Monday, January 24, 2005

Away for a Few Days

I will be away from posting for a few days as I trade out and bring in some equipment and catch up on some other things for a few days. Back soon!

Mark Steyn on the Democrats: "cynicism and delusion"

He's a worldbeater, all right:

"The Democrats' big phrase is 'exit strategy.' Time and again, their senators demanded that Rice tell 'em what the 'exit strategy' for Iraq was. The correct answer is: There isn't one, and there shouldn't be one, and it's a dumb expression. The more polite response came in the president's inaugural address: ''The survival of liberty in our land increasingly depends on the success of liberty in other lands.'' Next week's election in Iraq will go not perfectly but well enough, and in time the number of U.S. troops needed there will be reduced, and in some more time they'll be reduced more dramatically, and one day there'll be none at all, just a small diplomatic presence..."

"...On Sept. 11, the world came unspun: There's no shame in acknowledging, as Condi Rice did last week, that previous policy -- Republican and Democrat -- toward the Middle East is wrong. But there's something silly and immature about a party that, from Kerry to Boxer to Byrd, can't get beyond spin, grandstanding and debater's points....

"If the president's speech yoked idealism and realism, that doesn't leave much for dissenting Dems except their own peculiar combination of cynicism and delusion."

[Bold was mine.] Steyn never pulls any punches.

The Economist on George Bush's Second Term George Bush's second term:

"George Bush began his second term with a speech calling for freedom around the world. But for the conservative, radical president, freedom also means big changes to domestic programmes. Can Mr Bush realise his vision of an ownership society?"

"...the president also has a vision of completing the unfinished work of American freedom. For him, this means a society that gives every citizen a stake in the promise and future of our country. It sounds like anodyne stuff, but it has a very specific meaning. In his second term, the president will attempt a radical transformation of some of the mainstays of the American economy, in particular the tax code and the pension system."

"So the fiscal squeeze will make it hard for Mr Bush to achieve his two biggest goals: reforming the tax code and introducing private accounts into Social Security, the federal pensions programme. Overhauling Social Security will incur big transition costs, even if the move to private accounts is eventually successful. Reforming the tax system need not, in principle, make the deficit worse. But if Mr Bush simplifies the tax code (which is politically popular) he will also have to broaden the tax base (which is not). The prospects for Social Security reform depend on who wins the communications war. "

"The Democrats will have their own communications strategy. In particular, they will raise the spectre of cuts in guaranteed benefits: if the contributions of the young are siphoned off into private accounts, there is no way to promise current levels of benefits to the old without actually making the deficit worse. And the Democrats have experience in demagoguery on entitlement cuts. In the late 1990s, they successfully painted the Republican Congress's plans to slow Medicare growth as throwing Granny out of her wheelchair. Now, the Democrats will say, the Republicans want to snatch the pension from her purse, too.

Despite the risks, Mr Bush will move early and forcefully on Social Security. Less clear are the prospects for reform of the tax code. Breathless conservatives around him want to increase America's dismal savings rate by shifting the tax burden from investment income to consumption. But such a radical overhaul is unlikely, especially if Mr Bush has already expended a great deal of political capital on Social Security. Instead, the president is likely to focus on making his first-term tax cuts permanent and introducing some other changes at the margin. One would be to eliminate the Alternative Minimum Tax (AMT), originally devised to keep the rich from finding too many loopholes, but now hitting many upper-middle income families. Killing the AMT will require finding money elsewhere. Mr Bush says he wants to cut other deductions and loopholes such as the deduction of state income taxes from federally taxable income. But each loophole has a vocal constituency, both in Congress and among voters.

Mr Bush may feel a wind at his back thanks to his re-election. But he has set himself mammoth tasks."

Read it all if you can for the full slanr from The Economist.

Sunday, January 23, 2005

Bush Ventures Out Into Snow for Alfalfa Club Dinner

"The president and his wife, Laura, braved snow-covered downtown streets in their motorcade to attend to the Alfalfa Club dinner Saturday, an annual event where Washington political and business leaders gather to give humorous speeches."

"The club is named after the alfalfa plant because its roots will range far afield to reach liquid refreshment. Its sole task is holding the annual dinner. "

I never knew.

Friedman's Latest from Paris

Friedman in Europe, Divided We Stand:

"Paris - There's only one thing you can say about the elections in Iraq: They are either going to be the end of the beginning there or the beginning of the end.

Either Iraqis turn out in large numbers to take control of their own future and write their own constitution - and I think they will - or the fascist insurgents there prevent them from doing so,... I've argued the war on terrorism is really a war of ideas within the Muslim world - a war between those who want to wall Islam off from modernity, and defend it with a suicide cult, and those who want to bring Islam into the 21st century and preserve it as a compassionate faith. This war of ideas is not one that the West can fight, only promote. Muslims have to fight it from within. That is what is at stake in the Iraqi elections. This is the first great battle in the post-9/11 war of ideas. "

"I spent Friday morning interviewing two 18-year-old French Muslim girls in the Paris immigrant district of St.-Ouen. (It is about a mile from the school where in March 2003 a French Muslim girl, who had refused the veil and rebuffed the advances of a Muslim boy, was thrown into a garbage can by three Muslim teenagers, who then tossed lighted cigarette butts into the can and closed the lid.) Both girls I interviewed wore veils and one also wore a full Afghan-like head-to-toe covering; one was of Egyptian parents, the other of Tunisian parents, but both were born and raised in France. What did I learn from them? That they got all their news from Al Jazeera TV, because they did not believe French TV, that the person they admired most in the world was Osama bin Laden, because he was defending Islam, that suicide 'martyrdom' was justified because there was no greater glory than dying in defense of Islam, that they saw themselves as Muslims first and French citizens last, and that all their friends felt pretty much the same.

