Why do independent central banks (ICBs) generally produce low inflation?  Alex Tabarrok says it's because bankers tend to get appointed to run ICBs and bankers have a bias toward low inflation.  Megan McArdle says no, it's because nobody holds Congress accountable for the performance of ICBs, which gives them the freedom to appoint people who will do things they don't have the guts to do themselves.  Matt Yglesias isn't sure that the Fed is really an ICB in the first place: it was pretty clearly politicized in the 70s and produced high inflation, and it was quite likely politicized in the oughts and helped produce an economic meltdown.

These all sound like reasonable points to me, and I don't think they're mutually exclusive.  Maybe they're all right.  But I'm curious about something else: what does the academic literature say about the performance of ICBs in advanced economies in the first place?  There must be a considerable amount of research on this point.  If we take some measure of "independence" and compare that to various measures of medium-term economic performance (inflation, wage growth, GDP growth, unemployment, etc.), what do we find?  Does independence really matter very much?  Is there some specific aspect of independence that matters more than others?  Can some friendly econoblogger summarize the literature for us?

Defending the F-22

The Senate is debating the Levin-McCain amendment to terminate the F-22 fighter jet right now, although if you joined the debate halfway through you might be forgiven for thinking that they were talking about an economic stimulus bill.

Sen. Chris Dodd (D-Conn.) just delivered a real stemwinder opposing the amendment. His main point: killing the F-22 will cause the loss of up to 95,000 jobs in the middle of a recession. Now Sen. Murray of Washington is talking about the importance of protecting "family wage jobs." Both devoted a few sentences, at most, to the actual purpose of the plane.

A few points:

* No jobs will be lost mid-recession because even if the Senate approves the McCain-Levin amendment, the production line won't shut down until 2011.

* Lockheed Martin, which makes the F-22, has said that it can shift many workers to another of its planes, the F-35. The DoD nearly doubled its order of F-35s in this budget. Now, it's almost certain that some workers will lose their jobs for geographical reasons—Lockheed may add jobs in Texas, for instance, where much of the F-35 work is done, but shed them in New England, where a lot of F-22 manufacturing occurs. But the overall economic effect of cutting the program is not the disaster Murray and Dodd are claiming it to be. The DOD estimates that the F-35 will create 44,000 new jobs in 2010—many more than the number of people who are directly employed on the F-22. A Lockheed Martin executive told market analysts last year that workers on the F-22 assembly line can be redeployed to other planes and that the company's portfolio is "probably good as we've ever been." Even the plane's most vigorous congressional defender, Sen. Saxby Chambliss (R-Ga) has conceded that "jobs is probably not going to be an issue."  In fact, the Center for American Progress estimates that the overall effect of the Obama budget could bring a net increase in direct defense jobs.

Today's Washington Post offers a rundown of the huge amounts of lobbyist and industry cash Sen. Max Baucus (D-Mont.) has raised recently by virtue of his key role in drafting health care legislation. Baucus raised some $3 million from the health and insurance sectors between 2003 and 2008, according to the Post. The Senator refused to comment for the article, but his spokesman, Tyler Matsdorf, offered up this gem:

[Sen. Baucus is] only driven by one thing: what is right for Montana and the country. And he will continue his open process of working together with the president, his colleagues in Congress, and groups and individuals from across the nation to get this legislation passed.

If members of Congress don't like the public questioning what drives them, they could always set up a robust public financing system for elections and stop taking corporate and lobbyist money. Until then, people are going to wonder about what motivates them when they take millions of dollars from the industries that are most affected by their legislation.

Elizabeth Warren, the chair of the Congressional Oversight Panel (the group keeping an eye on the bank bailouts), has a long post on the Baseline Scenario about President Barack Obama's proposal for a Consumer Financial Protection Agency that would regulate financial products. It's worth reading in full, but I noticed that Warren was incredibly explicit about the problems with the current regulatory system:

For decades, the Federal Reserve and the bank regulators (the OCC and the OTS) have had the legal authority to protect consumers.  They have brought us to this crisis by consistently refusing to exercise that authority.

