Browsing the blog archives for February, 2009.

Grading the Stimulus Ideas

US Politics

Word has it that the Senate has a compromise stimulus plan ready, but the details are being held up while negotiations are still in progress.  We might not know what is in the package, but we’ve seen plenty of trial balloons over the last couple of weeks.  Here are my thoughts on those ideas, both as stimulus and as good policy.  I’ve provided a grade for both and these grades represent only my thoughts.

Critical infrastructure project spending (Stimulus: A+, Policy A+)

This one is a no-brainer for Congress and you could easily spend a trillion dollars on just this alone if Congress has sufficient desire.  Infrastructure spending results in the direct creation of jobs and the purchase of mostly local materials.  Infrastructure improvements directly benefit the economy by laying the groundwork for more efficient use of resources as in roads, electrical grid or data grid improvements or by minimizing loss with levy improvements and wildfire control.

Non-critical infrastructure project spending (Stimulus A, Policy C)

Non-critical infrastructure is my friendly term for a certain type of pork.  But pork is bad, right??  For most people, pork is only bad if it is not in their district.  Still, pork is stimulus for the same reasons that critical infrastructure spending is.  Almost by definition, the spending is very localized, it stays in the US economy and generates local jobs.  What makes it bad policy is that the future benefits of pork spending are secondary to the local, short term impact.  That new VA hospital might be useful, but not in a district with no veterans.  The center to study frisbee dynamics at the local university?  Those research dollars might allow the college to keep a couple of professors on the payroll and maybe avoid a tuition increase next year.  Will it generate the type of sustaining, well paying industries that might have been spawned from putting that money in stem cell research?  Probably not.  Still, that bridge to no where is valuable to the folks living in no where and some projects are too big for local governments even if they have great local value.  Pork doesn’t always have to be bad.

Incentive payments for purchases (Stimulus: C, Policy D)

There’s talk of a $15,000 credit to new home buyers and possibly a credit for car purchases as well.  On the home owner front, this will certainly allow some renters who are close to moving into home ownership to make the leap.  It will also prop up home prices since sellers will know that buyers have this incentive and price their homes accordingly.  Buyers and sellers with a little more cash might go out and buy a little more, but peope are afraid to spend and this type of credit is a very indirect way to stimulate the economy.  It also doesn’t increase sales, just moves them up.  Car and home buyers taking advantage of the credit are probably already in the market and would make a purchase in the next year or two.  By incenting them to buy now, you get a short term boost, but drain the pool of buyers for the next couple of years.

Increased “safety net” payments (Stimulus D, Policy A)

With more people out of work, there is a lot of talk about extending unemployment benefits are making shifts in the tax code to help those at the bottom of the spectrum.  The children’s health insurance program, SCHIP, has already been extended.  In terms of stimulus, this is not going to do much.  Many people in this situation have reduced their spending as far as they can and they are getting by on credit.  More government support will allow them to limit the debt spiral, but it won’t make them spend any more money.  But in terms of policy, this is a home run.  The rapid increase in the unemployed is the first pebble in an avalanche that could overwhelm our social systems.  The demands of high unemployment suck up all the available oxygen at the state level, killing other necessary programs and forcing cutbacks in other areas where we need more spending, not less.  Increasing government support in this area limits this disruption and provides enough time for the shocks to be absorbed by the states.

General tax breaks or credits (Stimulus F, Policy F)

I love low taxes as much as the next guy, but in the situation we’re in now, they have no stimulus effect.  I’m sure my Republican friends would disagree, but the whole idea of the stimulus is for the government to make up for the lack of private sector spending.  The private sector is not spending because of fear.  Some of that fear is very reasonable (“will I have a job tomorrow?”) and some is irrational (“things are bad!”).  In a mild recessionary situation, tax breaks add a little more to the banking account and provide a little “wealth effect” spending, but all the tax breaks in the world are not going to alleviate the fear running through the economy.  People are hoarding their dollars and if you give them a small tax break, they will just hoard it also.  Without spending, there is not stimulus.  From a policy point of view, tax breaks are also terrible.  Over the last couple of decades and especially under the Bush administration, Americans have come to believe that the federal government has tons of money and can do everything without any contribution from them.  You really don’t see this on a local level.  Communities that lay out reasonable, transparent bond referendums for education or recreation generally are successful in getting the votes they need to move forward.  People understand that services must be paid for.  We’ve lost that sense at the federal level.  Tax breaks at this point would further undermine the idea that we pay for what we receive.

