Category Archives: Econ & Money

The Government You Deserve?

Back in November, right after it became clear that Democrats would keep a tiny grip on the Senate, and Republicans would have a small majority in the House, but only subject the hardest core rump of the ultra-rightist ‘Freedom Caucus’, the Washington Post’s Greg Sargent wrote a column (now paywalled) on 5 ways to ‘crazyproof’ the country against the chaos of a GOP House.

The five measures Sargent recommended were:

  1. Remove the debt ceiling
  2. Fix the method by which Congress ratifies the electoral vote
  3. “Avert chaotic gridlock on immigration”
  4. Prevent defunding of aid to Ukraine
  5. Protect investigations of Trump via a long-term appropriation for the Justice Department

The lame-duck Congress only managed one in full, although it did two in part. Unfortunately, the most critical short-term fix got almost no traction at all.

Congress did pass the Electoral Count Reform Act. So that is #2 taken care of, and future Vice-Presidents should not have to worry about their boss encouraging others to threaten to kill them if the Veep doesn’t reject a state’s slate of electors.

And Congress did pass a spending bill that will fund the Justice Department for the coming year, and also has more aid for Ukraine in it. So there’s #5 good for a year, and #4 sorted until we use up the money and need more.

But there was no action on immigration, not even the DREAM Act, and worst of all the insane man-made debt limit crisis is due to raise its ugly head again fairly soon.

The debt ceiling currently stands at around $31.4 trillion, and we’re getting closer (I’ve inserted a copy of the real-time debt clock.) As we get very close the Treasury has a few games it can play to stretch things out a few weeks. There is no science to the ‘limit’ — it is just an arbitrary statutory limit, enacted to force votes to allow the US Government to pay for borrowing mandated by the gap between enacted spending and enacted taxes (aka “deficit spending”, aka “charging future generations for expenditures (some of which) pay future benefits). The original idea was to create painful votes for Democrats that lent themselves well to campaign commercials.

But the current crazies, as Sargent euphemistically describes them, have a different plan. They have vowed not to raise the debt ceiling unless Congress first cuts spending in general, and Social Security and/or Medicare in particular. You might not think this is winning politics, although it’s clear that a decent chunk of the GOP is all in for it (example).

So what happens if 41 Democrats in the Senate won’t budge and filibuster any bill that would cut bedrock entitlement plans? Then, at some point, the US can’t issue new debt, some of which would be needed to pay bills including interest on old debt, and the ‘full faith and credit’ of the US is shot. This could upend the economy and destabilize the world financial markets:

The Treasury Department is projected to hit its borrowing limit next year, though it is unclear exactly when the agency will run out of so-called extraordinary measures to ensure payments continue for a few months.

Failure to act could result in staggering consequences for the U.S. economy, forcing American officials to choose between the continuity of assistance like Social Security checks and the payment of interest on the country’s debt. The threats from Republicans recall brinkmanship in 2011, when congressional Republicans sought to pressure President Barack Obama to accept similar spending cuts in exchange for raising the debt limit.

That standoff led to the downgrading of the credit of the United States and rattled American investors and the economy.

Goldman Sachs economists warned in an analysis this week that bipartisan support to raise the debt limit “will be necessary, but hard to achieve,” and that the United States could veer the closest it had come to the economic tumult of 2011 since that standoff. The analysts also noted that less than a quarter of Republicans and less than a third of Democrats who will serve in the House in 2023 were there in 2011.

Why is that Democrats didn’t push harder to fix this? I think there are two reasons. First, the votes in the Senate needed to overcome a filibuster just were not there. There were not ten Republicans willing to go out on that limb without allowing some brinkmanship first. Second, I suspect that some Democrats, noting the wild unpopularity of previous partial government shutdowns in the face either of looming debt ce4iling or the failure to pass a budget, have decided that if the ‘ultra-MAGAS’ crowd takes it the mat they will be cutting off their own political heads.

This calculation, however, has two problems. First, it is entirely possible that the GOP as whole might get punished badly, but the instigators, who tend to come from very safe districts, will not feel the pain directly. Second, if we do have an actual default, anyone who isn’t shorting Treasuries, which is to say almost everyone, is going toe get hurt. It’s that second fact that has in the past caused either GOP leadership or rank and file to find the votes to prevent a default. If, however, Kevin McCarthy finds a way to get elected Speaker it will only be due to such major concessions to his rabid right flank that it likely will be impossible for the party leadership to act. And whether there is a handful of members willing to defy their caucus and cast a vote that might well get them the Liz Cheney treatment – expulsion from any party role, and a well-funded primary opponent — is maybe too much to hope for.

Posted in Econ & Money, Politics: US | 2 Comments

Why “Sender Pays” Is a Terrible Rule for Internet Traffic

Reading national treasure Harold Feld‘s occasional “tales of the sausage factory” at (I think it is a play on ‘wetware’?) makes you smarter.

I learned stuff from S. Korea “Sender Pays” Is a Warning, Not a Model, or Why (Almost) Everyone Keeps Telling the EU This Is a VERY Bad Idea. If you haven’t been paying close attention to the telco side of traffic provision, you’ll learn stuff too.

“Sender pays” for Internet traffic always seemed a bad idea, or rather a way to gouge even more from customers; the idea is occasionally resurrected,  this time as a way to stop spammers.

