From the Left...
February 09, 2010
1. Like Avedon Carol, from who I learned of it, I want one of these T-shirts. Unhappily, I'd need two - one for me, one for the love - and that's actually a pretty big investment right now. But maybe a few weeks of careful budgeting....
2. I am flaming sick to death of the word "forward!" You can't hear a single damn political discussion - and read few enough of them - without hearing "move the process forward" or "as we go forward" or "looking/moving/going/something-else-ing forward," often enough all of them and more.
I'd like to see someone running one of those TV pundit roundtables start off by saying that anyone who used the word "forward" except to describe actual physical motion would have their mike turned off just to see how long it would take for silence to fall over the set.
by LarryE (noreply@blogger.com) on February 09, 2010 03:33 AM
February 08, 2010
by Dale Coberly
AN IMMODEST PROPOSAL
Bruce Webb offered a modest proposal in a recent post to "fix" the Social Security "problem" by (essentially) cutting the payroll tax a few tenths of a percent to reduce the surplus and thereby reduce the debt by that much money borrowed from and owed TO Social Security.
What is wrong with Bruce's proposal is that it takes more intelligence to understand than most people can bring to bear on the question, and would require more honesty from Congress than they have shown in two hundred years.
So here is an alternate proposal more suited to the intelligence and honesty of the times:
RAISE the payroll tax one tenth of one percent this year, and again next year, and the year after. This would be, from some perspectives, slightly unfair to the workers who pay the tax... but not a huge amount of money... and it would increase the national debt. But it would give congress some extra money to play with to spend on submarines and other things we need to win the war on terror. And it would put Social Security into long term actuarial solvency beyond any question or doubt.
And that would make the extra cost worthwhile to the workers. They would have their Social Security guaranteed, and that guarantee is worth more than a few bucks a week.
What the Congress would do with the rising debt is anybody's question. But it is not a question that ever troubled them in the past, when the enemies of Social Security weren't using "the looming crisis in Social Security" as an argument for killing the workers ability to save for their own retirement.
Oh, the limit of the payroll tax increase proposed here would be a 2% increase for the worker and for his employer. Phased in over twenty years, it wouldn't hurt. And it really would go to pay for the eventual retirement of the workers paying the tax. Congress would never have to pay back the money in the trust fund, so that shouldn't worry them. Unless the sight of those phony iou's climbing into the stratosphere made them nervous.
_________________________
by Dale Coberly
by Rdan (noreply@blogger.com) on February 08, 2010 11:54 PM
Via TPM, I learned of a bipartisan poll that asked, among other things, about the Citizens United decision. This was the exact question, with the four possible answers being strongly or somewhat support and strongly or somewhat oppose.
Before the decision, the law barred corporations and unions from spending money to support or oppose candidates. The Supreme Court overturned this previous law and ruled that corporations and unions have the right to spend money to support or oppose specific candidates. Now, after learning a little bit more about this, do you favor or oppose this decision?
Only 11% strongly supported it while 47% strongly opposed it. Add in the somewhats and people opposed the decision by a better than 2-1 margin, 64-27.
The opposition was found across party lines[,TPM said], and according to the pollsters was especially common among independents....
So much for Glenn Greenwald's
contention that the public "overwhelmingly agrees with the Court's ruling."
by LarryE (noreply@blogger.com) on February 08, 2010 09:16 PM
Conservative/Libertarianish blogger Say Uncle:
I’m lukewarm on the tea party folks. After all, they could have been protesting Bush’s big government too.
Side note (and, actually, the bulk of the post): The post he links to complains that the tea party movement is “dead” because Sarah Palin “hijacked” it. Bullshit. The tea partiers love them some Sarah Palin, and always have, as far as I can tell. You can’t hijack the movement that holds you up as one of its poster children (something I’ve never understood, by the way — you’d think they’d be Ron Paul types). Kleinheider also whitewashes the history of the movement a bit. Yes, there was genuine rage out there (though it was far less directed, I think, than most people seem to think it was), but the movement is a much smaller flash in the pan without the serious hype that Faux News gave it, and constant promotion by the very Armey/Palin types he complains about. Sure, there were some of Kleinheider’s preferred proto-libertarian types (aka, nuts) among the tea partying masses. But for the most part, they were dyed-in-the-wool Republicans, most of whom probably voted for Bush twice, and probably would have voted for him a third time given the opportunity.
