Right wing economic spin: $270 Billion To Low Skill Immigrants

Via PrestoPundit comes The Heritage Foundation's latest propaganda piece:

At $19,588, the average annual fiscal deficit for low-skill immigrant households was nearly twice the amount of taxes paid. In order for the average low-skill household to be fiscally solvent (taxes paid equaling immediate benefits received), it would be necessary to eliminate Social Security and Medicare, all means-tested welfare, and to cut expenditures on public education roughly in half.

I didn't try to verify their figures, so lets assume they're correct. What The Heritage Foundation has discovered is that rich people pay more taxes, and poor people benefit more from transfer payments. The net effect is a transfer from the rich to the poor. Since the U.S. has many low-skilled immigrants, this is spun as "immigrants cost us money".

What The Heritage Foundation conveniently forgets is that poor people also contribute to the economy, and to society in general. Low-wage workers clean your buildings, serve you at McDonalds, take care of your children, and so on. They also support the existence of higher-wage workers. Doctors need patients, lawyers need clients, businessmen need employees and customers. If these workers were suddenly shipped out of the country, what would happen?

There would be two effects: 1) the supply of low-skilled workers would go down, thus increasing low-skilled workers' wages. Higher skilled workers would find their real-wages decline due to inflation. 2) Higher skilled workers would find themselves in a very tough job market, and some would be driven down the socio-economic ladder and forced to take low-skilled jobs.

The bottom line is that the low-wage workers are a net benefit to society. If you're trying to find people who are a net drain on society, it would be better to look at those (mostly native born) who will collect benefits as they age, but don't raise enough children to support those benefits. Or those who were born wealthy and live off of their investments.

Illegal immigrants in particular (singled out specially by The Heritage Foundation) don't have access to unemployment insurance and most other government benefits. It's hard to imagine any circumstance under which people who contribute labour, but have no social safety net, could be a drain on society.

The real deceit in The Heritage Foundation's article isn't so much that they overlook the role of low-skilled workers in the economy, but rather that they separate out immigrants as if their contribution is worth less than low-skilled non-immigrants. Unless you also think the U.S. would be better off if the poorest native-born Americans left en masse, there's no reason to assume this is true of poor immigrants.

If you don't like immigrants then be honest about it, don't try to hide behind faulty economic analysis.

Back by popular demand!

Actually, just Stryker and Indy as far as I know, but if you guys are dedicated (or bored) enough to still check back here every now and then after six months, I should be able to get my act together and post something.

In fact, I really do want to get into the habit of writing something regularly, if only because it will help immensely when it comes time to write my thesis, so thanks for pestering me about it and making me feel like I should get started.

My plans for this summer are far less exotic than last year. I'm going to stay in Finland, enjoy the truly amazing summer here, and finally knuckle down and learn Finnish. In August I will have been here for six years, and it's a disgrace that my Finnish is as bad as it is.

I haven't been following U.S. politics much lately, although I'm glad that the U.S. public finally seems to have figured out what the rest of the world has known for a while about the Bush administration. I guess there's hope for democracy yet. It's unfortunate that so many innocent people had to die in the meantime.

A couple of years ago I had predicted that the U.S. economy would go into recession in 2006, and that obviously didn't happen, so I should take the advice of more experienced economists and just give up on predicting that sort of thing. On the other hand, I've confirmed what wiser people told me before: it's not hard to predict what will happen, but almost impossible to predict when.

The current slowdown in the U.S. was triggered by the collapse of the housing market, and looks like it will be exasperated by the high amount of consumer debt. It's unfolding exactly as I (and almost everybody else) thought it would, but much later than I predicted.

The problem with the U.S. right now is that the Fed has no room to maneuver. Loose monetary policy will keep savings low, hurt the dollar, and cause inflation. Tight monetary policy will not only hurt growth, but also impact debt-burdened consumers more than in previous economic cycles.

The end of this economic cycle will be an interesting test for Ben Bernanke.

Milton Friedman dies at 94

There's not much I can say about this that hasn't already been said better by others. One of the great men of economics, and philosophy in general, died today. While I don't personally agree with many of his philosophical conclusions, there can be no doubt that he was a man of brilliance and integrity. Smith, Keynes, and Friedman were in a league of their own. As with Newton and Einstein to physics, we may never see their like again.

The Financial Times has an excellent obituary.

Still alive...

Just a short post to say I'm still here - thanks to Stryker for asking how things are and reminding me that I really should post something so people know I'm still alive :-).

Winter came suddenly to Helsinki last Tuesday (I think). At 17:00 there was no snow on the ground, and by 22:00 it looked like the middle of January.

I just spent the weekend in Vilnius, Lithuania at a debating tournament. My first and only new country this year. I'm really going to have to pick up the pace if I'm going to visit them all before I die. I figure I need to add 3 to 4 new countries per year if I want to be reasonably certain of seeing them all.

I've been following the U.S. elections again - somewhat obsessively. That happens when you're supposed to be studying for exams and need an excuse to procrastinate. I end up checking Electoral-vote.com, cqpolitics.com, and crosstabs.org several times a day. A pointless exercise, since the sites aren't actually updated that often. Studying makes you neurotic like that.

I'm assuming that the Dems take congress, and hopeful that this will keep Bush from trying to go out in a blaze of glory by invading more countries. Hopeful, but not confident. I don't know much about the U.S. system of government, but I gather the House doesn't have to power to stop Bush if he really wants to go kamikazi.

Now back to studying... one exam today, two more on Thursday.

Home soon...

My visa ordeal was resolved yesterday in the most anti-climactic way possible. I went to a coffee shop and waited, while Karen from the Canadian embassy made phone calls on my behalf.

Karen discovered that what the visa people really needed wasn't so much registration, but some sort of evidence that I had really been in Qingdao for the past few months. (I still don't know what would happen if I couldn't show that - would I be stuck in China forever? Obviously some piece if the puzzle is still missing here.) The original police letter that I obtained just after I arrived in June is sufficient to show that I was really in Qingdao, and I did really contact the authorities.

