Bibi and Barack at the White House

Bibi Netanyahu and Fox News have now made it crystal clear — over and over and over — that Israel will never return to its 1967 borders. The dissimulation here is really pretty staggering. They're just hellbent on giving everyone listening to them the impression that this is what President Obama has proposed.

He hasn't, of course. No American president ever has. Full stop. It's really pretty loathsome listening to these guys doing their best to pretend otherwise.

Still, maybe it's all for the best. If Obama's utterance of the word 1967 is really so revolutionary, maybe it ought to be out on the table. Likewise, I'm fine with Netanyahu saying categorically that the right of return is a dead letter. It is, after all, and there's not a lot of point in pretending otherwise.

Still, I noticed during the press conference that we aren't entirely free of euphemisms yet. Netanyahu stammered a bit when he talked about Israel's borders and then very carefully referred to "demographic changes on the ground over the past 44 years" that made its 1967 borders unacceptable. Needless to say, there's nothing demographic at all about those changes. Israel won a war started by the other side, it occupied some of their territory, and then it decided to take some of that territory forever. We can argue endlessly about whether any of this was justified, but "demographic changes" is definitely not the usual way of referring to territory seized in a war.

Playing Musical Chairs With LinkedIn

Ryan Chittum highlights an odd warning from LinkedIn management in a recent SEC filing:

It also warned investors, in its recent filing, that it expected its revenue growth to slow as costs increased. It said it did not expect to be profitable in 2011.

Huh? When costs increase your profitability might suffer, but there's no reason that rising costs should affect your sales figures. This really makes no sense. But perhaps it explains why the same folks who blew up the housing bubble are madly blowing up a LinkedIn bubble right now. They know it's all rubbish, but they're just hoping to get out before the music stops, leaving suckers like you and me holding the bag. It worked pretty well before, after all.

Chart of the Day: Where the Debt Comes From

What accounts for the growing U.S. debt load? You already know the answer, but CBPP has a new chart that lays it out yet again. What we're interested in is public debt — that is, debt that the government actually owes to other people. It's this debt that can cause problems if it gets out of hand. So here's where our projected debt in 2019 comes from:

[This chart] shows that the Bush-era tax cuts and the Iraq and Afghanistan wars — including their associated interest costs — account for almost half of the projected public debt in 2019 (measured as a share of the economy) if we continue current policies.

Altogether, the economic downturn, the measures enacted to combat it (including the 2009 Recovery Act), and the financial rescue legislation play a smaller role in the projected debt increase over the next decade. Public debt due to all other factors fell from over 30 percent of GDP in 2001 to 20 percent of GDP in 2019.

Put this one up on your refrigerator along with the last one. Then, if a friend comes over after watching Glenn Beck and insists that we're doomed, just point to the chart. If you want to save America from a crushing future debt burden, you need to repeal the Bush tax cuts, get out of Iraq and Afghanistan, and stop pursuing austerity policies that will slow down economic recovery.

Once we've done that, then it's time to talk about Medicare. But the other stuff comes first.

Free Parking

Yesterday the LA Times ran a story about a special parking ticket service for local VIPs that it called "Gold Card" service. I didn't actually read the story and assumed that was just a catchy name the Times was using. But no. It turns out there is, literally, a Gold Card:

The service, which few outside of city government appear to know about, partly involves a plastic parking bureau "Gold Card" that is distributed to city offices. It includes a special phone number to call and on the back side notes that the holder may have an "urgent need to resolve any parking citation matter which requires special attention." It promises "you will be immediately connected to our Gold Card Specialist."

....[City controller Wendy] Greuel's audit said the Gold Card referral service is provided exclusively to the mayor's office and council district offices.

....Sarah Hamilton, a spokeswoman for Villaraigosa, said the mayor's office had periodically used the program as one of many ways to help constituents. Callers who thought they didn't deserve certain citations are referred to the Gold Card Desk, she said, adding that the program is open to anyone, not just VIPs or insiders.

"Any resident of the city who feels they received a citation in error, or who needs a sidewalk repaired or graffiti removed can call the mayor's office for assistance," Hamilton said. The Gold Card Desk is a comparable "resource for constituents."

I just love that line. As the Times story makes clear, however, virtually no one who's a non-insider even knows this program exists, let alone uses it.1 And the most common reason for tossing out tickets? Inability to pay — "a complaint Greuel's investigation portrayed as a dubious reason for dismissal." Indeed. Isn't life wonderful for the rich and famous?

