iCount

Lifted from comments cactus style:



Reader juan suggests:

Econmagic



Charts



Bloomberg News





IT’S NOT EASY TO SIZE UP THE influence of the index funds. But based on their known cash commitments in certain commodities, and the commodity indexes their prospectuses say they track, it is possible to estimate the size of their commitments in all commodities they buy. Using this method, analyst Briese...estimates that the index funds hold about $211 billion worth of bets on the buy side in U.S. markets.



Applying a similar method, but with slightly different assumptions for indexes tracked, Bianco Research analyst Greg Blaha puts that figure at $194 billion. Either figure is enough to turn the index funds into the behemoths of the commodity pits, where total bullish positions now stand at $568 billion.

[...]

That this large, bullishly oriented group of funds is flourishing is partly a result of a regulatory anomaly. In recognition of the fact that the commodity markets are too small to absorb an excess of speculative dollars, the Commodity Futures Trading Commission, in conjunction with exchanges, imposes position limits on speculators. But the agency has effectively exempted the index funds from position limits.

[...]

The speculators, now so bullish, are mainly the index funds. To see how their influence on the market has become outsized, just look at how they operate. Nearly $9 out of every $10 of index-fund money is not traded directly on the commodity exchanges, but instead goes through dealers that belong to the International Swaps and Derivatives Association (ISDA). These swaps dealers lay off their speculative risk on the organized commodity markets, while effectively serving as market makers for the index funds. By using the ISDA as a conduit, the index funds get an exemption from position limits that are normally imposed on any other speculator, including the $1 in every $10 of index-fund money that does not go through the swaps dealers.



The purpose of position limits on speculators, which date back to 1936, is clearly stated in the rules: It’s to protect these relatively small markets from price distortions. An exemption is offered only to "bona fide hedgers" (not to be confused with "hedge funds"), who take offsetting positions in the physical commodity.



The basic argument put forward by the CFTC for exempting swaps dealers is that they, too, are offsetting other positions — those taken with the index funds.



There's really no question unless one rigidly adheres to a type of efficient market thesis.

by rdan (noreply@blogger.com) on May 16, 2008 02:48 PM

Greg Sargent reports on one of the many attack themes coming from Team McCain:

On a conference call with conservative bloggers this afternoon, John McCain launched what may be his most direct attack yet on Barack Obama's national security credentials, saying flat out that Obama is incapable of protecting America and lacks the necessary traits to keep it secure from foreign threats. In a reference to Obama's declared willingness to meet with the leader of Iran, McCain said: "I think [it] is an unacceptable position, and shows that Senator Obama does not have the knowledge, the experience, the background to make the kind of judgments that are necessary to preserve this nation's security." That seems like an unequivocal declaration that Obama is incapable of protecting this country. In the past, McCain has raised doubts about Obama's national security cred, but to our knowledge has never taken the step of declaring outright that he's unfit to defend the country. McCain's comments also go considerably farther than McCain did in his comments this morning about Bush's Israel speech attacking Dems.

Make the kind of judgments? Let’s review that “judgment” made on March 19, 2003 - the day we invaded Iraq. Now who was smart enough to say this was a mistake even before March 19, 2003 and who is stupid enough to think this decision was a good one?

by PGL (noreply@blogger.com) on May 16, 2008 09:15 AM

Andrew Samwick posts "one of the most depressing graphs [he has] ever seen."



Recall the simplest formula Tom used: Savings = Personal Income - Personal Taxes - Personal Consumption Expenditures [PCE]

by Ken Houghton (noreply@blogger.com) on May 16, 2008 03:25 AM

I’m no fan of Chris Matthews — not by a longshot — but we need more of this (video via TPM). When some pinhead — and I don’t care if he’s from the left, right, or center — goes on and obviously doesn’t know what the hell he’s talking about, he needs to be called on it. And when somebody uses rhetoric that’s obviously bullshit, that needs to be pointed out, too.

Now if only more of the media would do it, and do it less selectively. I long for a news media where guests know that they’d better not go on expecting to be able to parrot talking points, and where they know that they’d better know what the hell they’re talking about. But I’ll never see that day, I’m sure.

by tgirsch on May 16, 2008 12:50 AM

In response to some vigorous discussion in the comments last week, the other Bears and I decided to host a blog seminar in 'Savings 101,' and I was duly nominated (i.e. drafted) to get the ball rolling. This installment will primarily cover the definition of personal savings and major features of how it's measured for the purposes of the U.S. National Income and Product Accounts (NIPA). I liberally and without other citation draw on a number of methodology papers posted by the Bureau of Economic Analysis, get them here. A second installment will discuss rationales for savings and financial "innovations" that may affect savings behavior. As demand warrants, later installments may discuss savings of firms and governments.



We'll get the ball rolling after the jump.



1. Defining Personal Savings



A simple definition of personal savings, which also happens to be the NIPA definition, is whatever's left over from personal income after taxes and consumption:



Savings = Personal Income - Personal Taxes - Personal Consumption Expenditures [PCE]



From the NIPA accounting perspective, this definition relates sources of personal income with uses of the income; "savings" is the term makes the accounts balance. At least in the short run, PCE may be greater than income after taxes and savings will be negative. To make a little more sense out of it than the accountant's desire to balance ledgers, net savings may also (and relatedly) be considered as a flow of funds to or from stores of wealth. Indeed, the BEA handily provides a comparison of NIPA and flow-of-funds savings measures, and they track each other pretty well. (The latter series is a lot noisier.)



In addition to personal savings, NIPA also counts savings by businesses in the form of retained earnings and by government in the form of unspent tax dollars. In 2006, essentially all of the net savings recorded in NIPA, around $250 billion, came from businesses' retained earnings of some $400 billion. That year, personal savings were $39 billion, and the government sector dissaved to the tune of nearly $196 billion thanks mostly to the federal government's unified budget deficit. (State and local governments, which commonly operate under balanced-budget constraints and also may maintain small rainy-day funds, were net savers.) You may compare these to 2006 GDP of $13,195 billion, personal income of $10,983 billion, business income of $5,814 billion, and government revenues of $3,935 billion as you'd like.





2. The NIPA Measurement of Personal Savings



The basic relationship defining personal savings above may be simple enough on its face, but it does beg the questions of just what constitutes personal income (PI) and what is included in PCE (and how it's measured).



PI is a bit more straightforward than PCE. By far the biggest component of PI is wages, salaries, and benefits. Next is dividend and interest income. Then comes transfers, mostly from government benefits programs. Then comes income from business proprietorship, and finally a small amount of rental income.



Contributions to government social insurance programs (read, Social Security and Medicare) are subtracted from PI and added to government receipts. So accumulation of social insurance trust funds is considered savings in the NIPAs, though government rather than personal savings. Of course, as seen above the Social Security program's savings currently serve to offset in part dissavings elsewhere in the government sector, i.e. the "on-budget" federal deficit.



The other big question is, what is included in PCE? PCE tries to measure personal consumption quite broadly, covering consumption of durable goods (which have an expected useful life of three years or longer), non-durable goods, and services. Non-durable goods and market services are straightforward, at least in theory, in that those basically involve current expenditures for current consumption. For housing and other durables, the NIPAs offer something to make everyone a little mad, since those measurements involve a variety of assumptions and imputations that aren't necessarily innocent.



The big imputation relates to owner-occupied housing, a/k/a "owner's equivalent rent." The idea here is that houses and other residential structures are forms of fixed capital and the consumption is of shelter services produced using that capital. Renters pay for those services in market transactions, but owners — while they consume similar shelter services to renters of comparable dwellings — don't literally charge themselves rent. However, the rent that could hypothetically be obtained by renting out a house instead of occupying it is an opportunity cost of owner-occupation. That opportunity cost amounts to owners' implicit expenditures on shelter services. Importantly, there's no reason to view owners' mortgage payment(s), or lack thereof, as having any particular relationship to that implicit shelter expenditure.



The rent imputation helps make the measurement of housing services less invariant to how people obtain them. Think of two identical houses next door to each other, one of which rents for $10,000/year and the other of which is occupied by an owner who owns the house outright. In the absence of the imputation, PCE would measure only the $10,000 in market rent. If instead the owner rented the house next door, and rented out her or his house for the same $10,000, measured PCE would increase to $20,000 even though all we've done is move families between two identical houses.



Finally, and importantly for savings measurement, the imputation of rent effectively splits housing outlays into savings and consumption components. To the extent actual outlays exceed the imputed rent, the excess is treated as saving.



Economists of a reasonably orthodox bent shouldn't take issue with owner's equivalent rent at a conceptual level, but the actual measurement involves a fair amount of sausage-making. In particular, the owners' rent is extrapolated from market rents. While the rental-extrapolation method is based on the presumed existence of "well-developed" housing rental markets, in many cases those markets are quite thin in units comparable to the owner-occupied housing stock.