So Friday afternoon I returned to the visa police with exactly the same documents I had had the day before. I went alone this time, and this might actually have been an advantage, since they couldn't give Catherine the brush-off in Chinese, and were compelled to speak to Karen when I handed them my phone. Karen talked to the woman at the information desk. I don't know what she said, but she spoke for at least a couple of minutes non-stop while the policewoman just listened and then directed me to one of the queues.

After another 20 minute wait, I was again in front of a clerk, but this one actually spoke a reasonable amount of English. He asked me again for the registration, and I told him that my embassy had spoken to his superiors and determined that I had everything I needed right here. He didn't seem to entirely agree, but he didn't want to talk Karen, and obviously thought it would be less hassle to just give me my visa. He disappeared with my passport, and when he returned five minutes later the visa was there. Just like that.

So if it was that easy, why couldn't they just do the same thing Thursday and saved me 1000 Euros of airfare, and themselves a lot of aggrevation? I'll never know. Obviously the clerk Thursday was having a bad day, or just had a permanent bad attitude.

I'm trying to look on the bright side of this whole thing, and I must say that I know understand the frustration of a lot of Chinese people at a much deeper level than I could ever have understood just by talking to them and asking questions.

I asked Catherine the other day what she thought of Mao. The feelings of the Chinese people toward this iconic figure continue to puzzle me, but she and my experience with the police have shed some light on the issue. For all the madness of the cultural revolution, Mao was still the one who freed China from imperial rule, both by the Chinese emperors and the Japanese. And under Mao people felt the government was there to help them. People could go to local officials with their problems and know that the officials would do their best to help.

After Mao the promise of prosperity is being fulfilled by rolling back virtually all of Mao's work. And the Chinese people, by any objective measure, are a thousand times better off. But now the government is no longer the friend of the common people. The government and its organs (like the police) are widely seen as corrupt and self-serving.

I have to think a little more about this, and certainly talk to some more people, but this might explain why people here still seem to respect Mao, even as they embrace everything he opposed.

I'm off to Beijing tomorrow evening, and flying back to Helsinki Tuesday morning. Tommorow morning I'll try to see if I can send Karen some flowers.

Beware the Qingdao police, or "How I got stuck in China"

It's 21:30 in China, and I have in my possession one train ticket for Beijing (the train left this afternoon at 14:30), one plane ticket for Beijing (leaving tomorrow morning at 7:30), an one plane ticket from Beijing to Helsinki (leaving tomorrow morning at 10:55). I also have one shiny new Canadian passport, received by courier this afternoon at 13:30. What I don't have is a Chinese visa, and that makes the rest of these documents useless. I'm stuck here until I can convince the local police to let me leave. When I eventually sort this out, I'll still be out a thousand Euros or so in train and airfare.

How did I end up in this mess?

[This post is very long - in fact I just typed this up to have a record of what happened while it's still fairly fresh in my memory. I might try to edit it down to essential details later. If you get bored, skip to the essential bits at the end.]

The sad tale begins in mid-June when I took a plane from Shanghai to Qingdao. I thought that I had my passport tucked safely in the outside pocket of my carry-on luggage, but discovered in the baggage pickup area that it was nowhere to be found. I had dropped it somewhere between the waiting room in Shanghai and the arrivals area in Qingdao.

The crew of the aircraft checked my seat, but found nothing there. Later phone calls to the cleaning crew of the aircraft, both in Qindao and in Shanghai, and the cleaning people at the Shanghai airport, produced no results.

I contacted the Canadian embassy in Beijing and found out that I needed to report my lost passport to the local police. They would give me a police report in English, and I had to appear personally in Beijing with that report and a copy of my birth certificate.

I have a small beef with the Canadian Ministry of Foreign Affairs here. Presumably my original passport application should be on file somewhere, and they shouldn't need any other documents to produce another. They can tell who I am by looking at the picture, and surely they could just courier the new passport to the police in Qingdao and get them to give it to me, checking my face against the photo at the same time. Alas, they need to make things difficult. Customer service has never been a strong point of any government. But I digress...

I set about trying to get a police report. I also knew I needed to register my residence in Qingdao with the local police. When you stay at a hotel, the hotel handles this for you, but since I was staying in a private apartment arranged by a friend, I had to take care of this myself.

Wandering around Qingdao, I stumbled across a small police station. I went inside and, with the help of my handy electronic dictionary, managed to communicate that I needed an official police report in English. The policeman was friendly, but had no idea how to get me what I needed. He drove me to a larger police station and, after much discussion with his superiors, decided that he would give me a letter in Chinese, and then I could get an official translation the next day at the main visa police station that deals with foreign affairs in Qingdao.

Eventually I left the station with a nice letter, handwritten in Chinese and stamped with a red police seal, and the address of the visa police where I might get a translation. I had also tried to ask about the residence registration, but somehow the concept eluded him. He just had no idea what I was talking about.

The next day I showed up at the visa police at Ningxia Road. Indeed, these people seemed much better equipped to deal with foreigners, at least at first glance. While nobody at the front desk spoke English, there was a woman who worked in an upstairs office who was able to communicate with me.

I explained that I needed an official police report in English in order to obtain my new passport. She obviously had never heard of this before, but she was able to get my letter translated to English. I asked about registering my residence, but she didn't seem to know anything about this.

So I had my official report, and I concluded that registering my residence must not be nearly as important as I had thought, since the police weren't familiar with the requirement.

It took about four weeks to get my birth certificate sent from Canada. Armed with this and my police reports, I made my way to Beijing on July 24th. I couldn't fly, since you need a passport to get on a plane, and I couldn't take the train, since it was tourist season in Qingdao and everything was fully booked. Instead I sat for 14 hours on a bus, unable to get up and go to the washroom because there were people sitting on little folding stools in aisle. I was grateful I had a real seat, although my back was pretty sore by the time we arrived at 5:00am on the 25th. I hung around at a 24-hour McDonalds until the embassy opened at 9:00am.

Karen, the woman at the consular section was very nice and seemed to have infinate patience. The place wasn't very busy, but the people who where there all seemed to take up a lot of time. I guess the consular section attracts a strange assortment of problems. My problem was that I didn't have a real police report. The letters that I'd gone to such trouble to obtain in Qingdao apparently weren't "offical" enough. I was advised to go the Beijing police and report my lost passport again. And I'd best not mention that I already made a report in Qingdao, or they might make me go back to Qingdao for the "official" report.

