Correlation Still Does Not Equal Causation

Nancy Pelosi’s office blogged about the Department of Labor’s latest jobs report. This graph is included in the brief entry:


From this, Rep. Pelosi declares:

Today’s jobs report marks a welcome step in the right direction for our economy and our families: the unemployment rate is going down. The Recovery Act, which Congress passed one year ago to pull our economy back from the brink of collapse, has already created or saved nearly 2 million jobs so far.

Yet our work is far from over. This recession that President Obama inherited has taken the worst toll on our job market since World War II. Too many workers have lost their jobs through no fault of their own. Leaders of both parties must work together to keep our recovery on track by helping small businesses create jobs, investing in our infrastructure and clean energy industries, and keeping police, firefighters, and teachers on the job. Congress will continue to act to build a new foundation for long-term prosperity.

I see the correlation I’m supposed to perceive, but that doesn’t prove what Rep. Pelosi expects me to assume, that the American Recovery and Reinvestment Act is the reason the graph looks as it does. It’s easy to claim success when you establish superficial results as the standards for success. If she’s going to make this claim, she must defend it with specific details about how money was spent and how that improved the jobs situation. Saying it isn’t enough if you’re skeptical of power rather than merely skeptical of your ideological opponents.

(Via Irene retweeting Markos Moulitsas)

More Spending Increases for the Non-Rich?

The Washington Post makes the same mistake in an editorial that I criticized on Tuesday.

AT A TIME of soaring deficits and growing needs, the Senate is weighing whether the wealthiest of wealthy Americans should get a tax break worth some $250 billion over 10 years. …

If you guess that there’s no discussion of not spending so much money, or even an explanation of growing needs, you’ll be correct. Even though the Post’s editors tell us this tax “would hardly be punitive”, they justify themselves by saying “[w]hy in the world should these folks get more of a tax cut?”. Perhaps we should consider the idea that our government should treat everyone equally rather than picking a politically-convenient minority to act as the nation’s ATM-of-last-resort.

Not that we should be surprised. The editors conclude the first paragraph with this:

… aren’t there better uses of hundreds of billions of dollars than reducing taxes even further for the tiny sliver of Americans subject to the estate tax?

Who gets to decide what better uses exist? Those who have the money (that was already taxed as income in some form)? Or those who vote to take it from them? This is a test of whether or not one believes that central planning is more effective and more legitimate than individual choices. I do not think it is, on either front.

Nor am I convinced by the Post’s evidence-free implication that lower estate taxes will harm charities. Such social engineering is hardly justified, even if the Post offered convincing evidence. What people do with their property is their business alone. But our history is full of examples of the wealthy leaving their estates to philanthropic ventures rather than leaving their heirs with every remaining penny they saved.

The solution to the problem is (A) or (A).

On the general subject of taxation, Matt Yglesias
defends sustained and increasing progressivity (emphasis added):

As Ed says, the argument is that “we can’t have progressives taxes because somebody’s rich uncle might not have the wherewithal to subsidize somebody’s business start-up.”

I’m not going to dignify this with a response. I’ll just note that Schramm is president and CEO of the Kauffman Foundation and I believe he was in the room when I first heard the “rich uncle” argument, so I may have been present at the creation of this particular talking point. Meanwhile, the crippling long-term budget deficits that will result from refusing to raise new revenues are not going to be doing any wonders for entrepreneurs. And perhaps more directly to the point, the lack of a guarantee of affordable health coverage is a major impediment to entrepreneurship in the United States. The status quo systematically discourages talented, skilled people form leaving jobs at existing firms in order to strike out on their own, and this is one of the things the administration is trying to address in its budget proposals.

It’s very useful to frame problems with the solution in mind.

Long-term budget deficits occur because Congress does not match spending to tax revenue. (They are crippling because Congress believes that politics is more important than either economics or accounting.) There are at least two solutions. Congress can raise new revenue, as Yglesias suggests. Within that solution, it can raise taxes on high-income Americans or lower-income Americans. Fairness and equality in treatment suggest that everyone should share the burden, if we are to raise taxes. That’s beyond my point here, so I’ll back up and reiterate: Congress can raise new revenue. Congress can also reduce spending. Is that not an acceptable option? Ignoring it reeks of a preference for social engineering over responsibility.

Nor would I write that the lack of a guarantee of affordable1 health coverage is the impediment implied. If person X quits her job to start a business, she loses her medical coverage after a certain period of (more expensive) COBRA coverage. Tying health insurance to an employer is the problem. If her business becomes successful, then her employees will be burdened as she was if they want to leave. The system is flawed and needs to be fixed because it limits individual choices. We should begin our search for a solution from that starting point. Changing our treatment of health insurance to resemble other decisions individuals make for themselves independent of how they earn income is a possible solution Mr. Yglesias ignores.

