Archive for December, 2012

Last year, the Pileus bloggers made some forecasts about 2012. How did we do? Here are my predictions:

1. “Sudan and South Sudan will go to war. Both countries will also experience internal armed conflicts with at least 25 battle deaths.” Sudan and South Sudan fought a brief war in March and April of 2012. Fortunately, the war was short, and the conflict has been partially resolved. I have not been able to find a source for fatality estimates for the internal conflicts in Sudan and South Sudan, but it seems likely that over 25 battle deaths occurred in both countries.

2. “Syria will experience a high-intensity civil war with at least 1000 battle deaths.” Unfortunately, this also came true.

3. “The intersectarian Iraqi coalition government will collapse and eventually give way to a Shi’a-dominated coalition.” Bzzt. Despite tensions, the coalition survived the year.

4. “Massive ECB intervention will continue to keep the Eurozone on life support, but this policy will become increasingly unsustainable as time passes. No country will leave the Eurozone in 2012.” Not a terribly bold prediction, but it held true.

5. “Romney will probably win the Republican nomination; Obama will probably win re-election; Republicans should narrowly win majorities in both houses of Congress; Republicans should win control of all four branches of government in New Hampshire (yes, four: the Executive Council
is really a branch unto itself).” I was right about Romney and Obama, but wrong about the U.S. Senate and three of the four branches of N.H. government.

Call it 3.5 out of 5?

Here are some calls for 2013:

1. Bashar al-Assad will no longer be in power in Syria at the end of 2013. However, the civil war will continue.

2. U.S. troops will not be sent to Mali.

3. The PPACA will suffer another flesh wound when Oklahoma wins its case against the federal exchange subsidies.

4. The sequester will not occur.

5. Scott Brown will win back a seat in the U.S. Senate in a special election.

6. An assault weapons ban will not pass the House.

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The Prologue

The protracted negotiations over the fiscal cliff suggest how difficult things will actually become once we begin to address the simple fact that existing entitlements cannot continue to exist in their current form.

The one significant reform that was proposed earlier by President Obama during his discussions with the Speaker involved using the chained CPI rather than the CPI-W to calculate the cost of living adjustment for future Social Security benefits. This change would reduce the rate at which benefits would increase in the future.  This would not solve Social Security’s problems, but it would be a movement in the right direction. There are better options in my opinion (including progressive indexing that would retain the CPI-W for low wage workers, adopt the CPI for high wage workers, and blend the two for those who fall in the middle). But adopting the chained CPI would be more palatable than other options (e.g., raising the retirement age could have devastating consequences for African American males, who have a shorter life expectancy).

But none of this matters at this juncture, since the political response was precisely what one might have anticipated. Reportedly, Senator McConnell, at one point willing to trade higher taxes for the changes in Social Security, has now taken it off the table. Democrats rejected the proposal and the majority of the GOP caucus in the Senate supported excluding it from any deal on the fiscal cliff. The GOP may find tax increases abhorrent, but the largest entitlement programs—unlike taxes—remain politically untouchable.

The Obama administration, the House, and the Senate clearly understand (or should understand) three things: (1) the largest entitlement programs are both unsustainable and the drivers of long-term fiscal instability; (2) reform is inevitable; (3) the sooner reforms occur, the less pain will be imposed on taxpayers and beneficiaries. If they don’t understand these things, they should simply turn to the reports by the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (currently chaired by Treasure Secretary Geithner and including HHS Secretary Sebelius and Labor Secretary Solis).

From the 2012 report’s overview:

“The dollar level of the combined trust funds declines beginning in 2021 until assets are exhausted in 2033. Considered separately, the DI Trust Fund becomes exhausted in 2016 and the OASI Trust Fund becomes exhausted in 2035.”

The projected unfunded liabilities have grown considerably in the past few years:

“The open group unfunded obligation for OASDI over the 75-year period is $8.6 trillion in present value and is $2.1 trillion more than the measured level of a year ago.”

Of course, there are many options for reform identified by the Trustees, including increases in the payroll tax (from 12.4% to 15.01%), reduction in benefits “equivalent to an immediate and permanent reduction of 16.2 percent,” or a decision to draw on general revenues. This last option is not a real option given the magnitude of our deficits and debt.