Most of the libertarian folks I know (admittedly, there aren’t many) oppose the wars we’re involved in, albeit for different reasons than liberals do, yet there was no “end both wars” sentiment among the tea partiers. There really wasn’t much of a coherent sentiment running through the tea parties and all, other than being mad as hell in general. If they were mad about anything in particular, it was more about health care than bailouts, and they were mostly mad about health care proposals that nobody had actually made.
So, sorry, A.C., I just don’t see the same things in the tea party movement that you did. Seems to me that you’re looking at it through some seriously rose-colored glasses.
Bonus Quote: The Rude Pundit:
[Sarah Palin] makes George W. Bush seem like William F. Buckley.
(Noted for the record: I know he’s channeling Rahm Emannuel, but I still don’t like the title of that post.)
by tgirsch on February 08, 2010 06:26 PM
Many months ago, I quoted the brilliant Janet Tavakoli's book Credit Derivatives and Synthetic Structures:
The trader then went on to tell me that Commercial Bank of Korea would sell credit default protection on bonds issued by the Commercial Bank of Korea.
"That's very interesting," I countered, "but the credit default option is worthless."
"But people are doing it," persisted the trader.
"That's because they don't know what they're doing," I affirmed. "The correlation between Commercial Bank of Korea and itself is 100 percent. I would pay nothing for that credit protection. It is worthless for this purpose."
The trader mustered his best grammar, chilliest tone, and most authoritative voice: "There are those who would disagree with you." (p. 85)
Apparently, that anonymous trader—or another
money-losing risk-mispricing hedge fund manager—is
now running The Big C:
Credit specialists at Citi are considering launching the first derivatives intended to pay out in the event of a financial crisis. The firm has drawn up plans for a tradable liquidity index, known as the CLX, on which products could be structured that allow buyers to hedge a spike in funding costs....
"The great thing about the index is that it hedges your funding costs while being very simple to trade. I believe it will reduce the systemic risk in the industry, akin to how the advent of swaps means people don't worry about interest-rate exposures any more – they just pay a fee to hedge it," he says.
Because if funding dries up, The Big C will be there to support you!
I thought this was an attempt to make money on a premium, but it isn't:
Like a swap, the contracts envisaged by Citi would be entered into without an up-front premium, with money changing hands according to the index's movements around a fair strike value.
So the model is actually that you pay a higher cost of funds during good times, and during bad times, depend on the ability of your counterparty to make you whole.
When banks do it, it's called "deposit insurance," and it is valuable because in the worst-case scenario,
the U.S. Treasury can print money. Since—the last time I checked—Citigroup
cannot do that, the option is as valuable as the ability of the bank to perform in a crisis. How did that work out last time?
Via
my usually source for financial information.
by Ken Houghton (noreply@blogger.com) on February 08, 2010 04:01 PM
For my money, it wasn’t Brees, although he did play very well, especially in the second half. It seems the QB always gets it when there is no obvious standout. But to me, there WAS another obvious standout: Garrett Hartley.
Think about it. Early in the game, when the Colts looked like they were going to run away with it, Saints drives kept stalling. And when they stalled, they kept calling on Hartley, a virtual rookie, asking him to make non-gimme kicks on the highest-pressure stage in all of football. And make them he did, connecting from 46, 44, and 47 yards. Miss any of those kicks, and the Colts, who were already moving the ball more or less at will on the Saints, would have started a drive with outstanding field position. Instead, he pulled the Saints to within 10-6, and then after the game got tight in the second half, he made his longest kick of the night to pull the Saints to within a point.
I know it sticks in the craw of some to award the MVP to a kicker, but without Hartley, the Saints get clobbered. Hartley gets my MVP vote.
UPDATE, cheap shot flame-bait edition: Frequent commenter Digglahhh probably thinks Peyton Manning was Super Bowl MVP. 
by tgirsch on February 08, 2010 02:17 PM
by Rebecca Wilder
Yes, the renminbi (RMB) is closer to fair value. Chinese Foreign Ministry spokesman Ma Zhaoxu states:
"Our currency, the RMB, has appreciated more than 20 percent against the U.S. dollar since July 2005, when China moved to a floating exchange rate regime," Ma said. Before 2005, the RMB was pegged to the U.S. dollar at a fixed rate.
