Good Reading -- August 2009

Several good articles:

1. Buffett on inflation -- excellent op-ed in today's NYT on fiscal/inflationary dangers

2. The New American Dream: Renting -- some interesting data on homeownership rates

3. World Population to Reach 7 Billion in 2011 -- profile of global demographics

4. Why Exercise Won't Make You Thin

5. Tax Withholding is Bad for Democracy

6. Profile of John Kenneth Galbraith (attached) -- worthwhile profile of a uniquely wise thinker with plenty of insights into our current mess

Hope everyone is doing well.

The Greenback Effect

By WARREN E. BUFFETT

Published: August 18, 2009

Omaha

IN nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.

The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.

To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.

They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.

The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.

An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.

The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.

Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.

Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.

But it was a wise man who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.

Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

The New American Dream: Renting

It's time to accept that home ownership is not a realistic goal for many people and to curtail the enormous government programs fueling this ambition. By Thomas J. Sugrue

By THOMAS J. SUGRUE

Suburban sprawl in Placer County, Calif.

'A man is not a whole and complete man," wrote Walt Whitman, "unless he owns a house and the ground it stands on." America's lesser bards sang of "my old Kentucky Home" and "Home Sweet Home," leading no less than that great critic Herbert Hoover to declaim that their ballads "were not written about tenements or apartments…they never sing about a pile of rent receipts." To own a home is to be American. To rent is to be something less.

Every generation has offered its own version of the claim that owner-occupied homes are the nation's saving grace. During the Cold War, home ownership was moral armor, protecting America from dangerous outside influences. "No man who owns his own house and lot can be a Communist," proclaimed builder William Levitt. With no more reds hiding under the beds, Bill Clinton launched National Homeownership Day in 1995, offering a new rationale about personal responsibility. "You want to reinforce family values in America, encourage two-parent households, get people to stay home?" he said. George W. Bush similarly pledged his commitment to "an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, 'welcome to my house, welcome to my piece of property.'"

Bill Owens/James Cohan Gallery

A 1970 photograph from Bill Owens’s “Suburbia” series.

Surveys show that Americans buy into our gauzy platitudes about the character-building qualities of home ownership—at least those who still own them. A February Pew survey reported that nine out of 10 homeowners viewed their homes as a "comfort" in their lives. But for millions of Americans at risk of foreclosure, the home has become something else altogether: the source of panic and despair. Those emotions were on full display last week, when an estimated 53,000 people packed the Save the Dream fair at Atlanta's World Congress Center. Its planners, with the support of the Department of Housing and Urban Development, brought together struggling homeowners, housing counselors, and lenders, including industry giants Bank of America and Citigroup, to renegotiate at-risk mortgages. Georgia's housing market has been devastated by the current economic crisis—338,411 homes in the Peachtree state went into foreclosure in May and June alone.

Atlanta represents the current housing crisis in microcosm. Since the second quarter of 2006, housing values across the United States have fallen by one third. Over a million homes were lost to foreclosure nationwide in 2008, as homeowners struggled to meet payments. The number of foreclosures reached an all-time record last month—when owners of one in every 355 houses in the country received default or auction notices or were seized by creditors. The collapse in confidence in securitized, high-risk mortgages has also devastated some of the nation's largest banks and lenders. The home financing giant Fannie Mae alone held an estimated $230 billion in toxic assets. Even if there are signs of hope on the horizon (home prices ticked upward by 0.5% in May and new housing starts rose in June), analysts like Yale's Robert Shiller expect that housing prices will remain level for the next five years. Many economists, like the Wharton School's Joseph Gyourko, are beginning to make the case that public policies should encourage renting, or at least put it on a level playing field with home ownership. A June 2009 survey commissioned by the National Foundation for Credit Counseling, found a deep-seated pessimism about home ownership, suggesting that even if renting doesn't yet have cachet, it's the only choice left for those who have been burned by the housing market. One third of respondents don't believe that they will ever be able to own a home. And 42% of those who once purchased a home, but don't own one now, believe that they'll never own one again.

A family house-hunting

Some countries—such as Spain and Italy—have higher rates of home ownership than the U.S., but there, homes are often purchased with the support of extended families and are places to settle for the long term, not to flip to eager buyers or trade up for a McMansion. In France, Germany, and Switzerland, renting is more common than purchasing. There, most people invest their earnings in the stock market or squirrel it away in savings accounts. In those countries, whether you are a renter or an owner, houses have use value, not exchange value.

For most Americans, until the recent past, home ownership was a dream and the pile of rent receipts was the reality. From 1900, when the census first started gathering data on home ownership, through 1940, fewer than half of all Americans owned their own homes. Home ownership rates actually fell in three of the first four decades of the 20th century. But from that point on forward (with the exception of the 1980s, when interest rates were staggeringly high), the percentage of Americans living in owner-occupied homes marched steadily upward. Today more than two-thirds of Americans own their own homes. Among whites, more than 75% are homeowners today.