Medicare, which is projected to grow from 3.7 percent GDP (2011) to 5.7 percent of GDP (2035) is even more of a challenge. According to the Trustees:

“The Medicare HI Trust Fund faces depletion earlier than the combined Social Security Trust Funds, though not as soon as the Disability Insurance Trust Fund when separately considered.”

“The drawdown of Social Security and HI trust fund reserves and the general revenue transfers into SMI will result in mounting pressure on the Federal budget. In fact, pressure is already evident. For the sixth consecutive year, the Social Security Act requires that the Trustees issue a “Medicare funding warning” because projected non-dedicated sources of revenues—primarily general revenues—are expected to continue to account for more than 45 percent of Medicare’s outlays, a threshold breached for the first time in fiscal year 2010.”

The Trustees strongly support immediate action:

“Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare. If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.”

One wishes that the Obama administration and Congress had used the self-imposed fiscal cliff as a window of opportunity to address the unsustainability of our long-term entitlements. There were some early indications that they were moving in this direction. But short-term incentives prevailed. Is anyone surprised?

In the next few days (or at most, the next few weeks), Congress will find a fix for the fiscal cliff without addressing the long-term drivers of our fiscal problems. At best, the drama of the past few weeks will be little more than a prologue to the far more significant battles in the future.

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Quite often feminist critiques of popular culture are insightful, but sometimes they are simply insufferable.

The latter description is apt when describing the comments of Princeton theater professor Stacy Wolf regarding the musical Les Miserables.  I happened to see the new cinematic depiction of the popular musical this past week and was moved, as I always am, by this magnificent work.  The story of the saintly Jean Valjean is inspiring on many levels. And the female characters in the musical are as strong and compelling as the male characters, though the story is mostly about Valjean’s redemption.

Wolf, on the other hand, sees “outdated gender roles” and “old stereotypes.”  In her view, “the female characters are there only for the men to save, pity or forget…They don’t actually do anything.  Instead, they emote, propelling others to action.”

So, in Wolf’s eyes, sacrificing oneself for one’s child, as Fantine does, is just “window dressing” and not really “doing” anything.  And poor Eponine, who bravely fights and dies alongside her fellow revolutionaries, isn’t actually doing anything, either, I guess.  This is feminism? Given the world in which they lived and the constraints they faced, are not their actions incredibly heroic and laudable?  Wouldn’t any reasonable person—a category that academic feminists apparently do not belong to—see them as true heroines, as great as any in literature, historical or modern?

Consider the following from Professor Wolf:

The female stereotypes in “Les Miz” are deeply embedded in our culture — the mother who sacrifices herself to the death, the two women who love the same man, and the woman who desires a man in a different class. These characters are readily available, always recognizable and appealing in their familiarity.

Two points are crucial here.  First, are not the fathers who sacrifice to the death for their children, or two men who love the same woman, or the man who desires a woman of a different class, also stereotypical in our culture?  Is Wolf’s vision so obstructed by her feminist blinders that she fails to see these types among men as well?  True, the primary protagonist and antagonist in this particular story are male, but any honest critique sees heroes and villains among both genders here.  These stereotypes Wolf mentions are no more female than male.

Second, even if they were female stereotypes, do they deserve this derision?  Fantine was so desperate that she was driven into prostitution.  Wolf writes off Fantine as a “hooker with a heart of gold,” as if she were merely a 19th century version of Julia Roberts in Pretty Woman.  In reality, Fantine does everything she can to avoid this fate.  There is no romance or charm about it.  It is hideous.  And Fantine realizes this more than anyone.  Wolf, though, does not seem to get it.

A value of feminist criticism, it seems to me, is to point out how traditional roles than women have played—sometimes by choice, sometimes by force—have tremendous social value and that that value is often negated and diminished by a male-dominated world.   To value women’s work and women’s choices is not to condone the oppressive social structures that shape that work or that constrain the choices women may have in a given society.  Wolf diminishes women far more than Cameron Mackintosh ever has.