The police in Beijing seemed much more efficent than those in Qingdao. The people dealing with visas actually spoke English. They were a little disturbed that I'd apparently taken over a month to report my lost passport, but seemed satisfied when I told them that it took that long to get my birth certificate. I left an hour or so later with a more official looking piece of paper.

After a little more trouble trying to find references (I have no idea what they need those for), Karen finally seemed happy with my application. Her (I think) boss had to give me a short interview. I'm not sure what it was supposed to establish, but I told her the circumstances under which I lost my passport, and she seemed satisfied. I also had to explain why I had no other Canadian ID, like a driver's license, to prove my identity - I've been living in Finland for 5 years, and all my Canadian ID has expired. She was friendly, but I was a little put off when she sympathized with me for not "wanting" to live in "that place" (Canada). As a matter of fact I like Canada, and I do intend to go back eventually. (I'm just going from downtown Toronto to the Toronto Beaches by the scenic route - through Europe and Asia).

I was done at the embassy at 16:00 and managed to catch a 17:00 bus back Qingdao. For some reason the return trip took only 11 hours. In all my trip to the embassy in Beijing took 37 hours - 25 on the bus, 12 in Beijing itself.

Now it was just a matter of waiting for my passport, which I figured should be ready on August 15th, and arrive in Qingdao on about the 18th (Friday). By Monday the 21st nothing had arrived, and I sent an e-mail to the embassy inquiring about the status. Karen called me back the next day to tell me that there had been a small problem - the passport number I had given for the lost passport was incorrect. My passport would be delayed, but she would send it out by the end of the week.

In fact I didn't know my old passport number at all. The Beijing police had looked up the number in their records and included it in their report. I figured they made a mistake, and stopped worrying, for a few days at least. If the passport was sent on Friday, then it should arrive Tuesday.

Karen suggested that I should check with the police and make sure my visa could be processed quickly once I had my passport. I did so, and after I showed them my plane ticket for the morning of Sept. 1st, they assured me that the visa could be processed in one day.

Tuesday evening I mailed the embassy again. The passport hadn't arrived and I was getting really worried. I knew I still needed to return to the police to get a replacement visa, and my train for Beijing left Thursday afternoon. Karen mailed me back and told me she had sent the visa out on Monday, it should arrive today.

Nothing arrived Wednesday morning and I was starting to panic. I called Karen and got the tracking number for the courier company. I was able to find out that the package had arrived in Qingdao on Wednesday afternoon, and would be delivered on Thursday morning.

I realized there was no way I would make my Thursday afternoon train, and ordered an airline ticket for Friday morning. It would be pretty tight, but if the passport arrived Thursday morning, there might still be enough time to get the new visa from the police. I'd get up at 4:00am on Friday, catch my plane, arrive in Beijing at 8:55, and hope I could make it through Beijing arrivals and check-in in time for my 10:55 flight.

To make things go more smoothly, my Chinese teacher - Catherine - suggested that she would accompany me to the police to get all the paperwork filled out ahead of time. This is where things started to get Kafkaesque.

It seems that in the two months since I'd first visited the visa office in Qingdao, they'd discovered the need for offical police reports and registration of residence for foreignors. They were no longer interested in the police report the same office had originally helped me to obtain, but were satisfied with the "official" report I'd gotten in Beijing. More worrisome was that they needed my residence registration before I could get my visa. Either I'd spoken to the wrong people two months ago, or they'd recently gotten some training on this concept. I would need to go to the local police station in the neighbourhood where I live and finally register myself. No problem, I thought, it was only 10:30am and there was still time. Catherine advised me that I might need to pay a fine for not registering earlier, but I was prepared to pay.

Catherine helped me to find the small neighbourhood police station. It's great to have a Chinese guide for these things - I don't think any amount of wandering around the neighbourhood would have led me to find it on my own.

But nothing she could do would help in dealing with the neighbourhood police. They simply didn't know what to do with me, and the boss was incredibly rude. Unlike my experience months earlier, these police had indeed heard about the need for registration, but if they registered me now I would show up in their statistics as having lived in their neighbourhood without registering, and this would make them look bad. Worse, I didn't have any "proof" that I lived in the neighbourhood. They also didn't seem to have done this before, and kept calling other offices to determine the procedure. When they discovered that I didn't have a passport, this was the last straw. They decided there was nothing they could do for me and sent us packing.

Most of this interaction took place in Chinese between Catherine and the police, and I was a little stunned by the whole incident. If it had been just me I probably wouldn't have left so easily. But Catherine is used to being badly treated by the police, and accepted being shuffled out the door. Before I really know what was going on, we were on the sidewalk.

At this point I got a call from Becky, my friend who was waiting for my passport to be delivered. It had finally arrived, and we agreed to meet at a coffee shop at 13:30 so I could pick it up. It was lunch time, and we knew the visa police would be on break, so we ate something and tried to figure out what to do next. We thought that, if these people wouldn't register my residence, then perhaps I could go to a hotel and check in for one night. If I had my passport, the hotel might be able to register me.

We went to the coffee shop and I finally got my passport. (It turns out the number I had for my old passport - obtained from the Beijing police - was in fact correct, and the date on the package was Tuesday, not Monday.) We stayed there for a little while and Catherine made some calls. She finally concluded that the hotel couldn't help me because they would need to see my visa, which I didn't have. She also called the visa police, and they assured her that I really needed the residence registration or they couldn't give me a visa. We would have to go back to the rude neighbourhood police.

Partially because I was in fact getting furious, and partly because it seemed like the only way to get anything done, I took a more active role in the discussion this time. Catherine played "good cop", and I played crazy foreignor. The neighbourhood police still didn't want to register me, but after a lot of phone calls the chief finally told us that his superiors had fixed things. If I went back to the visa office now, they wouldn't require the registration. Relieved, we left at 15:30. Still no registration, but I now had my passport and an assurance that the processing would go smoothly. I should have gotten this in writing.