Increased Higher Education Spending (Stimulus: B, Policy A)

OK, no one is really talking about this… but they should.  Our economy is changing and our population has to change to meet the need.  The GI Bill after WWII was one of the most successful long term spending efforts ever implemented by the US government.  What was a huge spending program at the time reaped an entire generation of well educated, productive employees who went out and grew the US economy into the juggernut that it is today, even in recession.  If you consider human capital as part of our country’s infrasturcture, this is a way to invest in that direction with proven long term results.  Create an opportunity for all of those unemployed workers to go back to school and get the training they need to really succeed.  It takes them off the unemployment lines immediately and pours money into their communities.  If you combine it with a living stipend, you can make it possible for displaced workers with families to pursue new opportunites.  When the economy needs them in a couple of years, they’ll be ready.

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How bad is it?

Economy, US Economy


It’s bad, real bad: “Recession-battered employers eliminated 598,000 jobs in January, the most since the end of 1974, and catapulted the unemployment rate to 7.6 percent [..] the highest since September 1992”:

The grim figures were further proof that the nation’s job climate is deteriorating at an alarming clip with no end in sight. [..]

The latest net total of job losses was far worse than the 524,000 that economists expected. Job reductions in November and December also were deeper than previously reported. [..]

All told, the economy has lost a staggering 3.6 million jobs since the start of the recession in December 2007. About one-half of this decline occurred in the past three months.

UPDATED: The NYT has some ferocious-looking graphs on the numbers, with individual details for added depression: blacks have been especially hardest hit, enlarging the race gap in unemployment again; those with only high school are significantly harder hit than those with college degrees. So the vulnerable suffer most.

It also has some choice quotes to hit home the seriousness of the situation:

“Businesses are panicked and fighting for survival and slashing their payrolls,” said Mark Zandi, chief economist at Moody’s Economy.com. “I think we’re trapped in a very adverse, self-reinforcing cycle. The downturn is intensifying, and likely to intensify further unless policy makers respond aggressively.” [..]

As in previous months, employers [..] slashed their payrolls in almost every industry except health care. Manufacturers eliminated 207,000 jobs, more than in any year since 1982. The construction industry eliminated 111,000 jobs. [..]

“This is a horror show we’re watching,” said Lawrence Mishel, president of the Economic Policy Institute [..]. “By every measure available — loss of employment and hours, rise of unemployment, shrinkage of the employment to population rate — this recession is steeper than any recession of the last 40 years, including the harsh recession of the early 1980s.” [..]

[S]ome analysts contend that the current rate of 7.6 percent understates the labor market’s problems because the percentage of adults participating in the labor force has slumped, and those people are not listed as “unemployed.” Peter Morici, an economist at the University of Maryland, estimated that if the labor force participation rate today were as high as it was when President Bush took office, the unemployment rate would be 9.4 percent.

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All hands on deck

Politics, US Politics

Nancy Cohen on HuPo is appealing on Obama to release his legions of campaign-era volunteers so they can help him press the agenda of political change. They offer a tremendous opportunity, yet “President Obama, in contrast to candidate Obama, seems as uncertain as a bailed-out banker about the net value of this once-prized asset.”

God knows this week has shown he could use the help.

The challenge: mobilize their mass engagement; yet leave them to do their own thing (the time for “the inordinate degree of control the Obama campaign maintained over its message, its lists, its staff, and its volunteers,” Cohen submits, is over).