Fantine sacrifices her body, soul and, life for the benefit of her child.  Her choices were dreadful because her options were dreadful.  Many mothers and fathers would be willing to make such a sacrifice, and Valjean makes tremendous sacrifices of his own on behalf of Cosette, his adopted daughter, and would clearly give his life for her.  But to the extent that such self-sacrifice is more typical of mothers than fathers, isn’t this something that women deserve praise and credit for, rather than the contempt that Wolf heaps upon them? That Wolf sees Fantine as someone who doesn’t do anything but provide window dressing is a stunning commentary on the morally bankrupt state of academic feminism.  No one in the story, including Valjean, does anything more noble or more worthy of respect than what Fantine does.  And this isn’t because she is a woman playing a stereotypical role.  It is because she is a strong woman making a terrible sacrifice. Wolf’s dismissive attitude towards her (and, it bears mentioning, towards Eponine) is hardly better than that shown to the prostitutes by their unfeeling clients.

Wolf closes her piece by identifying characters from modern pop culture that are apparently worthy of her respect.  Almost unbelievably, these include the trashy characters in the film Bridesmaids, who “dare to be outrageous, funny, and obscene…These women are strong, clever and, yes, vulnerable,” according to Wolf.  So, this is the strange, feminist universe that Wolf resides in. Just because female characters can now debase themselves in the latest self-indulgent vulgarity from Judd Apatow equally as well as the male characters, we consider them “brave?”  Amazing.

I know very little of 19th century French political history and have no idea whether I would have admired the real-life versions of the revolutionaries portrayed in the musical.  But I don’t really care about that.  The fictional story is about fighting for a better world where neither men nor women face the type of misery depicted in the story.  If those revolutionaries had been able to see the brave new world envisioned by Wolf, one wonders if they might not have bothered.

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From a recent Wall Street Journal article:

Bruce H. Lee, president of a real-estate company, and his wife, a schoolteacher, together earn more than $250,000 a year. Their accountant told them to prepare for higher taxes on their capital gains and dividends as well as a possible rate increase.

Mr. Lee lives in Kensington, Md., a Washington suburb, and said his income doesn’t stretch very far in a major metropolitan area. He doesn’t enjoy the perks of a superrich lifestyle, such as a vacation home. He is prepared to cut back on discretionary spending, mainly vacations and eating out, when his tax bill goes up.

“Why they’ve singled out this $250,000 number is beyond me,” he said. “I feel like it’s an attack on the middle class.”

Bruce Lee certainly may “feel” like it’s an attack on the middle class but let’s go to the numbers.  Median household income in the United States in 2011 (the most recent year reported by the US Census Bureau) was $50,054.  So, the Lee’s earn at least 5X what the median household does.  But that doesn’t provide the killer blow to Lee’s “feeling.”  This, from the Congressional Research Service, does:

Of the 121,084,000 households with income in 2011, only 2.3% had incomes of at least $250,000.

Of course, as that CRS report points out, “there is no official government definition of who belongs to the middle class, and the terms means different things to different people.”  However, it is absolutely absurd to imagine that someone in the top 2.3% is “middle class” – at least in terms of earnings (more on this below).    And this is even borne out by a VERY generous conclusion from income data married to social class identification surveys.  As the CRS report concludes, doing so yields the following conclusion: “the middle class may refer to households with income levels in 2011 that ranged from $38,521 (the bottom of the middle quintile, 20%, of households) and extended into the top quintile (households with income of $101,583 or more)—perhaps including households with incomes somewhat over $200,000.”  Here is the distribution of annual household income based on 2010 estimates:


Now one (perhaps Prof. David Henderson of the Naval Postgraduate School given what he’s written before on income vs. wealth) might insist that it is hard to know if Mr. Lee isn’t really in the middle class given that income can fluctuate and household income figures don’t take into account actual wealth.  Moreover, one could argue that blunt household income doesn’t take into account the cost of living where one lives.  Let me take these on one at a time.

