I See Your Regression and Raise You A Part Time Job

Greg Mankiw wants to see if David Leonhardt's theory holds up.

I wonder if that UWO study has taken into account that lower income students likely have to have a part time job to afford college.

If you read The Millionaire Mind, one of my favorites, you might conclude that the low-income yet brilliant kids would do better if you didn't make it easier for them. The combination of brains, having to work really hard for everything, and knowing how to live frugally is a good formula for ending up wealthy.

Approach Every Financial Product As If They Are Trying To Screw You

I'm probably of slightly above average intelligence, yet I'm still baffled by credit card agreements and insurance contracts. I'm pretty sure that is purposeful and qualifies as "financial innovation". I characterize "financial innovation" as "how can I offer an inferior product, yet still charge you more for it". There are rare exceptions to this definition such as online billpaying and ATMs, but on the whole there is just far too much money in finance and insurance, and far too little of it benefiting anyone but those in finance and insurance.

This is why I'm inclined to believe this:
http://www.tnr.com/blog/jonathan-chait/89068/the-health-care-regulatory-race-the-bottom

For the most part I think "the market" is lazy, especially about things they don't understand. I have no data, but I bet less than 1 in 20 read the fine print of credit card or insurance contracts.

Can You Use Market Forces For Medicare Reform Without Being Cruel?

One the biggest criticisms of Paul Ryan's approach to Medicare is the inadequacy of the vouchers. It is possible to use the "magic of the market" without inadequate vouchers. For instance you could keep Medicare largely the same, but offer higher deductible alternatives. These could be in same form as Medicare with much higher deductibles and co-pays, or a similar regulated plan from the private insurance market. You then give any senior who takes a cheaper alternative a cash payment for the difference.

If a senior qualifies for Medicare but decides to go the higher deductible route, they ration their own care in much the same way they would in Paul Ryan's plan. Then we can use the "magic of the market" without putting health care out of reach of low income seniors.

Fox Entertainment Network

Read the following story at Fox News and tell me what's missing:

http://www.foxnews.com/politics/2011/05/10/obama-urges-congress-pass-immigration-reform/

I see a lot of "Obama said!" and "Republicans fired back!".

What I don't see is any easily locatable figures to say who is right. This is entertainment, not journalism. Just because you give equal time to two false or misleading opinions and say "you decide" doesn't mean you can call it news.

Ok, Now I've Read Keller's Piece

I've read it, and I don't think he's consistent in what he's complaining about. On one hand there's the increased use of tools giving us more brain rotting leisure time. But this:

My father, who was trained in engineering at M.I.T. in the slide-rule era, often lamented the way the pocket calculator, for all its convenience, diminished my generation’s math skills

Is ridiculous. Tools like Matlab have advanced mathematical analysis far past what was achievable in the slide rule days. You know whose math skills suffer? People who never use math anyway. In the meantime they are coming up with incredible things in the arts because they don't have to waste time doing their taxes on a slide rule. The point is people who want to use these conveniences for an incredible, previously unachievable result far outweighs the negative effects of people who use the convenience for more leisure time. He uses the invention of the printing press as the first step in eliminating memorization:

Until the 15th century, people were taught to remember vast quantities of information. Feats of memory that would today qualify you as a freak — the ability to recite entire books — were not unheard of. Then along came the Mark Zuckerberg of his day, Johannes Gutenberg.

Then later he makes this point:

But my inner worrywart wonders whether the new technologies overtaking us may be eroding characteristics that are essentially human: our ability to reflect, our pursuit of meaning, genuine empathy, a sense of community connected by something deeper than snark or political affinity.

Shouldn't the whole Renaissance after the invention of the printing press thing disprove his point? The time when everyone was memorizing stuff and there was a lack of leisure time for arts and invention was called the Dark Ages. The time after the printing press was a great time for reflection and pursuit of meaning. I just verified it on Wikipedia!

Memory Will Matter Less and Less

That's human memory, not computer memory.

Dylan Matthews, writing at Ezra Klein's blog, addresses a complaint by Bill Keller about the lack of need to memorize in an internet age. I haven't read Bill Keller's piece and I generally agree with Mathews that when you look something up you tend to remember it.

But I want to stress that memorizing will increasingly become more pointless, and we will be better for it. It will likely be within my lifetime in fact that constant connection to the internet, beamed directly onto my retina will be possible where my speech and that of those around me is constantly analysed. What becomes most important then, is not someone's ability to remember anything, but their ability to analyze and draw conclusions from that information.

There are plenty of analytical people who have horrible memories. Up until now these people have been left out of professions that require both great memories AND analytical minds such as doctors, lawyers, and pharmacists. In the future, the ability to call up the name of a disease based on a set of test results and symptoms will be accomplished by software instantly in exactly the same way it is called up from memory now. Picture a Terminator-like heads up display that's constantly on, listening to your patient, updating a list of diseases with probabilities in realtime as they describe whats wrong with them.

