The Obama Business Environment

Speaking of American businesses, both big and small, and whether a slightly higher personal tax rate will ruin them:

American businesses earned profits at an annual rate of $1.66 trillion in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or non-inflation-adjusted terms.

Corporate profits have been going gangbusters for a while. Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters, at some of the fastest rates in history.

In fairness, I couldn't care less whether this is a record in nominal terms. But if it's a record in nominal terms, it's gotta be at least close to a record in real terms too, what with inflation being so subdued in recent years. That Obama character sure has been bad for business, hasn't he?

Round 2 on the TSA Backlash

Because I'm basically a coward, I'm reluctant to keep wading into the TSA screening debate. But that's not the only reason. It's also because this is not a subject where I have a lot of confidence that I'm right. Maybe it is all just useless security theater! All I can say is that when something like this turns into a feeding frenzy of almost universal scorn and mockery, largely driven by the Drudge/Fox noise machine, my BS radar starts clanging.

But various people brought up some good questions via blog, email and Twitter, and I thought it might be a good idea to respond. Obvously I'm not trying to defend everything TSA does (the "enhanced" patdowns strike me as fairly ridiculous, for example), and equally obviously, plenty of people outside the Drudge/Fox axis have been complaining about TSA protocols for a long time. So with that said, here we go:

Matt Yglesias: If you assume the existence of a person willing to die for Osama bin Laden’s war on America, located within the United States of America, and in possession of a working explosive or firearm, there’s basically nothing stopping him from blowing up the 4/5/6 platform at Union Square or the 54 bus in DC....[So] don’t ask yourself “what amount of hassle and expenditure is worth paying to prevent terrorist attacks,” ask yourself “what amount of hassle and expenditure is worth paying to shift terrorist attacks off airplanes and onto buses”?

Me: This is extremely logical. But it also seems to be wrong. For whatever reason, Islamic terrorists have a long and tenacious obsession with air travel. For the past decade it's been way harder to blow up an airplane than the 54 bus, but they keep trying to blow up airplanes anyway. That's just the reality we have to deal with.

Will Wilkinson: So do you think all this jazz actually has/does keep people from dying in/from planes?

Me: Well, yeah. Obviously this isn't something that I can prove geometrically, but that's baked into the cake of security issues like this where your goal is to prevent people from even trying to blow things up in the first place. Still, we've made it very, very hard to bring explosives onto airplanes, and I think it makes sense to believe that if we hadn't made it so hard more people would have tried it. For example, my guess is that the reason no one has tried a shoe bomb since Richard Reid's failed attempt is that everyone knows it won't work. Shoes are now x-rayed, so there's no point in trying.

randomsubu: OK *IF* backscatter images reliably destroyed/not photographs. Otherwise....

Me: I agree completely. Here's Peter Kant of Rapiscan on that subject:

The systems are designed without any capability of storing, saving or otherwise archiving any images or data that are taken from the checkpoint. Finally, we are releasing in the next few months ... a threat-recognition upgrade where the system never even uses an image. It just automatically detects any anomaly on the body and directs the [Transportation Security Administration] officer where on the body to ask the passenger, "What's in your back pocket?" or whatever. No image is ever created or used of the passenger — and that is only a couple of months away from being available.

The scans that were famously saved and distributed in Florida were not done by Rapiscan devices and have nothing to do with airport security.

Reader PJC via email: This also raises another potent issue -- TSA actions creating, rather than obviating, terrorist options. The more we have to strip down, pat down, stand in multiple lines for multiple machines, the longer and slower the lines get. Right now, the best option for a terrorist attack (and I'm surprised it hasn't happened already) is actually the security line into the terminal. You could easily enter a terminal with an automatic weapon or a bomb without anyone knowing since you will not have hit the security scanners yet. Then you blow up or shoot everyone waiting in line, hemmed in by the rope barriers so they can't easily escape. One backpack filled with C4 and nails. That's all it takes. What do we do then? Hide under the blankets? Will we randomly scan anyone within a mile of the airport?

