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On Losing Our SUV Virginity

June 30th, 2008 . by economistmom

Last week during our vacation to NV and AZ, my family experienced life with an SUV for the first time.  (You might find that amazing, given our 20-year-old human infrastructure project.)

We rented a Ford Expedition, so I was being good to my Ford engineer sister.  (Our household owns three Ford vehicles–two minivans and a compact car.  We’re soon to get a new compact and will donate the older minivan to charity.)

My husband says we filled up the gas tank three times, each time about $80 worth–so $240 in gas for the week.  Per person, that’s not bad ($40).  I just looked up the approximate mileage we drove in traveling from Las Vegas to Sedona, AZ, to the Grand Canyon and back, and back to Las Vegas.  I think that’s around 820 miles.  (We did a little bit of driving around each destination though, so adding maybe 20 miles to that gets us to 840 miles.)  With gas about $4 per gallon (it was actually cheaper in Sedona than Las Vegas, which surprised me), that’s 60 gallons of gas.  So that works out to 14 miles/gallon.  Ford says the Expedition is supposed to get 12-18 miles/gallon, so that’s right in there.

All in all, I think it was a good opportunity to experience the SUV and made financial sense for us–at least for the one week.  And it was a very comfortable ride.  I have to admit I’ve had this aversion to SUVs because of their reputation as gas guzzlers, and we won’t be buying one in the future (at least not until more hybrid, not-so-gigantic versions become available), but when I got home and looked at a few photos I had snapped of our vacation SUV, I realized that framing/context really matters.  (This psychology stuff is fascinating to me.  See yesterday’s post which mentioned “cognitive dissonance”.)

Here’s a photo of our vacation SUV filling up at the gas station:

 

…And here’s a photo of our vacation SUV near the red rocks of Sedona:

Kind of gives you a totally different impression of the SUV, doesn’t it?  I think I need to apply this lesson to the way I talk about the long-term budget outlook and the need for reforms. 

New Poll on the Economy Shows How Tough Policy Choices Will Be

June 29th, 2008 . by economistmom

Back from vacation–as of 2 am this morning!

Thanks to Bob Bixby for pointing out this new LA Times/Bloomberg poll on the economy to me.  From the story, several lessons on economic policy are learned.

First, it’s obvious that tying your economic platform to some continuation of the “Bush Economy” is not going to win you many votes:

Nine percent of respondents said the country’s economic condition had improved since Bush became president, compared with 75% who said conditions had worsened. Among Republicans, 42% said the country was worse off, while 26% said it was about the same, and 22% thought economic conditions had improved.

Second, no matter what economists try to explain about gasoline prices, the basic laws of supply and demand, and the near mpossibility of government being able to counter natural economic forces, people will blame the government for either causing the high prices or not doing enough to prevent them.  The last thing people do is think that they themselves might have anything to do with the high prices.  (Did I mention that our family was driving a big SUV during our vacation?  More on that later.)

Asked for their view of the cause of the higher [gasoline] prices, respondents blamed the Bush administration and oil company profits in roughly equal measure — 29% holding the administration responsible and 25% blaming the oil companies, a spread within the poll’s margin of error.

Thirteen percent of those polled said commodities speculators were responsible for the increases; 14% said they were not sure who was at fault.

Amber Guckenberg, a 28-year-old stay-at-home mother in Kalispell, Mont., said she wasn’t sure Bush deserved all the blame for rising energy prices, but she wished he had found a way to rein them in.

(Makes it easy to understand why the politicians have felt compelled to suggest such things as gasoline tax holidays and windfall profits taxes, doesn’t it?)

And finally, here’s the part that’s most interesting to me.  Concern about the deficit as a “top priority” seems to be growing, but many more people (more than half of the respondents) think a top priority should be to do things that would most likely increase the deficit:

Though respondents had strong opinions about the economy, they were not sure how to make it better. Asked what the top priority for improving the economy should be, 27% said cutting taxes, 20% said reducing the federal deficit, 13% said funding public programs and 13% said addressing the price of energy.

