Matthew Yglesias's Blog, page 2333

Overinvesting in Homeland Security

Via John Sides, a new paper (PDF) from John Mueller and Mark Stewart:

The cumulative increase in expenditures on US domestic homeland security over the decade since 9/11 exceeds one trillion dollars. It is clearly time to examine these massive expenditures applying risk assessment and cost-benefit approaches that have been standard for decades. Thus far, officials do not seem to have done so and have engaged in various forms of probability neglect by focusing on worst case scenarios; adding, rather than multiplying, the probabilities; assessing relative, rather than absolute, risk; and inflating terrorist capacities and the importance of potential terrorist targets. We find that enhanced expenditures have been excessive: to be deemed cost-effective in analyses that substantially bias the consideration toward the opposite conclusion, they would have to deter, prevent, foil, or protect against 1,667 otherwise successful Times-Square type attacks per year, or more than four per day. Although there are emotional and political pressures on the terrorism issue, this does not relieve politicians and bureaucrats of the fundamental responsibility of informing the public of the limited risk that terrorism presents and of seeking to expend funds wisely. Moreover, political concerns may be over-wrought: restrained reaction has often proved to be entirely acceptable politically.

A couple of things that often go missing in the dialogue on this that I think are important to raise. One is that it seems to me that the value of deterring terrorist attacks at the margin is often extremely low. A man with a working explosive and a willingness to die for the cause located inside Dulles Airport is going to have an extremely hard time making it through security and blowing up an airplane. But if his second-best alternative is to stand in the middle of the security line and blow himself up there, then how much have we really gained? A related point is security cascades. As we saw with the Oklahoma City bombing, even a very minor federal office building can be an appealing target for terrorists. So when we increase security at the offices that seem "important," to some extent we're just pushing the risk onto the remaining less-secured buildings.

Both considerations seem to me to point in the direction of doing extremely rigorous security at a small number of location that's we've deemed to be of super-duper critical importance and easing off on the rest. Israelis at one point had to deal with suicide bombers blowing up buses and pizzarias and coffee shops. That would be horrible. But it's not something you can prevent by putting metal detectors and bomb sniffing dogs on all your buses.

Consumers Like Buying Health Care Services

This chart from the Kaiser Family Foundation shows us what's wrong with the idea that a more consumer-oriented health care system will reduce health care spending:

What you're seeing here is that total spending is highest in countries like the United States and Switzerland that have a relatively large private sector role in health care and lowest in countries like the United Kingdom with super-statist systems. It would be a bit perverse to say that all the laws of economics are upended and what this shows is that market-driven, consumer-oriented systems "don't work." We should, instead, consider taking this data at face value and concluding that consumers like to consume health care services.

If you read an account of African cancer patients spending scarce money on useless traditional healers, it's easy to get condescending about their lack of scientific sophistication. But, really, how much medical science to any of us really know? The traditional healers can't cure disease, but they sure can offer hope and going to them and spending money on their services gives people a sense of hope and agency. Getting a memo from NICE about how there's actually nothing reasonable that can be done for you is a huge downer. In a more entrepreneurial system, people respond to this failure by getting better at peddling the false hopes that people demand.

Why The White House Isn't Driving A Harder Bargain On The Debt Ceiling

A brief reminder that while the Obama administration often seems to adopt an insanely weak bargaining position vis-a-vis congressional Republicans, they're often doing this in part because they can't get congressional Democrats to stay on-side:

The push-back has come in recent days from Sens. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, and Joe Manchin (D-W.Va.), a freshman who is running for reelection next year. Sen. Mark Pryor (D-Ark.) told constituents during the Easter recess that he would not vote to lift the debt limit without a "real and meaningful commitment to debt reduction."

Even Sen. Amy Klobuchar (D-Minn.), generally a stalwart White House ally, is undecided on the issue and is "hopeful" that a debt-ceiling bill can be attached to a measure to cut the federal deficit, said her spokesman, Linden Zakula. Klobuchar is also up for reelection next year.

This is all totally nuts, but it is what it is. Congressional Republicans generally manifest more unit cohesion and seem to operate on the assumption that insofar as they all stick together, that they'll tend to benefit on average. Congressional Democrats don't have that mentality and it complicates everything. It's one thing to say what's the smart posture for "Democrats" and another thing entirely to say what's smart for Amy Klobuchar or Joe Manchin.

Why Catherine Middleton, Duchess Of Cambridge Is No Princess But Probably Will Be Some Day

As an important piece of servicey journalism, I need to tackle the question dozens of friends (well, okay, one) have been asking me: How come Catherine Middleton's not a princess now? How come Diana was a princess? And how come Prince William is now a Duke?

