Former Chicago Congressman Mel Reynolds has been arrested in Zimbabwe:

HARARE, Zimbabwe (CBS) – Former Congressman Mel Reynolds – who spent time in prison for statutory rape and child pornography charges – has been arrested in Zimbabwe, suspected of making pornographic videos.

WBBM Newsradio’s Regine Schlesinger reports Reynolds, 62, was arrested at his hotel in the capital of Harare, and was being investigated for alleged possession of pornography and a violation of immigration laws.

Zimbabwe’s largest newspaper, the state-controlled Herald, quoted a former Reynods aide as saying Reynolds had shot pornographic videos with models and other women in his hotel room.

Another source told the paper Reynolds had filmed more than 100 videos, and shot 2,000 nude pictures of at least 10 different women on various occasions. The paper also said he owes more than $24,000 in unpaid hotel bills.

Until his convictions for statutory rape and charges relating to pornography (later corruption in office), Reynolds served Illinois’s 2nd Congressional District. He was succeeded by Jesse Jackson, Jr.

Yevgeniy Feyman has one hit and one miss in his post about why U. S. healthcare is so expensive. Here’s his hit:

The verdict on U.S. spending is that it’s generally driven by price increases rather than volume. A 2013 report from the Health Care Cost Institute found that in 2012 “[t]he relatively slow growth of utilization compared to intensity-adjusted prices for inpatient, outpatient, and professional procedure services, reflects the ongoing trend in price growth outpacing service use.” Realizing that American prices for health care are responsible for high levels of health care spending (across the entire distribution), usually leads to one simple proposal – price controls.

Actually, there’s a miss hidden within his hit. Price controls alone won’t cure our healthcare system. Since much of the demand for healthcare in the U. S. and, presumably, elsewhere is physician-induced, that’s got to be brought under control as well since even if prices are controlled spending (and compensation) can be made to rise by prescribing more treatment. Any approach to solving the actual problem we have requires changing incentives.

The bigger miss is his assumption (to be fleshed out in the second part of his series) that costs can be reduced by the application of new treatments and technology. See the preceding paragraph.

In recognition of the fifth anniversary of the American Recovery and Reinvestment Act of 2009, the “stimulus package”, there’s a brouhaha going on over its effectiveness. As will surprise no one Republicans are saying it was a flop. The White House retorts that it saved the economy.

Other than the tiresome reality of where you stand depending on where you sit, how do you judge the effectiveness of the ARRA? There are any number of ways. The White House persistently evaluates it in terms of inputs rather than outputs—that’s consistent with just about every model you’ve ever seen of the effects of the ARRA.

You could judge it by how it was advertised.

I judge it by suitability to task. Did it accomplish what needed to be accomplished? Based on that criterion my evaluation is that it was a failure. If you think it was a success, please include in your response why you think that so many people who have remained unemployed in the long term and possibly forever is a good thing.

Speaking of the 1%, this article at the Wall Street Journal provides me with a good opportunity to reassert what my amateur researches have suggested: that per capita carbon emissions increase sharply with income, probably exponentially. The proposals for reducing emissions tend to be regressive, that is they would fall most heavily on the lowest income earners rather than the highest.

The reality is that one meeting at Davos produces more emissions than 146 Americans do in a year. The carbon offsets which the participants claim green their meeting is unenforceable claptrap.

A 25,000 square foot home (or several of them), however efficient, will require a lot more emissions for its construction and upkeep than a 8 X 12 room, probably exponentially so. Anyone who’s serious about reducing emissions should figure out how to convince rich environmentalists to reduce their own emissions. That’s another plan I’d like to see.

It does remind me of a wry definition of “environmentalist”: someone who already owns a cabin in the woods.

If you think that income inequality presents a problem due to the .1%, you’re in a pickle. The .1% of income earners, the highest 120,000 households, constitute the Bill Gateses, the Warren Buffetts, the Michael Jordans, and the Tiger Woodses. These are the super-rich. They’re the long tail of income earners and every society, including Soviet Russia and Communist China, have them. There is no imaginable policy that will reduce their incomes without destroying the economy along with it, decreasing the incomes of most the rest of the people. The best you can hope for is to stop subsidizing them, something I’ve advocated for decades.

The top 1% of income earners present a different kettle of wealthy fish. As of 2010 these were the households with incomes of $307,000 or more and, as of 2005, here’s who they are:

According to research on individual tax returns in 2004 and 2005 by Jon Bakija of Williams College, Adam Cole of the Treasury Department and Bradley T. Heim of Indiana University, the top 1% consists primarily of salaried executives at nonfinancial businesses (30%) and secondarily of doctors (14%), people working in finance (13%) and lawyers (8%). Among the “super rich” in the top 0.1% (about 110,000 households), the distribution still favors business executives (41%) over people in finance (18%).

Bringing the outlandishly high compensation paid to management of publicly-held companies will require reforms in corporate governance. That’s something that Stephen Bainbridge posts about nearly every day and he’s provided some suggestions for reform. My own pet solution would be enforcing and expanding the Clayton Act, something that’s fallen into neglect and disrepair. For example, I would strictly limit the number of corporate boards of directors on which a single individual may sit. Membership in scores of boards of directors, a commonplace today, is so rife with potential for abuse that I think it’s inevitable.

Note that the statistics quoted above are from before the financial crisis and Great Recession. I would be willing to bet a shiny new dime that the percentages among top 1% have changed since then with, incredibly, a higher proportion in banking and finance, more among physicians, and fewer among business executives. But I’d really like to see an analysis.

