Reporting on a UCLA study on the future of the housing market released the same day, [CNN's Andy] Serwer cautioned viewers the findings were “kind of scary stuff,” adding that “800,000 jobs might be lost if the bubble really bursts.” An onscreen graphic warned viewers that the “Housing Outlook Darkens.”

After reporting a drop among housing stocks the previous day on Wall Street, the Fortune magazine editor concluded that the housing industry “is right now peaking, but they’re saying it’s just not going to continue.” But substitute host Carol Costello prompted a correction from Serwer, noting that “maybe it’s not so much the bubble is going to burst, but things are just readjusting to where they should be.”

"We're blogospheric," the deputy managing editor of The New York Times enthused in a staff email announcing the launch of several Web logs.

The first is David Carr's Carpetbagger, part of the newspaper's Red Carpet entertainment awards site. A real estate blog will be soon be offered, too.

"Our new blogs are more than running commentary," said Landman. "Look at Carr's. It's full of links to film publications and blogs and web sites. It encourages responses from readers and hopes to start a lively conversation. Nothing is more important to the future of our web ambitions than to engage our sophisticated readers. Blogs are one way to do it."

The editor said the papers' blogs will hew to The Times' journalistic standards and processes and have editors. "They won't float rumors or take journalistic shortcuts."

An example will illustrate the harmful effect of high taxes on the income from savings and show how the tax reform could make taxpayers unambiguously better off. Think about someone -- call him Joe -- who earns an additional $1,000. If Joe's marginal tax rate is 35%, he gets to keep $650. Joe saves $100 of this for his retirement and spends the rest. If Joe invests these savings in corporate bonds, he receives a return of 6% before tax and 3.9% after tax. With inflation of 2%, the 3.9% after-tax return is reduced to a real after-tax return of only 1.9%. If Joe is now 40 years old, this 1.9% real rate of return implies that the $100 of savings will be worth $193 in today's prices when Joe is 75. So Joe's reward for the extra work is $550 of extra consumption now and $193 of extra consumption at age 75.

But if the tax rate on the income from saving is reduced to 15% as the tax panel recommends, the 6% interest rate would yield 5.1% after tax and 3.1% after both tax and inflation. And with a 3.1% real return, Joe's $100 of extra saving would grow to $291 in today's prices instead of just $193.

There are two lessons in this example, each of which identifies a tax distortion that wastes potential output and therefore unnecessarily lowers levels of real well-being. The first is that a tax on interest income is effectively also a tax on the reward for extra work, cutting the additional consumption at age 75 from $291 to just $193. Because the high tax rate on interest income reduces the reward for work (as well as the reward for saving), Joe makes choices that lower his pretax earnings -- fewer hours of work, less work effort, less investment in skills, etc.

The second lesson that follows from the example is that the tax on interest income substantially distorts the level of future consumption even if Joe does not make any change in the amount that he saves. With the same $100 of additional saving, the higher tax rate reduces his additional retirement consumption from $291 to $193, a one-third reduction. If Joe responds to the lower real rate of return that results from the higher tax rate on interest by saving less, the distortion of consumption is even greater. For example, if Joe would save $150 out of the extra $1,000 of earnings when his real net return is 3.1% (instead of saving $100 when the real net return is 1.9%), his extra consumption at age 75 would be $436, more than twice as much as with the 35% tax rate. But the key point is that Joe's future consumption would be substantially reduced by the higher tax rate even if he does not change his savings.

Taken together, these two lessons imply that a lower tax rate on interest income, combined with a small increase in the tax on other earnings, could make Joe unambiguously better off while also increasing government revenue. More specifically, if reducing the tax on interest income from 35% to 15% had no effect on Joe's earnings or on his initial consumption spending, the government could collect the same present value of tax revenue from Joe by raising the tax on his $1,000 of extra earnings from $350 to $385. Although this would cut Joe's saving from $100 to $65 (if he keeps his initial consumption spending unchanged), the higher net return on that saving would give Joe the same consumption at age 75. In this way, Joe would be neither better off nor worse off.