Sounds like good advice – and it even comes with a somewhat tortured yet clever aphorism: “give a man a link and he’ll click for a day, give him the lists and the code to the site, and he’ll have your back for a lifetime”. But her piece is noticeably lacking in description of how it could be done.

The challenges involved are remarkably major, Politico recounted yesterday. Surprisingly major — and there’s a telling link here with Obama’s failure to keep control over the political narrative in what, to be honest, has been a F-up of a week. (Don’t get me started – that would, or still will, be a blog post of its own.)

As Jeanne Cummings writes, “The anxiety over lost momentum seemed almost palpable this week as the president in television interviews voiced frustration with his White House’s progress and the way his recovery program was being demonized as a Democratic spending frenzy.” She explains what’s going on backstage:

The Jetsons versus the Flintstones

Obama’s campaign was lauded for its visionary use of modern tools for old-fashioned politics. Through the Internet, it recruited supporters, collected dollars, rallied supporters and organized get-out-the vote operations.

But when these modern heroes arrived at the White House, it was like the lights all went out.

Their contact with their millions-fold supporters was cut off, literally, as e-mail systems broke down and ‘The List’ of political supporters was blocked at the iron gate.

To meet government ethics rules, the campaign operation and its grass-roots army were forced to de-camp to the Democratic National Committee, robbing the president of one of his most potent political weapons just as the stimulus bill was under consideration in the House.

But while the White House team struggled to adapt, [the Republicans] could practically sleep-walk through their attack plan [..]. It required two simple steps: Scream pork, call Rush Limbaugh. They even could have used a rotary phone.

The result: Every House Republican saw a free pass and voted against the first version of the bill.

The outcome is not surprising. Obama had roughly 90 people working at his headquarters on Internet outreach and new technology projects [..]. Even with closet-size spaces, the White House can accommodate only about 200 or so people for jobs ranging from national security to health care reform to Internet guru.

The Obama team “built this incredible campaign and now they have these ridiculously primitive tools. The communication tools they mastered don’t exist in the White House. It’s like they are in a cave,” said Trippi.

How weird that the office of the US President is so underequipped for the present, digital and networked political world. Partly, however, it’s also just a question of growing pains – hopefully, at least: read Pulitzer-winning journalist David Cay Johnston’s disappointing story about the ignorance and arrogance he’s encountered so far with the White House press office.

Partly it’s a matter of money. About $65,000 has been spent on pro-stimulus ads by unions and advocacy groups in a handful of states, Cummings notes, and compares: “in the last week of the presidential campaign, Obama was spending an average of $250,000 a day on commercials in the Philadelphia market, alone.”

Nonetheless, she also chronicles the multiple times the White House stepped on its own message and seemed to work against itself. It’s been a mess.

This is definitely a wake-up call. It may not be fair that Obama is not granted the traditional “honeymoon period”, but close to a trillion dollars is at stake already right now. (When’s the last time an incoming president faced such enormous actions so soon?). With other major initiatives coming up next which the Republicans will demagogue any way they can, the White House simply needs to shape up fast.

1 Comment

Stupid, stupid, stupid

Politics, US Politics

Joe Wurzelbacher aka the Plumber (via TNR The Plank):

Today I had one briefing, and that was at the Club for Growth, I spoke to Andy Roth. Now yesterday, I talked to the Heritage Foundation. I actually had the chance to talk to the Cato Institute as well, I guess you could call it a briefing, it was more of an interview. But all these bipartisan, or if you will neutral, think tanks are pretty much saying the same things.

Club for Growth, Heritage, Cato … “bipartisan, or if you will neutral, think tanks”. Words fail.

This, note, is a guy the conservative Republicans in Congress invited to star at their strategy meeting this week. As Obama said, back during the campaign: it’s like these guys take pride in their ignorance.

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Bob Marley vs. capitalism

Economy, Funny

So I’m chilling and listening to Bob Marley, you know – and he sings:

The stone that the builder refused / will always be the head corner stone

Beautiful, isn’t it? Even the ugly duckling among stones doesn’t need to fear – eventually, after always having passed it by and using better, more beautiful stones, the builder will have almost finished the construction and darn it – he will need that rejected, subpar stone for that prize spot at the very top after all.