"The RMB exchange rate has drawn close to a reasonable and balanced level, given the international balance of payments and the market supply and demand for foreign exchange," Ma said.
The
New York Times asserts that China's currency is undervalued by 25%-40%. The NY Times, like many politicians and media channels, is entirely too obsessed with China's exchange rate; they fail to understand that economic fundamentals are changing.
Contrary to popular belief, the level of the renminbi has become rather inconsequential to Chinese trade flows. Why? Because despite the fact that the renminbi has been pegged against the dollar since July of 2008, imports are surging.
The chart above illustrates the 3-month annualized growth rate in exports and imports and the renminbi valued against the US dollar. I use the 3-month annualized rate, rather than the year/year rate, to remove the strong base effects from the drop-off in trade last year.
The first thing to notice is that while export growth is indeed strong, "business as usual" in China, import growth is surely breaking trend. The 3-month annualized growth rate of imports - a good proxy for domestic demand - averaged 117% annualized growth per month from April (when it turned positive) to December 2009. Compared to this period in 2006, annualized import growth is up almost
80 percentage-points, while that for exports is up just 5 percentage-points (76.2% average 3-month annualized growth in exports May-December 2009 vs. 71.7% in 2006).
It's hard to argue that the Chinese currency is so "undervalued" if the import response is this strong.
Another myth is that China is running large current account surpluses. Given the chart above, it won't surprise you to know that China's current account has dropped markedly since late 2008.
The thing is: since prices in developed economies have dropped relative to those in key emerging markets (i.e., China),
real exchange rates are coming back in-line with a s0-called equilibrium. Therefore, the renminbi, by definition, is closer to whatever an equilibrium would be, despite the fact that it is fixed. Thus, like
Ma Zhaoxu says, it's at a "reasonable" value.
Rebecca Wilder
by Rdan (noreply@blogger.com) on February 08, 2010 10:25 AM
Favorite papers from the 2008 AEA in New Orleans (all PDF, ungated):
Emily Haisley on lottery tickets and perception. I heard about this paper before reading it. Such a simple idea, such a direct experiment.
Michele Tertilt: Women's Liberation: What's in it for Men (with M. Doepke). The next step is to figure out why so many rulers started having a significant number of female children. But that's for sociologists, whose work is harder than that of economists.
Dean Yang and Sharon Maccini: Under the Weather: Health, Schooling, and Socioeconomic Consequences of Early-Life Rainfall. The paper that convinced me that Economics really is a good field in which to work.
Marcellus Andrews, "Risk, Inequality, and the economics of disaster." This was much better live, where he prefaced it by taking about coming the hotel as an insurance inspector and pointed to the "sh*t line." After the presentation, people were coming out, talking about how if they had wanted a sermon, they would have gone to church. Only person I went out of my way to thank for his talk, interrupting him conversation with Jamie Galbraith in the process.
Acemoglu and Finkelstein, Input and Technology Choices in Regulated Industries: Evidence from the Health Care Sector. Two future Nobelists collaborate. What's not to like?
Dani Rodrik, Second Best Institutions. The best of a set of presentations.
by Ken Houghton (noreply@blogger.com) on February 08, 2010 04:09 AM
A Healthy Blog notes that Massachusetts has reversed the national trend:
Since the enactment of Chapter 58, Massachusetts has increased the percentage of employers offering coverage to their employees. With the employer offer rate up 4% over two year, to 76%, we are climbing well above the national average of 60%. This increase occurred in spite of the recession. Most employees (80%) who are eligible for employer-sponsored insurance choose to enroll. There are large (and predictable) differences between small and large employers, with the small employers less likely to offer health insurance.
Full report
here (PDF).
by Ken Houghton (noreply@blogger.com) on February 08, 2010 02:26 AM
The Guardian on the PIIGS:
By the time Black Wednesday was over in September 1992, Soros had reputedly pocketed £1bn and the reputation of the government of John Major for economic competence was in tatters.
Meanwhile, datacharmer at Bluematter
gets to the core of the matter:
I'm wondering what the shorters' game is. As I said before, there is no real possibility of default in an EMU country. In fact, the very notion of an EMU country folding with 120% or even 150% debt to GDP ratio is laughable, not only because it's very, very easy to fix the situation (the PIIGS governments announce a 5% cut in public sector pay, or a rise of 2% in VAT) but also because healthier EMU countries have a lot to lose by letting the PIIGS go down, both politically and economically. Worst case scenario, Germany says 'enough', and the whole thing just blows over.