1Take Danny Legans, for example. "I wish they did let us know about it," he told a Times reporter as he was paying an $88 ticket. Legans then asked officials inside about the program but was told it did not exist. "They said there is no such thing. You can't appeal. They told me: You have 30 days to pay this ticket or it will be doubled."

Obama's Middle East Speech, Take 2

Yesterday I wrote that I was puzzled about the conservative meltdown over Obama's Middle East speech. Didn't he just continue the policy of pretty much every president since Carter, namely that the eventual Israeli border on the West Bank will be based on the 1967 border with some expansions to include settlements built since the war? So what was the big deal? Well, after reading a bit more and watching some TV, I discovered that, yes, pretty much everyone who actually knows anything about the subject agrees that Obama's formulation was a nothingburger. It's the same policy as always.

So why is the right in such a lather about it? A friend emailed to suggest the obvious: normally, lathers take a day or so to build up. This one happened instantly. "The lather exploded fully formed from their foreheads," she wrote. "I think that the lather was planned as soon as the word came out that Obama was going to make a speech on the Middle East." Andrew Sullivan takes it a step further:

The verbal formula that essentially repeats the standard position of every recent US administration on the two-state solution did not strike me as anything new; in fact, it struck me as a minimalist response to Israel's continued aggressive settlement of the West Bank and East Jerusalem. And yet instantly Drudge, Fox, Romney et al. blasted the "stunning" news that Israel had somehow been thrown under the bus.

None of this makes sense until you realize that Netanyahu had been given a heads-up by the administration. So it's pretty obvious that it was the Israelis who immediately got their US media mouthpieces to spin the speech as some sort of attack. So those of you who think Jeffrey Goldberg and Walter Russell Mead and Victor Davis Hanson are a foreign government's favored outlets should think again. These leftist radicals are far too unreliable a channel.

I guess that's possible. A more parsimonious explanation is that the Drudge/Rush/Fox axis was, indeed, going to go nuts no matter what, and the "1967 borders" reference was just such an obvious attack point that that's the one they chose. After all, the rest of the speech contained so much criticism of the Palestinians, including both a firm denunciation of Hamas and a warning not to seek statehood via the UN, that it was hard to find anything there that was really very detrimental to Israeli interests at all. Deliberately misconstruing Obama's border comments was pretty much their only avenue.

So: the speech was still a yawn. The American right wing is still deranged. And peace in the Middle East is still not going to happen. You may now go about your business as if nothing has happened. Because nothing has.

Taxing the Rich

Riffing off a Karl Smith post about whether higher taxes destroy the incentive to work (answer: probably not, and the economic literature backs him up), Ezra Klein says:

Republicans argue — and there’s some evidence to back them up — that the rich are more sensitive to tax rates than the middle class or the poor....It’s why they worry much less about extending unemployment benefits than about protecting the rich from tax increases. Both policies make people poorer. But future economic growth doesn’t depend on the poor. It depends on the rich.

The problem is that there’s not much evidence backing this view.

I got into an email conversation with a conservative blogger about this last week, and among other things he said that the research on ETI had persuaded him that raising tax rates on the rich was bad for the economy. ETI stands for elasticity of taxable income, and it's a measure of how much income goes down when tax rates go up. I didn't pursue the conversation because I'm hardly an expert in the ETI literature, but I thought it was an odd thing to hang his hat on because what little I do know suggests that higher tax rates have very little effect on the economy.

So here's what I know. Last year I read a review of ETI research written by Emmanuel Saez, Joel Slemrod, and Seth Giertz. I'm not familiar with Giertz, but both Saez and Slemrod are pretty honest guys, so I figured their paper would provide an evenhanded look at what the ETI research indicates. Their conclusions were far from rosy. First, they suggested that the ETI literature of the past two decades varies so widely that it can't really be considered very reliable yet. Second, they make clear that incomes can decline for several reasons, and most of the reported income drops in the wake of tax increases are related to tax fiddling, not actual economic deterioration. From the paper:

While there are no truly convincing estimates of the long-run elasticity, the best available estimates range from 0.12 to 0.40. At the approximate midpoint of this rate — an ETI of 0.25 — the marginal excess burden per dollar of federal income tax revenue raised of 0.195 for an across-the-board proportional tax increase, and 0.339 for a tax increase focused on the top one percent of income earners.