The general theme within Mr. Yglesias’ framing appears to be a push for equality of outcome rather than equality of treatment. Equality of outcome will never happen in practice for precisely the reasons that his proposed solutions are possible in America. The political atmosphere makes it possible to treat others “more equal” by pitting one group against another, with the politicians conveniently acting as final arbiter. Endorsing that system is at least an implicit statement that control is fine as long as you are the one in control. It’s either that, or the person proposing such a statement is ignorant. I don’t think Mr. Yglesias is ignorant.

1 I will ignore the issue of affordability here. Such a subjective word requires a much deeper analysis, including the trade-offs, that I’m not interested in addressing in this post. Let it suffice that Mr. Yglesias and I probably agree very little on the matter.


LINK: From the April issue of reason, Matt Welch addresses the ongoing topic of “liberalterianism” and how it’s doomed. The heart of his argument, which I agree with completely:

It is certainly no surprise that any party, let alone the Democrats, would want to use that fancy government once it held the awesome reins of power. Unified Republican governance this decade should disabuse even the most gullible from the notion that either of our two major parties is ever going to enact a small-government agenda, especially during a perceived crisis. But already during Obama’s first 100 days we’ve seen how quickly liberals will turn against libertarians once they’re no longer swinging at the same piñata.

Small-l libertarians will never find sufficient common ground with anyone interested in maintaining partisanship at the expense of ideas.

LINK: Also from reason Ronald Bailey discusses a free market approach to health care coverage proposed by University of Chicago economist John Cochrane.

So how does health-status insurance work? As Cochrane explains, “Market-based lifetime health insurance has two components: medical insurance and health-status insurance. Medical insurance covers your medical expenses in the current year, minus deductibles and copayments. Health-status insurance covers the risk that your medical premiums will rise.” Cochrane offers the example of a 25-year-old who will likely incur $2,000 in medical expenses in a year. His medical policy component would thus cost about $2,000 per year, plus administrative fees and profit. For purposes of illustration, Cochrane then assumes the 25-year-old has a 1 percent risk of developing a chronic medical condition that would increase his average medical expenses to $10,000 per year. In that case, he would be able to buy medical insurance for $10,000 per year—which is a big financial hit. That’s where health-status insurance comes in: It insures that you can be insured in the future.

I’m not fully convinced that this would work, but I’m not unconvinced, either. I don’t know enough. However, the idea seems to be based in personal responsibility. Life is unfair, so some of us get sick. There are costs involved. It’s unfortunate if medical costs cause financial distress. We should mitigate that, but provide individuals the options to do that for themselves. That is the right approach.

Mr. Cochrane also discusses how his plan would help separate health insurance from employer provision. That will be a feature of any responsible health care reform. (Transferring the incentive from employer to government does not qualify as that type of responsible reform.)

LINK: Harold Meyerson is an incurious propagandist:

But in the United States, conservatives have never bashed socialism because its specter was actually stalking America. Rather, they’ve wielded the cudgel against such progressive reforms as free universal education, the minimum wage or tighter financial regulations. Their signal success is to have kept the United States free from the taint of universal health care. The result: We have the world’s highest health-care costs, borne by businesses and employees that cannot afford them; nearly 50 million Americans have no coverage; infant mortality rates are higher than those in 41 nations — but at least (phew!) we don’t have socialized medicine.

Universal education is not “free”. The minimum wage costs jobs. Financial regulations overlooked obvious warnings of Bernie Madoff. “Nearly 50 million” uninsured is not true. Infant mortality is more complex than a quick comparison can demonstrate.

He also wrote this, so it’s clear that he’s interested in his narrative more than facts.

Take it from a democratic socialist: Laissez-faire American capitalism is about to be supplanted not by socialism but by a more regulated, viable capitalism. And the reason isn’t that the woods are full of secret socialists who are only now outing themselves.

We do not have laissez-faire capitalism. No amount of stating preferred explanations will make them true.

LINK: Steven Pearlstein defends President Obama’s budget in a way I don’t fully understand.

In the meantime, the federal government is one of the few entities that is still able to borrow in the current environment, and given the perceived safety of buying government bonds, the cost of that borrowing is about as low as it has ever been. From a purely cash-flow point of view, substituting 18 percent credit card debt with 3 percent Treasury bond debt is a positive development for the grandchildren.