In terms of the first, Henderson and others have a point.  If I’m a below average football player and make the league minimum ($390,000/year for a rookie), I could make a lot this year but then see a rapid decline in income for the rest of my career should I be cut from the team after one year.  It is unlikely that the one year high salary would matter too much to my lifelong wealth depending on what I did with it.  However, in the case of Mr. Lee and many others, the high income is likely to be the product of high human capital that will continue to see high returns on investment for some time (assuming that capital doesn’t become obsolete due to creative destruction, et al).  My guess is that Mr. Lee has had a high income for a long time and will continue to do so.  This year over year advantage over the median household will only make his relative position better.  Thus he is probably not only high income but wealthy (or soon to be so) – and thus hardly middle class.  Or – if he’s spent a lot of that high income – he’s not middle class in terms of past consumption.  This should not be forgotten when looking at classes, since it is hard to believe that the family who makes 50K a year with savings of 10K and expenses of 40K (including taxes) is in the same class as the family that makes 250K a year with savings of 10K and expenses of 240K (including admittedly higher taxes) even though their wealth will technically be the same (assuming those consumption goods aren’t real capital).  The latter family has probably taken winter trips to Vail, summer trips to Montana, and consumed a heck of a lot more on things that the first family can’t afford (like the SAT prep courses, technology, and other things for the kids).

In terms of the geographic cost of living issue, this is also a bit of a red herring.  While Mr. Lee certainly has to spend more on basic things like housing than someone in Topeka, Kansas, he probably gets a lot of consumption value for that extra cost.  He is closer to a lot more high paying jobs, the school system is probably better than many others around the country, and he is close to a lot of amenities.  This is why the house costs so much in the first place — it is highly desired by others!  But even worse in terms of relative gains, Mr. Lee can use his relatively high salary to buy a relatively expensive house — in Kensington, MD, the average sales price is $515,000 according to Trulia — and live in it until he decides to move or retire.  At that point, he can take the product of his high salary  – which is partly a product of geography too – that he has captured in his house and move to a lower cost of living area and live like an absolute king.  Again, this is not what the truly middle class can do.

So rather than feeling too glum about the attack on the Middle Class, Mr. Lee ought to feel great that he’s f&^king rich among the highest income earners in the US.  Congratulations!  Assuming he is providing value to his clients and isn’t involved in rent-seeking (or the beneficiary of rent-seeking behavior), he should be very proud of himself.  Of course, it is a shame that the government is trying to tax his productive behavior so highly.  And I feel glum that the government not only attacks creators of real value but enriches the parasites that have grown up around government.  But let’s not allow our “feelings” to cloud our thinking about whether we are really part of the middle class!

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The fiscal cliff debates seem to be at a standstill as we approach the end of the year.  On the spending side, the proposal to change the indexing for Social Security seems to be quite positive. The use of the CPI-W has fueled growth in the real value of benefits and the substitution of a more realistic measure of inflation (or some kind of progressive indexing) is a change that could make a significant difference over time.  Republicans are likely correct in their dissatisfaction with tax increases today in exchange for significant cuts in the future since no Congress can effectively bind the hands of a future Congress.

The tax side is particularly interesting, and I wonder if the GOP understands what a victory any agreement would be that made the Bush tax cuts permanent for the vast majority of the population. Regardless of whether the taxes increase for households making $250k, $400k or some other number, the overwhelming fact is that the significant tax cuts introduced under George W. Bush are likely to become permanent. For the GOP, this is no less a victory than the 1996 elimination of AFDC, which essentially consolidated many of the reform efforts of the past 15 years.

Zachary Goldfarb (Washington Post) has an interesting article reinforcing this position. A few excerpts:

R. Glenn Hubbard, dean of the Columbia Business School and an architect of the Bush tax cuts, said it is “deeply ironic” for Democrats to favor extending most of them, given what he called their “visceral” opposition a decade ago. Keeping the lower rates even for income under $250,000 “would enshrine the vast bulk of the Bush tax cuts,” he said.

And, due to the progressivity of the US tax system, even the wealthy would continue to reap benefits when compared with the expiration of the tax cuts when taken as a whole.

The first $250,000 earned by even the wealthiest families is subject to lower rates. For this reason, Obama noted last month that under his proposal, “every American, including the wealthiest Americans, gets a tax cut.”

For instance, an individual taxpayer earning between $200,000 and $500,000 a year would pay an average of $515 more in taxes next year if the Bush tax cuts for the wealthy expire, according to the nonpartisan Tax Policy Center. But if all the Bush tax cuts were to vanish and the rich had to pay higher rates on all their income, their tax bills would shoot up by an average of $6,000. The very richest — the top 1 percent of earners — would pay much higher taxes if solely the upper-income tax cuts expire, because the savings from extending the rest of the rates would be relatively negligible.