Yet the story of how the dream became a reality is not one of independence, self-sufficiency, and entrepreneurial pluck. It's not the story of the inexorable march of the free market. It's a different kind of American story, of government, financial regulation, and taxation.

We are a nation of homeowners and home-speculators because of Uncle Sam.

It wasn't until government stepped into the housing market, during that extraordinary moment of the Great Depression, that tenancy began its long downward spiral. Before the Crash, government played a minuscule role in housing Americans, other than building barracks and constructing temporary housing during wartime and, in a little noticed provision in the 1913 federal tax code, allowing for the deduction of home mortgage interest payments.

Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words "keep out of debt" or "pay as you go" appeared in countless advice books. As the YMCA told its young charges, "If you can't pay, don't buy. Go without. Keep on going without." Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn't lose its sweetness because someone else held the title.

Getty Images

A foreclosed home in Antioch, Calif., in May.

In any case, mortgages were hard to come by. Lenders typically required 50% or more of the purchase price as a down payment. Interest rates were high and terms were short, usually just three to five years. In 1920, John Taylor Boyd Jr., an expert on real-estate finance, lamented that "increasing numbers of our people are finding home ownership too burdensome to attempt." As a result, there were two kinds of homeowners in the United States: working-class folks who built their own houses because they couldn't afford mortgages and the wealthy, who usually paid for their places outright. Even many of the richest rented—because they had better places to invest than in the volatile housing market.

The Depression turned everything on its head. Between 1928, the last year of the boom, and 1933, new housing starts fell by 95%. Half of all mortgages were in default. To shore up the market, Herbert Hoover signed the Federal Home Loan Bank Act in 1932, laying the groundwork for massive federal intervention in the housing market. In 1933, as one of the signature programs of his first 100 days, Frankin Roosevelt created the Home Owners' Loan Corporation to provide low interest loans to help out foreclosed home owners. In 1934, F.D.R. created the Federal Housing Administration, which set standards for home construction, instituted 25- and 30-year mortgages, and cut interest rates. And in 1938, his administration created the Federal National Mortgage Association (Fannie Mae) which created the secondary market in mortgages. In 1944, the federal government extended generous mortgage assistance to returning veterans, most of whom could not have otherwise afforded a house. Together, these innovations had epochal consequences.

Easy credit, underwritten by federal housing programs, boosted the rates of home ownership quickly. By 1950, 55% of Americans had a place they could call their own. By 1970, the figure had risen to 63%. It was now cheaper to buy than to rent. Federal intervention also unleashed vast amounts of capital that turned home construction and real estate into critical economic sectors. By the late 1950s, for the first time, the census bureau began collecting data on new housing starts—which became a leading indicator of the nation's economic vitality.

It's a story riddled with irony—for at the same time that Uncle Sam brought the dream of home ownership to reality—he kept his role mostly hidden, except to the army banking, real-estate and construction lobbyists who rose to protect their industries' newfound gains Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination—not because they were the beneficiaries of one of the grandest government programs ever. The only housing programs prominently associated with Washington's policy makers were underfunded, unpopular public housing projects. Chicago's bleak, soulless Robert Taylor Homes and their ilk—not New York's vast Levittown or California's sprawling Lakewood—became the symbol of big government.

Federal housing policies changed the whole landscape of America, creating the sprawlscapes that we now call home, and in the process, gutting inner cities, whose residents, until the civil rights legislation of 1968, were largely excluded from federally backed mortgage programs. Of new housing today, 80% is built in suburbs—the direct legacy of federal policies that favored outlying areas rather than the rehabilitation of city centers. It seemed that segregation was just the natural working of the free market, the result of the sum of countless individual choices about where to live. But the houses were single—and their residents white—because of the invisible hand of government.

But by the 1960s and 1970s, those who had been excluded from the postwar housing boom demanded their own piece of the action—and slowly got it. The newly created Department of Housing and Urban Development expanded home ownership programs for excluded minorities; the 1976 Community Reinvestment Act forced banks to channel resources to underserved neighborhoods; and activists successfully pushed Fannie Mae to underwrite loans to home buyers once considered too risky for conventional loans. Minority home ownership rates crept upward—though they still remained far behind whites. Even at the peak of the most recent real-estate bubble, just under 50% of blacks and Latinos owned their own homes. It's unlikely that minority home ownership rates will rise again for a while. In the last boom year, 2006, almost 53% of blacks and more than 47% of Hispanics assumed subprime mortgages, compared to only 26% of whites. One in 10 black homeowners is likely to face foreclosure proceedings, compared to only one in 25 whites.

Long Island’s Levittown, celebrated its 60th anniversary in 2007.