If you think the PCE methods are too economically pure for housing services, the BEA's methods are more expedient than correct for other consumer durables (e.g. autos). PCE simply includes the full selling prices of durables at the time of durable-goods sales. This would tend to make durable-goods PCE more volatile than actual durables consumption. This may also make NIPA savings appear relatively low during durables booms and high during durables busts.



A final large category of imputed consumption is for financial services provided without explicit charges. These services aren't free, of course; the associated expenses are usually subtracted off investment income before it's paid by the financial services providers. In this case, the NIPA methodology imputes both the value of the services and an addition to personal income for the subtraction, so it's on both sides of the savings equation and doesn't affect the measured level of personal savings.



A lot of criticism of the standard definition of personal savings boils down to potential differences between aggregate personal savings and an equation that shows the direction of personal assets:



Change in Assets = Net Cash Flow + Investment Earnings + (Unrealized) Gains or Losses from Asset Price Changes



The NIPA methodology explicitly declines to include the last term in income, regarding it as "reflect[ing] a change in wealth rather than a change in productive activity." However, changes in and levels of wealth are widely regarded as interacting with expenditures and savings behavior, so it's hardly irrelevant. We will turn to that in Savings 101b.

by Tom Bozzo (noreply@blogger.com) on May 15, 2008 11:15 PM

The industrial production report this morning was muddied by the auto parts strike. Overall

manufacturing output fell 0.8%, but excluding auto and auto parts manufacturing output fell

0.4%. Because the auto output is being distorted, and will generate a snapback of output when the strike ends, manufacturing output will not be giving clear signals for months.



To get around this I looked at manufacturing output excluding autos and auto parts. The compound, smoothed three month growth rate for this series is -2.0%. The three month growth rate of this series is a good, but not perfect recession indicator. But if the US is not going into a recession this was be the largest false signal this series has generated.

by spencer (noreply@blogger.com) on May 15, 2008 10:20 PM

Jerry Bowyer is mocking that mythical character named recessionista again:

Retail spending dropped very little last month, and it didn’t drop at all if you exclude autos. Meanwhile, consumer spending has consistently been up compared to the same time last year. The consumer will simply stop spending? Hasn’t happened.

Translation – if consumption of nondurable goods goes up, real GDP cannot fall. Never mind that consumption of durable goods fell last quarter. Never mind that both residential and non-residential investment fell last quarter. Never mind that some of what we consume is imported and that imports rose last quarter:

Oh, and gas prices will never, ever, ever reduce retail spending since gas is a component of retail spending. Chain stores own gas stations. More money spent on gas is not a subtraction from overall consumer spending, it’s a transfer from one retail department to another.

What a dumb statement! Gasoline price increases are attributable to higher prices for oil and not higher retail margins. And of course, Bowyer knows more about housing valuations than anyone:

Basing big-picture assumptions on Case-Shiller is a faulty approach, too.

I know the National Review prides itself on being about as ill informed on economics as it gets but isn’t Bowyer a total embarrassment even from them?

by PGL (noreply@blogger.com) on May 15, 2008 08:02 PM

The following is a reworked version of a piece originally put up immediately after the release of the 2006 Report in response to what seemed a very worrisome development. After a long series of years of continual improvement in Social Security long term outlook, suddenly progress stalled and actually reversed, the payroll gap went from 1.89% in 2004 to 1.92% in 2005 to 2.02% in 2006. Cause for concern? Absolutely. Cause for action? Well lets do the numbers.



Can we quantify the price of inaction on Social Security? My starting point is this table from EPI Changes in Trustees Projections Over Time.

Note these are not EPI numbers, these are official numbers from the Annual Reports: "Source: Annual Reports of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, 1996-2004." With the help of reader Paul in comments I can now present a series that is filled in and longer.

Report Date:::Payroll Gap:::Trust Fund Depletion

1996:::2.19%:::2029

1997:::2.23%:::2029

1998:::2.19%:::2032

1999:::2.07%:::2034

2000:::1.89%:::2037



My fundamental views about Social Security crystalized in the 1999-2000 period. Anyone looking at this number series and drawing the conclusion 'Man we got to start moving on this crisis, and soon' is simply innumeric. Maybe something would need to be done down the road but as it stood Trust Fund depletion was retreating at a rate of two years per year, suggesting it might never come. Now the Bush years and a more complicated story.



2001:::1.86%:::2038 (Reader Paul supplied these, and the series after 2004-thanks Paul)

2002:::1.87%:::2041

2003:::1.92%:::2042

2004:::1.89%:::2042



This is where President Bush entered the battle. Clearly progress was being made, Depletion was still being pushed out in date and this even true in 2004 when taken by month, I think there was about a nine month improvement over the course of the year. This progress didn't show up as much on the payroll gap side, but properly understood this is all the more cause for Inactivity. Doing Nothing in Bush's first term was the effective equivalent of a tax cut averaging 1.89% in each year, and all from the first dollar and not the last, for wage workers the Cost of Inactivity was money left in their pockets. Absent a better deal than what they were being offered they really had no reason to move. As it turns out Bush's implied preference, the Posen Plan did not in fact offer that deal, a point that was hammered home by Lee A. Arnold in a clever animation Econolanguage: Social Security now available on YouTube.



2005:::1.92%:::2041

2006:::2.02%:::2040 (this is what percipitated the early version of this post, that was not pleasant news)

2007:::1.95%:::2041

2008:::1.70%:::2041



Now let the fun begin. My oh my plenty of numeric fun to be added. Below the fold.







Lets take this as if it were a betting game, me betting my current dollar against some lost dollars going forward. Now clearly in any year that shows an absolute improvement in either magnitude of the gap and/or Depletion moving out in time is a winning bet for Nothing. As are a series of years with that same result. For example we could take it by term:

1996:::2.19%

2000:::1.89%

2004:::1.89%

2008:::1.7%

Winner, winner, chicken dinner!! Each term left four years of taxes not taken in peoples wallets and ended up with a cost per year going forward that was equal or less that the starting point of the term. The people who insist that 'There is no time to wait' 'Sooner is better than latter' and 'If we delay, if will only cost more in the end' in fact have no numeric evidence to back any of that up. Now certainly it is possible for this trend to reverse, in fact the outlook got considerably bleaker in the mid-ninties, things looked a lot better in 1993 then they did subsequently in 1997, which in the event showed 'crisis' at its peak. But that is just where the game gets interesting.



Lets say the 2009 Report shows a jump back to 1.95%. Does this make Nothing a losing bet, should we act this year after all? Not necessarily, you have to calculate the Cost of Inactivity for each individual. And moreover decide over what period you want to measure that. Moreover the effects are not necessarily reciprocal, at least over the short run. If the payroll gap actually goes up due to worse than projected current year results, that simply suggests the previous 'fix' would not in fact have fixed the entire gap, whereas when the gap moves down that current year dollar is real as real. But for the sake of argument lets say you could show that the entire uptick was due to failure to collect that one current year payroll dollar. How many years would it take to have that become a financial negative for any given individual. Well if you look at a situation where you have a level real wage when measured in constant dollars the calculation is pretty simple:



Amount of increase multiplied by years to retirement minus previous year payroll gap. For me in 2005 that worked out to:

.03 x 17 = .51 - 1.89% = -1.38%. That is over my working life Nothing in 2005 still worked out as a tax cut, just a little less than I might have hoped for. How about 2006?:

.10 x 16 =1.6% - 1.92% = -.32% Well kind of nets out as a skinny tax cut but one that works to one degree or another for everyone within 20 years of retirement. And of course the improvement from 2.02% to 1.95% meant Nothing was an absolute win short term and equally medium term. Take any year you like and multiply its payroll gap against the number of years between then and now. That is your cummulative tax cut equivalent for that span. Then use a variation of the equation to calculate how long it would have to be before that became a losing bet. The figure rapidly hits the hundreds of years.



Lets turn the bet on its head and look forward. What level of increase in payroll gap would actually make Nothing a losing bet? The calculation is a little more simple: Current year payroll gap divided by years to retirement or in my case 1.7% divided by 15 or .11%. Could the gap increase by that much? Well maybe, the jump in 2006 was close to that but even then I break even. Now if I was 22 and starting my first job I might take a little different attitude. I didn't see any benefit from the dollars not taxed. On the other hand if I was 28 and still struggling to pay off my student loans that roughly 2% a year not taken out of my paycheck probably looks pretty good.