It’s also likely that here, too, as with gasoline prices, there’s a lot of “cognitive dissonance” going around, where people choose to believe that the lower taxes or increased government spending that they want would not have an adverse effect on the federal budget, but might even improve the budget outlook.  (Hence, tax cuts that pay for themselves, and infrastructure projects that would pay off just like the Hoover Dam, are born.)

Thanks to Brooks who pointed out this NYTimes op-ed on ”cognitive dissonance” (and how it affects campaign strategies) to me.  I was drawn to this one passage mentioning Oliver Wendell Holmes…

In 1919, Justice Oliver Wendell Holmes of the Supreme Court wrote that “the best test of truth is the power of the thought to get itself accepted in the competition of the market.” Holmes erroneously assumed that ideas are more likely to spread if they are honest. Our brains do not naturally obey this admirable dictum, but by better understanding the mechanisms of memory perhaps we can move closer to Holmes’s ideal.

…because I once wrote an op-ed which opened with the famous (but I guess naive?) quote from Holmes:  “Taxes are what we pay for a civilized society.”  Hmmm…

Note that the authors of that NYTimes op-ed are (my emphasis, and link to prior post of mine, added):

Sam Wang, an associate professor of molecular biology and neuroscience at Princeton, and Sandra Aamodt, a former editor in chief of Nature Neuroscience, are the authors of “Welcome to Your Brain: Why You Lose Your Car Keys but Never Forget How to Drive and Other Puzzles of Everyday Life.”

 Wow!  I’ve got to get that book!

Maybe “SAFE” Is Considered Code for “Destroy”?

June 26th, 2008 . by economistmom

This week the House Budget Committee held a hearing on the “Securing America’s Future Economy” (SAFE) Commission Act (H.R. 473), as a favor to Jim Cooper, the House sponsor of the bill and a Blue Dog member of the Budget Committee.  Here’s the Peter G. Peterson Foundation press release on the testimony of Peterson and David Walker.  From the Congressional Research Service summary of the legislation:

Securing America’s Future Economy Commission Act, or SAFE Commission Act - Establishes the Securing America’s Future Economy (SAFE) Commission to develop legislation designed to address: (1) the unsustainable imbalance between long-term federal spending commitments and projected revenues; (2) increases in net national savings to provide for domestic investment and economic growth; (3) the implications of foreign ownership of federally issued debt instruments; and (4) revision of the budget process to place greater emphasis on long-term fiscal issues.

Requires the Commission to: (1) develop one or two methods for estimating the cost of legislation as an alternative to the current Congressional Budget Office (CBO) method; and (2) hold at least one town-hall style public hearing within each federal reserve district.

Requires the Commission to submit a legislative proposal to Congress and the President. Authorizes the President to submit to Congress an alternative proposal. Authorizes the Committee on the Budget of either chamber to publish its own alternative proposal in the Congressional Record.

Sets forth procedures for consideration of such legislation.

Requires CBO to prepare a long-term cost estimate and have it published in the Congressional Record as expeditiously as possible whenever requested to do so by the Commission, the President, or the chairman or ranking minority member of the Committee on the Budget of either chamber.

Now, to this economist, that sounds completely reasonable, but I know there are many members of Congress who oppose the formation of such a commission.  There are 95 House cosponsors, including many Blue Dog Democrats, but also some Democrats who aren’t Blue Dogs–probabaly considered more liberal than the Blue Dogs–but also some very conservative Republicans.  It is indeed a rather strange group of bedfellows.  I used to think those who opposed the SAFE commission were doing so on process grounds, but I’m starting to wonder if I’ve been too naive– that maybe the motive for some of that opposition, and maybe for some of the promotion as well, is on ideological grounds.

That feeling was clued into me through the responses here to my “Young People Get It” thread, and through a thread started by Pete Davis on Capital Gains and Games and then continued in threads started by Pete’s co-bloggers, Andrew and Stan (thanks, guys).  I now get the sense (duh?) that many of those who oppose the SAFE commission believe that the commission is intended to destroy Social Security as we know it.