During the wild late 1990s and the first years of the new century, the dream of home ownership turned hallucinogenic. The home financing industry—at the impetus of the Clinton and Bush administrations—engaged in the biggest promotion of home ownership in decades. Both pushed for public-private partnerships, with HUD and the government-supported financiers like Fannie Mae serving as the mostly silent partners in a rapidly metastasizing mortgage market. New tools, including the securitization of mortgages and subprime lending, made it possible for more Americans than ever to live the dream or to gamble that someone else would pay them more to make their own dream come true. Anyone could be an investor, anyone could get rich. The notion of home-as-haven, already weak, grew even more and more removed from the notion of home-as-jackpot.

And that brings us back to those desperate homeowners who gathered at Atlanta's convention center, having lost their investments, abruptly woken up from the dream of trouble-free home ownership and endless returns on their few percent down. They spent hours lined up in the hot sun, some sobbing, others nervously reading the fine print on their adjustable rate mortgage forms for the first time, wondering if their house is the next to go on the auction block. If there's one lesson from the real-estate bust of the last few years, it might be time to downsize the dream, to make it a little more realistic. James Truslow Adams, the historian who coined the phrase "the American dream," one that he defined as "a better, richer, and happier life for all our citizens of every rank" also offered a prescient commentary in the midst of the Great Depression. "That dream," he wrote in 1933, "has always meant more than the accumulation of material goods." Home should be a place to build a household and a life, a respite from the heartless world, not a pot of gold.

—Thomas J. Sugrue is Kahn professor of history and sociology at the University of Pennsylvania. He is writing a history of real estate in modern America.

Do We Really Need Daily Doses of News?

There must be an ongoing tally somewhere of the number of stories in newspapers about the future of newspapers. In the grand scheme of things, the number is no doubt tiny, but there is an aura of self-pity (inflated by self-importance) about it.

I don't mean to suggest newspapers aren't important or interesting; compared to my peers, I might be characterized as a dinosaur for still having--what?!--print subscriptions. But the demise of news in general (many individual newspapers will survive) might actually be a good thing for us in terms of perspective. Let's start, first, with the present and future of newspapers: media aren't going away, but everyone seems to have a singular concern about newspapers. Why? The usual course of things is that if an industry can't give people what they want (and the desperation move by many mid-size city newspapers to have lots of short stories with three-inch headlines is pretty ridiculous), it will either adapt or die.

Such a fate is unthinkable to many regarding newspapers, however, because newspapers--we're told--have a special place in democratic self-rule. It's the Fourth Estate, after all. This would indeed be the overarching concern if it were the case that the government itself was shutting down newspapers. It has before, and newspapers quite literally died. But not this time. This time it's the market. And yet it's also not the case that the demise of newspapers means the demise of news and information. Quite the contrary--it's sufficient to say here that the future of news and information is quite bright.

OK, fine--most blog readers will agree up to this point, but note that I haven't adequately addressed the question of newspapers and democracy--aren't we losing an essential piece of democratic self-rule? Is the ruthless market destroying democracy? Not really. The nature of daily news is probably more corrosive of democracy than it is supportive. I'm not suggesting that daily news coverage is totally corrosive and totally non-supportive of democracy, simply that it's probably a little more of the former.

How can I say this? What about Watergate? The Pentagon Papers? What about the ties that bind us together as democratic citizens? The main reason daily news, as manifested by newspapers but also by other sources, might corrode democracy is that it telescopes our gaze almost completely on the here and now. The media has long been obsessed with exploring the present-centered weltanschauung of modern life--a state of affairs that the media, including newspapers, largely helped create. If newspapers are to be believed, each day is simply worse than the day before. Daily helpings of news distort one's perspective because they focus your eyes and brain on the moment, largely composed of detritus that will in time wash away and mean nothing to your life or to history writ large.

There is little room for reflection in the daily news, notwithstanding the superficial weekly attempt in the Sunday editions to reflect on the prior week's event and what they might mean for the future. The daily news is, by and large, superficial. This doesn't mean journalists are superficial--it's the nature of the subject matter, not the interlocutors. And there are exceptions, of course: in-depth stories, long features, etc, are all more helpful and more interesting than the daily news.

A democracy doesn't depend on constant, up-to-the-minute news any more than it depends on 100 percent voter participation. But don't we need newspapers to hold our elected officials accountable? If that's the primary raison d'etre of newspapers, then it's (a) a thin reed, and (b) they've done a pretty poor job of it during the Bush and Obama (so far) administrations. But what would we talk about at cocktail parties and conferences if not for newspapers? Maybe the demise of newspapers will prevent people from thinking they're smart simply because they read that day's Times or Journal. In fact, they might be smarter for having ignored them. And look, if something really big happens, you'll find about it.