From my perspective any year where the payroll gap is less than the 2.23% of 1997 is a call for Nothing as a plan. Certainly we want to take a hard look if the numbers start trending upwards year over year, but as long as the number is fluctuating around the 2% level there is really nothing to worry about. Once you calculate the Cost of Inactivity against the current utility of that payroll dollar. After all doing nothing in 2008 will leave the median household with about $1000 or close to the amount of the current stimulus check. 'Fixing' Social Security would then be the fiscal equivalent of taking away the punchbowl right as the party was scheduled to start. Nothing smart about that.

by Bruce Webb (noreply@blogger.com) on May 15, 2008 07:52 PM

Matthew Hay Brown gives me yet another reason to praise the Speaker of the House:

The oblique references continue. Some believe President Bush was alluding to Barack Obama this morning when he criticized "some people" who "seem to believe we should negotiate with terrorists and radicals." Now House Speaker Nancy Pelosi appears to be calling on John McCain to distance himself from the remarks Bush made before the Israeli Knesset. "You know, we have a protocol, sort of, a custom, informally, around here that we don't criticize the president when he is on foreign soil," Pelosi told reporters this morning. "One would think that that would apply to the president, that he would not criticize Americans when he is on foreign soil. "I think what the president did in that regard is beneath the dignity of the office of president and unworthy of our representation at that observance in Israel, and I would hope that any serious person would disassociate himself from the president's remarks, who aspires to leaderhip in our country." Asked if she was referring to McCain, the presumptive Republican nominee for president, the California Democrat repeated: "Any serious person. Any serious person."

But I guess McCain isn’t listening:

Saying he takes Bush at his word that he wasn't speaking directly of Obama, McCain said, "It does bring up an issue I will be discussing with the American people, and that is why does Barack Obama, Senator Obama want to sit down with a state sponsor of terrorism?" McCain said in the back of his campaign bus. "What does he want to talk about with, with [Iranian President Mahmoud] Ahmadinejad who said that Israel’s a stinking corpse, who said that he wants to wipe Israel off the map, who’s sending the most explosive devices into Iraq, killing Americans?" he said. "The point is that peace through strength is the way we achieve peace in the world. That’s the point. I will debate this issue with Senator Obama throughout this campaign." Going farther, McCain continued to connect Obama with Ahmadinejad and highlight the Iranian leader's incendiary comments about Israel. "I think Barack Obama needs to explain why he wants to sit down and talk with a man who is the head of a government that is a state sponsor of terror that is responsible for the killing of brave young Americans and wants to wipe Israel off the map and denies the Holocaust," McCain said. "It is a serious error on the part of Senator Obama that shows naiveté and inexperience and lack of judgment to say that he wants to sit down across the table from an individual who leads a country that says and says that Israel is a stinking corpse, that is dedicated to the extinction of the state of Israel."

Peace through strength? This is the slogan of the Likud Party and their policies have turned a bad situation for Israel into a worse one. If McCain thinks we have peace between Israel and Palestine, he’s an idiot. Of course, anyone who thinks our version of this – invading Iraq on March 19, 2003 – has worked well is also an idiot. The Speaker may have given great advice but the person that it was apparently directed at appears to be as pathetic and clueless as President Bush.

by PGL (noreply@blogger.com) on May 15, 2008 07:44 PM

The report in yahoo news presents an odd twist in relation to government regulation and testing. For me it brings to focus the less than idealogical intent of our current administration.

The Bush administration on Friday urged a federal appeals court to stop meatpackers from testing all their animals for mad cow disease, but a skeptical judge questioned whether the government has that authority.



The government seeks to reverse a lower court ruling that allowed Kansas-based Creekstone Farms Premium Beef to conduct more comprehensive testing to satisfy demand from overseas customers in Japan and elsewhere.



Less than 1 percent of slaughtered cows are currently tested for the disease under Agriculture Department guidelines. The agency argues that more widespread testing does not guarantee food safety and could result in a false positive that scares consumers.



"They want to create false assurances," Justice Department attorney Eric Flesig-Greene told a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit.



But Creekstone attorney Russell Frye contended the Agriculture Department's regulations covering the treatment of domestic animals contain no prohibition against an individual company testing for mad cow disease, since the test is conducted only after a cow is slaughtered. He said the agency has no authority to prevent companies from using the test to reassure customers.



"This is the government telling the consumers, `You're not entitled to this information,'" Frye said.



Chief Judge David B. Sentelle seemed to agree with Creekstone's contention that the additional testing would not interfere with agency regulations governing the treatment of animals.



"All they want to do is create information," Sentelle said, noting that it's up to consumers to decide how to interpret the information.



Larger meatpackers have opposed Creekstone's push to allow wider testing out of fear that consumer pressure would force them to begin testing all animals too. Increased testing would raise the price of meat by a few cents per pound.



Mad cow disease, or bovine spongiform encephalopathy, can be fatal to humans who eat tainted beef. Three cases of mad cow disease have been discovered in the U.S. since 2003.



The district court's ruling last year in favor of Creekstone was supposed to take effect June 1, 2007, but the Agriculture Department's appeal has delayed the testing so far.

The title is a bit much, but was irresistible.

by rdan (noreply@blogger.com) on May 15, 2008 05:07 PM

History: How the US Grew the Military Industrial Complex.



The size of the US national security (war) machine is not related to threats to the nation nor any reasonable or efficient response to those wildly inflated threats. Threats are overstated and the solution to the fake insecurity is always the most expensive and profitable, neither effective nor efficient. Those are engineering specification terms never used to describe warfare state value.



Good to whittle beaks for profits and keeping the trough filled.



The US DoD outsourced weapons making after WW II. During WW II for profit industries: Chryser, General Motors, Kaiser Aluminum, et al, mobilized for the war effort made military weapons work and mass produced very good quality. Some may conclude that the mobilized private sector took defense firms' and arsenals' products to greater heights of quality and efficiency.



After the war the congress, National Security Act of 1947, decided to use private companies for arming a vaguely defined continuous mobilization. A largely unneeded and overly profitable arms establishment grew from the politics and greed.



Instead of being like the commercial companies which produced the weapons that won World War II, these nationall security industries quickly became for profit arsenals not as good as pre war public arsenals but more expensive with profits and enough money to buy congress. In 1961 Eisenhower called it the military industrial complex.



The motive for perpetual mobilization and long war is profit. In the 1940's the Air Force became the first and subsequently main customer of RandD Inc. We know it as RAND. This think tank is responsible for such concepts as Mutually Assured Destruction (MAD) and other plans to wage nuclear armageddon. Some think their analyses created the bloated military industrial complex. They advocated arming ourselves to the teeth while the Soviets were collapsing economically.



Other think tanks arose in RAND's image all funded by military industrial complex war profits and all selling the freightfully insecure alternatives of not buying all the unneeded super weapons.



Why does the US have for profit arsenals which are not effective? Short answer is the stuff is as related to security as wooden beaks strapped to the general's faces.



The think tanks sold the most expensive, unneeded solution and no one asked if any of it is "worth the taxpayers' dough" because there was a lot of money to be made. The useless war machine took funding from better uses that the poor and meek needed.



Then the "supporters" equate patriotism with militarism, masked by propaganda and war profits funded media blitzes.



Think tanks falsely defining the "strategy and structure" of the warfare state estabishment is one way to keep the trough filled with gold. Building on the services' "strategic investment objectives" is another.



None of it is worth the taxpayers' scarce money. But it is good for the military industrial complex, the trough.



Next week I will discuss how the think tanks sell "continuous mobilization" to keep them all whittlin beaks.

-------------------------

Another piece by ilsm

by rdan (noreply@blogger.com) on May 15, 2008 11:14 AM

Yes.



This has been another version of Simple Answers to Simple Questions. Although, as some wag once noted, once is history, twice is parody, but the third time is a trend.

by Ken Houghton (noreply@blogger.com) on May 15, 2008 03:12 AM

The Trustees Report intermediate projection for Medicare costs in

2085 is about 11% of payroll.



This is on a bigger payroll than Social Security because currently

the Medicare tax is not capped. (If I were a rich person and looking

at that uncapped Medicare tax, I'd be lobbying for a cap and a

slightly larger tax tax rate up to the cap.)



By 2085 or so the real income of workers is projected, at 1.1% growth

per year, to be about 2 and a quarter times current income.



So, an average worker would be making about 90 thousand per year.



Out of that he would pay 11% or about 10 thousand per year for Medicare.



Sounds like a lot and is a lot. But note that his real income has

increased about 50,000 dollars a year from what it is today.



And of that he would be paying 10,000 to cover his old age medical

costs, which are expected to be... one would calculate about 400,000

dollars. Not that every worker would have such high expenses, but

that maybe one in ten workers would have 4 million dollars worth of

expenses, perhaps. And presumably you would have no way to know if

you would be the one.



But assuming everything worked out as predicted, you would still be

about 40,000 dollars better off each year PLUS have enough money to

pay for enormous medical costs that would presumably keep you

healthier and give you a longer life after you retired. And there is

no way you can avoid the medical costs. Either Medicare or private

insurance will cost essentially the same.



This is, of course, in addition to the Social Security costs that

would rise a much smaller amount just to pay for groceries over that

longer life expectancy.



So before you cut your head off and scream that Medicare is going to

bankrupt the nation and burden our youth, please look at least at the

actual costs we are talking about.