Feld explains why it’s a bad idea. Now if someone could explain why latency seems to be going up around here even without ‘sender pays’ …

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A Number I Can Grasp

The US is planning to send $13.6 billion in aid to Ukraine, about half of it military.

I like to divide federal spending by the number of US households (c. 130 million in 2021) to help me grasp what it means.

So that $13.6bn becomes $104.62 per US household. Of course that’s just an average as federal tax incidence is not uniform. Personally I’m happy to pitch in, but it’s easy for me to say that.

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Good Tax Policy (Ukraine Edition)

Yours tax-free if you can get it out of the mud.

Bloomburg’s Matt Levine points us to the latest Ukrainian tax announcement: Feel free to capture Russian tanks tax-free:

Ukraine’s National Agency for the Protection against Corruption (NAPC) has declared that captured Russian tanks and other equipment are not subject to declaration.

“Have you captured a Russian tank or armored personnel carrier and are worried about how to declare it? Keep calm and continue to defend the Motherland! There is no need to declare the captured Russian tanks and other equipment, because the cost of this … does not exceed 100 living wages (UAH 248,100),” NAPC’s press service said.

Also, there is no need in this case to submit reports of significant changes in property status within 10 days.

“Speaking by the letter of the law, combat trophies are not subject to reflection in the declaration for the following reasons: they were acquired not as a result of the conclusion of any type of transaction, but in connection with the full-scale aggression of the Russian Federation on February 24, 2022 against the independent and sovereign Ukrainian state as a continuation the insidious attack of the Russian Federation on Ukraine launched in 2014. Thanks to the courage and victory of the defenders of the Ukrainian state, enemy military equipment usually comes to you already destroyed and disabled, which makes it impossible to evaluate it in accordance with the law On the valuation of property, property rights and professional valuation activities in Ukraine. Therefore, it is also impossible to find out how much such property costs,” the NACP said.

Wouldn’t want to discourage capturing tanks, would we?

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Optional Thought

Today’s Exponential View by Azeem Azhar contains an arresting chart, sourced to a paywalled article in the Wall St. Journal, Individuals Embrace Options Trading, Turbocharging Stock Markets :

The WSJ article suggests that individual bettors investors on Robin Hood are the driver of the growth of options; to the extent that increases volatility, then old school securities firms feel driven to hedge more, which also adds to the options boom.

Somehow, this explanation feels inadequate to me, but I don’t know why.

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The Rent is Too Damn High

Lots of news outlets picked up on this report by the National Low Income Housing Coalition stating that there is no place in the USA where a person with a 40-hour minimum wage job can afford a two-bedroom rental.

I’m very much for greater equity, and I think it’s likely true as a general matter that this is a particularly bad time for new renters due to the house-buying mania plus the moratorium on evictions (both of which restrict supply of available rentals), but at a first glance this report seems to have some issues.

For starters, they stacked the deck by pricing 2 BR rentals with one worker with one job and no overtime. Why does a single person need a 2 BR to live? Or even a couple without kids? I agree that in a wealthy country like ours, decent housing ought to be a basic right, but does decent housing mean a 2BR for everyone?

What this report suggests to me is how tough things can be for a single parent, but even then in most states a single parent on 40hrs minimum wage ought to get various kinds of aid, e.g. food stamps, sometimes section 8 housing vouchers [which admittedly can be hard to use] or maybe the Low-Income Housing Tax Credit (LIHTC), plus Earned Income Tax Credit (EITC), plus now child subsidy. There’s no sign the report took account of any transfer payments at all nor that it took any account of family circumstances.

Also is it weird to think that maybe many single minimum wage job holders might live in shared housing? Have half of a 2BR? Or a share of a house? When I was a single law clerk I lived in an efficiency, not even a 1BR.

Yes, a two-parent household with kids often has to have at least 2 jobs, maybe more, to hope to make ends meet, and that is a real problem, but that isn’t what this study says, and that isn’t what got into the headlines (e.g. CNN, “Minimum wage workers can’t afford rent anywhere in America“).

And, oh yes, the numbers they used probably are too general to support the scare headline. To identify the cost of rent they use a HUD number, the FMR, which is based on an entire metro area. As the report itself notes, “The FMR is usually set at the 40th percentile of rents for typical homes occupied by recent movers in an area. FMRs are often applied uniformly within each FMR area, which is either a metropolitan area or nonmetropolitan county. Therefore, the Housing Wage does not reflect rent variations within a metropolitan area or nonmetropolitan county”.

In other words, in a large metro area, there could be less expensive parts of town with substantial amounts of more affordable if less desirable housing, but the FMR for the city/county could be pulled up by having lots of more expensive housing too.

This is not my subject, so I’m very open to correction, and I don’t want to suggest there is not an unequal income crisis, which in turn feeds a housing crisis, but I think this particular report is more advocacy than serious research. And thus, I suspect, it’s not actually the case that there are no places in the US where adequate housing can be afforded by a single person on a minimum wage and by couples on two minimum wages. Maybe it won’t be a great neighborhood, it likely will not be a 2BR, maybe even shared housing, it may be older, but I have a strong suspicion that it often exists. Not, perhaps, in San Francisco and a few other outliers, but likely much more often than this scare headline suggests?

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