But that doesn’t make any sense! That is, it would make sense if there was a definite, finite supply of stones available. If you have limited resources, the only way to ensure everyone gets a shot is by judiciously sharing them. That’s communism. But this is capitalism! Doesn’t he understand? It’s not about sharing the pie, it’s about expanding the pie!

In a market economy, if the builder runs out of stones, he won’t use the subpar stone he refused in the first place, he’ll just get more stones. Import them if need be. Cheap stones from poorer countries perhaps. And, well – if that stone that didn’t make the cut the first time round still wants to have a place in the building, he’ll just have to shape up and improve himself! Be a better, bolder and more productive stone, and face the competition!

Bob Marley, meet Ayn Rand.

2 Comments

The shooting party

Culture, European culture(s), European Politics, Politics

The Tagesspiegel reports that Hell’s Angels and militant neo-Nazis are fighting out a bloody feud in the northernmost German state of Schleswig-Holstein.

It all apparently started in 2007, when a Nazi stabbed a Hell’s Angel in a fight over debts, and the Hell’s Angel barely survived. The trial about that case was supposed to take place last August, but had to be suspended when dozens of neo-Nazis and Hell’s Angels battled it out in front of the court house. During that fight, Peter Borchert stabbed a leading Hell’s Angel. Borchert is the former chair of the National Democratic Party, which received 2% of the vote in the last elections in the state. He’s already done a stint in jail for illegal arms trade.

Now two unknown, masked men have shot the brother of the Nazi who started it all back in 2007 – and who was supposed to testify in the court case. He was shot on the parking place of a swimming pool.

The Tagesspiegel dryly notes that the Angels are “involved in activities related to tattoo studios, gastronomy, bouncer services, fight sports and online mail ordering” as well as connections with the prostitution sector and, it is suspected, illegal anabolics trade … “to some extent there are overlaps in the above-mentioned commercial sectors with members of the extreme right.”

Right.

So … how wrong is it if, as a normally passionate proponent of the rule of law, you’re not all too bothered when neo-Nazis and Hells Angels start taking each other out?

Bernd the Bread, with friends

Bernd the Bread, with friends

In other news from Germany today, a two-metre high statue of Bernd the Bread, a local children’s show character, was found back in abandoned barracks after protesting squatters kidnapped it from the town square of Erfurt two weeks ago.

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Glad to see Daschle go

Politics, US Politics

Neil Sinhababu at Donkeylicious echoes the sentiment that the real reason Daschle should be seen as bowing out should be “the revelations that he advised insurance companies and made hundreds of thousands giving speeches to industry groups”, not that he didn’t pay taxes on the free limo.

I’d say both reasons work. I think one of the most damning bits was actually about Daschle apparently having lobbied Obama for his financial patron, the very “old politics” Leo Hindery, to get a plum job in the administration. But TNR’s Eve Fairbanks eloquently made the case for even the limo thing to really count as well.

Meanwhile, though, Neil wonders that it can’t just have been the tax thing in any case, because – hey:

Geithner had tax issues too, and wasn’t a former colleague of lots and lots of Senators, and hadn’t helped Obama out very early on. So you’re going to need another variable to explain why Daschle had to pull out.

Hm – that one seems easy – dumb luck of the draw. Geithner was the first one in.

A new administration can wrestle one controversial appointment through on the argument that, yes, there are practical problems, but the guy’s just too uniquely qualified to pass on. But try to do that two or even three times in a row – when you’ve actively campaigned on clean government and breaking with business as usual – and you’ve got the potential of a backlash on your hands. And Obama’s got more reason than most incoming Presidents to want to hold off on any budding backlash among his own voters.