....While there is compelling U.S. evidence of strong behavioral responses to taxation at the upper end of the distribution around the main tax reform episodes since 1980, in all cases those responses [are related to] timing and avoidance. In contrast, there is no compelling evidence to date of real economic responses to tax rates....If behavioral responses to taxation are large in the current tax system, the best policy response would not be to lower tax rates, but instead broaden the tax base and eliminate avoidance opportunities to lower the size of behavioral responses.

In other words, when taxes go up on the rich, they do report lower incomes. But that's mostly because they're fiddling with the tax code to report lower incomes, not because they're actually earning any less. If that's the case, we can draw a few conclusions:

  • We should reduce high-end tax loopholes so that the rich have fewer options for moving income around solely to optimize their taxes.
  • If we do that, modest increases in marginal rates on the rich will have very little impact on their taxable income.
  • And even if we don't, this sort of tax avoidance presents us with nothing worse than a mechanical issue of properly estimating tax receipts. Aside from the small inefficiency of paying tax accountants for lots of useless work, raising tax rates doesn't have a negative effect on the economy and has little or no effect on the actual incomes of the rich.

This all makes sense to me. After all, we've already run a sort of destruction test on this. During the 50s, top marginal rates were around 90%, and if high tax rates on the rich harm the economy then the tax rates of the 50s should have literally brought the United States to its knees. But even with heroic efforts, you can't make the case that those tax rates were anything more than a tiny drag on the economy. And if 90% rates produced only a tiny drag, then the effect of moving from, say, 35% to 40% would be literally too small to measure. Conservatives may claim to believe that they oppose higher tax rates on the rich because they'd be a disaster for the economy, but the evidence suggests something far less: namely that it would be a minor disaster for the rich. The rest of the economy would do just fine.

Front page image: alancleaver_2000/Flickr.

Chart of the Day: Arctic Sea Ice

From the Arctic Sea Ice Blog, this chart shows the extent of (what else) Arctic sea ice by month since 1979, with trend lines drawn in. On current trends, the Arctic will be entirely ice-free in September by about 2016, and will be ice-free year-round by the early 2030s. Probably nothing to worry about, though. Who needs ice, anyway?

Obama's Yawn-Inducing Outrage

Today President Obama stunned the world by saying this:

The borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps, so that secure and recognized borders are established for both states.

The New York Times reports that Israeli prime minister Benjamin Netanyahu "reacted icily." The American right wing, by contrast, has been sent into a near frenzy. You'd think it was the end of the world.

This is one of the reasons why the Israel-Palestine issue is so difficult to deal with for those of us who haven't followed its every nuance for the past 30 years. I mean, this has been the basis of every peace negotiation in the Middle East for the past three decades, hasn't it? Most recently it was the basis of Wye River, Camp David, and Taba. Whether it was stated in precisely that way or not, every proposed deal has involved two states, with borders to be negotiated based on the facts on the ground that Israel has so assiduously built up since 1967. In other words, "the 1967 lines with mutually agreed swaps."

And yet, for some reason, actually saying what's been obvious for decades sends everyone into a tizzy. All because of some minuscule change in wording that, to ordinary ears, means nothing.

Somebody help me out here. Pretend I'm five years old and you have to explain things in words of one syllable. Why is Obama's formulation worthy of anything more than a yawn, let alone widespread outrage?

The Laws of Economics

Ezra Klein highlights this interesting passage from Tim Harford about the problems that the Great Collapse exposed in the economics profession:

In terms of how economics needs to change in light of the crisis, where I would put my emphasis is not so much in behavioural economics, though I have no problem with it — it’s a very interesting area and it’s producing really important insights — but I think it’s more about engaging with the world, and the institutions of the world as it is. Economists got too used to reasoning in fairly abstract ways, without looking at the details of what was actually going on. If, as an economist, you’d looked at the way sub-prime loans were being sold, and the kinds of contracts that were being written and the financial instruments that were being created, you don’t need any mysterious appeal to psychology to explain the disaster. You just need to have been paying attention. That’s not to write off behavioural economics — but it’s just not true that behavioural economics was the single thing that was missing, that if only we’d had it, there would have been no crisis.