About a 5% increase in soc sec for the worker... or a total Soc Sec

and HI cost of 30% of payroll, of which the worker would pay half...

so 15% or about 13,500, leaving about 76000 for personal expenses,

investments and other taxes... or about 35 thousand more than you

have today. Your boss would pay another 13,500... but that is money

you would never see anyway and comes out of his share of the joint

value added from the worker-boss partnership. He's not getting hurt.



It's a lot of money, and wise people would work to cut the costs.

But it is not crippling and may be a better way to enjoy our higher

standard of living, by living longer and in better health, than by

buying a new Lexus and taking a trip to Las Vegas every year.



And remember, this is you paying for yourself. Our "youth" will pay

for their own benefits. Try not to be confused by pay as you go.

That is the way nature works.

----------------------

This one by coberly

by rdan (noreply@blogger.com) on May 14, 2008 02:43 PM

Tom Dispatch has an opinion piece on something we have not really considered. The US military has a huge appetite for oil and products. We have not quantified this on the blog. The Bush Administration I suppose has not asked for a volume discount for oil or services, but it made me curious...

Every day, the average G.I. in Iraq uses approximately 27 gallons of petroleum-based fuels. With some 160,000 American troops in Iraq, that amounts to 4.37 million gallons in daily oil usage, including gasoline for vans and light vehicles, diesel for trucks and armored vehicles, and aviation fuel for helicopters, drones, and fixed-wing aircraft. With U.S. forces paying, as of late April, an average of $3.23 per gallon for these fuels, the Pentagon is already spending approximately $14 million per day on oil ($98 million per week, $5.1 billion per year) to stay in Iraq. Meanwhile, our Iraqi allies, who are expected to receive a windfall of $70 billion this year from the rising price of their oil exports, charge their citizens $1.36 per gallon for gasoline.

When questioned about why Iraqis are paying almost a third less for oil than American forces in their country, senior Iraqi government officials scoff at any suggestion of impropriety. “America has hardly even begun to repay its debt to Iraq,” said Abdul Basit, the head of Iraq’s Supreme Board of Audit, an independent body that oversees Iraqi governmental expenditures. “This is an immoral request because we didn’t ask them to come to Iraq, and before they came in 2003 we didn’t have all these needs.”

Needless to say, this is not exactly the way grateful clients are supposed to address superpower patrons. “It’s totally unacceptable to me that we are spending tens of billions of dollars on rebuilding Iraq while they are putting tens of billions of dollars in banks around the world from oil revenues,” said Senator Carl Levin (D-Michigan), chairman of the Armed Services Committee. “It doesn’t compute as far as I’m concerned.”

Certainly, however, our allies in the region, especially the Sunni kingdoms of Kuwait, Saudi Arabia, and the United Arab Emirates (UAE) that presumably look to Washington to stabilize Iraq and curb the growing power of Shiite Iran, are willing to help the Pentagon out by supplying U.S. troops with free or deeply-discounted petroleum. No such luck. Except for some partially subsidized oil supplied by Kuwait, all oil-producing U.S. allies in the region charge us the market rate for petroleum.



Update: See Naked Capitalism on Wolf Becker and Posner on oil"



Take that as a striking reflection of how little credence even countries whose ruling elites have traditionally looked to the U.S. for protection now attach to our supposed superpower status.

Think of this as a strikingly clear-eyed assessment of American power. As far as they’re concerned, we’re now just another of those hopeless oil addicts driving a monster gas-guzzler up to the pump — and they’re perfectly happy to collect our cash which they can then use to cherry-pick our prime assets. So expect no summer tax holidays for the Pentagon, not in the Middle East, anyway.

Worse yet, the U.S. military will need even more oil for the future wars on which the Pentagon is now doing the planning. In this way, the U.S. experience in Iraq has especially worrisome implications. Under the military “transformation” initiated by Secretary of Defense Donald Rumsfeld in 2001, the future U.S. war machine will rely less on “boots on the ground” and ever more on technology. But technology entails an ever-greater requirement for oil, as the newer weapons sought by Rumsfeld (and now Secretary of Defense Robert Gates) all consume many times more fuel than those they will replace. To put this in perspective: The average G.I in Iraq now uses about seven times as much oil per day as G.I.s did in the first Gulf War less than two decades ago. And every sign indicates that the same ratio of increase will apply to coming conflicts; that the daily cost of fighting will skyrocket; and that the Pentagon’s capacity to shoulder multiple foreign military burdens will unravel. Thus are superpowers undone.

Is the general thrust of the argument reasonable as the price of oil rapidly increases? How does a military totally dependent on access to oil deal with prices that are its lifeblood? What are the obligations in the ME, and does this square with our rhetoric??

by rdan (noreply@blogger.com) on May 14, 2008 02:39 PM

Heather Timmons reports:

When it comes to trade, Western farming subsidies undercut agricultural production in fertile areas of Africa, India’s commerce minister, Kamal Nath, said in a telephone interview, repeating the point that Americans waste more food than people in many other countries.

I was rather surprised at the statistics that Americans consume 3770 calories per person per day. And we’re surprised that so many of us are fat? Dean Baker was surprised at something else:

Of course the problem is that food prices are too high, causing people to go hungry. The truth is that the U.S. and European subsidies that cause the Post, the NYT, the World Bank and many NGOs to get apoplectic have the effect of lowering world food prices. That means that fewer people go hungry than would be the case without these subsidies. This isn't rocket science, it's almost definitional. The U.S. and European effectively pay their farmers to keep farming, thereby producing more food than otherwise would be produced. This may have negative consequences for farmers elsewhere in the world, but it does mean that supply is greater and prices are lower than they would be in the absence of the subsidies.

If we are talking the world supply of food, then Dean is correct. Kamal Nath, however, seems to be talking about the supply of food coming from Africa which is likely being reduced by the increased competition from the West. If we had perfectly free trade of food, the net impact of these subsidies on food prices in India would be to lower prices as Dean suggest. But the current world market is riddled with all sorts of government interference in the trade of food.

by PGL (noreply@blogger.com) on May 14, 2008 10:11 AM

Mark Duggan and Fiona Scott Morton published a paper at NBER with this general conclusion:

Using data on product-specific prices and quantities sold in each year in the U.S., our findings indicate that Part D substantially lowered the average price and increased the total utilization of prescription drugs by Medicare recipients. Our results further suggest that the magnitude of these average effects varies across drugs as predicted by economic theory.

Even though they were only using one year's worth of data—or perhaps because of it—they concluded that the program has been a success for the most common drugs. I posted this list at MU, but it bears repeating here:

Lipitor, Zocor, Prevacid, Nexium, Zoloft, Epogen, Celebrex, Zyprexa, Neurontin, Procrit, Effexor, Advair, Paxil, Norvasc, Pravachol, Plavix, Allegra, Wellbutrin, Oxycontin, Fosamax, Vioxx, Singulair, Protonix, Actos, Ortho, Aciphex

Duggan and Scott Morton also found that—for the "small subset of 'protected' therapeutic classes" that all providers were required to carry—the Part D prices to consumers actually rose. The authors explain this as a standard of economic theory:

According to Part D regulations, there are six “protected” therapeutic classes in which PDPs must be less aggressive with their formularies than in other therapeutic areas. All products in the HIV, anti-cancer, anticonvulsant, immunosuppressant, antipsychotic, and antidepressant categories must be included in all Part D formularies. While a PDP cannot exclude any drug in these categories, it can create financial incentives or administrative hurdles to affect a patient’s choice of drug....We do not know whether the restrictions applied to these classes have a measurable impact on the behavior of PDPs because in the first year of the program it was not clear how much CMS would oversee formularies. If restrictions are binding, their effect will be to reduce Part D’s effect on the substitutability among drugs (lower [gamma-sub-g]) and therefore reduce the PDP’s ability to extract manufacturer discounts.

English version: without being able to threaten to exclude a drug from coverage, and not being certain about whether they would be permitted to classify a drug as more expensive than a counterpart under their specific plan, the drug companies could not bargain effectively with drug manufacturers.



Which makes perfect sense, until you consider that the price to Medicare recipients of those drugs went up.



Imagine the negotiations. "You charge $1,000 for that drug." "Yes, but for you, $1,005." "Done."



Duggan and Scott Morton do present some caveats

To the extent that plans become more or less successful at negotiating prices in future years, the results may of course change. Secondly, we are unable to measure any ex post rebates which PDPs may have been able to negotiate and which affect net prices to PDPs. Such rebates do not appear on the invoice, which is the source of IMS data, and might be causing prices to be even lower than those measured here. If rebates are present, our estimates are a lower bound to the price reductions achieved by PDPs.

Translation: Some PDPs may be making more money than we think at the current levels.