Me: Again, this is perfectly logical, and a lot of people have made exactly this point before. But in real life this hasn't turned out to be a big target for terrorists. Not dramatic enough, I suppose. In any case, I've flown regularly since 9/11, and except for the first year, before airports had adjusted to the new protocols, lines don't seem to have gotten much longer. What's more, a bomb in a security line can only kill just so many people. Once you have 20 or 30 people lined up, you've pretty much exhausted the killing power of your basic backpack explosive device.

Melissa McEwan: Leaving aside my lack of enthusiasm for the calculation that we should give an inch's worth of encroachment into our civil liberties in order to stop the government taking a mile [...] there are practical and valid objections being made by people with disabilities, parents of children with disabilities, and survivors of sexual violence....Those millions of people are not just potentially "inconvenienced." Being triggered does not mean feeling hassled or being annoyed or having your feelings hurt or getting upset. It means experiencing a physical and/or emotional response to a survived trauma, having a significantly mood-altering bout of anxiety. Someone who is triggered may experience anything from a brief moment of dizziness, to a shortness of breath and a racing pulse, to a full-blown panic attack.

Me: I don't honestly have a good answer to this. I can't pretend that I understand what this is like for everyone. However, if anything, the backscatter machines ought to eventually reduce the number of patdowns. What's more, patdowns have been part of TSA security ever since 9/11, and as I said above, I very much doubt that the "enhanced" versions are justifiable. So unless I hear a pretty good argument from TSA about this, I'd be in favor of returning to the old patdown standards and trying to eliminate some of the pain Melissa is talking about.

Stephen Bainbridge: Everybody knows El Al security includes racial and ethnic profiling. So we can't use it in the USA because profiling would violate the civil liberties of those who get profiled. And that's how it should be, for both prudential and moral reasons. But instead we have a system that violates everybody's civil liberties. Excuse me for preferring a system in which nobody's civil liberties get violated.

Me: Part of me agrees with this. But look: there's a difference between something being annoying and something being a violation of civil liberties. At TSA checkpoints you are now required to take off your shoes. That's not a violation of civil liberties. You are required to take your laptop out of your bag. Ditto. You are limited to 3-ounce bottles of liquid. Ditto. Your carry-on luggage has to get x-rayed. Ditto. You are required to go through a scanner. Ditto. If you can't or won't go through the scanner, you have to, um.....OK, like I said, the super duper patdowns really do seem hard to justify, and if they aren't technically a violation of civil liberties they're pretty damn close. But with that exception, I have to say that I don't really see this stuff as a violation of civil liberties. I don't like it much, but that doesn't make it illegal or unconstitutional.

I guess that's enough. I'd add to this list that there are concerns about the radiation exposure from backscatter machines, and I think that deserves to be taken seriously. I can only give my sense from reading what various experts say, but it sounds to me like these concerns are overblown and mostly just tossed out to add another log to the anti-scanner bonfire. But I might be wrong about that. I'm completely in favor of making sure that these machines are thoroughly and independently tested.

I'm not really comfortable taking the side of this argument that I've ended up taking, and I'm wide open to changing my mind. But the plain fact is that Islamic terrorists really do have a long history of trying to blow up American airplanes, and all the evidence suggests that they're going to keep trying. Reacting to that makes sense. And for those who suggest a sort of cost-benefit analysis — if we reduce the security and simply accept a few dozen additional deaths each year we'll come out ahead — I think this is just wildly divorced from the way actual normal human beings react to attacks from other human beings. Maybe us hyperlogical types think that way (I certainly do), but most people just don't.

One final note: I was pretty surprised by the number of tweets and emails I got agreeing with my take on this. It wasn't a monstrous number, but frankly, I was expecting zero. It wasn't just mindless save me from the terrorists! stuff either. I suspect there might be more people out there who are OK with stiff airline security protocols than the talking heads are admitting right now.

Paying an Arm and a Leg

So many charts, so little blog. Which chart should I show you from yesterday's release of the latest global comparison of healthcare prices? How about the cost of hip replacements? Here it is:

The "average" number is a little hard to see, so here it is: $34,454. That's 2x what it costs in Germany, 3x what it costs in France, and 6x what it costs in Switzerland. WTF?

