For your weekend listening pleasure (?): I visit the ReConsider podcast to chat money, inflation, fiat currencies, gold, Bitcoin, & Uncle Sam’s balance sheet. Starts at 4:59.
The Council of Economic Advisers celebrates its 70th anniversary this week. You can read a great history of CEA from its soon-to-be-released Economic Report of the President.
CEA has helped develop many beneficial policies through the years. It also helps kill bad ones:
For instance, the [CEA under Walter Heller] argued against a proposal during the Kennedy Administration to use nuclear explosives to widen the Panama Canal. In the Nixon Administration, CEA played a leading role in the analysis that led to the conclusion that the government should not subsidize the development of a supersonic transport or SST plane, dubbed the “sure-to-be-subsidized transport” (Schultze 1996). Under President Ronald Reagan, CEA participated in a Gold Commission, which investigated the feasibility of returning to the gold standard, and ultimately advised against doing so.
The Hutchins Center at the Brookings Institution gathered past and current members and chairs for a celebration last week. That’s me on the left end of the photo, doing my part to combat DC’s tie culture.
The world’s most fascinating insects live in the eastern United States. Periodical cicadas spend most of their lives underground, sucking up nutrients from tree and shrub roots. But every 13 or 17 years, they emerge en masse to reproduce. If you are in the right spot (this year, parts of Kansas and the Mississippi Valley), you can see thousands or tens of thousands all at once. (For information on Broods XXIII and IV, which are emerging this year, see magicicada.org).
Film-maker Samuel Orr is making a full-length documentary of their remarkable lives. His promotion video is an outstanding documentary in its own right:
Full disclosure: I provided some financial support for Sam’s documentary. And I posted a similar post two years ago.
In this TEDx talk, Bob Litan shows how economic insights shaped the web economy, from dating to search to travel to logistics.
“On Sunday, a United Airlines flight was forced to divert after two passengers got into an argument over the Knee Defender, a $22 gadget that stops the person in front of the user from reclining,” report Alex Davies and Julie Zeveloff at Business Insider.
By packing people in tight spaces, air travel naturally sparks conflict over property rights. Who gets the overhead space? Or, in this case, who owns the right to recline?
Users of the Knee Defender believe they do. Deploying the gadget is thus no different from a homeowner putting up a fence to keep out unwanted intrusions.
Others think the right belongs to the potential recliner. But that doesn’t always mean conflict. As Davies and Zeveloff report:
“Gary Leff, who writes the blog View from the Wing, agrees, but told Business Insider that “some courtesy is appropriate.” To preserve his own space, he said he once gave a young girl $5 (with her mother’s permission) in exchange for not reclining her seat, an original solution.
Somewhere Ronald Coase is smiling. He identified that answer in 1960 in his famous paper, The Problem of Social Cost.
If the little girl has the property right to recline, then you can pay her not to do so. If you have the property right, you can install a Knee Defender.
But who should have the property right? Coase would say it depends–some people don’t like negotiating with other passengers. Given those “transaction costs” the right ought to be given to whichever person is most likely to want it most.
I’d bet on the “reclinee” not the recliner. Which might explain why more airlines now offer the ability to pay extra for more legroom. After all, United would rather you pay them than the little girl.
It’s debt limit season again. Treasury will soon exhaust all the “extraordinary” (if familiar) measures it’s using to stay within the limit. By mid-October, Treasury will have just $50 billion on hand. Once that’s gone–maybe at Halloween, maybe a bit later–Uncle Sam won’t be able to pay all his bills or will be forced into doing something desperate like breaching the debt limit or minting platinum coins (kidding, mostly).
We seen this movie before. Sometimes it ends with major policy changes, such as the 2011 deal that spawned the sequester. Other times it leads to minor tweaks, such as the January 2013 deal that linked congressional pay to passing separate budgets through the House and Senate.
These showdowns feel like a modern phenomenon. But over at Tax Analysts, tax historian Joe Thorndike reminds us that a similar showdown happened in 1953 under President Eisenhower:
Soon after President Dwight Eisenhower took office, his administration began signaling the need for additional borrowing authority. But conservatives were not convinced. “For the Administration, this would be the easy way out of hard decisions,” warned the Wall Street Journal. “[T]o lift the debt ceiling for this ‘emergency’ need will make the whole idea of a debt ceiling meaningless. To impose a limit on the government’s debt and then to change it the moment it begins to squeeze makes of the whole thing a trick for fooling people.”
In fact, the Journal suggested that a debt ceiling crisis might be useful. “The government would not be able to carry out all of its spending plans,” the editors predicted. “Some things would have to be cut back a little further. Up against the hard ceiling, government officials would be compelled to make hard decisions, to choose between this dollar and that one.” Staying under the existing cap would be difficult, but that was the point. “Under such a compulsion,” the paper suggested, “many needed economies would be made that would otherwise be thought impossible.”
Eisenhower didn’t believe that spending cuts would be sufficient to keep federal debt under the cap. “Despite our joint vigorous efforts to reduce expenditures,” he told Congress, “it is inevitable that the public debt will undergo some further increase.” On July 30, Eisenhower asked Congress for an increase in the debt ceiling from $275 billion to $290 billion.
Treasury Secretary George M. Humphrey stressed the urgency of the situation. “We will just run out of money and we can’t pay our bills,” he told lawmakers. “It’s just that simple.” Failing to raise the borrowing limit, he warned ominously, might produce “a near panic.”
The House of Representatives swallowed hard and approved Eisenhower’s request. But the Senate had other ideas.
History, as they say, sometimes repeats. Swap the House and Senate and boost the dollar amounts and you’ve got rhetoric that could almost be plucked from today.
Read Joe’s piece to find out how it all turned out. One tidbit (which I don’t think we should repeat): Treasury was forced to sell gold bullion to cover $500 million in debt.
I haven’t had time for blogging lately, so here’s something different: “Cargo,” a short film from Australia’s Tropfest 2013.
Best zombie movie ever? You be the judge:
My Urban Institute colleague Gene Steuerle says yes: politicians have gone too far trying to control future policies and spending.
Annie Lowery penned a nice profile of the Tax Policy Center in today’s New York Times: here.
Our buddy Merle Hazard — of “Inflation or Deflation?” and “Bailout” fame — is back with a new, animated version of his surf-music take on the Fiscal Cliff.
P.S. I should get back to real blogging soon.