Oddly, for all these reasons, blogging might offer a much better epistemology in terms of the flow and digestion of news. (I'm speaking generally here, about blogs qua genre--not all individual blogs will fall into these generalizations.) Bloggers often take the daily or weekly news and piece it all together in a larger narrative that is much more informative and useful than newspaper coverage. Because blogs can focus solely on a niche, they can offer much deeper analysis, which is the true stuff of democracy, not the story itself. Again, I'm speaking generally here, and a quick glance at my Google Reader demonstrates innumberable items that passionately dissect the minutiae of what Speaker Pelosi or Rep. Boehner said this morning. Still, on a possibly frivolous level, I have little doubt that sites like Fangraphs and Baseball Analysts are far more helpful for baseball fans than SportsCenter or the daily sports page. The same principle applies for more serious news.

Anyway, I probably sound pretty curmudgeonly here, and I'm certainly not the first one to make these points. Nassim Talebreserves a special place in his diatribes for newspapers. The point is that life will go on even when newspapers as we know them are gone. And life and democracy would still go on if the daily news disappeared or was greatly reduced in size. (But keep the op-ed pages--they're the best part.)

World population projected to reach 7 billion in 2011

• Global population to reach 7 billion in two years, research institute projects

• Most growth is occurring in developing and poor nations, study finds

• Uganda's population expected to almost triple by 2050

• India projected to overtake China as most populous country

WASHINGTON (CNN) -- The world's population is forecast to hit 7 billion in 2011, the vast majority of its growth coming in developing and, in many cases, the poorest nations, a report released Wednesday said.

A staggering 97 percent of global growth over the next 40 years will happen in Asia, Africa, Latin America and the Caribbean, according to the Population Reference Bureau's 2009 World Population Data Sheet.

"The great bulk of today's 1.2 billion youth -- nearly 90 percent -- are in developing countries," said Carl Haub, a co-author of the report. Eight in 10 of those youth live in Africa and Asia.

"During the next few decades, these young people will most likely continue the current trend of moving from rural areas to cities in search of education and training opportunities, gainful employment, and adequate health care," Haub continued, calling it one of the major social questions of the next few decades.

In the developed world, the United States and Canada will account for most of the growth -- half from immigration and half from a natural increase in the population -- births minus deaths, according to the report.

High fertility rates and a young population base in the developing world will fuel most of the growth, especially in Africa, where women often give birth to six or seven children over a lifetime, the report says. The number is about two in the United States and 1.5 in Canada.

A stark contrast can be drawn between Uganda and Canada, which currently have about 34 million and 31 million residents, respectively. By 2050, Canada's population is projected to be 42 million, while Uganda's is expected to soar to 96 million, more than tripling.

"Even with declining fertility rates in many countries, world population is still growing at a rapid rate," said Bill Butz, president of the bureau. "The increase from 6 billion to 7 billion is likely to take 12 years, as did the increase from 5 billion to 6 billion. Both events are unprecedented in world history."

By 2050, India is projected to be the world's most populous nation at 1.7 billion, overtaking current leader China, which is forecast to hit 1.4 billion. The United States is expected to reach 439 million for No. 3 on the list.

Sunday, Aug. 09, 2009

Why Exercise Won't Make You Thin

By John Cloud

As I write this, tomorrow is Tuesday, which is a cardio day. I'll spend five minutes warming up on the VersaClimber, a towering machine that requires you to move your arms and legs simultaneously. Then I'll do 30 minutes on a stair mill. On Wednesday a personal trainer will work me like a farm animal for an hour, sometimes to the point that I am dizzy — an abuse for which I pay as much as I spend on groceries in a week. Thursday is "body wedge" class, which involves another exercise contraption, this one a large foam wedge from which I will push myself up in various hateful ways for an hour. Friday will bring a 5.5-mile run, the extra half-mile my grueling expiation of any gastronomical indulgences during the week.

I have exercised like this — obsessively, a bit grimly — for years, but recently I began to wonder: Why am I doing this? Except for a two-year period at the end of an unhappy relationship — a period when I self-medicated with lots of Italian desserts — I have never been overweight. One of the most widely accepted, commonly repeated assumptions in our culture is that if you exercise, you will lose weight. But I exercise all the time, and since I ended that relationship and cut most of those desserts, my weight has returned to the same 163 lb. it has been most of my adult life. I still have gut fat that hangs over my belt when I sit. Why isn't all the exercise wiping it out? (Read "The Year in Medicine 2008: From A to Z.")

It's a question many of us could ask. More than 45 million Americans now belong to a health club, up from 23 million in 1993. We spend some $19 billion a year on gym memberships. Of course, some people join and never go. Still, as one major study — the Minnesota Heart Survey — found, more of us at least say we exercise regularly. The survey ran from 1980, when only 47% of respondents said they engaged in regular exercise, to 2000, when the figure had grown to 57%.