I’m starting to understand the sensitivity of folks to the fiscal hawks’ lumping together of Social Security with the health entitlement programs when we talk about the unsustainability of the overall federal entitlement system.  And we fiscal hawks do certainly already understand that the overall challenge comes mostly (but not entirely) on the health costs side.  I think it’s that some of us are concerned that it’s the overall challenge that really threatens the health of all of the entitlement programs, because it’s the overall challenge that severely threatens the future economic growth that is needed to keep the programs that now don’t look so badly off (i.e., Social Security) on strong footing.

So it’s obvious that this is a conversation we need to get into more.  Thanks to all who have commented here and elsewhere in the blogosphere for making this a priority for me and for Concord. 

Now, back to my vacation!

My Own 20-Year-Old Infrastructure Project

June 25th, 2008 . by economistmom

Today my husband and I celebrate our 20th wedding anniversary, while out in Nevada and Arizona with our four kids.  So here’s the latest photo of this 20-year-old “human infrastructure” project I’ve been working on–with a lot of help from my husband, of course.  (That’s Lake Mead in the background, taken right before we saw the Hoover Dam.)  Note that I am the 3rd-shortest person in the family, with only my 9-year-old son and 11-year-old daughter still shorter than me, so I’ve managed to construct pretty tall projects just like the Hoover Dam area’s been doing.

Dam! Actually, We WOULD Like To Thank You, Herbert Hoover!

June 24th, 2008 . by economistmom

Gee, I never thought I’d need a topic category on Dams…  Here’s a family vacation shot from a couple days ago, of my family walking in the oppressive desert heat around the Hoover Dam.  Boy, that’s one impressive piece of infrastructure.  (I’m sparing you the photo of the dam itself.)  Seeing it for only the second time in my life (the last time, when I was a child), this time it fascinated me to think that Herbert Hoover could have such a ”big government” project named after him.  (After all, in the Annie song “We’d Like to Thank You, Herbert Hoover,” the folks singing weren’t exactly singing his praises for job creating government projects, and in a previous post I likened Hoover’s popularity to that of George W. Bush.)  So I did some googling and was surprised to find out (from this PBS resource) that Hoover was very much responsible for the very successful Hoover Dam (”big government”) project, and that his success in promoting and managing the project as first Harding’s and then Coolidge’s Commerce secretary helped win him the presidency in 1928. 

Obviously, whatever “success” Hoover achieved in seeing the Hoover Dam project through, it did not carry through to his presidency once the country fell into the Great Depression.  Apparently the dam was renamed several times, starting out as the “Boulder Dam” then named the “Hoover Dam” in 1930, then renamed back to the “Boulder Dam” after Hoover lost to FDR in 1932.  It became the “Hoover Dam” again in 1947.

What’s obvious today is that the Hoover Dam area still stands for “big government” infrastructure projects.  My family was totally amazed to see the huge project going on now:  the Hoover Dam Bypass Project.  Here are a couple shots showing the bridge they’re starting to build from both sides of the huge gorge–a feat that already seems to defy the laws of physics.

From the traffic that passes through there at a snail’s pace now (especially with the new very heightened security at the Dam since 9/11), I have no doubt that this “bypass” will pass the cost-benefit test.  (Curious about how the bypass project is being funded?  Go here.)

The Young People Get It

June 23rd, 2008 . by economistmom

Last week in DC, a group of young (20-something and 30-something) leaders from all over the country met with fiscal policy experts at the “Youth Entitlement Summit” (YES!) to learn more about our nation’s long-term fiscal challenges, and to coalesce around a strategy they can take, as young leaders, to help turn the situation around. 

Here is the declaration the young leaders read on national (C-SPAN) TV at the dinner hosted by the Concord Coalition, which was the culmination of the YES two-day summit.  If you watch the video, you’ll see that the young people do “get it”–and that the “old people” (no offense, Belle, Stuart, and Bob, as I count myself as one, too) are impressed:

In our democracy, there exist fundamental obligations that bind us together. This intergenerational compact compels us to leave future generations in better condition than we ourselves are in.