This goes a long way toward explaining why hip replacements are so popular in the United States: they're a huge profit center for doctors and hospitals. Keep this in mind the next time someone starts going on about how you never have to wait in line for a hip replacement in America. It's not because our healthcare system is super efficient, it's because doctors are super eager to perform them.

The full set of cost charts is here, and they're pretty instructive. You can, if you want, try to make the case that we perform better hip replacements or do better angioplasties than other countries. But appendectomies? CT scans? Normal deliveries? As Aaron Carroll says about the astonishing numbers for routine CT scans and MRIs:

Why does it cost so much more in the US? Does the radiation work better here? Are the scanners different? If you’re wondering, the CT scanner was invented in the UK, so it’s not like there’s some reason to believe our machines are better....Let’s be clear. I have no problem with things costing more when they are demonstrably better. Or, if you’re getting more of them for your money. But a scan is a scan is a scan. There had better be a good reason for it costing more here, and I can’t think of a good one.

This is one of the reasons healthcare costs so much in America. We aren't getting more for our money, we're just paying a lot more for the same stuff as everyone else.

POSTSCRIPT: One caveat: the report doesn't mention how they convert foreign prices into dollars, and it probably makes a difference whether they apply purchasing power parity adjustments. Not a huge difference, but it's possible that different methodologies would produce modestly different results.

Obama in 2012, Revisited

On Sunday I noted that Ray Fair had released a projection of Obama's odds of winning reelection in 2012. His conclusion: Obama should win in a landslide. However, this depends not just on Fair's model being accurate, but on his rosy forecast of economic recovery being accurate too. Brendan Nyhan isn't quite so optimistic:

The Philadelphia Fed survey of professional forecasters revised its forecast of 2012 growth downward last week from 3.6% to 2.9% (somewhat lower than the Blue Chip 3.2% figure or CBO's 3.4%). If we plug that value into Alan Abramowitz's simple linear fit of second-quarter GDP in election years and presidential election performance, we find Obama right around where President Bush was in 2004.

The regression on the right is not the entire Abramowitz model and doesn't take into account the advantage of being an incumbent running for reelection. That's dealt with in his full model and adds a couple of points to the forecast for a four-year incumbent. For that reason, this chart almost certainly underestimates Obama's odds of winning in 2012. However, as Brendan points out, there's also a lot of uncertainty around that growth forecast of 2.9%. If the economy ends up at the low end of projections in early 2012, Obama will be in a precarious position. Still likely to win, I think, unless we slip back into a full-blown recession, but it might be a close run thing.

Taxing the Rich

Jim Puzzanghera of the LA Times writes today about whether small businesses are likely to reduce hiring if tax rates are raised on people making more than $250,000 a year. As he points out, big companies normally pay taxes at the corporate level:

But companies can also file as S corporations or partnerships. The business income flows to the owners or partners and is reported on their individual returns, so profits are taxed only once.

....[Rick] Poore, whose DesignWear Inc. takes in about $2.25 million a year [...] supports the expiration of the top-level tax cuts, pointing out that the costs of employees and equipment, such as a new automatic garment press he is purchasing, reduce his taxable income...."That's how small business works. We reinvest in our businesses. We try to minimize the amount of taxable income we have," he said.

Some small-business groups, such as the Main Street Alliance, a national network of state-based small-business coalitions, also support letting the top-level tax cuts expire. "Its disingenuous for people to say this is going to have such a horrible affect on small business if they let these expire," Poore said. "Either they're honestly ignorant of how this really works or they're being intellectually dishonest."

There are unquestionably small businesses who would be affected by the tax increase. But aside from the fact that only a tiny number of small businesses would have to pay the higher rates — perhaps 1-2% — it's important to understand how this works. As Poore says, in an S corporation, business income is passed through to the owner. So a tax increase doesn't affect the revenue of the business at all, and doesn't affect its incentives to invest in equipment or additional workers. What it does affect is the amount of income passed through. In other words, it modestly affects personal income, just as you'd expect.