The 18 percent credit card debt makes no sense here. Government borrowing isn’t replacing that. And my hypothetical grandchildren do not have any debt right now. Adding more, even at 3 percent, is hardly a positive development for them. The administration intends to grow the debt, not refinance it.

Refinancing costs are relevant, too. If the so-called positive development of new debt at 3 percent interest helps us, what will this new debt look like at 4, 5, or more percent when interest rates rise, as they will? Maintaining the apparently-permanent interest payments is a cost.

He continues with a bit about how infrastructure creates lasting economic value without defending it. Would the Bridge to Nowhere have justified its cost? Doesn’t matter, it seems. He reassures:

Strange as it may sound, there are times when it’s necessary to make things worse in order to make them better. Fighting a war to achieve a lasting peace. Making a patient sick to cure his cancer with radiation or chemotherapy. And, yes, taking on more debt to help get the country out of a debt-induced recession.

Unlike chemotherapy, where doctors eventually stop dosing a patient, what evidence do we have that politicians will ever believe we’ve reached the “ideal time for the government to deleverage and put its financial house in order”? The new deficit spending is permanent. The only open question once the budget passes is who will pay for it. Right now, the answer is “the rich” and the Chinese. Eventually, it will be the middle class, including all of our grandchildren.

LINK: Wanting an iPhone does not mean a consumer is entitled to an iPhone with the carrier of his choice.

The Consumers Union, the New America Foundation, and the Electronic Frontier Foundation, as well as software provider Mozilla and small wireless carriers MetroPCS (PCS) and Leap Wireless International (LEAP), are lining up in opposition not only to the Apple-AT&T partnership, but to all manner of arrangements whereby mobile phones are tethered exclusively to a single wireless service provider.

Apparently a voluntary contract between two parties means nothing if it means a consumer has to then make a choice that she doesn’t like. I want an iPhone with Sprint, but I can’t get it. My response is to decide which has more value and act accordingly, not whine to the government.

More Consumers Union nonsense here and here.

Ron Paul is still not a libertarian.

Too many libertarians pounced on the promise of having a libertarian candidate for president. Hence, Rep. Ron Paul generated significant support from libertarians last year. He still receives many kudos. Unfortunately, Ron Paul is not a libertarian. The few labeling him as such harms us all. Yesterday Andrew Sullivan linked to a story about Rep. Paul with this introduction:

Even libertarians get their pork:

The story:

Rep. Ron Paul vehemently denounced the $410 billion catch-all spending bill approved last week by the House of Representatives.

But although the libertarian-leaning Republican from Lake Jackson cast a vote against the massive spending measure, his fingerprints were on some of the earmarks that helped inflate its cost.

Paul played a role in obtaining 22 earmarks worth $96.1 million, which led the Houston congressional delegation, according to a Houston Chronicle analysis of more than 8,500 congressionally mandated projects inserted into the bill. His earmarks included repair projects to the Galveston Seawall damaged by Hurricane Ike and the Gulf Intracoastal Waterway.

Rep. Paul is touted as Dr. No because he votes against what he believes to be beyond the legitimate powers of the federal government. That would earn my endorsement, except he behaves without principles. Yes, that money is going to be spent somewhere else if Rep. Paul doesn’t request it for his district. That does not mean he has to request it. He requests it, repeatedly, because he figures it might as well go to his district. His actions legitimize the illegitimate expansion of the federal government. He harms the credibility of libertarianism as a political philosophy.

This reminds me of something I posted early last year when the Ron Paul newsletter mess was in the news. It’s a quote from Wirkman Virkkala:It is an odd thing, trying to be a civilized person in the libertarian movement — or in modern society. You have to keep some independence of mind. You cannot allow yourself to become part of any cult. For all the leaders will betray you. All the prophets will prove false. All the gems will prove brummagem.

As libertarians do we really need to keep repeating this lesson? Shouldn’t we understand this by now?


More from the Houston Chronicle article:

Earmarks, said Rep. Ted Poe, R-Humble, “allow lawmakers to have a say in how taxpayer dollars (are) spent.” His nine earmarks included $712,500 to mitigate airport noise at George Bush Intercontinental Airport.

“It is in the best interest of the taxpayers,” Poe said, “to have their member of Congress secure funding for local projects than to leave it up to unaccountable and un-elected bureaucrats in Washington.”

It is in the best interest of the taxpayers to have them make their own funding decisions for projects they endorse and deem necessary. Don’t act pious because you redistributed my money rather than a bureaucrat. Taking my money and giving it to someone else is still taking my money. Why should I pay to repair the Galveston Seawall, which is more than 1,400 miles from my home?