I think this is an interesting insight, but I'd make it more broadly. One of the interesting things about economics as a science is that its basic laws change all the time. This is quite unlike, say, physics, where the applications change but the basic laws of the universe don't.1 But the laws of economics are just fundamentally different in a barter economy vs. a money economy vs. a banking economy vs. a fiat money economy vs. a credit economy etc. etc. Keynes' great opus on unemployment literally couldn't have been written a century or two before 1936 because unemployment wasn't even a well-defined concept in the pre-industrial age.

So here's my guess: in the past, we could at least take solace in the fact that the basic structure of the economy didn't change very fast. But now it does. And the changes in the financial sector over the past few decades — which are part cause and part effect of the globalization and computerization of finance — have cumulatively produced enough quantitative change in the structure of the economy that it's finally become a qualitative change, one that I'm not sure the economics profession has entirely grasped yet. Long story short, the laws that govern the economy of 2011 are fundamentally different than the laws of only 20 or 30 years ago. And Harford is right: understanding how the financial sector has changed, and how that's changed the basic functioning of the economy, is really important. The question is whether modern economists are smart enough to figure out what the new laws are before the economy has changed on them yet again.

IMPORTANT DISCLAIMER: I am not an economist. I might be completely full of hooey about this. But then again, maybe not.

1New physical laws are discovered periodically, of course, but those laws have always been in operation. We just didn't know it. Conversely, once you get beyond supply and demand, many of the laws of economics actually change as the nature of the economy changes.

Goodwin Liu is a smart, accomplished, liberal constitutional lawyer who's been nominated for a seat on the 9th Circuit Court. Lots of conservatives support him, but his confirmation looks increasingly unlikely regardless. Yesterday Adam Serwer tried to figure out why Republicans are so hellbent on blocking his nomination:

The real reason Republicans are trying to block Liu is this: Because of his youth (he’s 39), intelligence and outlook, he’d be a tempting choice the next time a spot opens up on the Supreme Court.

But I think Adam's take today is much closer to the truth:

Senate Republicans appear poised to filibuster the nomination of Goodwin Liu to the 9th Circuit Court of appeals, and they’ve settled on their reason why: Liu was awful mean to Justice Samuel Alito. As the Legal Times reports, Senators Lindsey Graham, John McCain, and Johnny Isakson all cited Liu’s testimony against Alito’s nomination as a reason for blocking him.

Yep. Liu is plenty liberal, which gives Republicans cover for voting against him. But honestly, it's mostly pique that's driving this. Here's conservative Jonathan Adler writing about Liu over a year ago:

I believe Senate Republicans are likely to oppose Prof. Liu for multiple reasons. First, Prof. Liu Chairs the Board of Directors the American Constitution Society for Law and Policy. This is not the sort of thing that should be disqualifying for a federal judgship, to be sure. Yet Senate Democrats firecely opposed, and ultimately blocked, confirmation of Peter Keisler to the U.S. Court of Appeals for the D.C. Circuit, largely because he was a co-founder of the Federalist Society for Law and Public Policy Studies (where he is also now Chairman of the Board).

Second, Prof. Liu was an outspoken critic of President Bush’s nomination of Samuel Alito to the Supreme Court. He co-authored an ACS report critical of Judge Alito’s record on death penalty cases and, more importantly, testified against then-Judge Alito’s confirmation to the Supreme Court. In his testimony, Prof. Liu argued that Senators should consider a nominee’s “judicial philosophy” and suggested that Judge Alito should fail such a test. According to Prof. Liu, then-Judge Alito was “at the margin, not the mainstream,” and that the America envisioned by his record on the bench “is not the America we know. Nor is it the America we aspire to be.” I suspect Senate Republicans will remember this testimony when considering Prof. Liu’s nomination.

Judicial nominations have spun out of control over the past couple of decades, and there's blame to go around on this. Conservatives have never forgiven liberals for the Bork/Ginsburg/Thomas trifecta of the late 80s and early 90s. Liberals continue to seethe over Orrin Hatch's transparent abuse of the blue slip rules in the aughts. Both sides are convinced that the other is dedicated to nominating extremists to the bench.

I don't know what the answer is. As a matter of policy, I believe that presidential nominations should get considerable deference. Conservative presidents are going to nominate conservative judges and liberal presidents are going to nominate liberal judges, and both sides should accept that. But there's always a but, and in this case it's whether there's genuinely a line that separates the merely ideological from the recklessly extreme. There probably is, but I've never heard anyone explicate it in an actually usable way. Maybe some nice bipartisan commission ought to take a crack at it.