And yet obesity figures have risen dramatically in the same period: a third of Americans are obese, and another third count as overweight by the Federal Government's definition. Yes, it's entirely possible that those of us who regularly go to the gym would weigh even more if we exercised less. But like many other people, I get hungry after I exercise, so I often eat more on the days I work out than on the days I don't. Could exercise actually be keeping me from losing weight? (Watch TIME's video "How to Lose Hundreds of Pounds.")

The conventional wisdom that exercise is essential for shedding pounds is actually fairly new. As recently as the 1960s, doctors routinely advised against rigorous exercise, particularly for older adults who could injure themselves. Today doctors encourage even their oldest patients to exercise, which is sound advice for many reasons: People who regularly exercise are at significantly lower risk for all manner of diseases — those of the heart in particular. They less often develop cancer, diabetes and many other illnesses. But the past few years of obesity research show that the role of exercise in weight loss has been wildly overstated. (Read "Losing Weight: Can Exercise Trump Genes?")

"In general, for weight loss, exercise is pretty useless," says Eric Ravussin, chair in diabetes and metabolism at Louisiana State University and a prominent exercise researcher. Many recent studies have found that exercise isn't as important in helping people lose weight as you hear so regularly in gym advertisements or on shows like The Biggest Loser — or, for that matter, from magazines like this one.

The basic problem is that while it's true that exercise burns calories and that you must burn calories to lose weight, exercise has another effect: it can stimulate hunger. That causes us to eat more, which in turn can negate the weight-loss benefits we just accrued. Exercise, in other words, isn't necessarily helping us lose weight. It may even be making it harder.

The Compensation Problem Earlier this year, the peer-reviewed journal PLoS ONE — PLoS is the nonprofit Public Library of Science — published a remarkable study supervised by a colleague of Ravussin's, Dr. Timothy Church, who holds the rather grand title of chair in health wisdom at LSU. Church's team randomly assigned into four groups 464 overweight women who didn't regularly exercise. Women in three of the groups were asked to work out with a personal trainer for 72 min., 136 min., and 194 min. per week, respectively, for six months. Women in the fourth cluster, the control group, were told to maintain their usual physical-activity routines. All the women were asked not to change their dietary habits and to fill out monthly medical-symptom questionnaires.

The findings were surprising. On average, the women in all the groups, even the control group, lost weight, but the women who exercised — sweating it out with a trainer several days a week for six months — did not lose significantly more weight than the control subjects did. (The control-group women may have lost weight because they were filling out those regular health forms, which may have prompted them to consume fewer doughnuts.) Some of the women in each of the four groups actually gained weight, some more than 10 lb. each.

What's going on here? Church calls it compensation, but you and I might know it as the lip-licking anticipation of perfectly salted, golden-brown French fries after a hard trip to the gym. Whether because exercise made them hungry or because they wanted to reward themselves (or both), most of the women who exercised ate more than they did before they started the experiment. Or they compensated in another way, by moving around a lot less than usual after they got home. (Read "Run For Your Lives.")

The findings are important because the government and various medical organizations routinely prescribe more and more exercise for those who want to lose weight. In 2007 the American College of Sports Medicine and the American Heart Association issued new guidelines stating that "to lose weight ... 60 to 90 minutes of physical activity may be necessary." That's 60 to 90 minutes on most days of the week, a level that not only is unrealistic for those of us trying to keep or find a job but also could easily produce, on the basis of Church's data, ravenous compensatory eating.

It's true that after six months of working out, most of the exercisers in Church's study were able to trim their waistlines slightly — by about an inch. Even so, they lost no more overall body fat than the control group did. Why not?

Church, who is 41 and has lived in Baton Rouge for nearly three years, has a theory. "I see this anecdotally amongst, like, my wife's friends," he says. "They're like, 'Ah, I'm running an hour a day, and I'm not losing any weight.'" He asks them, "What are you doing after you run?" It turns out one group of friends was stopping at Starbucks for muffins afterward. Says Church: "I don't think most people would appreciate that, wow, you only burned 200 or 300 calories, which you're going to neutralize with just half that muffin." (Read "Too Fat? Read Your E-mail.")

You might think half a muffin over an entire day wouldn't matter much, particularly if you exercise regularly. After all, doesn't exercise turn fat to muscle, and doesn't muscle process excess calories more efficiently than fat does?

Yes, although the muscle-fat relationship is often misunderstood. According to calculations published in the journal Obesity Research by a Columbia University team in 2001, a pound of muscle burns approximately six calories a day in a resting body, compared with the two calories that a pound of fat burns. Which means that after you work out hard enough to convert, say, 10 lb. of fat to muscle — a major achievement — you would be able to eat only an extra 40 calories per day, about the amount in a teaspoon of butter, before beginning to gain weight. Good luck with that.