But experience shows that Joe would alter his behavior in response to the lower tax rate. He would earn more at age 40 and would save more for retirement. This change of behavior makes Joe better off (or he wouldn't do it) and the extra earnings and interest income would raise government revenue above what it would be with a 35% tax rate. So Joe would be unambiguously better off with the lower tax rate on interest income and the government would collect more tax revenue.

Paul Krugman, New York Times columnist, and Princeton University economist is truly a modern day pioneer. He has undertaken the quixotic challenge of convincing Americans, and the American power structure that the United States of America must undertake a universal health care program. In doing so he also becomes a necessary, though coincidental, defender our own system.

In making his case Krugman delivers powerful intellectual and economic arguments for the adoption of a universal health care system and often cites our Medicare system as a model for his country. Unfortunately though, our system is degenerating into the same disarray as the US system- a semi-privatized system that is inefficient, duplicitous and unfair to millions.

The Times plans to market its new property to advertisers, pitching niche information as opportunities for target marketing by advertisers, according to Scott B. Meyer, president and chief executive of About.com. No less a mainstream advertiser than Wal-Mart Stores Inc. is being presented as the poster child for the strategy.

Walmart.com is being advertising throughout the About.com site with placements in subject areas including parenting, entertainment, electronics and gadgets. Users click on the ads and are linked to related products offered on the retailer's Web site. "It's about relevancy," added Mark W. Westlake, senior vice president of sales and marketing for About.com. "We provide relevancy for advertisers at scale."

I wish to point out something about Chris Masse's story. He mentions SportsBook.com, and how betters are up against the house in their prediction markets on the site. This is truer that you or Mr. Masse likely even know. I placed a future wager on October 18 on Karl Rove not being indicted with odds of 10-9. The bet was that Karl Rove would not be indicted or dismissed by November 15, 2005 at 8 PM. The bet was taken offline in subsequent days. I know this because I attempted to wager an ever greater amount as it became more probable that Karl Rove would not be indicted. November 15 came and went, and I had still not seen a return on my wager. I emailed, made phone calls, and recieved assurances that my wager would be "graded" as soon as possible. SportsBook.com now tells me that the November 15 date was merely the date at which odds on the event would no longer be offered, an obvious lie since I checked the site daily up until November 15 and found the bet to be unavailable. SportsBook now tells me that Karl Rove was not being investigated at the time my bet was placed, and that the future wager has no time horizon. Try as I might to convince them differently, even explaining to them that only a fool would make a future wager with no time horizon, I've been unsuccesful in getting my bet "graded" and thus paid. The system they have set up is one where it is impossible to speak with anyone capable of making a final decision. You are only able to speak to operators at some out-sourced call center who have no direct contact with management. Their capacity is limited to sending messages out for bets to be "graded". I was basically told by the call center that if Fitzgerald never formally says "Karl Rove will be indicted," then my bet will only be refunded and graded as "no action." Basically I've bought a certificate of deposit for an unlimited duration, with optional interest of zero percent or negative-one hundred percent. Thought I'd fill you in, and allow you to warn anyone you know who is ever tempted to make a future wager at SportsBook.com.

[Name withheld by request]

Cox stressed the need for greater clarity and transparency, asserting that the recent accounting scandals were made possible in part by the sheer complexity of the rules. "Criminal conduct could be concealed in a thicket of detail," he explained. "Conformity to hundreds of technical rules became not a shield to protect investors, but a sword to be wielded against them."

One reason for the complexity, said Cox, was pressure from different constituencies, and he acknowledged the "inescapable fact that the complexity of modern financial transactions often calls for a commensurately detailed set of regulatory requirements."

He added, however, that "the sheer accretion of detail has, in time, led to one of the system's weaknesses — its extreme complexity. Convolution is now reducing its usefulness. In business, academia, and the regulatory community, the question is being seriously asked whether preparers and auditors can produce the transparent financial information that our capital markets require."

Update... And then there's the Federal Trade Commission, who thinks your lawyer is a "financial institution."

Posted by Donald L. Luskin at 1:25 PM | link    

Posted by Donald L. Luskin at 1:16 PM | link