Ezra Klein is again reporting that a Fiscal Cliff deal is almost done. And once again, I don’t get this deal. He says that we will see the 39.6% tax bracket but only for incomes over a million dollars. There will be something less for incomes over $250,000 amount. In return for this, the president gets an extension of unemployment benefits and some unnamed stimulus spending. But the payroll tax cut will end. And the biggest thing of all: we will change the way that cost of living adjustments to Social Security are made.

People are calling this new chained-CPI a reduction in benefits. It is most definitely that! But it is also a backdoor way of destroying Social Security. The program will not keep up with inflation. The truth is that the current COLA for Social Security is probably too low, because of what seniors actually buy. For example, they buy a lot of drugs that don’t go down in price and they buy relatively few electronic devices that do.

The trick to chained-CPI is that it assumes that people will substitute. If flashlights get too expensive, people will switch to lanterns! Really. Although it is more along the lines of energy substitution. If heating oil gets too expensive, people will switch to gas. The problem is that this is very likely not an option. When was the last time you changed your water heating system because the price of energy changed? And how much did it cost? But again, the point is not to more accurately model how prices increase; it is to destroy Social Security; or at least to cut it without anyone noticing.

I can very much see Obama going along with this. But it is madness. As I’ve written before, this is not a good deal. What exactly does he think he’s getting? A temporary extension of unemployment? Less tax rate increases than he would get if he did nothing? Unnamed stimulus? None of this makes up for permanent and worsening changes to Social Security!

Update (18 December 2012 8:48 am)

Paul Krugman reports that the deal supposedly includes a capital gain tax increase back up to 20%. Also it is supposed to cap itemized deductions. Even with these, I don’t like the deal. But as Krugman puts it, “If I’m wrong about [the extra tax increases], this is easy: no deal.”

Update (18 December 2012 9:56 am)

Jonathan Chait is at it again. He makes an argument that he, more than almost anyone, should know is bad. He claims that tax increases are the key because “not even conservatives” wanted to cut discretionary programs when they came face to face with them. But that was 20 years ago. As Chait has noted before, the Republican Party is a little different now.

On Friday, Dylan Matthews wrote an article that mostly just included the following graph. The first line is what would happen if we just allow the taxes to go back to their Clinton levels. That would be a very regressive tax increase! But really, the only one that is really progressive and—given the growth of income inequality over the last three decades—the only one that is at all just is the Obama Budget. And it shows that this is not about class warfare: no one really expects those who are doing well but not great to pay that much extra. We would just like those who have seen their incomes soar pay back a little. That isn’t because we hate them. It is because it is only fair.

Today, Jonathan Chait wrote his only article about the shooting thus far, The Bracing Political Reality of Gun Control. He notes that there is one good thing to come out of this tragedy: we woke up to the fact that the conservative appeal that we not politicize mass shootings is itself politicization. And so people are talking.

But he continues on to argue that we are fooling ourselves if we think that this event will lead to a big change in gun laws. I agree with him. This goes back to an argument I have long made: politicians will at best listen to their constituencies. Why should a representative from a deep red district in Mississippi change his stance on guns just because people are screaming in New York? And Chait isn’t being cynical. Quite the contrary, actually. He says that if we want to change gun laws, we have to work at it: step by step. We can’t just wait for a tragedy and think that the President will make it all right.

Over on You Tube, WhoIsWillo posted this very striking video that compares how the last three presidents have reacted to similar tragedies. Spoiler: it is all the same—down to the exact words, in many cases. It is not from the top that we change:

As regular readers know, I used to be a libertarian. But I was never that comfortable with it. A good example is how I used to bristle at a phrase that Ayn Rand used quite a lot, “enlightened self interest.” So she would say something like, “Sure it is in your best interest to kill everyone and take their property, but you can see that this is a bad idea blah, blah, blah… Enlightened self interest!” This concept is a philosophical black hole: you can stuff anything inside it. What’s more, without it, libertarianism descends into barbarism: might makes right.[1]

There is probably no part of our world that has been so poisoned by the notion of self interest as corporate law. The common belief in our society is that corporations must always do whatever it takes to improve their stock prices. Whenever someone points out that CEOs only care about short-term profits because their bonuses are based upon them, they are slapped down with this canard: they are legally mandated to do that! But as the video below with legal scholar Lynn Stout and David Cay Johnston shows: this is not actually true.

Corporations are supposed to do what is in their own enlightened self interest. Whereas in a philosophy, this is just a bunch of rubbish, it means something here. The interests of a corporation is not necessarily to increase profits. This should not come as a shock. Young people all over the world decide to forgo immediate profits in order to get an education that will increase their profits later. It just makes sense that corporations would do the same. But it seems increasingly that they do not. It is well know that corporations are sitting on huge piles of money rather than invest it. They know the economy will improve over time, but instead of looking to the future they do nothing. Last week, I pointed out how someone who really cared about his company would act:

So we really should expect CEOs to run their companies better. In fact, the law demands it. But in general, we are stuck with simple minded, short term self interest. We don’t even get the somewhat slippery “enlightened self interest” we should expect.