Fundamentally, humans are not a species that evolved to dispose of many extra calories beyond what we need to live. Rats, among other species, have a far greater capacity to cope with excess calories than we do because they have more of a dark-colored tissue called brown fat. Brown fat helps produce a protein that switches off little cellular units called mitochondria, which are the cells' power plants: they help turn nutrients into energy. When they're switched off, animals don't get an energy boost. Instead, the animals literally get warmer. And as their temperature rises, calories burn effortlessly. (See TIME's health and medicine covers.)

Because rodents have a lot of brown fat, it's very difficult to make them obese, even when you force-feed them in labs. But humans — we're pathetic. We have so little brown fat that researchers didn't even report its existence in adults until earlier this year. That's one reason humans can gain weight with just an extra half-muffin a day: we almost instantly store most of the calories we don't need in our regular ("white") fat cells.

All this helps explain why our herculean exercise over the past 30 years — all the personal trainers, StairMasters and VersaClimbers; all the Pilates classes and yoga retreats and fat camps — hasn't made us thinner. After we exercise, we often crave sugary calories like those in muffins or in "sports" drinks like Gatorade. A standard 20-oz. bottle of Gatorade contains 130 calories. If you're hot and thirsty after a 20-minute run in summer heat, it's easy to guzzle that bottle in 20 seconds, in which case the caloric expenditure and the caloric intake are probably a wash. From a weight-loss perspective, you would have been better off sitting on the sofa knitting.

Self-Control Is like a Muscle Many people assume that weight is mostly a matter of willpower — that we can learn both to exercise and to avoid muffins and Gatorade. A few of us can, but evolution did not build us to do this for very long. In 2000 the journal Psychological Bulletinpublished a paper by psychologists Mark Muraven and Roy Baumeister in which they observed that self-control is like a muscle: it weakens each day after you use it. If you force yourself to jog for an hour, your self-regulatory capacity is proportionately enfeebled. Rather than lunching on a salad, you'll be more likely to opt for pizza.

Some of us can will ourselves to overcome our basic psychology, but most of us won't be very successful. "The most powerful determinant of your dietary intake is your energy expenditure," says Steven Gortmaker, who heads Harvard's Prevention Research Center on Nutrition and Physical Activity. "If you're more physically active, you're going to get hungry and eat more." Gortmaker, who has studied childhood obesity, is even suspicious of the playgrounds at fast-food restaurants. "Why would they build those?" he asks. "I know it sounds kind of like conspiracy theory, but you have to think, if a kid plays five minutes and burns 50 calories, he might then go inside and consume 500 calories or even 1,000." (Read "Why Kids' Exercise Matters Less Than We Think.")

Last year the International Journal of Obesity published a paper by Gortmaker and Kendrin Sonneville of Children's Hospital Boston noting that "there is a widespread assumption that increasing activity will result in a net reduction in any energy gap" —energy gap being the term scientists use for the difference between the number of calories you use and the number you consume. But Gortmaker and Sonneville found in their 18-month study of 538 students that when kids start to exercise, they end up eating more — not just a little more, but an average of 100 calories more than they had just burned.

If evolution didn't program us to lose weight through exercise, what did it program us to do? Doesn't exercise do anything?

Sure. It does plenty. In addition to enhancing heart health and helping prevent disease, exercise improves your mental health and cognitive ability. A study published in June in the journal Neurology found that older people who exercise at least once a week are 30% more likely to maintain cognitive function than those who exercise less. Another study, released by the University of Alberta a few weeks ago, found that people with chronic back pain who exercise four days a week have 36% less disability than those who exercise only two or three days a week.

But there's some confusion about whether it is exercise — sweaty, exhausting, hunger-producing bursts of activity done exclusively to benefit our health — that leads to all these benefits or something far simpler: regularly moving during our waking hours. We all need to move more — the Centers for Disease Control and Prevention says our leisure-time physical activity (including things like golfing, gardening and walking) has decreased since the late 1980s, right around the time the gym boom really exploded. But do we need to stress our bodies at the gym?

Look at kids. In May a team of researchers at Peninsula Medical School in the U.K. traveled to Amsterdam to present some surprising findings to the European Congress on Obesity. The Peninsula scientists had studied 206 kids, ages 7 to 11, at three schools in and around Plymouth, a city of 250,000 on the southern coast of England. Kids at the first school, an expensive private academy, got an average of 9.2 hours per week of scheduled, usually rigorous physical education. Kids at the two other schools — one in a village near Plymouth and the other an urban school — got just 2.4 hours and 1.7 hours of PE per week, respectively.

To understand just how much physical activity the kids were getting, the Peninsula team had them wear ActiGraphs, light but sophisticated devices that measure not only the amount of physical movement the body engages in but also its intensity. During four one-week periods over consecutive school terms, the kids wore the ActiGraphs nearly every waking moment.