The luck of the draw part is that they could get away with Geithner; there’s always going to be some embarassing hurdle with some appointee. But then the problems with Daschle right on the heels of that? And even as that story was gaining traction, news breaking on Nancy Killefer’s nanny tax problem? That’s impressions potentially spinning out of control, and needing to be clamped down on.

Tom Daschle (Image shared under CC license by Talk Radio News Service)

Tom Daschle (Image shared under CC license by Talk Radio News Service)

I don’t think it would have been the same if economic times were good, when people, themselves enjoying the boom, would have been more tolerant to rich people’s foibles. Not now. It would also not have been the same if Obama had campaigned as an experienced old hand who knew the inside workings of administration. Then stuff like this would have been taken more as par for the course. But this was getting far too off-message, at the wrong time.

I’ve been pleasantly surprised at how even passionate fellow Obama supporters have come out against Daschle’s appointment once the scale of his foibles broke, actually. TPM’s Matt Cooper still made the point the other day that “the blogs are not on fire,” no real opinion-makers were coming out harshly against Daschle (yeah – Glenn Greenwald), and so he’d probably still be OK. But that was besides the point, or at least suggests he didn’t read the comments sections. It’s hard to tell from over here, but just going on what appeared online it seems the reaction among regular people, Democratic voters, liberals who aren’t professional pundits, was beginning to congeal into a groundswell of disapproval of sorts. I imagine many phones must have been ringing with constituent calls.

The issue with that is that Obama has made clear that one of his main strategies to push change through, even as he opts for bipartisan civility in DC, will be to mobilise civil society. To mobilise the energy of the campaign and use ‘pressure from below’ as a tool to persuade members of Congress and decision-makers to support the changes he champions. So he needs to avoid, at least for a while still, any impression taking root that he is just business as usual after all, new boss same as the old boss etc. I think he was wise to pull the plug.

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Annals of Scientific “I Thought So!”s: Recess

education, Uncategorized, US culture

Some people get annoyed when a scientific study goes and proves something that seems obvious. I love it. I find it very satisfying somehow — I don’t have the capability to go and do original research on all of this stuff, so it’s fun when someone else does the hard work and I get to say “I thought so!”

Here‘s the latest:

Children who misbehave at school are often punished by being kept inside at recess. But new research shows that recess helps solve behavioral problems in class.

Researchers from the Albert Einstein College of Medicine reviewed data on about 11,000 third graders, collected in 2002 as part of a large study, financed by the Education Department, to determine how an array of family, school, community and individual factors affected performance in school.

The study, published last week in the journal Pediatrics, found that about one in three of the children received fewer than 15 minutes of daily recess or none at all. Compared with children who received regular recess, the children cooped up during the day were more likely to be black, to come from low-income and less educated families and to live in large cities.

Children who had at least 15 minutes of recess scored better than the others on teachers’ behavioral ratings. Dr. Romina M. Barros, a pediatrician and assistant professor at Albert Einstein, said the data were important because many new schools were being built without adequate outdoor space for students.

“We need to understand that kids need a break,” Dr. Barros said. “Our brains can concentrate and pay attention for 45 to 60 minutes, and in kids it’s even less. For them to be able to acquire all the academic skills we want them to learn, they need a break to go out and release the energy and play and be social.”

This has been kind of a bugbear for me. When my daughter was in kindergarten, there was no recess at ALL. They were supposed to have recess but they didn’t because it was half-day kindergarten and they had so much to fit into their brief day. (The fact that kindergarten has become the new first grade is another bugbear but I’ll save that for another time.) They just didn’t have as much time to socialize as I thought they needed, and even though they were there for only a few hours, it was a pretty intense time.

Since she’s started all-day grade school, though, I have noticed a definite correlation between behavior and recess. They normally have two recesses of about half an hour each, but they don’t if the outside temperature goes below 20 degrees. We’ve had a lot of that, which means a lot of “indoor recess,” and a lot more behavior problems. While taking a break and socialization are big parts of why recess is important, just plain running around and burning off energy is another huge part of it.