Stephanie Mencimer wrote about this very phenonomon back in January. It's an argument I've heard from economists like Dean Baker: the regulators had the authority to take steps to stave off the crisis—they just didn't use that authority. It's certainly interesting to hear that same argument coming from Warren. She thinks the regulators didn't do their jobs because of "two structural flaws" in the system:

The first is that financial institutions can now choose their own regulators.  By changing from a bank charter to a thrift charter, for example, a financial institution can change from one regulator to another.  The regulators’ budget comes in large part from the institutions they regulate.  If a big financial institution leaves one regulator, the agency will face a budget shortfall and the agency will likely shrink.  Knowing this, financial institutions can shop around for the regulator that provides the most lax oversight, and regulators can compete by offering to regulate less.  Regulatory arbitrage triggered a race to the bottom among prudential regulators and blocked any hope of real consumer protection.

The second structural reason that prudential regulators failed to exercise their authority to protect consumers is a cultural one: consumer protection staff at existing agencies find themselves at the bottom of the pecking order because these agencies are designed to focus on other matters.  At the Federal Reserve, senior officers and staff wake up every morning thinking about monetary policy.  At the OCC and OTS, agency heads wake up thinking about capital adequacy requirements and safety and soundness.  Consumer protection issues are—at best—an afterthought.

Warren thinks that an independent consumer financial protection agency would go a long way towards addressing those flaws. If it somehow gets past industry lobbyists and actually becomes law, we'll get a chance to see if she's right.

UPDATE: There's also a YouTube video, apparently:

A hearing is getting underway before the Senate Committee on Environment and Public Works: "Climate-Related Policies and Economic Growth - State and Local Views." You can watch it live, here.

Panel 1 is governors; panel 2 is mostly mayors. For a list of panel members, see here.

First comments: Bernie Sanders (I-VT) calls for an energy revolution.

For detailed coverage of one important aspect of this hearing -- the reappearance and slapdown of the Spanish Prisoner -- click here.

 

This week's cute endangered animal is the pygmy rabbit, which hails from my home state of Oregon, as well as Washington and Idaho. The pygmy rabbit is the smallest in the US, weighing just 1 pound. It's also one of two wild rabbit species in North America that digs its own burrows, and communicates vocally with squeaks, squeals, and chuckles.

Despite the stereotype of rabbits breeding like, well, rabbits, the pygmy rabbit is quite close to extinction due to increasing agriculture, and possibly disease. The rabbits live pretty much on just one food source: sagebrush. Now you might think sagebrush is epic in the West: Is there a Western that's complete without a tangle of sagebrush rolling through the dusty streets right before a shootout? But in reality, sagebrush is becoming less and less common in Oregon since the damming of the Columbia River created more arable land. As a result, dense sagebrush habitat is hard to find in the rabbit's range, and pockets of it serve to isolate populations.

Until a few years ago, there were two sub-populations of pygmy rabbits: Columbia Basin and Idaho. As of 2002, researchers could only find 16 Columbia Basin pygmy rabbits in the wild, and in 2008, the entire sub-population went extinct when in 2008 the last known purebred Columbia Basin rabbit died in captivity. Since then, conservationists have mulled switching funds from the Columbia Basin preservation program to the Idaho program, since that sub-population is much healthier. Currently, the Oregon Zoo and other organizations are feverishly trying to breed the rabbits in captivity to create species biodiversity.

News on healthcare, the environment, wildlife, and energy from our other blogs.

Green Cheese: Pondering why it's easier to put a man on the moon than to pass a freakin' healthcare bill.

USA v. Europe: Kevin Drum debates the European approach to healthcare.

Full Court Press: Will Obama be able to push healthcare through fast?

The communists at the Wall Street Journal present us with the latest executive pay data today:

Executives and other highly compensated employees now receive more than one-third of all pay in the U.S.....In the five years ending in 2007, earnings for American workers rose 24%, half the 48% gain for the top-paid. The result: The top-paid represent 33% of the total, up from 28% in 2002.

....The data suggest that the payroll tax ceiling hasn't kept up with the growth in executive pay. As executive pay has increased, the percentage of wages subject to payroll taxes has shrunk, to 83% from 90% in 1982. Compensation that isn't subject to the portion of payroll tax that funds old-age benefits now represents foregone revenue of $115 billion a year.

You probably thought that the big problem with skyrocketing executive pay was the fact that it left nothing for the rest of us.  And you're right: that 24% increase for "American workers" includes the 48% increase for the top earners.  In other words, the executives got a 48% increase, the rest of us got approximately nothing, and it all averaged out to 24%.

