[West Virginia Sen. Robert Byrd, who complained about the "czars,"]] should also ask how the Senate has contributed to the czar-itis. The Senate has done virtually nothing, for example, to address the glacial pace of confirmations that often leads presidents to expand the White House staff as well as the number of appointees who serve without Senate approval. Although he has submitted the names of nominees to the Senate relatively quickly, President Obama will be lucky if the last of his nearly 500 full-time cabinet and subcabinet officers are confirmed by March 2010.

The confirmation process has grown slower with each passing administration and the Senate has resisted nearly every chance to accelerate it. In 2004, it rejected a long list of House-sponsored reforms that would have cut the red tape that strangles the process. It has said no to a long-overdue streamlining of the financial disclosure process and even refused to add much-needed staff to the White House Office of Presidential Personnel, which is drowning in résumés.

In repeatedly rejecting commonsense reforms, the Senate has merely strengthened the incentives that lead presidents to create policy czars in the first place. It has also encouraged the unabated growth of a de facto sub-cabinet composed of roughly 2,500 presidential “at will” appointees who serve without Senate confirmation. Most of President Obama’s cabinet secretaries, even before their confirmations, began filling their offices with chiefs of staff, deputy chiefs of staff, special assistants and confidential advisers, none of whom are accountable to the Senate....

If Mr. Byrd wants to restore Senate confirmation as the coin of the realm, he need only ask Senators John McCain, Republican of Arizona, and Russell Feingold, Democrat of Wisconsin, to reintroduce their long forgotten 1990s legislation cutting the number of at-will political appointees by a third. He should also press for an amendment to Senate rules that sets clear deadlines for bringing nominees to the floor for a vote.

Mr. Byrd should also ask the House for a copy of its 2004 reforms. At least half of the delays in the presidential appointments process appear to involve bureaucratic red tape and duplication of effort, while a quarter appear to reflect the rising and inappropriate use of personal holds by the senators to extract concessions from the president and fellow legislators.

There will always be legitimate reasons for questioning the president’s nominees as the Senate discharges its constitutional duty to give advice and consent. But before criticizing the Obama administration for overreaching, Mr. Byrd should take a harder look at his own branch of government. There is plenty of room for reform in the Senate, too.

The $64 billion must crudely fall into three different buckets. 1) some of it may have been diverted into secret bank accounts; 2) some of it is merely paper losses of claimed gains that never existed; and 3) some of it was transferred to innocent investors who chose to withdraw some or all of their gains early.

Each of these buckets has a bit of a silver lining.

First, any money that Madoff diverted into secret accounts still exists. The good news is that with hard work from the investor trustee and cooperation from the international banking community, this money can be reclaimed to compensate Madoff investors. (And Bernie’s friends and family don’t have much use for a secret $10 billion that they will never be able to spend.) The government has already moved against Madoff’s personal assets which in 2008 were estimated to be over $800 million. Money was openly paid as fees to feeder funds, who may have turned a blind eye to Madoff mischief, but are likely to have to disgorge their compensation to compensate Madoff investors.

Second, let’s consider the paper losses. They are a heartache. If I had invested $1 million with Madoff and thought it had grown to $5 million, I would be devastated to learn that I suddenly had nothing. I might have relied on that $5 million for my retirement while spending down the rest of my assets.

But from another perspective, I’ve lost a lot less than $5 million. If I hadn’t invested in Madoff, I would have ended up with less than $5 million. Indeed, the recent collapse of stock prices in some ways mitigates the harm of Madoff’s mischief even more. If I hadn’t invested with Madoff, I might very likely have invested with some other hedge fund that took a beating this last year. Maybe Madoff only made me lose half a million.

That doesn’t mean investors’ psychic and reliance costs are illusory; but it does mean, looking cash-on-cash, that the lost paper profits far exceed the losses to initial investments that investors would have experienced if they had never heard of Bernie Madoff.

And finally, let’s consider the money that was transferred to Madoff investors who withdrew some or all of their funds before the collapse. These innocents were the unwitting beneficiaries of the scam. Indeed, it is almost certainly the case that the money transferred to Madoff investors was orders of magnitude greater than the amount transferred to Madoff and his henchmen.

This means, from a social perspective, that the Madoff scheme was a huge transfer of assets among innocents. And because Madoff kept the money almost exclusively in cash, and took so little off the table for himself, it was — compared to probably any other fraud in history — an incredibly efficient transfer.

We might end up clawing back some of the Wall Street executive bonuses paid out during the past few years, but it is unlikely that the law will claw back any of the exorbitant returns earned by early-withdrawing Madoff investors. It seems kind of unfair that some Madoff investors get to walk away with a 15 percent annual return and others with a 100 percent loss. But under our legal system, in a fight among innocents, that’s usually the way the cookie crumbles.