We were not in Kabul. We were standing outside their French public high school - a short ride from the Eiffel Tower. "

Another Critic On Krugman's Column

And from JustOneMinute which takes longer than a minute but is simple actually:

"The Earnest Prof has an unsolved arithmetic problem; perhaps we can help him with it.

...if we take into account realistic estimates of the fees that mutual funds will charge - remember, in Britain those fees reduce workers' nest eggs by 20 to 30 percent - privatization turns into a lose-lose proposition."

"Hmm, since my beer is cold, I know I am not in Britain, so what might a realistic estimate of cumulative fund fees be here in the States? "

"The CBO, in their July 2004 evaluation, assumed account fees of 0.30% per annum on total assets, which seems plausible for the types of comparable funds run by the Federal Thrift Savings Plan. Shall we try a simple calculation to help the Prof?

Suppose we are 20 years old, and our annual contribution will be an even $1,000 for the next 45 years. Let's keep this real simple, and assume we put the first $1,000 in a no-interest checking account with a 0.30% annual fee. This means that my first $1,000 will be charged $3 in the first year. If I had a spreadsheet (I will in a minute) I would reduce the $1,000 balance by that amount and calculate a new, slightly smaller fee for the second year. But for purposes of this estimation, lets just reduce my $1,000 deposit by $3 each year for 45 years. In that case, the total fees charged on my first $1,000 deposit are ($3 x 45) = $135. That is 13.5% of my initial deposit. But wait! I will also make deposits in subsequent years, and none of them will be charged fees over a full 45 year term. Good point. The last deposit will be charged a fee for just one year; taking a quick average of 45 years and 1 year, we can estimate that the average term is 23 years. The average fee is then $3 x 23, or $69. This is roughly 7% of my $1,000 deposit. Seems too easy, doesn't it? Well, with a modest spreadsheet, we can vary the growth rate in the annual deposit, and plug in an annual return on the account balance. Both of these factors make the account balance, and hence the annual fee, get larger. For 0% deposit growth and a 0% account return, the ending ratio, after 45 years, of an account with a 0.30% fee can be compared to a no-fee account."

"The result is a bit lower than our 7% estimate, coming in at 6.3%. For an account with 5% annual deposit growth (that would represent rising wages), and a 15% account return (that would be an astonishing stock market run), the expenses consume 8.5% of the 'no-fee' account. So the 'right' answer is somewhere in the 6% to 8% range. But hold on! Didn't Paul Krugman just ask for a 'reasonable' estimate, and throw out 20% to 30% in Britain as a comparison? Based on the CBO number and some mental math, we came to 7%, which was quickly confirmed by a more elaborate calculation.

Why, oh why is Prof. Krugman off by a factor of 300% to 400%? How can it be that he is misrepresenting the intelligence and hyping his case? You've got me. Possible answers might include: (a) this was too complicated a calculation for a prospective Nobel Laureate; (b) this was an easy calculation but not a helpful result for polemical purposes; or (c) his beer was warm, and all the folks in Princeton speak English, so he thought he was in Britain.

Enjoy the weekend - pick (a), and put yourself up for a Nobel Prize."

On Krugman's Latest Rant - Other Opinions

Courtesy of Instapundit from

"Yet again Paul Krugman attacks private accounts for Social Security with the claim that returns in stocks will be not high enough and 'risky'."

"And who does Krugman choose to invoke as an authority for his argument? Why, who could be more impressive than the academic world's most noted advocate of stocks as a long-term investment, Prof. Jeremy Siegel of Wharton... That's why even Jeremy Siegel, whose 'Stocks for the Long Run' is often cited by those who favor stocks over bonds, has conceded that 'returns on stocks over bonds won't be as large as in the past.'

But a very high return on stocks over bonds is essential in privatization schemes... Yet wait a minute. With Krugman (not to mention the other NY Times op-eders) you can never trust a quote. Let's do a quick Google search. Yes, here's what Siegel actually said ... 'I agree that returns on stocks over bonds won't be as large as in the past. But I'm more optimistic than Rob. Looking over the next quarter-century, I see a 5%-to-6% return on stocks, adjusted for inflation. I'm pessimistic about real bond returns. I think they're likely to be in the 0%-to-1% range over the next five years, and closer to 3% after that...'

My gosh! In support of his argument that the spread between bond and stock yields must close so that stocks cease to be a more attractive investment than bonds, Krugman quotes Jeremy Siegel arguing exactly the opposite in Forbes, making the case for stocks as a better long-term investment than bonds."