Prior Ted Poe nonsense here and here.

Capitalism improves. Social engineering punishes.

In yesterday’s Washington Post, E.J. Dionne wrote a column around this idea:

The central issue in American politics now is whether the country should reverse a three-decade-long trend of rising inequality in incomes and wealth.

Politicians will say lots of things in the coming weeks, but they should be pushed relentlessly to address the bottom-line question: Do they believe that a fairer distribution of capitalism’s bounty is essential to repairing a sick economy? Everything else is a subsidiary issue.

Apparently we can’t ask whether or not our current and prior attempts to achieve a “fairer” distribution of capitalism’s bounty contributed to our sick economy. Not that we have capitalism in the way that Dionne wishes to imply. The failings of a mixed economy do not prove that it’s time to toss the capitalism from the mix. Making that case requires a bit more than tossing around the undefined, subjective word fair and pretending that the argument is won.

As Dionne continues:

“Over the past two or three decades, the top 1 percent of Americans have experienced a dramatic increase from 10 percent to more than 20 percent in the share of national income that’s accruing to them,” said Peter Orszag, Obama’s budget director. Now, he said, was their time “to pitch in a bit more.”

Is there more direct proof that liberals view the rich as the nation’s piggy bank than claiming it’s time for the top 1 percent “to pitch in a bit more”? Does Orszag mean the top 1 percent who paid 39.89% of all federal income taxes in 2006? Dionne is saying that it’s okay to increase the existing unfairness in the tax code because the disparity in income at the extremes is unacceptable to his sense of fairness. He must ignore the question of whether or not the alleged victims of the unfairness of capitalism’s bounty are better off than they were in the past. He concludes:

Do we want to be a moderately more equal country or not? This is the question Obama has put before the nation. Let’s debate it without the distracting rhetorical sideshows designed to obscure the stakes in the coming battle.

I would ask something different: Do we want to be a more productive country or not? Does everybody gain, even if the distribution is “unfair”, or do we harm some to improve others in the short-term? Dionne has the wrong preference.

Fiscal Irresponsibility (D-US) replaced Fiscal Irresponsibility (R-US)

And the government-as-parent continues:

President Obama warned the nation’s mayors yesterday that he will hold officials at all levels of government accountable for how they spend federal stimulus money, pledging to “call them out” if the funding is wasted on projects that do not generate jobs for the struggling economy.

Politicians are incapable of being shamed, so this is pointless. There’s also real money involved, so I’m not comforted knowing that waste will be dealt with through stern words. More to the point, this:

“If you’re seeking to simply fund a personal agenda at the expense of creating jobs and using taxpayer money to do it, the president will call that out and stop it,” press secretary Robert Gibbs said yesterday. “That’s true for agencies and members of this administration. That’s true for governors. That’s true for mayors. That’s true for anybody that might take part in any amount of this funding.”

How is this an option? The government will spend $800 billion. If we’re to believe that it’s money well spent, then there should already be a plan for every penny. I don’t believe that, of course, but we’re still supposed to trust what is clearly a plan based on the belief that money spent is money well spent. That’s the Keynesianism we’re stupidly embracing. And the Obama administration is saying that we have to spend the money without extended consideration, but if it’s not spent well, he’ll call out those responsible. The one person out of his line of ire is himself. An accident, I’m sure.


This popped up today, tying uncomfortably to the previous story:

Less than a week after signing the largest economic stimulus package in U.S. history, President Obama is turning his attention to the nation’s long-term financial condition with an unprecedented effort to rein in government spending.

To kick off the effort, the new president has invited about 130 people to the White House State Dining Room on Monday for a “fiscal responsibility” summit, a marathon session on long-term budget-busters such as Social Security, Medicare, federal purchasing and tax policy.

Perhaps the time to do that was before shoving $800 billion out of the Treasury as quickly as possible. But it’s okay, a room full of partisans should be able to hammer out their differences in a marathon session. We’ll be saved!


On a less comforting note, I’m starting to sense that press secretary Robert Gibbs, at least, views President Obama as an economic dictator. I am not reassured.

Insight from an Irrelevant Question

From President Obama’s press conference last night, one reporter asked a pointless question about Alex Rodriguez and steroids. I don’t much care for the story, although if you played a drinking game based on his answers, you got to drink because he broke out the “for the children” defense. (But, remember, he’s not playing political games, unlike the rest of Washington.) Still, there’s something useful in his answer [transcript here]:

Q Yes, thank you, sir. What is your reaction to Alex Rodriguez’s admission that he used steroids as a member of the Texas Rangers?