We arrived at the visa police at 16:00, one hour before closing, and had to wait in line for 20 minutes. The people behind the desk moved at a glacial speed, stopping frequently to get cups of water while customers queued. We finally got to speak to a clerk at 16:20, but she told us that she didn't know anything about my special exception from the registration requirement, and I would have to speak to her boss.

We were directed to the chief's office on the second floor. We went up, and I was promptly sent back downstairs. It seems foreignors aren't allowed out of the lobby. Catherine emerged three minutes later and told me the boss had told her he was very busy, and who had sent her up to him anyway? Now what do we do?

The rest is a little fuzzy, because a lot of things were happening at once. We were trying to get somebody to listen to us, and Catherine called the neighbourhood police and tried to get the chief there to talk to somebody here (which he refused to do). I also called Karen, my embassy contact, at least once. But I don't exactly remember the order of any of this.

I started to get a little agitated again, and started to walk back upstairs, only to be physically stopped by the doorman. It was now 16:40. What was going on? The boss would call down in a few minutes, they said. Sure enough, at 16:50 the boss calls and they hand the phone too me. I ask if he speaks English, and he promptly hangs up. Then he shouts down from upstairs and says he won't deal with my issue and I should leave. I call Karen at the embassy, and she's puzzled (I had notified her earlier that things looked like they were going ok). She asks to speak to somebody there herself so she can try to figure out what's going on. Just then the boss comes down, but he refuses to take the phone. He leaves and waits in his car outside for several minutes. Too busy to talk on the phone, but obviously has time to sit in the parking lot. After five minutes he drives off.

Now it's about 17:00 and people are packing up, lights are dimming, and things are getting quiet. Karen asks for the public number of the police station and tries calling, while I wait on the other line. No luck. They're no longer picking up the phone. There's nothing else to be done.

So here I am. No visa. No idea how I'm actually supposed to get a visa. My plane ticket home now worthless.

Karen said that she would call the visa police again as soon as they open in the morning. My best bet is probably obtaining some sort of lease agreement from the guy whose apartment I'm staying in - this would then be "proof" of my residence.

Looking back at my story, I think I've finally figured out the origin of the problem (aside from being foolish enough to lose my passport). The English speaking policewoman who was "helping" me two months ago didn't actually know anything, except how to speak English. Her colleagues surely knew about the "official" police reports for lost passports, and about how I could register my residence. But she had no clue, and couldn't be bothered to ask somebody who did. Now I'm in some sort of procedural black hole, and nobody wants to take responsibility for dealing with the problem.

I've never been very impressed with visa procedures from any country. Finland seems determined to keep good people out, Canada (at least from stories I heard years ago) is slow, Russia and India are just plain incompetant. But China has them all beat.

The Globe and Mail: Behold the army of newborn Nasrallahs

The Globe's Carolynne Wheeler reports on the sudden boom of Nasrallahs in Palestine and Lebanon:

He's three days old, just 6½ pounds and from the look of his sleepy eyes and screwed-up mouth, he's far more interested in his next meal than in hearing about the high expectations attached to his name.

[...]

At Ms. Anturi's home, her sister and her nieces join her in breaking into song and clap their hands in rhythm at the mention of a tune now making the rounds of radio stations and weddings, the title of which translates roughly as We Hail Thee, Hope of Lebanon.

The latest craze to hit the Palestinian airwaves originated with four brothers in the northern West Bank town of Yamoun, near Jenin. In a visit to the family home yesterday, the group had just enough time to sit for tea and play a quick rendition of their song before dashing off to the recording studio to cut their next single: We Are Victorious With the Help of God.

[...]

"His statements were comprehensive, covering all dimensions — low-key, no boasting; humble, honest, clear; and never quoted the Prophet or the Koran," said Mahdi Abdul Hadi, a political scientist who heads the Palestinian Academic Society for the Study of International Affairs.

[...]

"[Nasrallah] is a hero, and I hope God will always make him victorious. He made us hold our heads high," said Khalil Freihat, 24, taking a cigarette break on a street corner in Yamoun.

"The main lesson that we have to learn from Hezbollah is not to surrender our rights. We cannot surrender, we must fight."

[I'm trying to quote just enough to get a feel for the article, as always, you should read the original.]

AP Blog: Remembering China's revolution

An excellent article. Not much I can add to it:

Forty years ago, Chinese communist chairman Mao Zedong launched the Great Proletarian Cultural Revolution. It's an unpleasant anniversary that official Beijing will not celebrate and most Chinese would rather forget.

[...]

Even from afar, when I learned that leaders such as President Liu Shaoqi, former defense minister Peng Dehuai and the colorful general He Long were tortured and killed, my heart sank.

I had gotten to know many of them in the 1940s, during seven months reporting for AP in Yanan, their revolutionary capital next to the Gobi desert. I saw them not as communists but as humans driven by a desire to end poverty, plagues, famines and inequality in China - goals which had turned to ashes under Mao's imperial, intolerant and vindictive rule.

Those objectives have nearly come true as a result of the two-and-a-half decades of free-market reforms enacted by those pragmatists in the party who survived Mao's purges.

[...]

"We finally learned that the whole cultural revolution had been part of a power struggle at the highest levels of the Party," she wrote in her 1997 memoir "Red Scarf Girl." "Our leader had taken advantage of our trust and loyalty to manipulate the whole country. This is the most frightening lesson of the Cultural Revolution."

Treasury Dynamic Scoring Analysis Refutes Claims by Supporters of the Tax Cuts

Update 2:

Sorry for responding this way rather than in the comments. I won't have a chance to plug in my laptop until Tuesday, so I can't punch through the firewall properly.

Brian says in the comments:

"(1) by the second quarter of 2003, the economy would have created as many as 1.5 million fewer jobs and GDP would have been as much as 2 percent lower, and (2) by the end of 2004, the economy would have created as many as 3 million fewer jobs and real GDP would be as much as 3.5 to 4.0 percent lower."

That's a BIG boost to the economy which is likley to have been a big boost to tax revenues. To take into account the effects of the tax cuts, you have to include this extra 3.5 to 4.0% in your calculations. In other words the .7% is in addition to the boost we've alread had.

Not true. The 3.5% to 4.0% growth is classic Keynesian fiscal stimulus. It's short-term. That growth would have happened anyway, but perhaps later. You could also acheive the same effect through deficit spending rather than tax cuts. Both measures pump money into the economy.

