The Debt Ceiling is a pretty complicated problem.  Yeah, yeah – it probably doesn’t seem that complicated to you.  Most everyone thinks the debt ceiling is a simple problem with a simple solution.

Democrats think the solution is to raise the debt ceiling now and worry about the deficit later.  They will, by and large, acknowledge that the debt is a problem in the long term, but they will insist that, in the short term, the most important thing to do is to raise the debt ceiling and continue deficit spending to stimulate the weak economy.

Establishment Republicans think the solution is to raise the debt ceiling to avoid default and to simultaneously cut spending significantly.  They will, by and large, acknowledge that reducing government spending may have some negative impacts on economic growth, but will insist that the most important thing to do is get the deficit and by extension the debt under control.

The Tea Party think the solution is to refuse to raise the debt ceiling, claiming that such a scenario would still permit the US to pay entitlements but would force by necessity major cuts in discretionary spending.

The problem is not so much that there are three competing positions, but that each group thinks the other two are acting in bad faith.

To the Democrats, the Establishment Republicans are trying to increase their election opportunities by slowing economic growth until 2012 and are either wagging or being wagged by the extreme Tea Party wing that’s hell-bent on cutting off its nose to spite the financial health of the union.  And of course, it’s all because they hate Obama.  And they’re probably all racist too.

To the Establishment Republicans, the Democrats are trying to continue the same reckless spending in order to keep its constituent special interest groups happy, and are more concerned about re-election in 2012 than the long-term fiscal well-being of the country.  Obama’s just trying to get re-elected, is over his head when it comes to economic policy, and the entire lot of them just think the Republicans are a bunch of racist hicks.  Meanwhile, the Tea Party is overplaying its hand, trying to co-opt the entire party at the expense of actually getting helpful policy concessions.  Oh, and they actually are the racist hicks that the Democrats accuse the Establishment Republicans of being.

And of course, to the Tea Party, the Democrats and the Republicans are merely two sides of the same big-government coin, more interested in continuing spending and perpetuating their hold on power rather than actually rooting out the problem.  Both sides revere the same economists who failed to warn us about the subprime mortgage market, neither side respects the will of the people, and they’re all a bunch of Beltway-ingrained fat cats that think that the other 90% of the country is a bunch of racist hicks.

I think it would be helpful for the political process and the fiscal health of the nation if we all assumed that everyone was arguing and negotiating in good faith, rather than in bad.

Ernesto Zedillo just told his seminar that, given the recent economic meltdown, “all of you who can still get out of economics – do so”.  Perhaps a bit tongue-in-cheek.

A specter is haunting America: the specter of profit. We have become fearful that somewhere, somehow, an evil corporation has found a way to make lots of money.

- Yale Law Prof. Stephen Carter in today’s Washington Post.

Read the whole thing.

In the NYTimes over the weekend, Randall Stross noted the surging popularity of Redbox as a low-tech video rental alternative to Netflix and/or streaming content.  The president of Redbox (a Netflix veteran) suggests that they owe their success to “lower-income households with large families”.  But the question is – why?  Why does Redbox bear the stamp of middle America while Netflix is for the trendier crowds?

My hypothesis: because it doesn’t require a lifestyle shift.  Netflix is a subscription service.  Streaming video requires that you buy and connect television hardware, get a better internet connection, or upgrade your computer in some fashion.  Redbox works exactly like a video rental store, except cheaper.  You go to a physical location, get a physical disk, and return it to the same location.  There are no forms to fill out and no need to adjust your view of the world to incorporate the concept of mailing disks back and forth.  There’s no need to figure out why your internet is so slow, no problem if you’re watching the video in the car.  You don’t need to give Steve Jobs your credit card number, install iTunes, or even have a computer.

The most popular movies on Redbox are safe, family favorites because play-it-safe, traditional families are exactly the type to use Redbox.  They just want to watch a movie, without the hassle.

Louis C.K. waxes comedic and philosophical about how nobody’s happy although everything’s awesome nowadays.

(This is in large part derived from my thoughts during an email discussion with the CLIMBfolk – primarily Jeff and Andrew)

I remember reading a story a while ago lamenting how a woman with some terminal illness (might have been lung cancer) couldn’t get reasonable health insurance.  I was astounded by how ridiculous it was to think that anyone would insure someone who was guaranteed to rack up medical costs.  Now, the problem in this particular case was that she had been forced to quit her job and she had health insurance from her job.  This obviously causes a problem, because now she’s uninsured and has what amounts to a previous medical condition which precludes her from getting insurance going forwards.