If you think that would be a disastrous thing, fine. I disagree. But it has a very limited impact on the incentive of the business qua business to expand its operations. Those incentives are driven almost entirely by whether there's likely to be higher demand for their products in the future. Right now, financial uncertainty is high, and that's why business expansion is low. It has very little to do with new healthcare regulations or higher personal tax rates.

No Mandate for Republicans

You could hardly expect me not to post about this, could you?

A majority of Americans want the Congress to keep the new health care law or actually expand it, despite Republican claims that they have a mandate from the people to kill it, according to a new McClatchy-Marist poll.

....The results signal a more complicated and challenging political landscape for Republicans in Congress than their sweeping midterm wins suggested. Party leaders call the election a mandate, and vow votes to repeal the health care law and to block an extension of middle-class tax cuts unless tax cuts for the wealthy also are extended.

"The political give and take is very different than public opinion," said Lee M. Miringoff, the director of the Marist Institute for Public Opinion at Marist College in Poughkeepsie, N.Y., which conducted the poll. "On health care, there is a wide gap between public opinion and the political community."

Unsurprisingly, the poll finds that most provisions of the healthcare reform bill are quite popular. The main exception is the individual mandate, but as we've discussed a million times, you can't keep all the popular stuff unless you have the mandate too.

In less good news, the public is evenly split on repealing Don't Ask Don't Tell. I've seen plenty of other polls showing broad support, so this might be an outlier. Alternatively, it might be that support for repeal drops once it become an immediate issue getting a lot of attention. We'll see.

Quote of the Day: Persian Hospitality

From Keith Humphreys, quoting a friend on Persian cultural norms of hospitality:

Iran is a place where if you walk up to a street demonstrator who is holding up a sign reading “death to the west” and ask for directions to a particular restaurant, you may well get the response “Oh, that place isn’t very good. And anyway, I want you to meet my family and have a proper Iranian dinner. I’ll be done here in a sec, as soon as the cameras leave — do you mind if we walk, it’s only a few blocks, but I can get us a ride, if you are tired.... 

This introduces a post that questions whether high levels of personal hospitality are in fundamental conflict with high levels of customer service in the commercial sector. He thinks they probably are.

My TSA Anti-Rant

I am so going to regret writing this post. For those of you who used to respect me, please just chalk it up to food poisoning or early onset Alzheimer's or whatever. But here goes.

I hate the TSA screening process. Everyone hates the TSA screening process. You'd be crazy not to. It's intrusive, annoying, and time-wasting. It treats us all like common criminals even though most of us are just ordinary schlubs trying to get on a plane and go somewhere.

But guess what? The fact that you personally are annoyed — you! an educated white-collar professional! — doesn't mean that the process is idiotic. I've heard it called "security theater" so many times I'd be rich if I had a nickel for each time it popped up in my browser, but although the anti-TSA rants are often cathartic and amusing, they've never made much sense to me. All the crap that TSA goes through actually seems pretty clearly directed at improving the security of air travel. So here we go, a brief Q&A session about TSA procedures:

Q: Why do we have to take our shoes off?
A: To prevent terrorists from packing explosives into their shoes and bringing down an airplane.

Q: Why do we have to go through those new body scanners?
A: To prevent terrorists from packing explosives around their bodies and bringing down an airplane.

Q: Why the 3-ounce limit on liquids?
A: To prevent terrorists from bringing liquid explosive precursors through the gate, mixing them together in the onboard lav, and bringing down an airplane.

Q: Nobody's ever brought down an airplane this way. Why worry about it?
A: Nobody thought a bank could bring down the entire global economy before 2008, but guess what? Banks kept trying and eventually they figured out how to do it. Ditto for terrorists, who learn from their mistakes. Maybe next time they'll try a slightly bigger shoe. Or a better explosive. Or a more efficient trigger. And then the plane comes down. Do you really want to risk your life on the proposition that terrorists will never figure out how to make this stuff work even if we give them enough chances?

Q: But other countries don't do all this stuff.
A: That's because Islamic terrorists mostly target American planes. It's fine for Switzerland to be a little less cautious, not so fine for us.

Q: The Israelis don't do all this stuff either. Why not adopt their methods?
A: Because even experts don't think we could scale up the Israeli system for use in the United States. What's more, the Israeli system is only convenient for Israeli Jews. It's a huge pain in the ass for everyone else.