For long-term growth you need to get people to change their behaviour, presumably in response to greater rewards for their work. That's where the .7% comes from.

I also notice that the report predicts that NOT extending the tax cuts would result in a decrease in GNP of .9% for a total difference of 1.6% between letting the cuts expire and making them permanent.

This is a misreading of the report. The .9% decrease would result if the tax cuts were extended without cutting spending. Since the deficit would then spiral out of control, a future tax increase would be needed. Thus you would be financing the near-term tax cut with a future (larger) tax increase. The net result is a .9% drop in GNP.

From near the end of the report:

If the revenue cost of that tax relief is offset by reducing future government spending, the increase in output is likely be about 0.7 percent under plausible assumptions. If, instead, the tax relief is extended only through the end of the budget window (i.e., it is temporary), the tax relief would increase national output in the short run, but long-run output would decline as future tax rates increase.

You see that both the .7% increase and .9% drop assume that the tax cuts are extended. In the first scenario the tax cuts are accompanied by a cut in spending, and are thus permanent. In the second scenario the tax cuts are financed by deficit spending, so there will need to be a larger tax increase in the future (beyond the budget window) to bring the deficit down.

---

Update:

I can't post comments from where I am (stuck behind the Great Firewall), so I'll respond to Richard's comment here. Richard says:

it seems there are major logical flaws in this analysis. First, is Mr. Furman associating economic growth with gov't revenues? Increased economic activity doesn't necessarily mean increased tax revenues (though it's usually the case). Second, he seems to include gov't spending in the equation somehow, which is a separate issue from whether tax cuts stimulate the economy or not.

For the first point: I'm not sure what you're getting at. The bottom line is that the total benefit of a tax cut extension, under ideal circumstances, is a .7% increase in GDP. Not .7% annually, but .7% total. This is not enough have the tax cuts pay for themselves.

For the second point: You can't omit government spending. If you cut taxes then you must finance it somehow, and this will have an effect on the economy. The report considers several scenarios, and the best case - financing the tax cut through lower spending - produces a 0.7% increase in GDP. The other options produce worse results. Considering only the tax cut without including the other side of the equation would be meaningless.

---

Original Post:

Some politicians, either through ignorance or outright dishonesty, continue to claim that tax cuts pay for themselves. Unfortunately the news media seem unable to call them on it. Jason Furman attempts to counter the spin-doctors and correct poor reporting of the U.S. Treasury's recent study:

Contrary to the claim that the tax cuts will have huge impacts on the economy, the Treasury study finds that even under favorable assumptions, making the tax cuts permanent would have a barely perceptible impact on the economy. Under more realistic assumptions, the Treasury study finds that the tax cuts could even hurt the economy.

[...]

Some of the reporting on the Treasury analysis has made a basic mistake. The Treasury study found that making the tax cuts permanent would increase the size of the economy over the long run — i.e., after many years — by 0.7 percent, if the tax cuts are paid for by unspecified cuts in government programs.

[...]

Several news reports, however, mistakenly said that the Treasury found that making the tax cuts permanent would lead to a 0.7 percentage point increase in the annual growth rate.

[...]

The featured results in the Treasury study are based on the assumption that government programs are cut sharply starting in 2017 in order to pay for the tax cuts. In total, government spending would have to be reduced by the equivalent of about 1.3 percent of GDP after 2017. That would be equivalent to cutting domestic discretionary spending in half. This is substantially larger than the budget cuts the President has proposed. Thus, the featured Treasury estimates are estimates of the long-term economic effects not of the tax cuts per se, but of the combination of the tax cuts that the President has proposed and unspecified, deep program cuts that he has not proposed.

The article touches upon, but doesn't directly address the issue of overall utility for the public. The potential long-term gain of .7% of GDP is not only fairly small, it must also be balanced against the utility that public loses because of the needed cuts in program spending. Citizens might well be happy to lose that .7% of GDP for the benefit of better health care or education.

Iran trip report from Antti

I've long wanted to travel from Helsinki to China overland via the southern route - through Europe, Turkey, Iran, Pakistan, and India. (I did the Northern route through Russia and Mongolia four years ago). My friend Antti Mäkelä is making a similar trip this summer, and sent this fascinating e-mail about his experience in Iran.

Antti agreed to let me post this, and has also asked for the address of my blog, so maybe he'll even answer questions. I haven't edited this at all, so please disregard minor errors. Antti's English is excellent, but he probably wasn't intending this to be published when he wrote it.

---

Antti writes:

First of all, even though I had done some research before I departed, I was somewhat suprised about the general atmosphere in there. When you look at what shops along the streets are selling, the items are just similar than anywhere in the world. I was especially suprised of the availability of modern electronics, it appears that quite many actually actually can afford plasma tv:s and such, as they are so widely sold. Also womens underwear and other more revealing clothes that were widely shown and available made an interesting contrast with the fact that 80 % of women covered themselves with chador in public, and also the rest at least with scarf and jacket.

The cleanlines of streets and politeness and courteousness of people were something that I didn't really expect. Naturally I had heard about Iranian hospitability, but I expected it to appear more in Indian way, so that people would very loudly and in huge groups come to show their interest in foreigner and possibly also try to touch a litle, just for curiosity... This really wasn't the case. Everbody wanted to say hey and ask where I come from, but somehow this happened in more polite way than in India for example. And if they wanted to have a further discussion, they often asked for permission. As it comes to the cleanliness of streetsides, Iran definitively reminds more Europe India, which I didn't actually expect. Also transportation for example worked smoothly, the roads were wide and generally in good condition.

Thank's to the hospitability and helpfullness, getting around was suprisingly easy despite the fact that many of the signs were only written in arabic script and that very few actually spoke english. Instead, suprisingly many knew essential touristphrases and was willing to try help which is almost enough. Then in case of bigger problem some english- speaking local usually showed up to ask what the problem was.