4 Comments

Money raised versus result achieved: The Senate ’08 sweepstakes

Congressional Elections, Politics, US Elections, US Politics
Excel sheet: US Senate candidates 2008 - results and efficiency of financial investment

Excel sheet: US Senate candidates 2008 - results and efficiency of financial investment

Chris Bowers last week linked through to a site I hadn’t seen yet, noting that The Green Papers has the final popular vote and fundraising totals for all 2008 U.S. House of Representatives election campaigns. They cover all candidates too, not just those of the main two parties.

Bowers does a good job analysing the numbers, and above all, brings the good news:

The final popular vote percentages were 53.08%-42.55%, giving Democrats a 10.53% victory. This is the largest popular vote percentage victory for either party in either a Presidential or Congressional election since 1984 (the next largest victory was Bill Clinton with 8.51% in 1996). It is the first double-digit victory for any party in a national election in 24 years. That, truly, is a historical butt-whooping.

Turns out the Green Papers site has the same data for the Senate races. Fascinating stuff for political geeks. What caught my attention in particular is how the money the candidates raised compared to the votes they got. In short: how did their investments pay off?

So what I’ve done, in turn, is add a couple of columns to the data table, to calculate how much the candidates raised for every single vote they received, and for every single percentage point they won. The file is up at Google Docs. (It would arguably have been better to use the data for how much money they actually spent, but that would involve making a similar effort to The Green Papers’ and gathering the data for 2-4 candidates in each of 50 races from the FEC site onself).

Time then, to declare some winners!

Most expensive Senate race of 2008

As you’ll have guessed, that was the Minnesota race between Al Franken and Norm Coleman. The two men raised $20.5 million and $18.0 million, respectively. That translates to $488 thousand and $430 thousand for each percentage point of the vote they ended up winning – which ranks Al and Norm as #1 and 2 when it comes to raising the most money per percentage point won.

Don’t forget that Minnesota’s a fairly populous state, though. When it comes to how much money they had to raise for each individual vote they won, they rank a more modest #10 and 11. Meaning that they had to raise “only” – ponder this for a second – $17 and $15 for every single vote they won.

Most money spent on each individual vote

You’d think that states with small populations would also cost less to campaign in. This is true – up to a point, apparently. The top of this list is filled with candidates from “small” states, who made Franken and Coleman look practically callous about the individual voter’s worth.

Your vote was worth most up in Alaska. Mark Begich raised a total of $4.4 million – which translates to a royal $29 for every single vote he received. His opponent, Ted “bring home the pork” Stevens, was right up there too and raised a stunning $26 per vote – in vain.

Max Baucus from Montana and the two contenders in the New Hampshire race, John Sununu and Jeanne Shaheen, also ended up raising at least $23 per vote.

Continue Reading »

14 Comments

Shoe-Throwing Taking World By Storm!

International Politics, Uncategorized

The shoe. Look at the big honkin' sole on that thing!

Well, a bit of hyperbole. (That’s the fun thing about titles. Tailor-made for hyperbole.)

I do remember thinking when that Iraqi guy did it that it was the sort of simple-but-obvious thing that was likely to be replicated. What, are they going to make everyone take their shoes off at any sort of public event? (“They” being anyone who is in the business of protecting a high-up muckety-muck who faces a possibly disgruntled public.) Make everyone wear Crocs?

Now it’s happened again — a student threw his shoe at Chinese Premier Wen Jiabao yesterday. The shoe landed “several meters away.”

I had originally thought that this happened in China and that the thrower was Chinese, and actually stopped at this point in my draft last night because I suddenly worried what would happen to the thrower. I read about it this morning, though, and evidently the whole thing happened in England (a speech at Cambridge University) and it’s unclear what nationality the thrower was but he may have been German.

Evidently the Chinese media doesn’t want to give anyone any ideas, though — for a while, they left out the shoe-throwing from accounts of the speech. Chinese blogs went ahead and talked about it, leading (?) the media to break its silence.

Go blogs.