Q: Shouldn't we focus more on intelligence and less on physical security?
A: Sure. But I'd guess that our intelligence just isn't good enough to rely on it exclusively.

I'm not trying to defend everything TSA has put in place. Some of the stuff they do, like the penknife and nail clipper bans, really is stupid. And maybe backscatter scanners don't work. I'm certainly open to the idea. But honestly, most of what they do is pretty easy to understand: they're trying to make it so hard to get weapons and explosives on board airplanes that no one bothers trying — and the few who do can't pack a big enough punch to do any damage. For the most part, it seems to be working. The price we pay for this is plenty of annoyance, but again: do you really want to get rid of the annoyance and bet your life that terrorists will never figure out how to make a better shoe/underwear/liquid bomb? I'm not so sure I do.

And now for a political note: this is GOP catnip. For seven years, Republicans insisted that every security procedure ever conceived was absolutely essential to keeping the American public safe, and anyone who disagreed was practically rooting for an al-Qaeda victory. Now a Democrat is in office and suddenly they're outraged over some new scanners. Helluva coincidence, no? But this is no surprise: this issue works for them on every possible level. In the short term, it gives them something to pound Obama about. In the medium term, it gets the chattering classes chattering about something other than the fact that Republicans have no remotely plausible plan for improving the economy. And in the long term, if a plane does come down, they will absolutely crucify the Obama administration for its abysmal and cavalier approach to national security. (Remember the dry run that Drudge and Fox News conducted over the underwear bomber?) And if you think we can fight back by reminding them that security was reduced because of their outcry, you are sadly delusional. That argument won't get two seconds of air time.

But what about our civil liberties? Maybe you think that even if TSA's procedures are slightly useful, they aren't useful enough to justify all the intrusion. Instead, we should just accept the risk of an occasional plane falling out of the sky. Think again: if a plane comes down, you can just kiss your civil liberties goodbye. Today's TSA procedures will seem positively genial compared to what takes their place with the full and eager support of the American public. Given that reality, if you're really worried about civil liberties you should welcome nearly anything legal that protects air travel from explosives, even the things that are really annoying and only modestly useful.

So that's that. I know that pretty much everyone in the universe disagrees with me about this. And obviously I'm not averse to pruning away some of TSA's dumber policies, making the security lines quicker and more efficient, and trying to get better at the largely invisible policing stuff that everyone agrees is essential. At the same time, while TSA's security procedures might have plenty of problems, they really do seem quite sensibly oriented toward the quite sensible goal of keeping explosives off of airplanes. I'm really not sure why everyone thinks this is nothing more than security theater.

Obama in 2012

Josh Marshall on Obama's chances in 2012:

People simply don't appreciate how seldom elected presidents get denied reelection. By my count, it's only happened three times in the last century. Carter, the first President Bush and Herbert Hoover. (If you come up with someone I'm missing I'll be terribly embarrassed. But please let me know.)

Actually, Josh is understating things. In general, Americans don't turf out parties from the White House in less than eight years. Hoover and Bush Sr. were both voted out after their party had held the presidency for 12 years.

The only exception to this rule in the past century is Jimmy Carter. There have been a couple of other close calls (Wilson in 1916, Bush Jr. in 2004), but that's it. 1980 is the only year in which a party got thrown out of the White House after only four years.

If the economy is in decent shape, Obama will win reelection. If it sucks, he's vulnerable. That's pretty much the shape of things.


I've lost two blog posts today. The first one was because I did something stupid. The second was because MoJo's blog software ate it. I'm tired of this.

So this is a plea for help. Can anyone recommend a good, simple Windows key logger? I don't need anything fancy, and I don't need to monitor other people's computers. Just my own. All I want is something that logs keystrokes to a file so that if I do something dumb, or the power goes out, or Drupal goes crazy, all I have to do is retrieve what I wrote from the log file and reconstruct it.

Any recommendations?

UPDATE: OK, I guess we can skip this. I'm already aware that writing in a different window would solve most of my problems with lost posts. For various reasons I prefer not to do this, but obviously it's an option.