Because of the lack of english-skills, I really couldn't talk about politics as much as I would have liked. However, I had some discussions, that gave me a kind of idea about what's going on. It appears for me, that the islamic governement really hasn't ever had real support of majority. Instead, of the various groups who united for the revolution, they were the one who played their game best and managed to claim the power. And then, as a gift for mullahs, Iraq invaded the invade the country, which naturally made it easy to unify the nation against foreign enemy, who also happened to represent the old religious enemy, the sunni-muslims. And then during the latest 16 years the country has been in progress as it comes to the economy and also to the practical freedom of people. There are some major problems that governement seems to have simply neglected, like corruption (alltough some say that corruption by money isn't a problem, but by the relationships between people). Then the public sector, including the oil industry, is very inefficient, and for example taxaxion machinery almost non-existant. There is no VAT at all, and the income tax works like a donation, it's voluntarly So the country is practically taken run by the oil revenues alone! However, right now it appears that majority of people are getting making progress both in economy and freedom from religious controll. Even though both seem to have been slowing down during the time of the new president, the fustration can't at least be widely seen, altough somebody speaking farsi and talking to right people might state otherwise.

Most of the people directly say they hate president Ahmedinedabad (or how ever you spell it...) And then there are those who say they love him... As he obviously is a good speaker and succesfull populist. Some of the people do go to mosques every friday, but most don't, and suprisingly many say that they don't care about the religion at all. And as you all have read, parties with alcohol and dancing are arranged in private villas, and if the organiser knows the right people, nowbody really cares. And then from the other hand, police keeps fining unmarried couples who show up openly in public. Interestingly, by the way, almost everybody claimed that arranged marriages practically taken do not exist, altough some other said they are the only decent practise... Anyway, finding a partner in this country is a challenging task indeed, as you never now when you get fined, or if you are very unlucky, and get caught from the bed, maybe hanged too...

Anyway, I also had a very interesting discussion with al carpenter, who talked exellent english by iranian standards. His profession might be onether, if he had not spend his youth during the years when all the universities were closed because of the war. Given that he could easily beat me by his knowledge about Karl Popper or Sigmund Freud, I was quite suprised as he openly admitted that he hopes USA to invade the country, and believed that USA attacked Iraq mostly by the idealistic reasons... So, the minority certainly does exist and is propably willing to act if the right monent comes. Still, one can ask if the hardly potential American invasion would even be the right moment, as nationalism still appears to beat boredness to the religious governement among most of the people.

In conclusion however, this country differs by any means from any other place in the world as it comes to the real moral or religious activism of the people. What makes this different from western democracies is that every legal or public issues has always as many sides as there are people you ask from. A simple truth of most things simply doesn't exist.

Then about the other highlights of the trip. I can now say that I have played chess in the iranian military camp against iranian conscipts. And that I have participated an anti-american / anti-israeli demonstration. I'll leave you without explanations about the first, but about the second I have to say that it was suprsingly warm occasion.... A mullah (or something like that...) held a speach in the middle of a square, and every now and then the crowd shouted "Down with America" or "Down with Israel" (The demonstration was actually on last Friday, you can guess why...) Altough I consentrated mostly on taking photos, I felt my self not at all threatened. As anywhere else, people came to ask me where I come from, and that was all. Also the TV-commentator came to say the same at the end of the occasion, and I have to admit that I was hoping to give some comments for the cameras... Well, that didn't happen after all.

So, in general Iran has been extremely easy and comfortable country to travel in. The iranians are suprisingly good at distinguishing between the people and the governement, so I actually believe that even Scott [ed. an American citizen] would feel good in here, if he only would be able to get a visa for an independent trip...

If Iran was short of real exotism and suprises, the same cannot be said about Pakistan, where I arrived yesterday. Last night's bus spend 14 hours on a road that was only 630 kms long, and mostly going straight in the desert. Anyway, in one of the few upphills I had to participate on pushing the bus for first time in my life... And I also saw dirtiest and smelliest road side restaurant I've ever seen... And I seen quite dirty ones in India and Indonesia. And the people in the bus: everybody wearing a shalwar khameez, a traditional pakistanian suite, and looking like they had not seen a shower for a week. Or well, most likely most of those haven't seen such ever in their lives, but even washing with any water would have changed the situation...

So, I'm now in Quetta, which despite all the dirt and smell still has an atractive atmosphere of a frontier city far away from everything. You know, sepherds going with their lambs on the main streets, donkeys pulling carts, afghani refugees occupying a whole bazaar named after city of Kandhar... And no, I don't think this is especially dangerous place, if I jus avoid being out in the middle of the night. So, if only suprise with Iran was a neutrality and some kind of sterility, the latter part of my trip in Pakistan is likely to give a good sense of adventure and exotism. And that's what I'm looking forward to.

Have a good summer, where ever you are!

-Antti, from Pakistan,

Retail slowdown in the U.S. an implications for China

Danielle DiMartino writes about the latest U.S. retails sales data in the Dallas Morning news:

Goldman Sachs chief economist Jan Hatzius wrote, "the year-on-year growth rate has plummeted from 1.3 percent in 2005 to -0.2 percent as of June 2006. Year-on-year declines in retail employment are unprecedented outside of recessions."

[...]

Consumers may still be consuming, but they've become increasingly sensitive to prices.

But gas prices are only part of the story behind the decline in retail employment, Mr. Hatzius said: On Tuesday, Freddie Mac forecast that cash-out refinancing would drop to $125 billion in 2008, from $275 billion in 2005.

[...]

In a speech last summer, Alan Greenspan discussed his research into home equity withdrawals and consumer spending. His findings: About a third of the cash people extract from their homes directly finances current consumption.

It stands to reason that retailers would be the first to detect the diminution of this source of disposable income, which is at least partially to blame for the 86,000 jobs the sector has shed in the last three months.

While the Development Bank Research Bulletin suggests that China may be able to escape the slowdown:

In the first and second quarter of 2006, China is growing at unprecedented and unexpected pace, at 10.4% year-to-year.

[...]

Morgan Stanley, after two years of very poor performance in forecasting China's GDP growth finally makes a large upward revision of the number. They have been voicing their worry about China slowdown for a long time, and have been the most pessimistic about growth rate of India and China back in 2004, and 2005.

[...]