Our generation believes that the promise of the American dream must be continually renewed. Yet our ability to address new challenges is severely impaired. The social contract is crumbling and is taking down the rest of government finances with it.

Therefore we make the following findings and assertions:

Whereas short-term thinking has dominated our politics, the democratic process for redress of these grievances has failed . . .

Whereas honest debate has been undermined by political expediency and special interests . . .

Whereas young people are underrepresented in government despite historic levels of civic engagement and future generations cannot speak for themselves . . .

Whereas health care’s runaway cost increases require comprehensive reform to Medicare, Medicaid, and indeed our entire health care system…

Whereas America’s demographic changes, namely an aging of the population and lengthening life spans, requires significant revisions to Social Security…

Whereas Social Security’s mechanism for creating equity across generations, the trust fund, has proved inadequate. . .

Whereas Social Security, Medicare, and Medicaid are all on unsustainable paths. . .

Whereas a failure to correct the paths of said programs will lead to their failure, total budget insolvency, inequity for current and future generations unprecedented in the history of the United States, and inability to address other priorities, and declining economic prosperity…

Therefore, we hereby declare our generational interdependence.  We will work to achieve reforms that are fair for all generations, including those to come.

Pursuant to our study of these issues, we resolve:

1) Fair and effective action MUST be taken up by the next President and next Congress. Delay compounds both the inequity and the difficulty of reform.

2) Changes to the tax and benefit formulas of Social Security, Medicaid and Medicare must be considered together to meaningfully fix the system.

3) For those who can work, a delayed and flexible retirement age will improve generational equity, match the original promises of the program, and strengthen our nation’s economy.

4) Meaningful savings mechanism, in concert with investment in financial education and fiscal literacy for those disproportionately impacted, would help ensure retirement adequacy and fairness and offer young Americans more control and ownership of their future.

5) To address Medicaid and Medicare requires nothing short of a comprehensive overhaul of the larger healthcare system. 

6) Our current budget system – complex, burdensome, and riddled with concessions to special interests – is an impediment to entitlement reform; tax and spending reforms should be part of the solution.

The preceding is the result of our coming together for an intensive, two day summit investing the challenges facing our generation.  We come from various ideological perspectives, but share the common goal of strengthening this country and our future.  No politician who claims to represent young people can in good conscience ignore these issues.  We call on our leaders to act- and act now.

The Candidates’ Advisors Care More About the Deficit Than the Press Realizes

June 21st, 2008 . by economistmom

From this morning’s Washington Post (front page), Lori Montgomery writes that the candidates are making “big promises” that defy “budget realities.”  What I found interesting is that she didn’t highlight the fact that the leading economic advisors to both candidates are themselves very aware of how their candidates’ promises square with reality, and that’s why they choose their words so carefully.

The article quotes Obama advisor Austan Goolsbee:

Obama economic adviser Austan Goolsbee said the senator has identified ways to cover the costs of his proposals, starting with savings of $90 billion a year from ending the Iraq war. “All of his programs are paid for and the deficit would come down” from where it is today, Goolsbee said.

Austan is not lying.  Note that “paid for” is always a relative concept, relative to whatever baseline is in one’s head at the time, and this fiscal year’s budget deficit is expected to be in the $400-$500 billion range.  It reached $317 billion just in the first eight months.

I thought this a good time to point out that Austan Goolsbee knows that deficits matter.

But mostly I wanted to point out that in Lori’s citation of this Brookings analysis

In a new paper titled “Facing the Music: The Fiscal Outlook at the End of the Bush Administration,” University of California at Berkeley economist Alan Auerbach and two co-authors from the Brookings Institution conclude that, if spending grows at historic rates, simply keeping the Bush tax cuts and halting the spread of the AMT would drive the budget deficit to $481 billion by the end of the next president’s first term, or 2.7 percent of the economy. Subtract the cash borrowed from Social Security and other retirement funds, and it would be $796 billion, or 4.4 percent of GDP.