Playing Moral Hazard games when the House has an unlimited bankroll is for fools.
by Ken Houghton (noreply@blogger.com) on February 08, 2010 01:06 AM
February 07, 2010
by Bruce Webb
A quick hit for Super Bowl Sunday.
Certain opponents of Social Security claim their goal is 'sustainable solvency' which is in practice defined as reducing the flow of funds from the General Fund to Social Security over the long term. In a previous post I pointed out that straight benefit cuts do not have this effect, and rather paradoxically actually serve to increase such obligations over the long term. Which suggests that if we want to do more than shift Public Debt obligations around in time but actually seek to reduce them there is only one short term solution.
Cut FICA taxes. Give workers and their employers a mild tax break.
For example lets say we cut the current FICA tax by 0.2% of payroll and diverted 0.3% of what remained to the Disability Insurance component. The end result would be a 0.5% of payroll cut to OASI and a 0.3% boost to DI. The latter would immediately put DI very, very close to long term actuarial balance while the former would mean slowing the rate of growth of the OAS Trust Fund (which opponents believe is just a unfunded debt obligation and no asset at all). This in turn would reduce the ultimate peak point of Trust Fund balances by limiting total interest that would have accrued to the TF.
Over the short run this increases the needed draw on the General Fund in just the same way that pre-paying your mortgage does. But over the long run it saves the General Fund plenty. And the extra flow could be easily financed by a small wealth tax, or simply by tapping a little of the revenue gained from the expiring tax cuts.
If the Peter G Peterson's of this world are REALLY believers in intergenerational equity and keeping debt on our children and grandchildren to a minimum they can do so by cutting taxes paid by workers now and doing an early repayment of the money they have been borrowing. Time for the billionaires to show whether they are seriously concerned about 'fiscal responsibility' or simple welshers on their debt obligations, time for them to put up or shut up. Show that they are willing to actual share in the shared sacrifice they insist that workers should take.
Cut FICA and give workers a break for once.
___________________________________
This is more polemic than serious policy proposal, but it works. It fixes DI and simply brings forward the trigger for the mild increases in OAS that will still be needed a decade plus out. But the overall economic and political strain created by a bigger than necessary Trust Fund would be reduced and workers would get a small but real tax cut in the interim, so really it is kind of a win/win. For everyone but the billionaires. Which is why I don't expect it to come to pass.
by Bruce Webb (bruce.c.webb@gmail.com) on February 07, 2010 08:31 PM
Angry Bear has just switched from its blogspot address to its own domain name of http://angrybearblog.com (Angry bear blog)
JS-Kit has also just been changed to the new domain name but will take a little bit of time to make the transfer on its servers.
I figured few will be visiting soon to read comments on old posts. They will merge...leave new ones now. Why the top bar is now misbehaving a little is beyond me and Peyton Manning for now. See you after the party....enjoy wherever you are or whatever you are doing.
by Rdan (noreply@blogger.com) on February 07, 2010 08:27 PM
Lifted from NPR Weekend Edition:
The Super Bowl Stock Market Predictor holds that if a team from the old NFL wins, the market will rise in that year; if a team from the old AFL wins, the market will fall. In 1990 two researchers found that the predictor was accurate 91 percent of the time. A member of Washington and Lee University's finance faculty, George Kester, has completed a new study that finds that the predictor's accuracy has fallen slightly to 77 percent. He speaks with host Liane Hansen.
by Rdan (noreply@blogger.com) on February 07, 2010 05:37 PM
The Miami Insider has a comment on who makes money today, and who benefits in the longer run. Reprinted with permission from the author.
Daniel Honan writes, quote:
The Economic Impact: Can Super Bowl XLIV Live Up To The Hype?
When Plum posed this question to both the Super Bowl Host Committee and a number of skeptical economists, we found about as much consensus as if we had asked Saints and Colts fans which team would win the game.
While some Super Bowl boosters have forecast an economic impact as high as $500 million, several professors who study the economics of sports say the impact is likely to be negligible.
Andrew Zimbalist, Professor of Economics at Smith College, argues that football fans will simply displace other visitors. According to Zimbalist, “A lot of people will say ‘Let’s not go to Miami this year because it will be crazy. Let’s find some place else to play golf this year.’”