I think China's potential slowdown in the future is more likley to be caused by domestic problem instead of external factors. China is not exporting many durable goods to the U.S., and I think Americans even in recessions have to buy clothes and have to give Christmas gifts to children. I don’t deny that China is dependent on U.S. market, but not in the same way as Japanese do (they export cars, the demand of which is more cyclical)

China: Hu's power play

IHT's Ian Bremmer explores a question I've been wondering about for a while: why does China publish unrest statistics? I can't think of any democracy that publishes such statistics, yet China claims that here were 87,000 demonstrations in 2005. There must be a reason this data is made public.

The answer reveals the more immediate challenges facing President Hu Jintao's political and economic agenda.

Over the past year, a battle has begun within the Chinese leadership, pitting Hu and his allies against a growing range of critics. Hu's predecessor, Jiang Zemin, aggressively promoted the view that China's government must feed rapid economic development and that explosive growth in the country's eastern cities would fuel China's rise. Jiang's supporters, many of them based in Shanghai, have profited mightily from this strategy. But Hu warns that the social costs have now become unacceptably high.

[...]

To consolidate his authority, Hu believes he must win the reform argument and purge the party of as many as possible of his predecessor's allies.

That's where the statistics come in. Jiang's government didn't publicize data on social unrest. When Hu assumed the presidency, protest statistics began to appear. To force policy changes through China's labyrinthine bureaucracy, senior officials are often forced to generate a crisis atmosphere that lends urgency to the implementation of their plans.

The Globe and Mail: The making of a terror mole

The Globe and Mail has an interesting story about the mole who broke the Canadian terrorist ring.:

This is the story of the 18th man, the civilian mole and devout Muslim paid by CSIS and the RCMP to infiltrate Mr. Ahmad's circle and thwart an alleged plot to blow up those targets. Over a series of discussions with The Globe and Mail, Mr. Shaikh detailed his motives for bringing down the alleged terrorist cell. Above all, violence in Canada in the name of Islam cannot be tolerated, said Mr. Shaikh, who says he has learned to juggle his fierce commitment to both Islam and the secular values of Canadian society.

You don't often hear how real intelligence agencies operate. Secret cash handoffs, in Canada no less.

Korea and Japan

[This post was actually written on Tuesday, but I accidentally saved it as a draft rather than posting it. I was posting from a Chinese computer, so the user interface was in Chinese, and I don't yet know the Chinese character for "draft" :-).]

I had planned to write something about relations between Japan and it's Asian neighbours, but it seems I've been overtaken by events. The dramatically different responses in Japan, South Korea, and China have broken in the American media.

The IHT picks up this Times report which starts by contrasting the media responses. There's too much interesting stuff in this article go quote it all - good man-in-the-street views of the situation:

Soon after North Korea started launching missiles in the predawn hours last Wednesday, Japan's television networks interrupted their regular programming to broadcast the news and the government's quick response.

By contrast, with the South Korean government refraining from commenting, networks here continued their World Cup soccer coverage until Italy beat Germany around 6:40 a.m.

[...]

"South Korea and Japan are strategically interpreting information to further political goals," said Lee Geun, professor of international relations at Seoul National University and a visiting professor at Kyushu University in Japan. "South Korea is minimizing the threat to manage the hawkish reaction from the United States and Japan. Japan is exaggerating the threat in order to pursue the goals of strengthening its self-defense forces and the U.S.-Japan alliance."

[...]

Or consider the two young South Koreans sitting outside on a bench, Chun Kwon Mi, 27, and Kim Chung Nam, 30, who when asked about their reaction to the launchings a full four days later responded with blank stares.

"They fired?" asked Chun, who works in online shopping.

(Do read this article - excellent reporting.)

I suggested Sunday that South Korea and China were more concerned about Japan than North Korea. Right on cue (and I swear I don't know anybody in the Korean government), South Korea issued a news release this morning denouncing Japan's reaction to he missile tests:

In light of the painful historical records that Japan justified its invasion of Korea in the past as a measure to protect its citizens residing on the Korean Peninsula, we cannot but conclude that these grave and threatening statements are to endanger peace in Northeast Asia. They reveal the militant nature of Japan, which warrants our intense vigilance.

The U.S., while the originally the architect of Japan's pacifist constitution, has long wanted Japan to take a more active military role. Declassified memos from the Carter, Reagan, and Bush I administrations suggest on-going efforts to get Japan to increase its defense spending, not only for local defense, but also to enable it to take a larger role as a U.S. ally in conflicts such as the first Gulf War:

The Gulf War created specific tensions as the U.S. sought contributions from its allies towards supporting the military action against Iraq, contributions that it found difficult to secure from Japan. Prior to the invasion, Japan's continuing reliance upon Middle East oil made it hesitant as always to identify itself too closely with American actions that could incite Arab retaliation with the oil weapon. Beyond this, Japan's antimilitaristic political culture and constitutional limits on military action made it very hard for Japanese leaders to commit much beyond money to support of the coalition. A decision by the Kaifu Cabinet to send Japanese Self Defense Forces to join the coalition forces in the Gulf, although to be limited strictly to non-defense roles, was soon reversed in the face of strong protests within the LDP and from opposition parties.

Finding reliable information on the current administration's policies is harder, as the diplomacy involved is necessarily secret, but clues do emerge:

Article 9 of the Japanese Constitution, which states that Japan can never maintain land, sea, and air forces, as well as other war potential, restricts the country's present military role. Nevertheless, Lo said there is a desire on the US part for Japan to amend Article 9 in order to take a more active military role.

"When I was the representative to Japan, the Bush administration sent an official to Japan discussing the amendment of Article 9. The war ended 60 years ago and the US wanted Japan to become a normal country," Lo said.

North Korean missile tests

Indy asked in the comments about the local Chinese reaction to the North Korean missile tests. I thought it might make a good post, since I've been a little inactive lately.

The Chinese media has been paying a little more attention to the missile launches now that they've actually taken place, but the discussion is mostly about the U.S. request for a security council resolution. There isn't a lot of concern about the missiles themselves.