In the future, only the analysis will matter. Students in math class who know when to apply an equation and can recall it, will be indistinguishable from students who know when to apply the equation only. This is not a bad thing for the simple fact that memorizing takes a lot of time away from more analytical experiences where memorization happens in the more natural manner that Matthews describes.

I keep thinking of scenes in Scrubs where Kelso asks questions on the proper treatment for some obscure disease. Is it really a bad thing if they all know the answer right away just because it's packed in an always on, head mounted computer doohicky?

Is Anyone Fooled by This Argument?

An "argument" I hear often enough that I want to comment on it goes something like this:

"Say I make a million dollars, if the government raises my tax rate by 4% that means I'd be out 40,000. I could hire a person with that money!"

I heard something just like that on Glenn Beck a few months ago. This is of course, ridiculous. This implies that if only the government wouldn't take that 40,000, Glenn would hire someone out of pure charity with the cash. First of all, this ignores that he gets to write off 39% of the cost of employing that person. But the main point is this; if that person wasn't going to make him any more money than it costs to hire them, he wouldn't hire them no matter what the tax rate.

The decision to hire someone is not based on how much money Glenn has, but how much he can expect to make by having that person either a) do something Glenn can do, but he can make far more money doing something else (or enjoy more leisure time), or b) do something Glenn can't do, but can make Glenn more money than he is paying that person.

Where taxes actually factor in is whether the extra money he can make doing a) or b) is worth the effort after taxes. If we're talking about a DIFFERENCE in marginal tax rate between 35% and 39%, the analysis of making this decision is probably pretty similar. Similar enough that it's unlikely to significantly change any of his investment decisions, such as hiring someone.

I'm not advocating a 39% marginal tax rate - I'd rather keep it at 35% and eliminate some deductions to raise the same revenue- but let's be more realistic about the consequences. A 39% tax rate on the rich will slow long term growth by a small amount due to a slightly higher investment disincentive, but is unlikely to cause any kind of massive destruction of the economy.

Murkowski's Got it Exactly Backwards

Senator Murkowski (R-AK) claims the Democrats are "punishing" oil companies for making a profit. The real problem is that the tax code punishes everyone else to give tax breaks to a small group of companies. Here's how it works:

A government needs a revenue amount, say 20% of GDP. To arrive at this figure, the most efficient method would be to set a flat tax on everyone such that they arrive at 20% of GDP. If Congress decides to give a break to say, oil companies, and want to keep 20% of GDP in revenue, then everyone else's taxes necessarily go up. Not only that; we have artificially lowered oil prices while raising the price of any viable alternative. So really, it is Republicans who are punishing everyone else except the oil companies.

This is a clear cut case of Congress being able to stop "picking winners and losers", which happens to be a Republican mantra I wish they would stick to; even when it applies to their base.

When is a Mandate Not Really A Mandate

Tyler Cowen frames the PPACA mandate as "forcing you" to buy insurance. Let's recall that the "mandate" is a tax penalty, around 700 bucks if I remember correctly - a number a lot of people feel is far too small to be an effective mandate. It's equivalent to raising taxes by 700 bucks a person and then offering a $700 tax credit if you buy insurance - insurance that will likely run you way more than 700 bucks, even after subsidies.

I've said this before, but I'll repeat it. If the end result of the health care mandate is that you pay more tax if you refuse to get health insurance, it does not make it a giant intrusion of government into your life if the deduction for mortgage interest is not. They are both exactly the same end result!

So, just because it is named a "mandate" doesn't actually mean it is one. If you do not feel compelled to have a mortgage again when your house is paid off, then you similarly are not actually compelled to buy overpriced health insurance just because you'll pay more tax than if you didn't. I would never re-mortage my house, throwing away money to the bank, solely to keep the tax deduction. It's the same "bribe me with my own money" any deduction is.

The real problem with the PPACA "mandate" is that it's not mandaty enough. And that the word used to describe the mechanism to reduce free riders has a nastier connotation than its limited function.

Goosewinkle Thinks His Vote Matters

Goosewinkle is saddened by the U.K's decision to keep first past the post voting. I guess he hasn't read the Freakonomics piece on why your vote does not matter anyway.
For anyone sick of Republicans and Democrats and feeling like you're locked into voting for the lesser of two evils this is great news! Vote third party, the chances are astronomically small your vote will be the one that makes the "bad guy" win.

Why Doesn't Paul Ryan's Plan Go Into Specifics On Taxes

Paul Ryan's plan specifies he will have 19% of GDP in tax revenue. Currently taxes are in the vicinity of 16.5% of GDP. The wording of Grover Norquist's tax pledge, which most GOP freshmen have signed says they will not raise taxes, and they must match, dollar for dollar, any reduction of tax expenditures with rate reductions. This means that Paul Ryan's tax plan does not actually jive with Norquist's tax pledge.

The other reason is that Ryan would like to avoid saying that if the top rate is coming down so much, a large section of the middle class will see their taxes raised. I'm actually o.k. with this - as the writer at theglitteringeye.com is fond of saying "if it's worth doing, it's worth paying for"- but it seems to me to be deliberately misleading on Ryan's part.