Representatives from the hotel industry in Miami tell a different story: they are reaping the benefits of higher rates and booking requirements that mandate a minimum stay of anywhere from three to six nights. Maria Elena Rubio, General Manager of the Mondrian South Beach—which opened in 2008—is eagerly anticipating her hotel’s first Super Bowl. She told Plum, “I think what we are seeing is perhaps a higher average rate that is commanded because you call around and different hotels are sold out already.”
But the profit from the higher average hotel rates doesn’t necessarily stay in Miami, says Phil Porter, Associate Professor of Economics at the University of South Florida. According to Porter, the increased profit “flows out of your community immediately and gets deposited in Paris Hilton’s bank account in Los Angeles.”
The bottom line.
The South Florida Super Bowl Host Committee is an organization that was formed to bolster local business development around the Super Bowl. According to Committee Chairman Rodney Barreto, the committee commissioned an economic impact study in 2007, when the Super Bowl was last held at Dolphin Stadium in Miami Gardens. According to Barreto, the study showed a $463 million impact on the region. Barreto predicts this year will be no different. “This is going to be a big shot in the arm,” he said.
Some economists dispute the $463 million amount. According to Professor Dario Moreno of Florida International University, the real number is “from $136 million to $156 million.”
So what accounts for the discrepancy? Professor Phil Porter says the studies commissioned by the host committee are missing key data. Porter points to a report by the State of Florida’s Department of Revenue. In February 2007, taxable sales for Miami-Dade County were actually down from the previous February, when there was no Super Bowl.
February 2006: 3,318,227,640
February 2007 (Super Bowl): 3,307,835,960
While these numbers are certainly hard to argue with, another contentious issue is the cost to taxpayers of hosting the Super Bowl. According to Porter, “most of those expenditures are hidden in a budget,” such as police overtime or other necessary community enhancements. “A conservative estimate is you pay $20 million to host a Super Bowl,” says Porter.
It is likely that additional enhancements will be required at the newly renamed Sun Life Stadium if Miami hopes to be competitive in its quest to add to its record of hosting 10 Super Bowls. Despite $250 million worth of improvements undergone in 2007, NFL commissioner Roger Goodell told the Associated Press in December, 2009 that Sun Life Stadium is falling behind other “state of the art” facilities around the country. Further enhancements are sure to be an expensive proposition, perhaps to the tune of another $250 million.
According to Bloomberg News, it is highly unlikely that Florida taxpayers will foot the bill for expensive upgrades such as a partial roof and new lighting for high-definition television broadcasts at Sun Life Stadium.
If any kind of public-funded stadium improvement plan is to have a chance, the Super Bowl must deliver on its promise to boost the local economy this year. So far, the jury is still out.
“Every major city in America wishes they had a Pro Bowl and Super Bowl in their books in 2010," says Super Bowl Host Committee Chairman Rodney Barreto.
Professor Phil Porter disagrees: “The bottom line is that the Super Bowl certainly doesn’t warrant building $200-500 million palaces.”
by Rdan (noreply@blogger.com) on February 07, 2010 02:56 PM
This, too, is an old bit - two weeks, in fact - but because it's about something I addressed at the time, I wanted to mention it.
I expect you heard some news about how
[v]ital evidence which could solve the mystery of the death of Government weapons inspector Dr David Kelly will be kept under wraps for up to 70 years.
In a draconian – and highly unusual – order, Lord Hutton, the peer who chaired the controversial inquiry into the Dr Kelly scandal, has secretly barred the release of all medical records, including the results of the post mortem, and unpublished evidence.
What you might not recall is what this was about, so I thought I'd refresh folks' memories.
In September 2002, as part of its efforts to bang the drums of war against Iraq, the British government under Prime Minister Tony Blair issued what was claimed to be a sober, solidly-founded indictment of Saddam Hussein as possessing massive stocks of banned weapons.
Prominently played in this report was the dramatic statement that Saddam's chemical weapons were so advanced and so well-distributed to front-line units that they could be deployed within 45 minutes of an order to do so.
Later, two BBC reporters, citing a senior official, reported that the 45-minute claim was poorly sourced and was inserted at the insistence of Blair's director of communications, Alistair Campbell, to "sex up" the document to make Saddam seem more threatening.