The other rebates that we do not measure are Medicaid rebates paid by manufacturers to the Medicaid program. Dual eligibles’ pharmaceutical purchases under Medicaid automatically generated this rebate. Once dual eligibles move into Medicare Part D plans, their pharmaceutical purchases occur at different prices, which is what we document here, but they no longer trigger automatic rebates. Any study of the total cost of Part D to the government would want to consider both sets of rebates.

Translation: While the PDPs may have earned more, the government may have spent more (rebates not received).



The last two possible results would be similar to those expected by many economists who looked at the form of Part D, where the largest buyer (the Government) was prevented from using its buying power, but obligated to foot the bill for private companies that, individually and probably even collectively, would not be able to negotiate with the same influence.



More worrisome than that this conclusion should be expected is what might be expected to happen if the PDPs were rational. Again, this would come from standard economic theory, though it is not discussed explicitly by Duggan and Scott Morton.



To be direct about it, the PDPs in Medicare Part D each has a steep learning curve, effectively creating a switching cost for the consumer. That, in turn, will enable each PDP to retain its consumer base, even while increasing the prices it charges.



Health Economists especially are fond of talking about the "full cost" of something. If it would take me twenty or thirty hours to select a replacement PDP, the that "cost" will keep me from switching, even if I end up paying a few dollars more for a prescriptions.



Contrast this with, say, automobile insurance. The terms are all similar, and I can spend "15 minutes" getting a quote from GEICO (or three or four from Progressive) that I know is essentially the same coverage as my current provider.



I may not know how well the insurer will respond to me, and I may not know if they can provide the other policies I need (home, life, etc.), so there may be minor externalities (e.g., having to write different checks at different times to different insurers for different policies). But there will be nothing on the order of the switching costs currently associated with Medicare Part D.



Duggan and Scott Morton have done a service in indicating that Part D has gotten more people using more drugs.* And they have so far shown that economic theory appears to be holding in a real-life situation.



If economic theory continues to hold, we should expect that profit margins will grow over time, in reaction to the high switching costs that are built into the program.



We can hope that will not be so, but Mark Duggan and Fiona Scott Morton have not indicated that would be the way to bet.



*This is also the lesson of the Massachusetts universal health plan, but that's for another post, though I note that the differing reactions to the two situations from some of the think tanks is interesting in itself.

by Ken Houghton (noreply@blogger.com) on May 14, 2008 04:09 AM

In the last post and particularly in comments there was some discussion of Present Value more fancifully described as Infinite Future Horizon in relation to Social Security solvency. Which raised the question: Why should current workers care about the interests of retirees in year 2041 or indeed 2086? as opposed to say the interests of uninsured children in the here and now? Because in large parts these populations overlap, today's 10 year old sick school kid will be 2055's new retiree (assuming he survives the illness). Given that under current assumptions he will be getting a better benefit in real terms than a similarly situated retiree today, why exactly is this particular policy matter elevated to the top of the agenda?



The key I think is to understand that advocates of Social Security privatization overlap with advocates of 'tax cuts in all circumstances' which in turn overlaps with the Norquistian 'drown it in the bathtub' people all of whom are starting from the ideological position 'Big Government is not the Solution, Big Government is the Problem'. These folks simply don't believe in Social Democratic solutions to anything, including Retirement Security. Never did, never will. I have to conclude that when someone tells me with a straight face that he is deeply concerned about retirement checks in 2086 but is simultaneously against funding SCHIPS because some insurance company might miss out on a premium dollar along the way that he is just trying to con me.



Movement Conservatives demonstrate every day that they simply don't believe in social solutions to social problems, instead they will continually assert that all solutions should start with the individual in the marketplace. Well the problem for them is that society perceived in the case of Retirement Security and Health Care market failures. Social Security did not solve the entire Retirement Security problem nor did a combination of Medicare and Medicaid solve Health Care. But both were and are tremendously popular because they moved the ball forward on these issues. Much to the alarm of people who do not draw a line between Social Democracy and State Socialism, believing fundamentally with Hayek that one leads to the other right along the Road to Serfdom. Social Security Privatizers taken as a whole are just Movement Conservatives. They can protest all they like, they can try their best to appeal to liberal guilt about future generations, but in the end it is all about rolling back the New Deal.



Present Value calculations showing a $10 trillion dollar additional theoretical funding gap beyond 2086 are simply a gimmick to disguise the fact that these people have a whole different set of Present Values. Those calculations are a recent innovation simply designed to allow Movement Conservatives to undermine trust in the Crown Jewel of the New Deal, that is Social Security. They cannot afford to have Social Security be perceived as a success, that would just to them be another step towards Serfdom, who knows the next step might be Universal Single Payer Health Care. Unfortunately for them they may well be right, at least about the next step. The road to Single Payer runs right through Social Security solvency, they are right to be afraid.

by Bruce Webb (noreply@blogger.com) on May 13, 2008 06:12 PM

by rdan (noreply@blogger.com) on May 13, 2008 02:53 PM

Spatial Price Index



Despite the importance of the CPI and all the discussion about it one of the things we do not have is data to compare the price of living in one city or state as compared to another.

Well the Federal statisticians are working on it and the BEA just published a working paper by Bettina H Aten on Estimates of State and Metropolitan Price Levels for Consumption Goods and Services in the United States, 2005 http://www.bea.gov/papers/pdf/aten_estimates_state_metro_2005.pdf





The paper construction Spatial Price Indices (SPI) for the 50 states and Washington, D.C..

Moreover, in the index is also publishes a SPI for some 363 Metropolitan Statistical Areas.

Second it uses the SPIs to adjust estimates of real per capita personal income and real per capita GDP.



The results do not contain many great surprises, but it nice to get reliable data comparing the cost of living and to make realistic comparisons of living standards across the country.



For example, as we all knew the most expensive places to live in the US or New York, California, Boston and the Washington, D.C. area.





SPI PER CAPITA GDP

(US average = 100)



New York-New Jersey-Long Island 146.6 ..........85.5

San Jose - Santa Clara....................... 143.4 ........118.5

San Francisco.......................................139.9 ........112.2

Bridgeport-Stamford-Norwalk........ 134.7........ 143.5

Honolulu ..............................................131.4 ..........82.9

Boston-Cambridge-Quincy.............. 124.8 .........112.6

San Diego ............................................122.4 ...........98.9

Los Angles - Long Beach ..................120.5 ...........98.5

Manchester-Nashua NH ..................120.3 ...........94.0

Washington-Arlington-Alexandria .118.7 ..........133.5

Salinas CA.......................................... 118.5 .............81.7

Santa Barbara ....................................117.7 ............89.3



In Chicago the SPI is 107.1 and adjusted real per capita GDP is 109.2 while in Philadelphia they are 107.3 and 113,4, respectively. I’ve put a table comparing different cities under the fold. The message that comes through is that the places in the country with high real per capita gdp and lowest prices are the mid-sized, interior cities. Denver has an SPI of 95.5 and GDP of 139.6. Other cities with good numbers are Indianapolis with an SPI of 93.5 and GDP of 136.9.; Nashville SPI=94.2 & GDP=122.8. Minneapolis-St.Paul-Bloomington SPI=101.8 & GDP=128.3.



But sometimes numbers can be misleading or distorted. For example, Houston has an SPI of 98.5 and a GDP of 146.4. But the high GDP reflects the impact of oil. In contrast, real per capita personal income in Houston is only 115.5. Where I first noticed it was for New Orleans when it had a real GDP of 125.1 of the national average. For the entire state of Louisiana it raised the GDP to 113.0 and making it the eleventh wealthiest state. But per capita income was only 84.1, the second lowest state –Hawaii was the lowest state with per capita income of 76.7. Casper Wyoming had the highest GDP at 238.2 of the national average – how many oil wells do they have in Casper?



When you compare adjusted real per capita gdp by state there are several points that stand out.



First, the range is much narrower. In both cases Delaware is the wealthiest state and Mississippi is the poorest state. In Delaware it does not make much difference as it is 161.5 before adjustment and 160.1 after. But it makes a big difference for Mississippi, lifting it from 65.7 to 79.1. Before adjustment, Delaware is 2.5 times Mississippi but afterwards it is only two times.



The other big changes are for New York and California. New York falls from 107.7 to 80.2 while California falls from 119.3 to 89.3. The study does not publish detailed data on rural areas or small towns, but it shows the real per capita income, real gdp and the SPI in these areas are around 80. Because Los Angles and New York have below average GDP it does not offset the low living standards in the rural areas of the states. But apparently rural New York has its own problems as one of the lowest GDP I spotted was Kingston,NY with a GDP = 53.7. The lowest was Lake Havasu City, Az at 48.5.



After adjustment a bloc of Midwestern states with relatively low population density are ranked very high. They are Wyoming, North and South Dakota, Iowa, Nebraska, Minnesota and Colorado. I suspect a major factor here is that they do not have urban slums. Massachusetts falls

from 119.2 to 100.7 while Texas increases from 103.4 to 110.9. But otherwise, it is very hard to make broad generalizations about the impact of the SPI adjustments.