…she fails to note that one of those two Brookings scholars is none other than Jason Furman, Obama’s new economic policy director. 

I could cite some wise (past) words and analyses of McCain advisor, Doug Holtz-Eakin, on fiscal responsibility as well, but I’ll do that some other time.  They’re out there.

I Love My Dogs, But Not That Much

June 20th, 2008 . by economistmom

My family leaves for a week in Arizona tomorrow.  A few weeks ago I brought up the issue of what I was going to do with my three dogs–whether I might actually put them up in a doggie resort of sorts, such as a place nearby called “Dogtopia.”  A Dogtopia publicity guy even commented on that post, thanking me for putting in a plug for them–and even a link.  (Did he offer me a discount in return, though?…So this time, no easy link…)  One of my (human-childless) budget-expert friends even revealed to me that he brings his doggie children to Dogtopia regularly.

Well, our doggies are not going to Dogtopia, because when I looked into the cost, I realized that if we brought the dogs there, we’d be spending more on lodging on a per capita basis per dog, than per human.   Yes, I’m serious.  I mean, I love my dogs, but I’m not that crazy about them.  I actually think they’ll be happier to stay in our home and our backyard anyway, with our home-from-college neighbor looking after them.  (The other weird thing about these big “dog resort” places is that they’re almost all completely inside big hanger-type, warehouse-style buildings that the dogs must get used to as their indoor and outdoor world… They have fake grass and fake trees so that the dogs will still feel “at home” when they have to pee underneath a roof instead of under the sky…. I mean, how could I pay more per dog for that kind of “scenary” than what we’re paying per human to stay near the red rocks of Sedona?)

Will be writing from the road this coming week, laptop in hand, kids and hubby beside me.

The Simple Theory vs. Difficult Practice of Reducing Gasoline Prices

June 19th, 2008 . by economistmom

Gasoline prices are pretty much front and center in the political and economic news lately.  Today’s front page of the Washington Post reports on President Bush’s call to reverse the ban on offshore oil drilling–a position Senator McCain has also taken.  Those who support more drilling argue that this would help bring down gasoline prices.  The theory is simple, as economics teaches us that one way to reduce the market price of a commodity is to increase supply (shift the red line above to the right).  Of course, the theory of “supply and demand” also tells us that another way to reduce the market price of a commodity is to reduce demand (shift the blue line above to the left).  In the case of the gasoline market, while either strategy would bring down the market price, they would have quite different implications in terms of the allocation of resources, the distribution of income, and the impact on the environment.  But the price effect alone seems pretty straightforward.

In practice, however, bringing down the market price of gasoline is difficult and slow.  On the supply side, it’s difficult and slow because new drilling takes some time, U.S. oil supply is just a small fraction (looks to me like 7%) of global production, and as a 2005 Dept. of Energy-sponsored analysis (on the peaking of world oil production) notes, “the earth’s endowment of oil is finite.”  (Darn, the old infinite wants vs. finite means problem…)  Today’s Washington Post story notes:

A major uncertainty is the economic impact of offshore drilling, which by Bush’s estimate could result in an extra 18 billion barrels of oil — equivalent to the nation’s current oil production for the next 10 years, according to the White House. Hennessy said he thinks that oil prices might fall as markets began building in the expectation of a growing supply. “We would expect it to have an effect on the price; it’s very difficult to quantify,” he said.

But the federal Energy Information Administration estimated that if leasing began in 2012, “access to the Pacific, Atlantic and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030.”

Wow… By 2030 I’ll surely be more worried about my health care bills than my gasoline bills…

And on the demand side (the approach Senator Obama seems to favor), it’s difficult and slow because to encourage a reduction in demand (and eventual reduction in price), you have to be willing either to let the market (or even “help” the market) bear some short-term pain (immediately higher gasoline prices that shock consumers into changing their habits and preferences) or to subsidize alternative energy technology (so that vehicles that use such technology become cheaper to the consumer).  The former is politically difficult, the latter sounds like it could get expensive, and both are probably pretty slow to take effect. 