And no matter how much PE they got during school hours, when you look at the whole day, the kids from the three schools moved the same amount, at about the same intensity. The kids at the fancy private school underwent significantly more physical activity before 3 p.m., but overall they didn't move more. "Once they get home, if they are very active in school, they are probably staying still a bit more because they've already expended so much energy," says Alissa Frémeaux, a biostatistician who helped conduct the study. "The others are more likely to grab a bike and run around after school."

Another British study, this one from the University of Exeter, found that kids who regularly move in short bursts — running to catch a ball, racing up and down stairs to collect toys — are just as healthy as kids who participate in sports that require vigorous, sustained exercise.

Could pushing people to exercise more actually be contributing to our obesity problem? In some respects, yes. Because exercise depletes not just the body's muscles but the brain's self-control "muscle" as well, many of us will feel greater entitlement to eat a bag of chips during that lazy time after we get back from the gym. This explains why exercise could make you heavier — or at least why even my wretched four hours of exercise a week aren't eliminating all my fat. It's likely that I am more sedentary during my nonexercise hours than I would be if I didn't exercise with such Puritan fury. If I exercised less, I might feel like walking more instead of hopping into a cab; I might have enough energy to shop for food, cook and then clean instead of ordering a satisfyingly greasy burrito.

Closing the Energy Gap The problem ultimately is about not exercise itself but the way we've come to define it. Many obesity researchers now believe that very frequent, low-level physical activity — the kind humans did for tens of thousands of years before the leaf blower was invented — may actually work better for us than the occasional bouts of exercise you get as a gym rat. "You cannot sit still all day long and then have 30 minutes of exercise without producing stress on the muscles," says Hans-Rudolf Berthoud, a neurobiologist at LSU's Pennington Biomedical Research Center who has studied nutrition for 20 years. "The muscles will ache, and you may not want to move after. But to burn calories, the muscle movements don't have to be extreme. It would be better to distribute the movements throughout the day."

For his part, Berthoud rises at 5 a.m. to walk around his neighborhood several times. He also takes the stairs when possible. "Even if people can get out of their offices, out from in front of their computers, they go someplace like the mall and then take the elevator," he says. "This is the real problem, not that we don't go to the gym enough." (Read "Is There a Laziness Gene?")

I was skeptical when Berthoud said this. Don't you need to raise your heart rate and sweat in order to strengthen your cardiovascular system? Don't you need to push your muscles to the max in order to build them?

Actually, it's not clear that vigorous exercise like running carries more benefits than a moderately strenuous activity like walking while carrying groceries. You regularly hear about the benefits of exercise in news stories, but if you read the academic papers on which these stories are based, you frequently see that the research subjects who were studied didn't clobber themselves on the elliptical machine. A routine example: in June the Association for Psychological Science issued a news release saying that "physical exercise ... may indeed preserve or enhance various aspects of cognitive functioning." But in fact, those who had better cognitive function merely walked more and climbed more stairs. They didn't even walk faster; walking speed wasn't correlated with cognitive ability.

There's also growing evidence that when it comes to preventing certain diseases, losing weight may be more important than improving cardiovascular health. In June, Northwestern University researchers released the results of the longest observational study ever to investigate the relationship between aerobic fitness and the development of diabetes. The results? Being aerobically fit was far less important than having a normal body mass index in preventing the disease. And as we have seen, exercise often does little to help heavy people reach a normal weight. (Read "Physical Fitness — How Not to Get Sick.")

So why does the belief persist that exercise leads to weight loss, given all the scientific evidence to the contrary? Interestingly, until the 1970s, few obesity researchers promoted exercise as critical for weight reduction. As recently as 1992, when a stout Bill Clinton became famous for his jogging and McDonald's habits, the American Journal of Clinical Nutrition published an article that began, "Recently, the interest in the potential of adding exercise to the treatment of obesity has increased." The article went on to note that incorporating exercise training into obesity treatment had led to "inconsistent" results. "The increased energy expenditure obtained by training may be compensated by a decrease in non-training physical activities," the authors wrote.

Then how did the exercise-to-lose-weight mantra become so ingrained? Public-health officials have been reluctant to downplay exercise because those who are more physically active are, overall, healthier. Plus, it's hard even for experts to renounce the notion that exercise is essential for weight loss. For years, psychologist Kelly Brownell ran a lab at Yale that treated obese patients with the standard, drilled-into-your-head combination of more exercise and less food. "What we found was that the treatment of obesity was very frustrating," he says. Only about 5% of participants could keep the weight off, and although those 5% were more likely to exercise than those who got fat again, Brownell says if he were running the program today, "I would probably reorient toward food and away from exercise." In 2005, Brownell co-founded Yale's Rudd Center for Food Policy and Obesity, which focuses on food marketing and public policy — not on encouraging more exercise.