It will be interesting to learn who got their money out early. Think for a minute about which types of investors were likely to withdraw early. To be sure, some would be retirees who needed to start living on the money (although many of these would have let it ride to give to their kids upon death without paying capital gains). You wouldn’t think that many people still saving for retirement would withdraw early; they’d want to keep riding a winner.

No, I’m thinking we will ultimately learn that some charities — especially those with smaller endowments — were most likely to withdraw their returns as they accrued to help pay current operating expenses. This is just rank speculation, but at the end of the day, nonprofit investors may have been net beneficiaries of the Madoff scam. To be sure, Madoff decimated charities that woke up one morning with no money at all. But a chance to get a 20 percent return on your money for 10 years (even if you never get your principal repaid), can be a lot more lucrative than just earning ordinary market returns.

The big picture is still one of devastation. The Madoff scam on net is likely to have done more total damage than any other fraud in world history. Even if most of the scam was a transfer among innocents, this was not a lottery that any of them signed up for. But this fraud is also exceptional because the Madoffs’ vigorish on a percentage basis was so exceptionally small.

[C]onsideration should be given to steeply increasing the marginal income tax rate of persons who have very high incomes. Such incomes typically contain a good deal of economic rent (that is, income above what the person could obtain in his next best employment), and taxing economic rents is, in principle anyway (I will explain this qualification shortly), highly efficient because it has minimal substitution effect.

This is the perfect kind of question for corporate finance students to kick around in Excel, and so as one of the questions for my quantitative corporate finance final, I asked them to help complete this post.

I asked them to make the following assumptions:

The Las Vegas real estate market is now in a severe slump. But imagine that the current and future value of the property, if it is unencumbered by the lease, is $5 million. The convenience store owner is currently making $600 a month as a net profit on the store after all expenses (including $3,500 monthly lease payment to the landlord). To keep the problem simple, assume that there is no inflation, no expected growth in either the tenant profits or in the rental payments, and that the risk-adjusted market interest rate on both the store profit and on the lease payments is an annual interest rate of 6 percent (effective yield, not APR). Finally imagine that the landlord and the store owner have equal bargaining power, in the sense that they will split any gains of trade from cutting a deal.

(Let me be clear, these assumptions are not intended to be realistic. I was trying to craft one question that could be answered in Excel in three hours. I doubt that, even in the best of times, the property was worth $5 million. And in all likelihood, the lease payments may be subject to an escalator clause that increases them overtime.)

You can play too. What’s the bargaining range — the range of dollar amounts that landlord could potentially pay today to bring the parties to the table — for a potential buyout deal? And what percent of $5 million does the landlord need to offer, given his “equal bargaining power” as described above?

In a world with equal bargaining power, who would get the lion’s share of this land bonanza: the landlord, who after all owns the land, or the tenant, who can legally gum up the works for year? Twenty-two years is an awfully long time.

I’ll spare you the Excel spreadsheet, but here is a sketch of an answer. The landlord would need to pay the tenant, at a minimum, about $90,000 — because the present value of the tenant’s expected store profits is about this amount. Even a landlord who could make a take-it-or-leave-it offer would be ill-advised to offer less than this. And at most, the landlord should be willing to pay $3.1 million. Since the present value of the landlord’s expected profit from the lease together with the present value of selling the land when the lease ends is about $1.9 million, the landlord would be loathe to pay a lease buyout fee that would leave her with less net on the table.

A successful buyout raises their combined payouts by about $3 million (from $2 million to $5 million). If they split these gains of trade, then the tenant must be paid her minimum of about $90,000 plus half the gains of trade of about $1.5 million, which is very roughly about one-third of the $5 million.

So in the real world, why didn’t they cut a deal? We’d need to get rid of these hypothetical numbers and know a lot more about the offers and counteroffers. But the sign is, well, a powerful sign that the Coase theorem in this instance did not hold.

By the way, I was back in Las Vegas last week and the sign is still there — although it now says “We have 21 years left on our lease.” A Blackjack lease.

“Gaming” is one example of how resistance extends discipline by restructuring relations both among law schools and between law schools and the rankings. We define gaming as cynical efforts to manipulate the rankings data without addressing the underlying condition that is the target of measurement. [For example,] some schools encourage underqualified applicants to apply to boost their selectivity statistics, “skim” top students from other local schools to keep entering first-year cohorts small[, etc].

Such gaming strategies prompted USN to change its methodology and reporting, develop more explicit rules about how to measure rankings criteria, and monitor information more closely. The result, predictably, is a more precise and stringent discipline and more ingenious forms of gaming.