It doesn't take more than a few moments of consideration to figure out why that might be. First, North Korea has long had the ability to launch missiles that could potentially hit major Chinese, South Korean, or Japanese cities. These tests don't change the status quo for any of these countries. The fact that North Korea is trying to develop a missile that might be able to hit the U.S. is not particularly interesting. Any Americans who think that the Chinese should be more concerned about missiles that could possibly hit Alaska than missiles that could definately hit Shanghai, Beijing, or Qingdao are more than a little self-centered

Second, North Korea is an ally. Most people in this area, even the South Koreans, are much more concerned with the potential changes in Japanese constitution that will allow it to once again become a military power. Whatever the American's memory of Pearl Harbour, they pale in comparison to the memories of Japanese occupation shared by both the Koreans and the Chinese.

Part of this is simply the Chinese government keeping the memory alive for political purposes, but there's no denying the atrocities that were committed by imperial Japan, and it wasn't that long ago. The idea that the U.S. is now encouraging Japan to re-arm is disturbing to a lot of people. This shift in regional military power might even serve to tighten the relationships between the two Koreas and China.

Jonathan Chait: Democrats, don't put it in writing

Jonathan Chait articulates my own views on the difference between Democrats and Republicans. The same can be said of liberals vs. conservatives in a lot of countries. Modern liberals are pragmatists - they look for policies that work. Modern conservatives seem to want to apply the same simplistic solutions to every problem.

Conservatism and liberalism are not really mirror images of each other.

Conservatives venerate the free market and see smaller government as an end in itself. Liberals do not venerate government in the same way, and we do not see larger government as an end in and of itself. For us, everything works on a case-by-case basis. Should government provide everybody's education? Yes. Should government manufacture everybody's blue jeans? No. And so on.

Open thread

Since the previous one is getting long, and has scrolled off the front page..

LA Times censors newsroom Internet feed

Just in time for my own censorship troubles, Juan Cole links to this report on Boing Boing.

This is the first example I've heard of a Western newspaper censoring its reporters' Internet feeds. The companies that sell censorware services deliver a notoriously biased and Orwellian system. For example, sites like Peacefire and Boing Boing, which report on the bad judgement in these services and expose their technical failings, are classed as "proxy avoidance."

[...]

Some of these companies also provide censorship services to repressive governments, like those in China and Syria.

[...]

A reader writes:"[...]To top it off, the censorware is stupid! Just last night I was looking up some info on praying mantids and one of the sites was blocked. It happens all the time for totally innocuous things."

How to surf freely and privately

I've finally set up a reliable hack around the Great Firewall of China, and I'd like to record the details here for reference. The solution is quite simple when you know how. Please note that circumventings controls on Internet access may be illegal in some countries - use at your own risk.

Infrastructure you need:

1. Access to an Internet connected server that's outside the jurisdiction of the entity you're trying to circumvent.
2. Your own laptop or other computer where you can install client software.
3. The ability to establish SSH connections between your laptop and your server.

Software needed on the server:

1. Download and install the Privoxy web proxy.
2. Make sure your server can accept SSH connections.

Software needed on the client:

1. All you need is SSH. If you use Microsoft Windows, you can try PuTTY, although I haven't tested this myself.

In fact, any Linux distribution will be useable out of the box for both server and client, with the exception of the need for Privoxy on the server side. Do the standard install on the server, and ignore all the special features of Privoxy. You only need it to act as a proxy, and you can ignore most of the other features for now (you might want to investigate them later for other reasons).

To begin surfing safely, establish a tunnel between your laptop and your server. This SSH command forwards the local port 8118 to port 8118 on the server. If you used the default Privoxy configuration then this should be fine. Replace the "root@myserver.com" with the correct username and server name:

ssh -L 8118:127.0.0.1:8118 root@myserver.com

Set up your web browser to use a manual proxy configuration, with the proxy host as "127.0.0.1" and the port as "8118". Use this for both http and https connections.

That's it. Now you can surf the entire Web, even from within China, or from within company networks that use NetNanny or some other censorship tools. You can also surf from within the U.S.A. secure in the knowledge that the Department of Homeland Security can't monitor your traffic (at least not if your server is outside the U.S.).

How does it work?

Don't let Privoxy's billing as a privacy tool fool you. I'm actually using it as a simple proxy in this case. Normally Privoxy is loaded on your personal computer and filters cookies and other annoyances from the data stream as you surf. In this case I've installed it on my server as the simplest way I could find to get it to forward web traffic for me. The port-forwarding SSH tunnel forwards all of the web traffic to Privoxy on the remote server, and the Privoxy instance on the remote server surfs my behalf.

The connection between the laptop and the server is encrypted, so there's no way for somebody monitoring the traffic to know what I'm looking at. They will know that I'm sending a lot of traffic to a certain server in Helsinki, so if you are in a situation where that will cause problems for you, beware.

Greetings from Qingdao

Greetings from beautiful Qingdao. I arrived here about ten days ago after three weeks of travelling around China. This will be my home for the next couple of months.

Qingdao is a clean and scenic seaside city. It's one of the prosperous coastal cities, but less hectic and much less poluted than Shanghai or Beijing. This will be the site for the Olympic Sailing Regatta in 2008 and, even though I'm not really into sailing, I think I'm going to try to arrange to be here. I've met a lot of really great people and I'm amazed that I'd never heard of Qingdao before six months ago.

I had planned to just study and try to meet Chinese people while I'm here, but I've been roped into teaching English. I gave my first lesson yesterday to a class of twenty 10-year-olds. It was a blast, but wow do they tire you out.

One continuing problem is Internet access. It seems that many of the sites I normally visit, including all of the *.blogspot.com domains, Wikipedia, and a number others are blocked. My attempts to get around this using the University of Helsinki proxy have been unreliable. In any case, the proxy is intended to give students access to university resources such as online journals not to circumvent censorship, so I don't feel entirely comfortable using it that way.

I have my own laptop and should be able to set up a tunneling service between it and my personal server located in Helsinki, but getting the laptop online is a pain as well. Unlike Shanghai Wifi is quite limited here and Internet performance in general has been patchy.

I'll try to get the problems sorted out but until then there won't be too much blogging. I like to do research on the topics I blog about, and it's frustrating when every second site doesn't work.

Thanks for keeping the site alive while I'm away and feel free to use this as an open thread to keep the discussion going (since the earlier one must be getting to be a nuisance by now).