The Washington, D.C. real GDP data is significantly distorted by commuters. The output of workers commuting into the city are counted in GDP but they are not included in the population.

by spencer (noreply@blogger.com) on May 13, 2008 01:58 PM

Public Agenda, is calling for submissions for another of their blog carnivals, this time on Medicare. If you want to submit an entry, we can put it up here at Angry Bear today.

by rdan (noreply@blogger.com) on May 13, 2008 01:53 PM

Ben Evans reports that Robert Barr will run as a Libertarian:

Former Republican Rep. Bob Barr launched a Libertarian Party presidential bid Monday, saying voters are hungry for an alternative to the status quo who would dramatically cut the federal government ... If he wins the White House, he said he would immediately freeze discretionary spending in Washington. He also would begin withdrawing troops from Iraq and consider slashing spending at federal agencies such as the departments of education and commerce _ as well as at overseas military bases … "This notion that government owes something to people just because they're here does not resonate with me," he said. "This is not a charity." Barr, 59, quit the Republican Party two years ago, saying he had grown disillusioned with its failure to shrink government and its willingness to scale back civil liberties in fighting terrorism. He has been particularly critical of President Bush over the war in Iraq and says the administration is ignoring constitutional protections on due process and privacy.

Barr is a lot like Ron Paul on issues such as fiscal policy, civil liberties, and the Iraq fiasco.

by PGL (noreply@blogger.com) on May 13, 2008 09:30 AM

Surely a hedge fund specializing in "adult industry investments" is either a sign of a recession or a sign of the Apocalypse.



(I'll be contemplating this at youporn.com [h/t Erin] for the rest of the day.*)



*Actually, I won't, and not just because I'm on a public computer. Too much Really Cool Stuff to read (all links gated; if anyone can find free links, e-mail me or post them in comments).

by Ken Houghton (noreply@blogger.com) on May 12, 2008 09:06 PM

Cactus has caught Stephen Moore lying to the readers of the Wall Street Journal again:

For most of the past 30 years, Mississippi has ranked as one of the poorest as well as one of the most litigious states. The two statistics are related … Shortly after winning election in 2003 by running on a tort-reform platform, Mr. Barbour stitched together a coalition of doctors, business groups, taxpayers and even unions to roll back the trial lawyer lobby … Almost overnight, the flow of lawsuits began to dry up and businesses started to trickle in … About 60,000 new jobs have arrived in four years – not a small number in a workforce of about 1.3 million – and a sharp improvement from the 30,000 jobs lost in the four years before Mr. Barbour took office … Thanks to Mr. Barbour, the state's unemployment rate is down to about 6% from nearly 9%. Last year, Mississippi's per capita income growth was 6.7%, third highest of the 50 states and well above the national average of 5.2%. Mississippi tort reform is making the poor richer

We have graphed both the state’s employment as well as its unemployment rate from January 1998 to March 2008 using this source. As far as the unemployment rate, we see a clear indication of a Katrina bounce, which has come and gone, but no evidence of any alleged litigation relief effect. We also see a Katrina effect, which came during Barbour’s tenure and has shift dissipated. Now it is true that during Bush’s first term in office, employment growth was negative in Mississippi but wasn’t it negative for most of the nation? Once one graphs the employment series and thinks about the effects of Katrina and that recession a few years back – it is hard to see anything of a litigation relief effect at all.



As far as the growth in per capita (nominal) income, Cactus would have us look at this source which states:

Louisiana grew 10.5 percent in 2007, down from 20.6 percent in 2006. These growth rates are substantially higher than any other state's. The rental income component of Louisiana's personal income was boosted in 2007 by $5.4 billion of Road Home subsidies from the U.S. Department of Housing and Urban Development (HUD). The subsidies are to persons whose homes had been destroyed or damaged by Hurricane Katrina. Mississippi, whose Homeowners' Assistance Program was funded $1.5 billion by HUD, grew 7.4 percent in 2007 up from 6.0 percent in 2006.



Per capita income. U.S. per capita income grew 5.2 percent in 2007, down from 5.6 percent in 2006, but equal to the average of the last four years (2004-07). Louisiana's per capita income was up 9.2 percent or $2,935. Much of the gain in Louisiana is accounted for by the Road Home subsidies which averaged nearly $1,250 per Louisiana resident. In Mississippi, housing subsidies added $530 to per capita income.

Additionally, the state's per capita income in 2007 was only $28,845 which ranks it 50 out of 50 again. Could someone at the Wall Street Journal kindly suggest to Mr. Moore’s that such blatant abuse of the data to make a phony argument is not an appropriate thing for this business newspaper to do?

by PGL (noreply@blogger.com) on May 12, 2008 06:38 PM

Tom's working on explaining Savings 101, so this is specifically to deal with the "issue with" retirement accounts.



Via Lawrence G. Lux, we find the A.P. (and maybe the NYT) highlighting a "study" by an investment management firm that "discovers" problems with the way people manage their 401(k)s:

Some of the diversification problems stemmed from concentrated holdings of company stock. Experts urge savers to hold no more than 10 percent to 15 percent of their accounts in company stock, pointing out that they could sustain significant losses if the company runs into trouble or goes bankrupt.



The Financial Engines study found that among savers eligible to receive company stock, more than one-third had more than 20 percent of their holdings in the company's shares. Some older workers had more than half their holdings in company stock, and workers with salaries under $25,000 also held a disproportionate amount of company stock, the study found.



On the level of savings, the study found that just 7 percent of 401(k) participants were saving the maximum allowed.

Much of that is common sense. (Think Enron: the time when your company stock will be least value to you also will be the time you may need to borrow against your retirement account.)



Some of it, likely, is the way the plans are offered. (Again, think Enron.) Public companies tend to offer their stock as part of a "retirement plan," and many "investors" are told to invest in "what you know."



However, the absurd claim in the lede of the AP piece ("Despite extensive efforts to educate workers about saving for retirement") is belied by two realities. One is noted by Lux:

Look, Maw, those damned Kids don’t know how to manage their (401)k Funds. When are they going to learn that they have to spend 20 hrs. per Week evaluating good potential Investments. Listen to them complain that they don’t have the time–between raising children and working a 50-hour Workweek. (italics removed)

the other comes from anyone who knows a bit of history and remembers that pensions have been historically underfunded (or raided) by management. If trained money managers couldn't do a good job in the Glory Days of Defined Benefit (and, make no mistake, a literal reading of economic theory would lead anyone to believe those were the glory days), then expecting people who do not specialize in managing money to allocate "appropriately" should be, on the face of it, absurd.



Finally, some of the problem likely is due to constraint optimization issues. (Short version: You can only save what you don't have to spend.) Let us rewrite this paragraph:

Nearly two-thirds of those earning less than $25,000 a year don't contribute enough to get the full company match, the study found. But 24 percent of those earning $50,000 to $75,000 a year and 12 percent of those earning more than $100,000 a year didn't get the full match, either.

as

Only slgihtly more than one-third of those earning less than $25,000 a year have enough disposable income to get the full company match, the study found. Meanwhile, 76 percent of those earning $50,000 to $75,000 a year and 88 percent of those earning more than $100,000 a year were able to qualify for the full match.

But that makes it clear, as divorced one like Bush noted in a comment to vtcodger's post:

You don't invest in the market until you have money you can afford to lose.

And a lot more people making $50,000-plus-a-year have money they can afford to lose than those making less than $25,000 p.a. Which is what the data shows.

by Ken Houghton (noreply@blogger.com) on May 12, 2008 06:26 PM

I mentioned this at Marginal Utility, but agree with rdan that it's worth mentioning to the (somewhat larger) AngryBear readership.



Kathryn Cramer has done some work with Wikipedia's External Links tool. The results are interesting, and I suspect the more tech-savvy (or persistent) than I will be able to leverage the work.



Discuss amongst yourselves.

by Ken Houghton (noreply@blogger.com) on May 12, 2008 05:53 PM

Came across a couple of videos. This first one is an issue of perspective on the thought of what is terroism or what is a terroist act.







This second one is just plain funny (at least to me). It spoofs on the Annie Oakley comment by Senator Obama.





On the economy side of things using my GFP (gross flower production), things were not as good as last year. What started off as a year with a bang, is now looking to be equal to last years numbers. We were up 21% end of March. End of April we were up 4.7%. As of Mother's Day, 2.6% on the year. Interestingly, looking at credit card use for the holiday months Valentines was up 23%, Easter was up 13% and now Mother's Day is down 27%. This is the shift I saw starting last August. But, cash sales are up for May 33%. They were up for January and February, but cash sales were down both March and April.

by Divorced one like Bush (noreply@blogger.com) on May 12, 2008 05:44 PM

LMS: the Liebman-MacGuineas-Samwick Non-Partisan Social Security Reform Plan.