Here’s the video. It is only ten minutes long and it is very educational:

[1] Libertarianism is explicitly based upon the idea that success makes right. If you are making money off something it is good, if you aren’t, not so much. So it shouldn’t come as a great surprise that without a few philosophical tricks libertarianism is nothing more than social Darwinism.

You probably remember Dr. Evil of the Austin Powers films. Both characters had been frozen (or something) in the 60s and so they are a little out of touch. So when Dr. Evil hatches his evil plan he says that he will ask the United Nations for, “One million dollars!” Then he does his evil little finger thing so we know that he thinks he is being very evil indeed. Number 2 kills his buzz, “Don’t you think we should maybe ask for more than a million dollars? A million dollars isn’t exactly a lot of money these days.”[1]

Paul Krugman says that the deficit scolds remind him of Dr. Evil. They try to end budget arguments by saying, “The deficit is one trillion dollars!” I assume they then laugh maniacally, do the pinky finger thing, or engage in some other action that gets across the importance of their statement. I’ve long had two reactions to these kinds of people. First, everyone knows the deficit is on the tall side of a trillion dollars. Second, the deficit keeps coming down—it will be less than a trillion dollars this year and was as high as $1.4 trillion in 2009.

Krugman offers up some very straightforward math in his column today, That Terrible Trillion. Let’s assume that the deficit is $1 trillion, even though it is actually supposed to be about $100 billion less than that this year. If we had a deficit of $400 billion, the total debt (as a percentage of GDP, which is what is important) would be declining. So we don’t worry about that. That puts the deficit we should worry about at $600 billion. If the economy were not in recession, that would bring in an extra $450 billion in tax revenue. That gets us to a $150 billion deficit. In addition, if we were out of recession, lots of people now on assistance would have jobs. This would save at least $150 billion. Therefore: no long term budget problem as long as we fix the economy.

Well, that’s not exactly true. We currently pay twice as much per person for healthcare as most OECD countries. In the long run, this is going to bankrupt us. (Sadly, this is usually presented as a Medicare problem, but it is not: it is a general healthcare problem that simply affects Medicare.) The ACA (Obamacare) is going to help in this regard. Hopefully, we will be able to do other things to improve the situation. But note: the budget scolds not only don’t care about the real problem, they want to use the current budget deficit to cut benefits to poor and middle class citizens.

The “one trillion dollars” argument is not an argument. It is a mirage. Don’t let people use it to justify dismantling our social contract.

Update (17 December 2012 5:03 pm)

Jonathan Chait wrote an article this afternoon, Krugman’s Deficit Calm Perhaps a Tad Too Calm, in which he takes Krugman’s case to task for being too lackadaisical about deficits. It is much ado about nothing, as he makes clear in the last paragraph:

So what’s he whining about? I don’t know. Just needed to publish something, I guess.

[1] Here is the clip in all 16 seconds of its glory:

Larry Summers has written a remarkable and short editorial over at the Financial Times, How to Fix Costly and Unjust US Tax System. He starts by noting that all this talk of closing loopholes is stupid because it will raise very little money and it will leave us with an overly complex tax system. One thing he notes isn’t exactly surprising, but all the same, I didn’t know it, “The richest taxpayers actually make relatively little use of deductions and credits.” This is a particularly stunning statement when you consider that the richest taxpayers get enormous deductions.

You’ve probably heard about the carried interest loophole that allows, for example, hedge fund managers to claim that their salaries are capital gains and thus only taxable at the 15% rate. As I’ve written before, this loophole only costs the government about $2 billion per year. Summers says this is just the tip of the iceberg.

He mentioned a number of ways that the rich avoid paying the taxes that they should. But his focus in on the estate tax. He notes that each year at least $1.2 trillion is inherited, almost exclusively from the very wealthy. And yet, the federal government only gets about 1% of this in tax revenue. But on the books, the estate tax is 55%. The rich manage this trick of paying almost no estate tax with various accounting games. Summers estimates that if we fixed this, it would bring in at least $50 billion per year. And in the first ten years (because it would change behavior), it would likely bring in more than a trillion dollars.

I recommend reading Summers’ article. It is inspiring. Of course, cynical old me tends to think that the reason the rich don’t pay their fair share of taxes is that they don’t want to. And nothing in politics has changed so that the government is likely to make them. But it is good to know that there are smart people thinking about this stuff. And that they want to solve problems and not just push ever more pain and suffering onto the poor.

