated with the French foreign legion. Likewise, many Native American cultures had a practice of assigning an entirely new name (in a mononame culture where a name is often a descriptive phrase rather than a pure proper noun) to someone upon coming of age that fits the person that they have become.

The mere fact that the subject of names is so involved is itself symptomatic of the fact that we are still in the "Great Adjustment", a transitional phase of cultural ethnogenesis, rather than an equilibrium point in our society.

An Ill Omen?

This year Valentine's Day is the day after Ash Wednesday, the first day of Lent.  Surely, this doesn't bode well for an already plunging birth rate.

04 February 2013

Is Marriage In Equilibrium?

No one can seriously dispute that the institution of marriage as it operates today, in 2013 in the United States, is materially different than it was in 1813 or 1913 or 1963.  It is also fair to say that there have been long periods in history in which the institution of marriage as it operated in practice, was stable for many centuries, sometimes even despite periods of significant cultural change (although, the popular notion of a "traditional marriage" is far younger than most people who employ the term realize, and marriage as an institution has experienced other historic shifts in the past).

Are we there yet?  Have we now reached a new equilibrium for the institution of marriage (or are we on the verge of this with the global normalization of gay marriage) that has largely assimilated concepts like no fault divorce, birth control and declining lifetime fertility, increased female participation in the paid workforce, increased education for women, reduced needs for housework as a result of changing technologies and economic conditions, shifting religous beliefs, etc.?

Or, do we remain in the throes of a period of rapid change for the institution of marriage?  If so, what changes are left to come?  What problems with the institution as it exists, or other evolving pressures, will drive continuing change in it?  What would have to change in our society and/or the institution to produce a stable modern marriage institution?  Some authors have suggested that female roles have changed dramatically while male roles have changed little since 1963 (for example).  Does this mean that the most of the future changes will involve revised male roles that respond and react to new female roles?

How many genuinely different models of marriage are in existence in the developed world today (e.g. Japanese, Swedish, American middle class sometimes serial monogamous, African-American, Mormon monogamous, Muslim polygamous, "traditional" monogamous, American-European same sex), and are more than one of them viable options for an eventual equilibrium state of the institution of marriage?

What are the "moving parts" that distinguish different models of marriage and the ways in which they function in the larger cultures in which they are embedded?  Is it possible to set out a fairly comprehensive "model space" of potential marriage institutions that isn't just limited to a couple of dimensions?