Some research has found that the obese already "exercise" more than most of the rest of us. In May, Dr. Arn Eliasson of the Walter Reed Army Medical Center reported the results of a small study that found that overweight people actually expend significantly more calories every day than people of normal weight — 3,064 vs. 2,080. He isn't the first researcher to reach this conclusion. As science writer Gary Taubes noted in his 2007 book Good Calories, Bad Calories: Fats, Carbs, and the Controversial Science of Diet and Health, "The obese tend to expend more energy than lean people of comparable height, sex, and bone structure, which means their metabolism is typically burning off more calories rather than less."

In short, it's what you eat, not how hard you try to work it off, that matters more in losing weight. You should exercise to improve your health, but be warned: fiery spurts of vigorous exercise could lead to weight gain. I love how exercise makes me feel, but tomorrow I might skip the VersaClimber — and skip the blueberry bar that is my usual postexercise reward.

Tax Withholding Is Bad for Democracy

• By CHARLES MURRAY

America is supposed to be a democracy in which we're all in it together. Part of that ethos, which has been so essential to the country in times of crisis, is a common understanding that we all pay a share of the costs. Taxes are an essential ingredient in the civic glue that binds us together.

Our democracy is corrupted when some voters think that they won't have to pay for the benefits their representatives offer them. It is corrupted when some voters see themselves as victims of exploitation by their fellow citizens.

By both standards, American democracy is in trouble. We have the worst of both worlds. The rhetoric of the president tells the public that the rich are not paying their fair share, undermining the common understanding from the bottom up. Meanwhile, the IRS recently released new numbers on who pays how much taxes, and those numbers tell the people at the top that they're being exploited.

Let's start with the rich, whom I define as families in the top 1% of income among those who filed tax returns. In 2007, the year with the most recent tax data, they had family incomes of $410,000 or more. They paid 40% of all the personal income taxes collected.

Yes, you read it right: 1% of American families paid 40% of America's personal taxes.

The families in the rest of the top 5% had family incomes of $160,000 to $410,000. They paid another 20% of total personal income taxes. Now we're up to three out of every five dollars in personal taxes paid by just five out of every 100 American families.

Turn to the bottom three-quarters of the families who filed income tax returns in 2007—not just low-income families, but everybody with family incomes below $66,500. That 75% of families paid just 13% of all personal income taxes. Scott Hodge of the Tax Foundation has recast these numbers in terms of a single, stunning statistic: The top 1% of American households pay more in federal taxes than the bottom 95% combined.

My point is not that the rich are being bled dry. The taxes paid by families in the top 1% amounted to 22% of their adjusted gross income, not a confiscatory rate. The issue is that it is inherently problematic to have a democracy in which a third of filers pay no personal income tax at all (another datum from the IRS), and the entire bottom half of filers, meaning those with adjusted gross incomes below $33,000, have an average tax rate of just 3%.

This deforms the behavior of everyone—the voters who think they aren't paying for Congress's latest bright idea, the politicians who know that promising new programs will always be a winning political strategy with the majority of taxpayers who don't think they have to pay for them, and the wealthy who know that the only way to get politicians to refrain from that strategy is to buy them off.

For once, we face a problem with a solution that costs nothing. Most families who pay little or no personal income taxes are paying Social Security and Medicare taxes. All we need to do is make an accounting change, no longer pretending that payroll taxes are sequestered in trust funds.

Fold payroll taxes into the personal tax code, adjusting the rules so that everyone still pays the same total, but the tax bill shows up on the 1040. Doing so will tell everyone the truth: Their payroll taxes are being used to pay whatever bills the federal government brings upon itself, among which are the costs of Social Security and Medicare.

The finishing touch is to make sure that people understand how much they are paying, which is presently obscured by withholding at the workplace. End withholding, and require everybody to do what millions of Americans already do: write checks for estimated taxes four times a year.

Both of those simple changes scare politicians. Payroll taxes are politically useful because low-income and middle-income taxpayers don't complain about what they believe are contributions to their retirement and they think, wrongly, that they aren't paying much for anything else. Tax withholding has a wonderfully anesthetizing effect on people whose only income is a paycheck, leaving many of them actually feeling grateful for their tax refund check every year, not noticing how much the government has taken from them.

But the politicians' fear of being honest about taxes doesn't change the urgent need to be honest. The average taxpayer is wrong if he believes the affluent aren't paying their fair share—the top income earners carry an extraordinary proportion of the tax burden. High-income earners are wrong, too, about being exploited: Take account of payroll taxes, and low-income people also bear a heavy tax load.

End the payroll tax, end withholding, and these corrosive misapprehensions go way. We will once again be a democracy in which we're all in it together, we all know that we're all paying a share, and we are all aware how much that share is.