I have answers! The crux of the matter is that "prince" and "princess" aren't real titles of nobility. A real title goes with an "of Someplace" after it. If you're the Duke of Something then your wife is also Duchess of Something. "Prince" and "princess," by contrast, specifically denote that you're the direct descendent of the Queen. Thus Prince Charles is a "prince" as are his sons, and his brother Prince Andrew and his daughters Princess Beatrix and Princess Eugenie. But Kate's not descended from The Queen so she's no princess. William was made Duke of Cambridge in part specifically to address this, since as the wife of the Duke of Cambridge she now has a title befitting her position as an important member of the Royal Family.

But there's an exception here! The Heir Apparent to the throne isn't just any old prince, he's the Prince of Wales. Consequently, his wife (if applicable) is the Princess of Wales. So if the Queen dies, Prince Charles will become King, Will will become Prince of Wales and then Kate will be Princess of Wales. Long story short, it's hard to become a princess (sorry ladies) since at any given times there's at most one Prince of Wales and the proliferation of other princesses doesn't help you.

Pomp And Circumstance In The American Republic

Here in the United States we don't have random un-elected monarchs to serve as our head of state. Which has its merits. But instead we bestow the honor and dignity that comes with being head of state on the a President who simultaneously serves as head of government. This doesn't actually deny us the weird spectacle of things like a Royal Wedding. Instead it just happens at the White House:

There was dancing in the East Room afterward, with the Marine Band breaking into "Lara's Theme" from Dr. Zhivago. The ongoing Vietnam War left a number of ladies without husbands. Tricia's sister, Julie Nixon Eisenhower, was without her husband, David. Lynda Bird Johnson was seen standing alone.

Eighty-seven-year-old Alice Roosevelt was on hand, complaining that her seat had still been wet. In some respects her wedding continued to hover over all that had followed. Most subsequent White House weddings now called for a sword to cut the cake, as if reaching back to recapture what had been a spontaneous and magic moment of history. Nellie Wilson was contacted by a silk manufacturing company sending her samples, promising to name a color after her, but Alice Roosevelt had long ago "pre-empted my beloved blue, so I chose a lovely flame-color." It was called "Nell Rose," but it did not catch on like "Alice Blue." Talking about the Nixon girls Alice would later offer one of her more biting comments. She said she liked "Julie better than Tricia. I've never been able to get on with Tricia. She seems rather pathetic, doesn't she? I wonder what's wrong with her?" The past chairman of the White House Conference on Presidential Children has pointed out that there were often deep reasons and issues behind the famous quips of Alice Roosevelt. Sitting in her damp seat in the Rose Garden, her glorious moment largely forgotten and her famous father now covered over by so many layers of important personalities and issues, Alice Roosevelt may have only been lashing out at the one White House bride whose beauty had transcended her own.

But of course it's relatively rare for a sitting president to have a child get married. Still, even weddings aside the president doesn't need to make do without courtiers. We have instead the White House Correspondents Association and its increasingly tacky and absurd annual dinner, an occasion at which it's apparently "inappropriate" and "over the line" to mock the incumbent while sitting in the Presence of his majesty.

What's Wrong With America's Economy?

A striking image on the cover of the latest print edition of The Economist asks "What's Wrong With America's Economy?"

The striking truth, however, is that very little is wrong with America's economy. The productivity of American workers is some of the highest in the world. And the growth rate of the American economy, though slow compared to that of a poor country engaged in rapid catch-up, is perfectly consistent with what you would expect from a technologically advanced country moving forward through increased in productivity. It's true that we recently elected a slew of right-wing politicians who want to alter the balance of economic activity between the public sector and the private sector, and that the first step in that rebalancing is to shrink the public sector. By necessity, that causes some frictional unemployment since resources don't re-allocate themselves instantaneously.

The real time to ask "what's wrong" is during that red YIKES period when the share of the population working was steadily declining. Now we're in the green FINE period when the share of the population working is roughly constant, exactly what you would expect from a normally functioning advanced economy. If something were "wrong" the ratio would be falling, or productivity growth would be lagging.

The real question is: Why are policymakers satisfied with FINE? Niklas Blanchard gives us the Federal Reserve Board's nominal GDP forecast versus the trend:

That gap is the reason we're doing FINE at a low level instead of at a high level. And the prediction of a gap is a prediction, but it's also a statement of policy. To get higher NGDP you need some combination of higher real GDP and higher inflation. Now if magical productivity elves appear on the planet earth, possibly we can surprise the forecast and close the gap 100 percent through higher real growth and prove the forecast wrong. But a plausible path toward higher nominal growth entails a mix of real growth and inflation. And the Fed seems to be making it clear that they won't tolerate any further inflation. Closing the gap with 70% real growth and 30% inflation sounds great to me—that's a lot of extra real growth—but it sounds bad to the Fed because it's a bit more inflation.

