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Gross debt hit 101 percent of GDP at the end of 2013, the highest since the immediate postwar years. And despite the improved outlook for the next few years, the Congressional Budget Office has consistently argued that, in the long term, debt will continue to grow relative to GDP, leaving elected officials with the difficult tasks of raising taxes and cutting benefits. Noting that both of these options are things that elected officials are loathe to contemplate, some suggest that a third option is far more likely: the Fed will use expansionary monetary policy to produce inflation as a means of lowering the real debt over time. In an interesting new analysis, Ricardo Reis, Jens Hilscher, and Alon Raviv (VoxEU) conclude that there is really no way to inflate our way to fiscal stability:

One way or another, budget constraints will always hold. This is true as much for a household or a firm as it is for the central bank or the government as a whole. If the US government is to pay its debt, then it must either raise fiscal surpluses or hope for higher economic growth; the former is painful and the latter is hard to depend on. It is therefore tempting to yield to the mystique of central banking and believe in a seemingly feasible and reliable alternative: expansionary monetary policy and higher inflation.Crunching through the numbers we find that this alternative is not really there.

Bottom line: there is no easy way out of debt. If the analysis is correct, this only leaves us with difficult choices—precisely the kinds of choices that we seem incapable of making.

UK Labour MP and former Chancellor of the Exchequer Alistair Darling and Scottish First Minister and Scottish National Party MSP Alex Salmond last night debated independence for Scotland as part of the campaign leading up to a referendum on September 18. While the “Yes” camp remains slightly behind in the polls, they have been catching over the past several months, and it is likely that the vote itself will be close.

Watch the debate here. It features many themes common to debates over secession in the Western world: risk and uncertainty, self-determination, ideological distinctiveness of the secessionist region, and economic costs and benefits of independence. It’s a sparkling and entertaining debate; Mike Smithson of politicalbetting.com called it “by far the best TV debate there’s been in the UK.”

Thomas Edsall:

Covering Baltimore politics some 45 years ago, I was struck by how newly empowered ethnic groups used political power to acquire economic power, often dodging city laws and rules to benefit favored constituencies with city contracts, engineering and architectural awards, bond counsel, and so forth. These deals made headlines. But there was a degree of ambiguity to this so-called corrupt activity – it might even be called “good” corruption, which it famously was by George Washington Plunkitt, the turn of the century Tammany Hall enthusiast who coined the phrase “honest graft.” Politicians representing ascendant ethnic constituencies skirted legal and regulatory systems purposely designed by powerful entrenched interests to block emerging competitors.

Johnson, Ruger, Sorens, and Yamarik:

We use data on corruption convictions and economic growth between 1975 and 2007 across the U.S. states to test this hypothesis. Although no state approaches the level of government intervention found in many developing countries, we still find evidence for the “weak” form of the grease-the-wheels hypothesis. While corruption is never good for growth, its harmful effects are smaller instates with more regulation.

Note: I still think the earmark ban is a good thing.

Jason Sorens:

Via Eric Crampton:

Originally posted on orgtheory.net:

A recent article in the Journal of Economic Perspectives reports a recent attempt to curb grade inflation. High GPA departments at Wellesley College were required to cap high grades. The abstract:

Average grades in colleges and universities have risen markedly since the 1960s. Critics express concern that grade inflation erodes incentives for students to learn; gives students, employers, and graduate schools poor information on absolute and relative abilities; and reflects the quid pro quo of grades for better student evaluations of professors. This paper evaluates an anti-grade-inflation policy that capped most course averages at a B+. The cap was biding for high-grading departments (in the humanities and social sciences) and was not binding for low-grading departments (in economics and sciences), facilitating a difference-in-differences analysis. Professors complied with the policy by reducing compression at the top of the grade distribution. It had little effect on receipt of top honors, but affected…

View original 148 more words

Marin Cogan has an interesting piece entitled “Gay and Pro-Gun” (National Journal) on the growing support for the gun rights in the GLBT community. As you might guess, GLBT gun advocates have a difficult time finding a home in either of the two parties. For some, this leads to a political conversion:

Locating candidates to support within the two-party system, when one side champions gay marriage and the other gun rights, is hard. [Marc] Whittemore used to run ObamaLA, an organization he said had 2,500 volunteers at one point. But once he started paying closer attention to Ron Paul, he underwent a political conversion and quit the group.

Much of the article focuses on Pink Pistols, a national organization “dedicated to the legal, safe, and responsible use of firearms for self-defense of the sexual-minority community.” In the words of Pink Pistols’ Gwen Patton:

“Rather than saying, ‘We’re here, we’re queer, we’re in your face,’ our thing is, ‘We’re queer, yeah, that’s fine, look at the ways we’re similar rather than that one way we’re different. But if you absolutely can’t bring yourself to do that, we’re going to ask you very forcefully not to try to harm us.’ “

If you want to learn more about Pink Pistols, read the Pink Pistols Utility Manual by Patton.