But that's not all!  It also means that the average joes with stagnant wages couldn't keep up, so they went deeper and deeper in debt.  And who loaned them the money to do that?  Well, the rich can't really spend that ocean of extra dough they're getting — the technical reason is that they have a lower marginal propensity to consume than average joes; the nontechnical interpretation is that you can only buy just so many yachts — so they ended up loaning most of it back to the middle class.  We all know how that turned out — but the rich got bailed out by the taxpayers so they ended up OK.  The rest of us, not so much.

And now the Journal is pointing out yet another problem with running our economy solely for the benefit of the wealthy: you only owe payroll taxes on income up to $106,000.  This number rises every year, but it doesn't rise nearly as fast as the earnings of the rich.  Which means that more and more income every year is above the cutoff and doesn't get taxed.  And that in turn means that Social Security is in considerably worse shape than it would be if increases in national income weren't being hoovered up almost exclusively by the executive class.

So there you have it.  If we don't pass healthcare reform it will be because the rich don't want to help pay for it.  Average wages are stagnant because that leaves a bigger pool of money for the rich to slosh around in.  We're letting the planet fry because policies to stop it would inconvenience the rich.  Regulatory reform of the financial system increasingly appears to be a dead letter because Congress is owned by the rich and they don't want it.  Against all that, I suppose that crippling Social Security hardly even shows up in the ledger.  But we might as well tot it up anyway.

Babycenter and Parenting are great for pregnancy deets, but the advice jiujitsu of Let's Panic is satire of the most necessary kind.

Like these pregnancy sections:

Non-Pregnancy-Related Trivia You Can Discuss with Your Non-Pregnant Friends: Apparently those jerks want to talk about something that's not the miracle growing inside you.
What to Look For in a Pediatrician: Will you choose the attachment-parenting advocate, or the attachment-loathing automaton?
Who's Going to Catch That Baby?: Wait—do you even have a birth philosophy?

Or their "Surviving Bed Rest" advice:

You can still be a productive member of society even flat on your back in a dark, stuffy room surrounded by dirty teacups. Where your body has failed you, your mind can now develop new paranoias you never knew existed!
Try to figure out what you did to deserve this: Think back. Was it the time you laughed at your mom's varicose veins? You definitely did something and the Universe waited until now to punish you.
Chat up telemarketers: After they insist that they cannot ship you any diseased carcasses via the postal service, you can get to talking about more personal matters. Like, "Wouldn't you haul slabs of limestone to your friend's bedside? You wouldn't think that was too much to ask, would you, Shonda?"
Knit all of your baby’s clothing for the next fifteen years: For years, every time your child dresses it will be a reminder of how much you sacrificed so that he might be born. Just let him try and complain that his woolen swim trunks bunch up during pool time at camp. LET HIM TRY.
Build a bed-fort.

Anyway, made me laugh today. Pass it on to your pregnant/new parent friends—especially the ones you wish would lighten up a little.

Laura McClure hosts podcasts, writes the MoJo Mix, and is the new media editor at Mother Jones. Read her investigative feature on lifehacking gurus in the latest issue of Mother Jones.

US Energy Use Falls

Americans used more solar, nuclear, biomass, and wind energy, and less coal and petroleum in 2008 than in 2007. Natural gas consumption rose slightly and geothermal remained the same. This according to the Lawrence Livermore National Laboratory. (The schematic is informative and you can see a bigger image in pdf.)

Estimated 2008 US energy use equaled 99.2 quadrillion British Thermal Units, or 99.2 quads, down from 101.5 quads in 2007. The bare bones of the resuls:

  • Energy use in the industrial and transportation sectors declined by 1.17 and 0.9 quads respectively and can be attributed to the spike in oil prices in summer 2008
  • Commercial and residential use climbed slightly (that could look different in 2009, I'm guessing)
  • Last year saw a significant increase in biomass with the recent push for the development of more biofuels including ethanol
  • Increases in wind energy can be attributed to large investments in wind turbine technologies over the last few years as well as better use of the existing turbines
  • 2008 saw a slight increase in nuclear energy from 8.41 quads in 2007 to 8.45 quads in 2008, mostly because existing plants had less down time


Of the total 99.2 quads consumed in 2008, less than half—only 42.15 quads—ended up as useful energy that does things like move your light your lamps. The rest is known as rejected energy and does useless and counterproductive things like make waste heat from power plants.

Clearly we have a long way to go on the rejected energy front and should move on that as fast as possible.