Bottom line: regardless of where you draw the line on taxes for upper income earners, the proposed deal on the fiscal cliff locks in the Bush tax cuts—a clear victory for the GOP, particularly given the poor Republican performance in the 2012 elections, candidate Obama’s commitment to reversing the Bush tax cuts,  and the fact that the Democrats are firmly in control of the White House and the Senate.

Of course, I would not argue that a victory for the GOP is a victory for the nation given the long-term fiscal imbalances. In my view, we need higher taxes (let’s begin with the elimination of all tax expenditures, beginning with those that lavish subsidies on the top two quintiles). We also need significant reductions in expenditures, particularly in our largest entitlements, the defense budget, and various forms of corporate welfare (including agricultural subsidies).

But there is little question that the Obama administration is willing to hand the GOP a significant victory. It only has to accept the gift.

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For God so loved the world

I enjoy learning about different moral philosophies.  Few questions are more important, it seems, than this basic one: what ought we to do?


Here is a Christmas snow sculpture from my family to yours.

Every philosophical theory has to start with some conception of what is it about human beings that really matters.  Given philosophers’ penchant for reason, it is no surprise that so many through the ages take as a starting point the autonomous nature of man and his ability to reason, though I’m not sure I would privilege reason over many other important capacities  (if artists created philosophy, our moral framework might start with the human capacity to experience and created beauty, for instance).  Others emphasize the capacity for pleasure and pain, and the ancient Greeks still have a lot of relevance with their emphasis on human flourishing, humankind’s capacity to experience what they called eudamonia.

But, though interesting, I find all these theories singularly unsatisfying and quite disconnected from true morality.  This is because they all fail to really answer the question of why the particular compounds of chemicals known as human beings should matter any more than any other compounds in the universe.  If the universe is a random, chaotic place with no intention or purpose, then do our questions or our reasoning have any import?  Indeed, in such a universe it is hard to even conceive of what “meaning” actually, well,…means.  Our reason lets us reflect on what matters but is not, in my opinion, the wellspring of moral value.

In my mind, the reason anything has value is because it is valued.  The reason our questions about what is right and our striving to do what is right have value is because we are valued.

So, at the close of this Christmas day, my message is a simple one.  “For God so loved the world….”

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I hope all of our readers had a merry Christmas today and are enjoying the holiday season.  I spent the day with a foggy head and sore body thanks to someone running a red light and causing a pretty serious accident involving me and my treasured old car on Christmas Eve.  I think I’ll survive but the car almost certainly won’t.  Fortunately, the other driver fared better than me from what I could tell.

But the reason for my post is not to relate my woes but to ask people to think about exercising their travel freedom with more personal responsibility.  The foolish behavior of the person who wrecked me caused significant costs to others that could have been a lot worse.  As it was, her free choices ruined my Christmas Eve and Christmas, caused me physical pain that could continue for some time, and imposed costs on my future time and budget since I’ll now have to shop for and buy a new/used car that I was not ready to purchase right now.  Not exactly how I wanted to spend the holidays.  It also made my children’s Christmas a lot less enjoyable — and they only get a limited number that are so purely joyous as the ones that occur between the ages of 3 and 9 or so.

Despite all this, I feel lucky compared to the many people victimized by drunk and otherwise careless drivers in our communities.  Thousands are killed every year in preventable accidents.  Please remember to drive carefully and to take your time on the roads.  I have a hard time believing that anything I’ve been driving to is so important as to risk the lives of others (or myself and the people I’m carrying).  I’m guessing the same is true for you.  And wear a seat belt!  While I have great disdain for seat belt laws (and appreciate that New Hampshire is the only state without one for adults), we here at Pileus have long-stressed that one shouldn’t necessarily exercise every freedom we enjoy nor legislate everything good for your body or soul.  My seat belt probably saved me a lot of pain and suffering.  My guess is that it will for you too at some point.

And finally, yes, I believe that scolds are probably underrated in our particular society (even as I myself chafe at certain scolds).  Their approbation and disapprobation help form the moral sentiments within us all – often for the good in a civilized society.

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