A Chinese Foreign Ministry spokesperson expressed official displeasure: “Facts show the troublemaker who conducted this mean act is not accepted by the public, and he will not stop the trend of a developing friendly relationship between China and Britain.”

“Mean”?

3 Comments

I was wondering how this would play out…

US culture, US Politics
I took this photo of Obama volunteers in Columbus last fall (I dont know their names).

I took this photo of Obama volunteers in Columbus last fall (I don't know their names).

During the presidential campaign, I kept having the same conversation with fellow Obama campaign volunteers — that win or lose, we were going to keep doing stuff once the election was over. These volunteers all seemed to feel like they wanted to make the world a better place, and while that was part of why they liked Obama, they planned on doing that no matter what — and they were happy to meet others who felt the same way and to forge alliances and make contacts.

I’ve already seen a few large-scale manifestations of this, starting with the Obama-run “Day of Service” on January 19th, and going through various MoveOn and TrueMajority appeals I’ve seen that use the email lists they amassed when they were working on behalf of the Obama campaign.

But I’m now seeing the first truly grass-roots manifestation. There have been a spate of robberies in our area and one of the people I worked with on the campaign decided to do something about it. She’s forming a standard Neighborhood Watch program, but then also is organizing a series of informational events by the police department, covering ways that you can increase your security. (A neighbor had been robbed and then was given pointers on how he could help prevent it in the future, and she thought those pointers were worth sharing with the community.)

She fired up the old Obama volunteer email list (local version) and we’re all pitching in same as before. Someone’s designing fliers to advertise the meeting, someone else is covering printing costs. We’ll each be taking a street or two to do literature drops, and we know the drill (can’t put them in mailboxes, etc.)

It’s fun to be talking to people I know through volunteering but not in everyday life again, and the project is working out fantastically well so far.

I can easily see this becoming a regular thing. The infrastructure already there can be put to quick and painless use for any number of purposes. I may even think up a cause to take up next time. (Hmmm….)

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Consuming From Income, Not Wealth

Economy, Politics, US Economy

I read an article called “A Smarter Stimulus” in the New Yorker when it first came out — I keep thinking of it again when I see disparaging references to the tax cuts in Obama’s stimulus plan, such as Frank Rich’s recent column.

I find the whole economic mess daunting and appreciated the clear explanation of one aspect of the proposed stimulus package that is encouraging.

Evidently not all tax cuts are equal.  The Bush tax cuts did not accomplish much because they were treated as a windfall, and people tend to shunt those into their savings accounts.  The Obama tax cuts will be different — they will take the form of less withholding from paychecks.  The article explains the difference, in terms of the effect on the economy:

The size of the windfall matters a lot: the bigger the windfall the more likely it is to be saved. One fascinating study of Israelis who received reparations from Germany found that those who received the biggest payments spent very little of the money, while those who received small payments spent it all

The key factor in these kinds of distinctions, Thaler’s work suggests, is whether people think of a windfall as wealth or as income. If they think of it as wealth, they’re more likely to save it, and if they think of it as income they’re more likely to spend it. That’s because many people tend to base their spending not on their long-term earning potential or on their assets but on what they think of as their current income, an amount best defined by what’s in their regular paycheck. When that number goes up, so does people’s spending. In Thaler’s words, “People tend to consume from income and leave perceived ‘wealth’ alone.”

So what does this mean for making a rebate work? If you want people to spend the money, you don’t want to give them one big check, because that makes it more likely that they’ll think of it as an increase in their wealth and save it. Instead, you want to give them small amounts over time. And you want the rebate to show up as an increase in people’s take-home pay, because an increase in steady income is more likely to translate into an increase in spending. What can accomplish both of these goals? Reducing people’s withholding payments.

That’s a large excerpt but not the entire article — I encourage you to read the whole thing.  The conclusion:

On its own, Obama’s rebate plan isn’t going to resurrect the economy. But it’s a policy that works with people as they are, rather than as we imagine they should be. And that’s a stimulus in itself.

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