I also suspect that the top .1% of income earners have become significantly wealthier since then but that’s a different subject.

Returning to the point at which I began this post, if you’re concerned about income inequality, a good place to start is by defining the scope of your concern. Are you concerned about the top .1% or the top 1%?

As I’ve said any number of times before my greatest concern is with the top 1% who derive much of their income from government in one way or another. My preferred strategy for reducing income inequality is restricting the growth in the number of new poor, mostly by exerting some control over immigration, and trimming subsidies that go mostly to the highest income earners. If your concern is with the top .1% and you want to increase income equality via the tax system, I’d really like to see your plan.

We went on a social call yesterday.

All is proceeding as I have suggested. Gordon Chang notices the weakening of economic relations between China and Japan:

In 2013, trade volume between China and Japan dropped 5.1% from the year before. That followed a 3.9% fall in 2012. To put these figures into context, China’s total trade was up 6.2% in 2012 and 7.6% last year while Japan’s volume increased 1.0% in 2012 but was down 7.8% in 2013.

Japanese sources attributed the drop in China-Japan trade to “the lingering effects of the Senkaku Islands territorial row”—Japan administers those barren outcroppings as its own while Beijing claims them as well—and a Chinese consumer boycott of Japanese goods. Chinese state media agrees that trade has been adversely affected by geopolitical disagreements and blames Shinzo Abe. Anti-Japan riots in Chinese cities, discriminatory official treatment of Japanese multinationals, and detention of Japanese businessmen in China have not helped.

Not surprisingly, investment between China and Japan has also taken a hit. Japanese direct investment in China dropped 4.3% last year even though overall foreign direct investment in China increased 5.3%. At the same time, China’s direct investment in Japan fell 23.5% at a time when its overall outbound investment jumped 16.8%.

He also reminds us of something worth remembering: it’s not economic interdependence that fortifies peace between two countries but the expectation of continuing economic interdependence. The time is foreseeable when the Japanese won’t need the Chinese any more and cultivating good relations with, for example, Vietnam will become more important to them.

Robert Samuelson laments the economists’ poor track record:

The faith in economics was, in many ways, the underlying cause of both the financial crisis and Great Recession — it made people overconfident and careless during the boom — and the basic explanation for the weak recovery, as stubborn caution displaced stubborn complacency. To regain relevancy, economists are searching for a new light bulb — or better use of the old one. Meanwhile, most are still sitting in the dark.

I could suggest a dozen reasons for the weak performance of economic predictions but I’ll limit myself to just three. First, it it far easier to justify giving the expected answer even if it’s wrong than it is giving a correct answer that opposes the present orthodoxy. That’s particularly true in the academy where the most prominent people got that way by giving the expected answer to any particular question on a reliable basis.

I would also suggest that the models that economists are using now no longer conform to reality. Rather than each country in the world having its own insular economy, unique factors of production and consumption, with trade between countries we have a single world economy in which elasticities vary by locality. Actions in any one locality affects the economies everywhere. When considering inflation you can’t just look here in the United States. The question is now how much inflation has U. S. policy created in China or Brazil?

Finally, economics is not physics and probably never will be. It’s a descriptive social science and relies on mathematics a lot less than it does on observation, understanding, and insight. The farther economists get away from the trenches of the economy where real people buy, sell, work, and plan, the worse their predictions will be.

In his recent Reuters op-ed Lawrence Summers takes note of the problem of income inequality:

Sharp increases in the share of income going to the top 1 percent of earners, a rising share of income going to profits, stagnant real wages, and a rising gap between productivity growth and growth in median family income are all valid causes for concern. A generation ago, it could have been plausibly asserted that the economy’s overall growth rate was the dominant determinant of growth in middle-class incomes and progress in reducing poverty. This is no longer plausible. The United States may well be on the way to becoming a Downton Abbey economy.

I would characterize that as “the plan embodied in the Washington consensus is working” but no matter. He goes on to establish the parameters of a solution:

So it is not enough to identify policies that reduce inequality. To be effective they must also raise the incomes of the middle class and the poor. Tax reform has a major role to play here. Apart from its adverse effects on economic efficiency, our current tax code allows a far larger share of the income of the rich than the poor or middle class to escape taxation.

Sadly, these are as close to a solution as he proposes:

For example, last year’s increase in the stock market represented an increase in wealth of about $6 trillion — with the lion’s share going to the very wealthy. The government is unlikely to collect as much as 10 percent of this figure given capital gains exemption, the ability to defer unrealized capital gains, and the absence of any tax on gains on assets passed on at death.

Another example is provided by our corporate tax system. Because of various loopholes the ratio of corporate tax collections to the market value of U.S. corporations is at a near record low.

Then there is the reality that the estate tax can be substantially avoided by those prepared to plan and seek sophisticated advice. Closing loopholes that only the wealthy can enjoy would enable targeted tax measures like the Earned Income Tax Credit, which raise the incomes of the poor and middle class more than dollar for dollar by incentivizing working and saving.

I wish he would quantify the income and economic growth effects of those reforms. My intuition is that no practically conceivable change to any of those will do much about income inequality at all.

I notice, too, that he doesn’t mention the 500 lb. gorillas of tax expenditures: the home mortgage deduction and the deductibility of healthcare insurance, the overwhelming preponderance of which goes to households in the highest income brackets. Or agricultural subsidies, something a bipartisan consensus in Congress supports, which mostly go to large corporate concerns.

Lord, send us a cure! The disease is already here. It’s a lot easier to identify the problem than it is to propose a solution.