Above we see Tables 1 & 2 of LMS. Its authors are interesting for a couple of reasons. One they are connected at pretty high policy levels to Administrations past, current, and future. In their own self description from LMS:

"The three of us – former aides to President Clinton, Senator McCain, and President Bush – did an experiment to see if we could develop a reform plan that we could all support. The Liebman-MacGuineas-Samwick (LMS) plan demonstrates the types of compromises that can help policy makers from across the political spectrum agree on a Social Security reform plan."

Which is well and good except that in this case 'spectrum' seems to span everything from (barely) left-center to right. This is bipartisan in the Lieberman sense, lets agree to slightly moderate a conservative position and call it good. Second coming of FDR it decidedly isn't. But back to the authors. Prof Jeffrey Liebman (of Harvard's Kennedy School of Government) is particularly interesting in that as well as being a former Clintonista he is currently one of the top three economists on Obama's economic team. When Social Security policy is being discussed in what I hope is an Obama Administration he is more than likely to be sitting at the table, something I view with a certain unease. And then there is Professor Andrew Samwick who around the time this plan was being drafted was Chief Staff Economist at the Bush Council of Economic Advisors (CEA), now and then a Professor of Economics at Dartmouth as well as maintaining an active blog presence through his old blog VoxBaby and his new one Capital Gains and Games. He is highly regarded by the Econobloggers generally as being an 'Honest Conservative' and has his stuff crossposted at EV, DeLong, and here. He is a nice guy but one with policy views on Social Security that are in my view profoundly worker unfriendly. Which is the topic of this post. I gave Prof. Samwick a heads up about this post and an open invitation to comment. Hopefully he will.



Why worker unfriendly? Discussion below the fold.



Lets start with Table 1. It is a matrix with twelve cells in four columns. The first column is kind of confusing, it represents a rather odd intermediate stage of LMS so we can put it aside for now and examine the three end state situations. As those who have followed this series along will remember, under the 2008 Intermediate Cost alternative Social Security is projected to return 78% of the scheduled benefit at Trust Fund depletion. This figure is up fairly significantly from the 2004-2005 timeframe in which LMS was drafted, a fact that justs adds more difficulty to their argument. If we examine the other nine cells we see a curious feature of this 'reform', in four out of nine cases it does not supply a 100% result. If you subtract out 'Two earner widowed' that drops to four out of six with a fifth at 101.6% being rather marginal. Which means that for whatever positive policy goals come out of LMS it is not exactly a 'fix' from the perspective of most workers. Indeed for the low income one earner it is barely a partial fix, closing as it does only a third of the gap.



But something is better than nothing isn't it? Hmm, not necessarily. Let's take a look at Table 2 and figure out what that 'Something' will cost. First we should point out that LMS proposes a 1.5% across the board increase in payroll tax in addition to the figures shown in Table 2. That 1.5% doesn't show up because the funds never hit the Trust Fund, instead they are placed in a PRA, a Personal Retirement Account, Table 2 in contrast represents the scored results of LMS on the Trust Fund itself as scored by the SSA Office of the Chief Actuary. So the total cost of LMS breaks down as follows:



1.5% payroll tax increase across the board

1.0% payroll equivalent by lifting the payroll cap to 90% of wage income

.06% payroll equivalent by raising early and full retirement age

2.08% payroll equivalent by changing the benefit formula (i.e. benefit cuts)



Add it all together and workers are expected to take a cumulative and collective 5.2% hit. And in most cases don't actually get a 100% fix. In the face of a payroll gap that at the time LMS was drafted was 1.92% and is now 1.7%. Note particularly that simply taking the 1.5% payroll tax increase would have backfilled around 75% of the then projected gap (taking 1.92% to .42%) and now would backfill 88% of the 2008 payroll gap (taking 1.7% to 0.2%) which by my calculation gives a 97% benefit relative to the current schedule. With no changes in retirement age.



So the question for discussion is why workers would take a deal that requires workers making under the cap to take a 4.2% hit {corrected from 4.7%} to solve a 1.7% problem? And why we should make tax increases on the wealthy so much more out of reach by imposing a steep 6.2% increase on wages between $102,000 and $160,000 (noting that the cap increase is itself capped under LMS and still doesn't reach to gains on capital)? LMS lays out some positive policy outcomes if Congress actually responds as the plan suggests, but those outcomes benefit the entire country and notably capital. Why oh why do we have to pay for these goals totally out of wage income?



Well excellent questions in context. Which is why they changed the context. In 2003 the Social Security Report suddenly introduced a new wrinkle. Instead of simply projecting solvency in terms of Short Term Actuarial Balance (1 year of projected reserves in each of the next 10 years) and Long Term Actuarial Balance (1 year of reserves in each of the next 75 years) they decided we needed to measure solvency across the Infinite Future Horizon. The utility of this measure has been explained in two general ways. One it is not fair for someone in the workforce to be told the system is solvent if you are just going to pull the rug out in year 76. Well okay, but vanishingly small portions of the current workforce are going to be around at that point, even our youngest workers would be in their late nineties and we could capture even them with a five or ten year expansion of the window. Why take it out to heat death of the sun? If the 2082 date was fixed this approach would make sense, but the 75 year window is adjusted each year to include the next year, it is a rolling number. To put it bluntly the argument that Infinite Future is required for current retirement planning is just nonsense. The second explanation is to say that it is all about inter-generational fairness. Which might be reasonable if any of these plans included some effort to close the spending gap on the General Fund side. But no forcing future generations to pay for military weaponry that by their time had been on the scrap heap for decades? Alrighty then. Asking them to fund their own retirements? Oh the horrors.



There is only one logical explanation for Infinite Future. It allows for scarier numbers by adding $10 trillion to Unfunded Liability and almost doubling the payroll gap. It was a lot easier to defend LMS when you could cite (generally without qualification) a payroll gap of 3.7% as opposed to 1.92% (2008: 3.2% vs 1.7%). It kind of buffered that 5.2% to 1.92% equation. But to me it smacks of fairly sneaky bait and switch to sell a plan that on the numbers is profoundly anti-worker.

by Bruce Webb (noreply@blogger.com) on May 12, 2008 05:20 PM

Hat tip to reader Henry Cobb.



The Economist reports an intersting conclusion in how we measure the equation more growth=more profits for investors.

None of this is to deny the importance of emerging economies. The booms in India and China will have enormous effects on everything from the wages of unskilled labour to the price of commodities. But the simple equation that more growth equals more profits for investors is simply not borne out by history.

FASTER economic growth means higher returns for investors. That is a big part of the rationale for investing in emerging markets.



The problem with this argument is that it is not true. Research by the London Business School looked at 17 countries over 108 years. The countries with the slowest-growing economies (as measured by GDP growth over five-year periods) returned 8% a year; the markets in the fastest-growing economies, by contrast, returned just 5% a year.



When a broader group of 53 economies, including many emerging markets, were examined, the tortoises beat the hares by a wider margin—12% to 6-7%. James Montier of Société Générale found that the slowest-growing emerging markets have delivered higher returns than the fastest growers over the past 20 years.





An earlier study by Jay Ritter of the University of Florida tried to explain a key LBS finding—a negative correlation between real stock returns and real per capita GDP growth over more than a century. Why should this be?

Mr Ritter points out that an economy can grow quickly by applying more capital and more labour, in which case owners of capital will not earn higher returns. What matters for stock returns, he says, is how much of an economy's growth comes from the reinvestment of earnings into investments with net positive value in publicly traded companies.



But in emerging markets a lot of wealth is being created in private unquoted companies (or, in some cases, by companies owned by the government). In neither case do investors in existing quoted companies benefit.



Investors also need to be wary of the argument that, as emerging economies become more important in global GDP, so emerging markets will take a bigger weight in global stockmarket capitalisation. This may be true, but much depends on how the emerging markets become more important.



One way is for share prices to rise; another is for more shares to be issued. In the latter case, existing investors are simply getting a smaller share of a bigger pie. Société Générale found this “dilution effect” worked out at 2% per year in developed markets, but a staggering 13% per annum in emerging ones.



Worse still, the expectation that higher growth will lead to higher returns actually works against the investor. That is because markets assign a high price-earnings ratio (and low dividend-yield) to countries and companies where future growth is expected to be strong. But there is a negative correlation between high valuations and future returns.



That may create a particular problem for those investing in emerging markets at the moment. According to Mr Montier, emerging markets are trading on a trailing price-earnings ratio of 22 and a price-to-book ratio of more than 3, both substantial premia to developed markets.



On a cyclically-adjusted p/e basis (averaging the earnings over 10 years), emerging markets are trading on a multiple of 40, close to their highest ever and around the level that developed markets achieved at the height of the dotcom bubble. They are also trading around two standard deviations over their trend level, a measure that marked out previous bubbles such as Japan in the 1980s.