“Pink Pistols” was named after an article by that name written by Jonathan Rauch in Salon (for a more recent piece by Rauch, see “The Right Kind of Gun Rights” at Reason and watch an interview at the Atlantic). The article also briefly discusses Tom Palmer (Cato) who has also been an advocate of gun ownership, drawing on his own experience of using a weapon to deter an antigay mob. Palmer was involved in District of Columbia v. Heller (2008), which struck down the D.C. handgun ban and was lead plaintiff in Palmer v. District of Columbia (2014), which ruled that the prohibition on carrying handguns outside the home was unconstitutional. For more on Palmer’s Second Amendment advocacy see David Weigel, “Meet the Libertarians Who Keep Beating D.C.’s Gun Laws in Court” (at Slate) and the embedded video.

Marc blogged the other day about the New York Times editorial board’s endorsement of repealing federal marijuana prohibition, just months after having rejected that step. Now, this isn’t quite the same as endorsing marijuana legalization – just returning it to the states – but it is a significant step nonetheless. Still, they are well behind the rest of the country. An absolute majority of Americans favor legalizing, taxing, and regulating marijuana more or less like alcohol. Liberal Democrats are overwhelmingly in favor.

Fivethirtyeight recently showed how out-of-step the New York Times is by comparing their position to that of representative Americans with a similar demographic profile. Money quote:

[P]eople with this demographic profile are somewhere around 25 or 30 percentage points more supportive of marijuana legalization than the average American. That implies that back in 2000, when only about 30 percent of Americans supported legalization, perhaps 55 or 60 percent of these people did. The margin of error on this estimate is fairly high — about 10 percent — but not enough to call into question that most people like those on the Times’ editorial board have privately supported legalization for a long time. The question is why it took them so long to take such a stance publicly.

The political class everywhere, regardless of left-right ideology, has been vastly more opposed to marijuana legalization than equivalent Americans. Here in New Hampshire, Democratic governor Maggie Hassan has not only opposed and promised to veto recreational marijuana legalization, she has also opposed and threatened to veto marijuana decriminalization and even allowing terminally ill patients to grow their own medical marijuana plants. Her spineless copartisans in the state senate have gone meekly along. And is anyone really surprised that government bootlicker David Brooks opposes legalization? It’s no accident that the only two states to legalize recreational marijuana so far have been states with the popular ballot initiative. It’s also no accident that medical marijuana started in states with the popular ballot initiative. The people have had to go around the controllers and neurotics in office.

Now the Brookings Institution has come out with a study of marijuana legalization in Colorado. Their quick synopsis? Continue Reading »

Market failure is often cited as a justification for policy intervention. However, one always faces the possibility that the costs of government failure may be greater than the costs of market failure. In the end, there must be a weighing of the costs and the benefits of policy. We witnessed a great example of government failure in the rollout of the Affordable Care Act, as the Obama administration responded to failures in the health care market by trying to create a “federally facilitated marketplace” (FFM). Yes, that is the term and, yes, it has an acronym.

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Today the Government Accountability Office released its report on Healthcare.gov (available here). As you might guess, the development of the website and supporting systems for the FFM were not cheap:

As of March 2014, CMS [Centers for Medicare & Medicaid Services] reported obligating $840 million for the development of Healthcare.gov and its supporting systems, over 88 percent of the federal total [$946 million].

The $150 million in cost overruns and the poor performance more generally stemmed, in part, from administrative problems in overseeing the development of a high complex system:

CMS undertook the development of Healthcare.gov and its related systems without effective planning or oversight practices, despite facing a number of challenges that increased both the level of risk and the need for oversight….CMS incurred significant cost increases, schedule slips, and delayed system functionality for the FFM and data hub systems due primarily to changing requirements that were exacerbated by oversight gaps. From September 2011 to February 2014, FFM obligations increased from $56 million to more than $209 million. Similarly, data hub obligations increased from $30 million to nearly $85 million. Because of unclear guidance and inconsistent oversight, there was confusion about who had the authority to approve contractor requests to expend funds for additional work. New requirements and changing CMS decisions also led to delays and wasted contractor efforts. Moreover, CMS delayed key governance reviews, moving an assessment of FFM readiness from March to September 2013—just weeks before the launch—and did not receive required approvals. As a result, CMS launched Healthcare.gov without verification that it met performance requirements.

The GAO report was prepared for a House Energy and Commerce Committee hearing on July 30th. According to the National Journal, “Rep. Fred Upton, the chairman of the Energy and Commerce Committee, noted that key pieces of the HealthCare.gov system—including the part that pays insurance companies—still haven’t been built.”

One can only guess that the final bill will greatly exceed anything anyone would have anticipated. And these are simply the costs of setting up the ACA Rube Goldberg machine. We have yet to see if it will work.

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