H/T Mark Thoma

Tonight 60 Minutes reported on the Vatican Library. This is what I love about religion: history! And some of the illuminated manuscripts are stunning. Check this out, it is really good:

There is something very much wrong with us. You’ve probably seen the graph on the left (click on it to see it at full resolution). The green line at the top is the murder rate in the United States over the last 50 years. The red lines at the bottom is the murder rate in the other OECD countries. It really makes you wonder. I don’t have any answers except that there is something fundamentally wrong with us—and we have a lot of guns.

Dylan Matthews, who normally writes about economics issues (we are all of us a little distracted), wrote an article at Wonk Blog today that is half comedy and half tragedy, The 6 Craziest State Gun Laws. There are a few surprises in it.

One thing that surprised me is that four states allow concealed carry without any licensing at all. One of the states, Vermont, allows people as young as 16 to do so without their parents’ permission. But before you start dumping on Vermont, it would appear that they just have a strong libertarian streak in them. They also allow young women to get abortions without parental consent. (And yes, I do think that they’re not at all the same, but I was expecting some major hypocrisy.)

There is one bit of gun rights wackiness that I’d heard about before: employees bringing guns to work. The workplace is the employer’s property. In most cases, that settles the issue. But not when it comes to guns. Let’s suppose that you park on your boss’ property and you want to keep a gun in the car. You know, you might need it. Some one may dis you one time too many! Anyway, thankfully in 17 liberty loving states, you can just go to your car, get your gun, and put an end to that.

The most surprising fact in Matthews’ article was that only three states ban open-carry. (According to Wikipedia, six states ban it outright—but I think the article is out of date.) Thirty-five states allow open-carry without any kind of a license. You know what’s really great? Open-carry combined with alcohol! Look at the happy guy in this picture:

Most of the rest of the article is stuff we already know. You can murder anyone you feel “threatened” by. For the record, I tend to think that George Zimmerman will get off, because by my reading of the law he’s innocent. It looks like they got into a fight. I don’t know about you, but I always feel threatened when I’m in a fight. Therefore: not guilty!

And maybe you don’t know it, but I’m sure you won’t be surprised to learn that in about half the states, unlicensed gun dealers can sell to kids. So you can sell an eight-year-old a gun and that’s fine. But sell him a beer or a cigarette (Or let him vote!) and you’re going to jail.

Right here, I’m demonstrating the biggest problem in America: I’m so used to our gun lunacy that I make fun of it. I might be surprised at the individual acts of lunacy, but not the fact of it. And I remain deeply cynical that there is anything we can do about it. But I’m trying real hard.

Update (16 December 2012 6:34 pm)

David Roberts tweeted this:

People talk as though controlling/limiting guns is some sort of impossible dream. Plenty of other countries do it just fine. It’s doable.

— David Roberts (@drgrist) December 17, 2012

I want to believe this. But note: those other countries managed to create universal healthcare where as we are stuck with a new law that increases the number covered but isn’t universal. And it does this primarily by enriching the one part of our system that is most broken: insurance companies. And half the country thinks the new law is nothing short of tyranny. So just because other countries were able to do something good does not give me confidence that we can.

Andrea sent me this photo because she knows what a burden I carry being such a fascinating person. The expectations are so great. People call me up and say, “You’re such a fascinating person, entertain me!” I do my best. Strangely, people don’t accept my arguments that the history of English Language translations of Don Quixote is the most fascinating thing in the world. Fascinating in my own mind, I guess.

As regular readers know, I have problems with David Frum. A lot of problems. A whole lot of problems. But he’s so right about gun regulation.

He’s written a number of good articles in the past two days. The Myths that Enable Gun Tragedies. Every Day is the Day to Talk About Gun Control. And a number of other short articles.

But I’ve been most impressed with his Twitter feed. He’s been very smart, very humane, and very funny. Here he is ridiculing conservatives for the canard that it is too early to talk about gun policy by talking about the reaction to the sinking of the Titanic:

“1502 people have DROWNED! This is no time to insult their memory by asking why there weren’t enough lifeboats to save them.”

— davidfrum (@davidfrum) December 16, 2012

Here he takes on the defense against tyranny argument:

And if the reason you want semi-automatics is because you imagine bearing arms against the govt, I ask: why do you hate America?

— davidfrum (@davidfrum) December 15, 2012

For the record, these people do hate America. They are in favor of some mythical America that never existed. I’ve been meaning to write about this in depth. I basically have one thing to say: paying taxes is patriotic, so pay your fucking taxes.

(Note that Zaid Jilani tweeted, “Bush administration’s @davidfrum who helped launch war to kill 100,000s in Iraq acts like he cares about human life.” Frum is good on this issue, not good in a general sense.)

And here he is going after this ridiculous notion that we ought to arm teachers:

Last week: teachers’ unions are the enemy. This week: arm unionized teachers with semi-automatics to prevent gun violence. #thinking

— davidfrum (@davidfrum) December 15, 2012

To paraphrase Donald Rumsfeld, “We go to war with the allies we have.”