And how do hedge funds fit in as money makes money?

by rdan (noreply@blogger.com) on May 12, 2008 04:45 PM

Again we are getting the right wing line that the windfall profits tax on oil in the 1980s caused

oil production to fall and oil imports to rise as Carpe Diem at http://www.blogger.com/post-create.g?blogID=5048766.



post a story from Investors Business Daily saying that from 1980 to 1986 oil production fell.



Yes, the windfall profits tax was still on the books in 1986, but the tax was only paid when the price of oil was above $30/ B and the last time that happened was in September 1983. So by claiming a tax was effective three years after it became ineffective they are able to make that claim.



I am still waiting for one of these right wing advocates to reply to my question that if their economic philosophy is so good and superior why do they have to be so dishonest in defending it.



If their claims are correct, shouldn't the truth be an adequate defense?

by spencer (noreply@blogger.com) on May 12, 2008 04:43 PM

The NYT reports significant progress in Basra, Iraq.

The principal factor for improvement that people in Basra cite is the deployment of 33,000 members of the Iraqi security forces after the March 24 start of operations, which allowed the government to blanket the city with checkpoints on every major intersection and highway.



Borrowing tactics from the troop increase in Baghdad, the Iraqi forces raided militia strongholds and arrested hundreds of suspects. They also seized weapons including mortars, rocket-propelled grenades and sophisticated roadside bombs that officials say were used by Iranian-backed groups responsible for much of the violence.



Government forces have now taken over Islamic militants’ headquarters and halted the death squads and “vice ‘enforcers’ ” who attacked women, Christians, musicians, alcohol sellers and anyone suspected of collaborating with Westerners.

Without doubt much of the active shooting and the religious persecution ending is a great relief to most citizens. The last time I mentioned Basra was in relation to the gun battles over the municiple position of the director of public works in the city, in particular electricity distribution. Deciding who provides services by gunpoint has got to be bad for ordinary folk.



Deep in the current report comes a quote from the General of Iraqi forces in Basra:

Gen. Mohan al-Freiji, the Iraqi commander in Basra, said the city was “75 percent” under control. He said the principal threat stemmed from rogue elements of the Mahdi Army and factions like the Iraqi Hezbollah (Party of God), Thairallah (Revenge of God) and Fadhila (Virtue).

I was somewhat confused because the fight over electriciy was said to be between the Mahdi Army and Fadhila army, so I assumed the Fadhila army was the main rival to Mahdi. Where did they go in the news?



The rogue part might very well be true, and I would not know how a reporter could confirm the allegation. Basra appeared to have blocks of fighters unable to consolidate their positions against opponents, and the harshness of the religious enforcement of this brand of Islam horrifying to my sensibilities.



My 2007 post's source described this scenario:

The concrete walls that surround the Fadhila party's compound in Sharish, north of Basra city centre, resemble the barricades around the fortified Green Zone in Baghdad.



Last spring, fierce clashes erupted between Fadhila and the Mahdi Army, a paramilitary group loyal to radical Shia cleric Muqtada al-Sadr. Several people were killed on both sides and offices and buildings belonging to the two parties were destroyed.



Mediators from tribes and other political parties managed to end the fighting but as Abu Ali al-Baaj, a mid-level Mahdi Army commander, put it, "The tensions were not buried for good.”



The reason for the battle was simple - as the governing party in Basra, Fadhila had replaced the head of the local electricity department, who happened to be a Sadr supporter.



Behind the façade of democratic institutions such as councils and the police force, Iraq’s second-largest city with about 2.6 million inhabitants, has fallen into the grip of competing militias who are as suspicious of one another as rival mafia families.



When the two militias began fighting over the post of electricity chief, the police force divided into factions which turned their weapons on one another. Police cars were used to transport militia members.



The Fadhila party runs the provincial council of Basra and controls most of the government institutions there. It was founded after Saddam Hussein's regime was toppled in April 2003, and holds 15 seats in the Iraqi parliament. With leading Shia cleric Sheikh Mohammed al-Yaqubi as its spiritual leader, the party also features Basra’s governor Mohammed al-Waili among its leading members.

Now tell me again how my posts shut the loyal opposition out, when the heavy lifting is also done here? If Basra has been going better and improving things, where was the hat tip to post over the last several weeks?



Update: The point being is where did the Fadhila group, king of the hill, go in the MSM and rhetoric of the fight for Basra?

Update 2:Here is another post with link.

by rdan (noreply@blogger.com) on May 12, 2008 02:56 PM

Today, Paul Krugman makes a prima facie case for peak oil: The Oil Nonbubble:

The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding — an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling.



But it hasn’t happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels. This tells us that the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.

In Twilight in the Desert, Simmons asserted the obvious: Oil is a non-renewable resource. The age of oil will end. The question is when. Because of the importance of oil to the global economy, Simmons asked that OPEC, particularly Saudi Arabia, open its oil books: What are the facts concerning the great oil fields in the desert? Have they peaked or are they close to peaking? How much time do we have?



Or has the demand for oil--particularly from emerging economies like China--meant that production is barely keeping pace with demand? How long can this continue before the price of oil moves even higher.



None of these questions have been answered. Production capacity remains a state secret, despite the fact that George Bush, hat in hand, has asked the Saudis to increase production, not much has happened.



Certainly, the actual cost of production has risen. Even the tar sands looks increasingly expensive--and we have yet to factor in fully the environmental cost. That we even need to tap the tar sands should tell us something. Or that we now talk about Montana shale should tell us more. Windmill farms are becoming increasingly popular. Windmills are on the move, quite literally. The roofs of some European countries are now studded with solar panels.



China, however, is the place to watch...not the U.S. The great dragon is thirsty. According to a Bloomberg article:

Economic growth of more than 8 percent in China and India, coupled with increasing car ownership among the countries' combined populations of 2.45 billion people, will more than compensate for falling U.S. demand. Oil use worldwide will increase 2 percent this year because of growth in emerging markets, the Paris-based IEA says.

Has the U.S. mattered for the last few years? It is debatable. As far as the oil market is concerned, demand growth is going to be continued to be driven by China and the Middle East.

And note the difference in per capita consumption--and these are 2005 numbers:

• China consumed 5 barrels of oil/per day for every 1000 people
• America consumed 70 barrels of oil per day for every 1000 people.

Imagine China consuming 70 barrels of oil per day for every 1000 people. Where will the oil be found and at what price?



In discussing China's blueprint for rapid industrialization, I have always been fond of saying that China simply will not meet its goal of becoming a frontier nation by 2100: No white picket fences and two-car garages for China.



Instead of moving rapidly towards 21st century technology, China foolishly laid its plans based on conventional sources of energy: coal and oil. And, we, of course, continued to pick our noses while driving SUV's. The only hope for China, India, and the rest of us is that we can tap vast quantities of alternative and renewable sources of energy...soon.



Car pool if you want--or ride the aging transit system. Demand destruction in the West may not mean much. The question is: What will it mean for China? Meanwhile, crunch time approaches.

by Stormy (noreply@blogger.com) on May 12, 2008 01:37 PM

cactus sends a note from the WSJ commentaries:



Stephen Moore Looks at Mississippi



The seasonally adjusted unemployment rate in Mississippi in January of 2004, the month Haley Barbour became governor of the state, was 5.7%. A year later, it was 6.9%. The latest figures (March 2003) showed a seasonally adjusted figure of 6.0%. Now consider the following sentence:

Thanks to Mr. Barbour, the state's unemployment rate is down to about 6% from nearly 9%.

Given the facts, would you be embarrassed to write that sentence? I imagine most people would. Let's look at at a few more facts. This BEA

news release provides a list of the states with the fastest and slowest per capita income growth rates from 2006 to 2007. The top three are:1. Louisiana, growth rate = 9.2%2. New York, growth rate = 7.6%3. Mississippi, growth rate = 6.7%Most people would look at this and and suspect that a certain August 2005 event might have something to do with the growth rate in Louisiana and Mississippi. Rebuilding after a devastating hurricane will lead to rapid growth in per capita income. Thus, most people would not think to write this:

Last year, Mississippi's per capita income growth was 6.7%, third highest of the 50 states and well above the national average of 5.2%. Mississippi tort reform is making the poor richer, and the rich lawyers less fabulously rich.

Most people would have avoided writing this article. Kudos to Stephen Moore, senior economics writer for The Wall Street Journal editorial page, who most definitely is not most people.



This one by cactus

by rdan (noreply@blogger.com) on May 12, 2008 11:33 AM

There are things that economists "know" that (let us be nice; economists, sometimes understandably, have delicate sensibilities) are not demonstrably true, and other things that economists Of A Certain Age may be motivated to believe, even if they are demonstrably untrue.

by Ken Houghton (noreply@blogger.com) on May 11, 2008 11:54 PM

He's more of an optimist than I am—but