The solution, then, is to decouple health insurance from employers.  Make it so people can retain their health insurance even if they lose their jobs.  It’s well-established in economics that benefits come out of wages rather than profits; you decouple the two, wages will go up so employees can afford private health insurance.  If the government should do anything at all, it’s that they should disincentivize employer-provided health insurance.  It was FDR who got the ball rolling on this entire mess – back in 1942 he freezed wage increases at companies, but allowed benefits packages.  He also didn’t tax employee benefit packages.  So employers offered benefit packages instead of wages and they gradually became standard.

To repeat: employer-provided health insurance is bad for workers, because when they lose their job, they lose their insurance.  When they lose their job due to medical reasons, they’re screwed.  The ability to keep your health insurance should be independent of your health – that is precisely the point of insurance to begin with.  Instead, employer-provided health insurance screws you over when you truly need it.  It might have been fine for an era in which the treatment for severe illness was basically a coffin.  Now, it’s not.

To decouple employers and health insurance, all you have to do is tax employer-provided benefits, decrease the payroll tax, and you’re all set.   What will happen over time is that employers will start paying employees more and giving them less health benefits.  Then, these employees can go buy private plans which are not only better in terms of customization (because if you’re healthy, you don’t subsidize the unhealthy), but are also portable.

(Of course, this is what McCain was trying to do and he got killed for trying to ‘tax benefits’)

“More New Math” defines a Ponzi Scheme.

I got an email regarding my recent column in the YDN – I have reproduced it below along with my response (formatting intact, email address redacted).

On Fri, Mar 27, 2009 at 1:22 PM, <M—–@aol.com> wrote:
Assuming that you are not practicing for a job at The Onion, I find it ridiculous that a Yalie should write such a dumb defense of Wall Street at the moment it has collapsed from its own incompetence, greed and criminality.
The sole purpose of the finance sector is to make the most possible money with money rather than providing any tangible product or service. This is accomplished by endlessly leveraging real or fake financial instruments. The result, invariably and predictably, is an asset bubble which eventually bursts bringing pain and destitution to innocent people.  In other words, the finance sector is  self-destructing.  To the extent that they have made their fortunes, those in the finance sector don’t give a damn about the wreck and ruin they leave behind.  Vultures and hyenas work hard, too. Your notion of the American dream reads like something out of the Sopranos.
G. Merner, one of the mob

My response below the fold.

Den ganzen Beitrag lesen…

In the New York Times yesterday, with the tagline “The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.”, perhaps the most powerful piece to come out of this entire recession.

Robert Li has a great piece in the YDN today focusing on the lack of corporate recruiters at Yale and other Ivy League schools.  Robert argues that more Yalies need to be targeting corporate positions.  While he does make an excellent point – that Yale’s UCS focuses on consulting and investment banking positions to the detriment of students looking to explore other avenues – I think he does overstate his argument a bit.

Sadly, the University seems to care little in helping students clear those clouds. Maybe they themselves understand little better.  President Levin told the News in the same December 2005 article that “if industrial companies really want to attract Yale-quality caliber, they’re going to have to pay more to make their jobs competitive.” So many of us follow the same logic when it comes to a career choice.

Robert proceeds to argue that there are jobs in other sectors that can impart students with the same benefits as the glamorous careers in i-banking and consulting.  This, however, doesn’t seem to jive with reality.  This current recession notwithstanding, there seems to be a sizeable gap between how much someone can earn off-the-bat at a place like McKinsey or Boston Consulting Group (darlings of the consulting world), and a company like Coca-Cola or Nike (traditionally considered top destinations among employers in the Consumer Products space).  There are other interesting problems to consider – many consultants choose to jump ship when enticed by lucrative offers from these same large corporations that they eschew upon graduation.  Similarly, the ease of transitioning from a consulting company or bulge-bracket hedge fund to a specific corporation is easier than the reverse; in other words, the choices made by Yalies are made to preserve their flexibility later on in their careers.

This is not to denigrate the larger point of Robert’s article, nor the tangible benefits of working at a Coca-Cola or Nike rather than a BCG or a JP Morgan.  The shifting economy will certainly realign incentives; the degree to which this occurs remains to be seen.