THE PRESIDENT: I think it’s depressing news on top of what’s been a flurry of depressing items when it comes to Major League Baseball. And if you’re a fan of Major League Baseball, I think it — it tarnishes an entire era to some degree. And it’s unfortunate, because I think there are a lot of ballplayers who played it straight. And the thing I’m probably most concerned about is the message that it sends to our kids.

What I’m pleased about is Major League Baseball seems to finally be taking this seriously, to recognize how big of a problem this is for the sport. And that our kids, hopefully, are watching and saying, you know what, there are no shortcuts; that when you try to take shortcuts, you may end up tarnishing your entire career, and that your integrity is not worth it. That’s the message I hope is communicated. [emphasis added]

The correct lesson is that shortcuts have consequences that each person must weigh for himself. Borrowing and spending $800 billion in an attempt to prop up an economy that has fundamental problems caused by government profligacy is a shortcut. It will have consequences. But with government the lesson is always the same. It’s not okay for an individual to take a shortcut that may have long-term consequences limited to himself because the shortcut offends our morals. But when government forces everyone to take a shortcut, then it’s okay because the shortcut is for the public good. Somehow.

Video here.

Presidents sign the bills that control the economy.

Via John Cole, this editorial cartoon (original source – Steve Greenberg):

Of course this is too blunt to be accurate. There is the additional guilty party, the Congress. It’s more reasonable to suggest that their guiltier, but the nature of our political system produces the marketing message conveyed in this cartoon. Better to just take the message that politicians lie.

Take the beauty of divided government as the better lesson. It’s not perfect because you can see the results of divided government under Reagan, Bush, and Bush. Maybe they would’ve been worse with unified government. Maybe not. I don’t want to speculate here. So I’ll just suggest that pre-W Republican fiscal partisanship controlling Congress and a philandering Democratic fouling the White House are approximately what America needs forever more. Petty distractions from the task of legislating. Maybe we’d no longer need to believe in the same change every four, eight or twelve years.

Businesses are people, too.

From Robert Samuelson, here’s an odd column in today’s Washington Post. I’m not interested in tackling specifics because Mr. Samuelson seems to offer mostly his own guesses as to the future of spending in America. But he did amuse me with a contradiction.

To say that the shopping spree is over does not mean that every mall in America will close. It does mean that consumers will no longer serve as a reliable engine of growth. Consumption’s expansion required Americans to save less, borrow more and spend more; that cycle now seems finished. Without another source of growth (higher investment, exports?), the economy will slow.

This is an interesting thesis, perhaps. But much later, he offers this:

What can replace feverish consumer spending as a motor of economic growth? Health care, some say. Health spending will surely increase. But its expansion will simply crowd out other forms of consumer and government spending, because it will be paid for with steeper taxes or insurance premiums. Both erode purchasing power. Higher exports are a more plausible possibility; they, however, depend on how healthy the rest of the world economy remains without the crutch of exporting more to the United States.

How is health spending not consumer spending? Economically, is paying a doctor to fix my heart different than paying a mechanic to fix my car’s fuel pump? Both are payment for a service. The importance we apply to the two, as well as demographics in both population aging and car ownership, matters, but not in how we think about spending. In a free market, people will spend on what they value. But people will spend.

Mr. Samuelson’s point that health spending will crowd out consumer spending is strange, coming after he posited that consumer spending is declining. It’s also strange to claim as a blanket statement that higher insurance premiums erode purchasing power. Surely at least some of the risk protection purchased through premiums will be consumed through health spending. How – and how much – does it matter who pays the service provider?

Inevitably that leads to another point. Higher exports are a more plausible possibility. Fine. But to suggest that this is surprising or new requires an unwillingness to define “consumer” as one who consumes rather than an individual who consumes. Does the business creating new products not need equipment to build those products or computers to manage that production? Does the business shipping those products to foreign markets not need trucks and ships? What about packaging material to protect those products during shipment?

It’s possible, maybe even probable, that Mr. Samuelson’s prediction will prove true. It’s problematic because it views specific spenders as the objectively preferable path. It’s better to understand that the economy is large, global, and dynamic. It will change. When allowed to adapt, change will mean long-term progress, despite any short-term bumps. But when viewed as something to be wrapped around a preferred path, problems abound. It’s projecting tomorrow based on yesterday, when every first year finance student is exposed to learns the idea that past performance does not equal future performance.

Mr. Samuelson concludes that “the ebbing shopping spree may challenge the next president in ways that none of the candidates has yet contemplated.” The economy will always challenge the president in ways not yet contemplated. That’s why the president should avoid meddling.