And not to put all the blame on Ben Bernanke's shoulders, I don't see a ton of indications that the Obama administration or Harry Reid or John Boehner or Mitch McConnell or Nancy Pelosi has a huge problem with this. Certainly nobody's talking about it, nobody's recess appointing anyone, and the only people putting political pressure on the Fed are hard money cranks like Paul Ryan and Tim Pawlenty.

Gas Prices And Sprawl In Canada

Georges Tanguay and Ian Gingras give us "Gas Price Variation and Urban Sprawl: An Empirical Analysis of the 12 Largest Canadian Metropolitan Areas." The results are about what you would expect—cheap gas inspired gasoline-intensive development patterns: "On average, a 1% increase in gas prices has caused: i) a 0.32% increase in the population living in the inner city and ii) a 1.28% decrease in low-density housing units."

Conversely, higher incomes make gasoline more affordable and are associated with increased sprawl.

Joe Gagnon On The Failure of Refinancing Policy

A lot's been written on the Internet about the failure of the HAMP program to provide relief to many families with underwater mortgages, but it's never been clear to me the extent to which these housing problems have been a real cause of economy-wide pain rather than simply a result of weak growth. But Mike Konczal reminds me that at the Roosevelt Institute conference on the Future of the Fed that I attended on Wednesday, Joe Gagnon made the case that non-functioning housing policy undermined the efficacy of quantitative easing:

[O]ne of the biggest goals of QEI was to push down the mortgage rate to spark a refinancing boom to encourage households and enable households to reduce their expenditures and repair their balance sheets and be able to spend again. That worked not quite as well as we hoped because the administration's program for getting underwater borrowers to borrow didn't work and I think that's a true disaster that has no excuse. I have nothing but incredible, there's just, the blame the administration on not doing this is just incredible. This could have been a huge success. We got the lowest 30-year mortgage rates in history and we couldn't take advantage of them to the extent that we could. We got about a trillion dollars in refinancing when we should have gotten two or three trillion dollars in refinancing.

Gagnon's whole talk on the subject of QEI and QEII is worth your time:

Joseph Gagnon, Future of the Fed from Roosevelt Institute on Vimeo.

But to turn this critique back on Gagnon and his then-colleagues at the Fed, I think the partial dependence of quantitative easing on developing a better housing policy fix illustrates some of the problems with trying to conduct monetary policy via such an indirect route. After all, suppose we'd just done "helicopter drops" of money* instead of printing money and using the money to buy government debt to drive down interest rates in hopes that, among other things, people would refinance their loans. Well, if you're an underwater homeowner then having a helicopter drop some cash on you helps. And if you're a homeowner who's not underwater it helps. And if you're a renter who's eager to buy, then it helps. And if you're a renter who has no intention of buying, it also helps. If you increase the quantity of dollars that each American household possesses, then the nominal value of expenditures will increase and idle resources will tend to be mobilized.

You can also achieve this through more indirect means (and certainly the Fed's programs accomplished a lot) but the more indirect your methods the more junctures at which it's possible for things to go wrong. "Print more money, hand the extra money to people, and keep doing it until you're near full employment" sounds laughably crude and obvious, but there's every reason to believe it would work.

* Roughly equivalently, and more directly targeted at the labor market you could temporarily suspend payroll taxes and have the Fed print money and give it to the Social Security Administration to fill the gap in tax collection.

Endgame

Angel vs eel:

— "Harper's gas-hike warning based on incorrect tweet".

— NDP candidate has been on vacation in Las Vegas amidst polling surge that's made him a plausible MP.

— DC streetcar, brought to you by Qatar?

— Premodern lifestyles basically suck.

— Gas price pie chart.

— What does the NDP surge mean for currency speculators?

Pre-election Canadian music mania continues with Metric's "Stadium Love", a song that sounds much better if you upgrade from the crappy earphones that came with your iPod to something decent.

Adventures In Social Media

Spencer Ackerman:

It started out with a leggy, bikini-clad avatar. She said she was a missile expert — the "1st Lady of Missiles," in fact — but sometimes suggested she worked with the CIA. With multiple Twitter and Facebook accounts, she earned a following of social media-crazed security wonks. Then came the accusations of using sex appeal for espionage.

Now everyone involved in this weird network is adjusting their story in one way or another, demonstrating that even people in the national security world have trouble remembering one of the basic rules of the internet: Not everyone is who they say they are.

Just a great read.