I like the Environmental Economics blog’s expert opinion on how to best deal with $4/gallon gas:  drive less.  There’s very little that policy can do on the supply or demand side to change the market forces that have brought gasoline prices higher over the past five years, there’s very little we can do now to push against those market forces, and why would we want to?  The market has sent the “signal” of higher prices for a very valid reason:  we’ve been consuming too much.

(Hate to admit this after what I just said, but next week my family will be driving a big SUV while my family’s on vacation out west.  It’s the only kind of vehicle large enough to hold all 6 of us and our luggage, so maybe that’s still an optimal choice on a per-person fuel-efficiency basis.  Even in a big vehicle, we still really pack it in.  I will definitely be trying to figure this out and will report on it while on the road.)

Why We’re So Gloomy

June 18th, 2008 . by economistmom

That could have been the title of a post justifying the Concord Coalition’s general outlook on life, but no (plenty of time for that in the future)…

Today the Washington Post ran this Neil Irwin story on its front page.  (The Post’s title:  “Why We’re Gloomier Than The Economy”.)  Neil’s point:  Consumer confidence is at its lowest level in 30 years, yet the reality exposed in the economic data show the economy is not the worst its been in 30 years.  Neil goes on to speculate as to why folks are being unusually pessimistic in the current slowdown:  he cites rising fuel prices that American families feel daily–not just when we fill up our tanks but when we buy our food; and the falling value of our homes, which for many of us represent our largest stock of wealth (whether we originally viewed our home purchase as an “investment” or as “consumption”).  He also speculates that it could be the 24-hours-a-day, negative emphasis in media coverage these days, or just the fact that we’re not used to facing negative economic news–that the current climate is such stark contrast to the economic exuberance (rational or not) we lived through in the late 1990s.

I have a different theory.  I think the excessive gloominess in the current ”cyclical downturn” is because Americans are feeling as if a good part of the economic downturn might not just be cyclical (temporary)–that much of what we’re seeing in the short-run economy is symptomatic of longer-run challenges that aren’t going to go away within the next few months or even years. 

As we fill up our gas tanks each day, do we really think gasoline prices are going to go back to $2/gallon in a few months?  As we see our home values–and the equity we can tap into–falling, do we expect to get back to relying on that “wealth” to help pay for our kids’ college educations or our own retirements?  As our family budgets are squeezed by rising health care bills and wages that can’t keep up with even general inflation, do we have faith that the government will get that health care inflation under control soon?  As my auto-engineer sister and brother-in-law in the Detroit area worry about their job security, do they expect that on the other side of the current downturn, the layoffs will stop?  As we hear the bad news about this year’s federal budget deficit, are we comforted by what the presidential candidates are proposing?

I think there is this feeling of much more permanent unsustainability that we are seeing repeatedly in our daily economy–little doses of daily evidence that we have been living beyond our means, as the Post’s Steven Pearlstein had pointed out a few weeks ago, calling it the “fading of the mirage economy”, and as I referred to here as the “super subprime problem.”

We’re so gloomy because as we ride over this immediate “rough patch,” we notice the bumps keep coming, and we sense we’re slowly rolling downhill at the same time–about to veer off this crumbling road and crash into a ravine if we don’t somehow change course.  Right now it doesn’t feel like just a temporary “bump in the road.”

And speaking of this longer-run “crumbling,” note that if you have access to today’s print version of the Washington Post, you will find that right next to Neil Irwin’s front page (left column) story about why we’re so gloomy on the economy, is this front-and-center gloomy story (with gloomy photo) on how the infrastructure of the National Mall is falling apart.

Hate to be such a downer today… I’ll try to make up for it in the next few days, for the good news about the more lasting challenges we face is that it’s in some ways easier (and wiser) for policy to affect those longer-run trends, if we have the will to do so, than to counter the truly shorter-run movements in the business cycle. 

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