Along with open-ended interviews of law school personnel (described below), we conducted 92 brief interviews with prospective law students, visited seven law schools, observed and participated in professional meetings and conferences, analyzed 15 years of admissions and yield statistics (Sauder and Lancaster 2006), monitored online bulletin boards for prospective law students weekly for an entire admissions cycle, and analyzed the content of Web sites, newspaper stories, and organizational documents (including strategic plans, marketing plans, promotional brochures, and internal memoranda). To identify distinctive effects on law schools, we interviewed 35 business and dental school administrators (Sauder and Espeland 2006) and reanalyzed evidence from two other research projects. . .

The whole of life appears as a vast accumulation of commodities and spectacles, of things wrapped in images and images sold as things. But how are these images and things organized, and what role do they call for anyone and everyone to adopt towards them? . . .

Everything has value only when ranked against another; everyone has value only when ranked against another. . . The real world appears as a video arcadia divided into many and varied games. Work is a rat race. Politics is a horse race. The economy is a casino. . . . Games are no longer a pastime, outside or alongside of life. They are now the very form of life, and death, and time, itself. . . . You are a gamer whether you like it or not, now that we all live in a gamespace that is everywhere and nowhere.

Readers of this blog will recognize this idea as another commitment contract (see also here and here) that people can opt in to to improve their incentives to reduce gas consumption. Indeed, people could enter into something very close to these commitments on my beloved stickK.com. I can imagine a day where an enterprising referee offers to give cash up front if car owners will promise to pay the referee for every mile driven (or possibly every mile driven above some pre-specified amount) in the coming year.

You’d be wrong, however, if you inferred that we came to this idea because of our work with commitment contracts. Instead, we dreamed it up by applying the “flipping tool.”

Barry Nalebuff and I love flipping ideas. In our book Why Not? we give dozens of examples of how existing ideas can be made better by flipping things around. For example, it would be easier to peel bananas if we flipped them around. If you look closely at this picture, an expert in banana peeling shows you how it should be done:

The flipping tool is how we came to the idea of a voluntary tax. Usually there are multiple dimensions of an existing idea that can be flipped. Consider these:

1) What’s the opposite of a rebate or refund?

It’s a “pre-bate” or “pre-fund.” Instead of giving taxpayers back the money after the fact, it makes a lot more sense from a behavioral perspective (and just a downright trust perspective) for the government to give them the money before the fact of the tax.

2) What’s the opposite of a war bond?

It’s an independence bond. As we wrote in Forbes:

Voluntary taxation seems like an oxymoron. No sane person would ever volunteer to be subjected to a tax. Yet about half the cost of World War II was financed by voluntary purchases of war bonds, which had a sort of tax built in because they paid below-market returns. Buying them was the patriotic thing to do. Bond rallies with stars like Rita Hayworth and Bette Davis generated mass support for “the greatest investment on earth.”

Because the plan is optional, high-mileage drivers and businesses that can’t afford the extra cost would be unlikely to sign up. But the history of war bonds suggests that, if marketed properly, independence bonds might be appealing to a large swath of Americans. Cars that were committed to conservation would also be eligible to display decals showing their patriotism in the fight for energy independence. The decals might also authorize use of highway lanes now reserved for buses and car-poolers.

People who claimed the rebate would need to have their odometers checked once a year to calculate the amount of tax owed. It’s fairly hard to roll back an electronic odometer. Odometer readings would be particularly easy in the 33 states that have federally required periodic vehicle inspections.

With war bonds, people paid the government money up front and were paid money from the government after the fact. Our independence bond flips the order of the cash flows.

3) What’s the opposite of G.M. offering to buy down the price of your gas if you pay them more for a new car today?

It’s lowering the price of buying a car, if you’ll agree to pay more for gas in the future. As we noted in Forbes:

In the spring of 2008, Chrysler promised to subsidize the price of gas to $2.99 a gallon for a year for anyone who bought one of its cars. Back in 2006 Hummer and G.M. promised that you wouldn’t pay more than $1.99 a gallon for a year. These promotions tapped into the same demand for lower gas prices that fueled Hillary Clinton’s and John McCain’s proposals for a summer gas-tax holiday. The problem with all these plans is that they subsidized people to drive more.

Conservation bonds are just the reverse: Participants are paid today for accepting higher gas prices in the future. A company like Toyota might even offer to match the government offer: Prius owners could get a $1,000 rebate if they promise to pay Toyota an extra 2.2 cents for every mile driven. While car companies might use conservation rebates to attract green customers, a call by our leaders to voluntarily embrace credible conservation would engage an even larger number of Americans.

4) And finally, what’s the opposite of a mandatory tax?

Of course, for me, it’s a voluntary tax. Unlike death, a gas tax for conservation purposes doesn’t need to be unavoidable.