Blair's team stomped about Whitehall, looking for the leaker - and Dr. David Kelly, Britain's top weapons inspector, admitted to being the source, while denying he said anything about "sexing up" the dossier. The Blair government then proceeded to try to discredit the BBC report by outing its own intelligence operative, dropping hints as to his identity until some reporter guessed it - and then "confirming" his name.
Dr. Kelly was publicly assailed, his sanity was questioned (the usual tactic against a whistleblower), and he was raked over the coals by a Parliamentary committee. Unable to deal with the publicity, the pressure, the destruction of his career, and the humiliation, David Kelly committed suicide.
That caused a huge row, which the Blair government tried to quiet by having a special inquiry overseen by
Lord Hutton. It's conclusion? Dr. Kelly did commit suicide, and the whole imbroglio, the whole mess, the whole deal, was all the fault of (wait for it) the BBC. No, I'm not joking.
That was in 2004. Last year, a group of doctors opened a legal challenge to the verdict.
They argue that Hutton’s conclusion that Dr Kelly killed himself by severing the ulnar artery in his left wrist after taking an overdose of prescription painkillers is untenable because the artery is small and difficult to access, and severing it could not have caused death.
It was as a result of that proceeding that it has emerged that all the evidence in the case is to be sealed - even from the family - for between 30 and 70 years.
Last night, the Ministry of Justice was unable to explain the legal basis for Lord Hutton’s order.
Oh, we know the basis, and it's not a legal one. The Hutton inquiry was, I said at the time, "a shameful, disgraceful, disgusting, and transparently false whitewash," a sentiment in which I
was hardly
alone, intended to maintain the fiction of a justified war on Iraq,
And that, friends, is why this recent news is so infuriating: It is a whitewash of a whitewash.
Footnote: On a tangentially-related note, I just came across an item from last October, where it seems that Tony Blair labeled atheists a danger to society and the equivalent of terrorists, decrying "an aggressive secular attack from without" and "the threat of extremism from within" from those who would "scorn God."
by LarryE (noreply@blogger.com) on February 07, 2010 07:13 AM
A bit of sad news for space geeks: Just about a month ago I posted on the difficulty faced by the Mars rover Spirit, which had gotten stuck in soft sand after one of its wheels broke through a crust. Months of effort had failed to dislodge it.
A little over a week ago, NASA announced that it was giving up on freeing the rover. Spirit will rove no more.
But that may not be the end of it: Agency scientists are working on ways to move the rover just in a way to tilt its solar panels toward the Martian sun, now getting lower in the sky as the Martian winter approaches. Even just a few degrees in the right direction would enable Spirit to survive the winter and communicate with Earth every few days.
If they succeed, and they seem reasonably confident they will, Spirit would become a stationary science platform that could carry out studies it couldn't do without being fixed on one place. As such, its mission, originally scheduled for 90 days but now over six years long, could continue for months or even years longer.
"Spirit is not dead; it has just entered another phase of its long life," said Doug McCuistion, director of the Mars Exploration Program at NASA Headquarters in Washington.
The rover is dead, long live the rover I mean the stationary platform!
Footnote: Spirit's twin rover Opportunity
keeps on keepin' on.
by LarryE (noreply@blogger.com) on February 07, 2010 06:21 AM
Henry Paulson's book On the Brink is getting pilloried all over the place. David Wessel raises a point I've been hammering for a while:
Jeff Imment, CEO of General Electric, frightened Paulson in early September by calling to say GE, which Paulson describes as "an American business icon," was having trouble borrowing money by selling IOUs known as commercial paper, and visited Paulson several days later in person. In mid-October, Paulson called Immelt to discuss imminent plans for a Federal Deposit Insurance Corp. guarantee of all new bank debt, but not GE’s. Immelt told him not to worry, GE would manage and would benefit indirectly by a more stable banking system. The next day, Immelt called back and said the bank guarantees were hurting GE’s finance unit because banks could borrow with U.S. government guarantees and GE couldn’t. And on Oct. 16, 2008, Immelt came in person to press the matter with Paulson. Over the following weeks, Paulson and Treasury official David Nason "worked hard to get Sheila [Bair] comfortable" with extending the guarantee to GE. In November, she did. GE’s finance unit...became one of the biggest users of the program.
The transition from "an American icon" to "a poorly-run finance company" had
already been made by one "icon." And its salvation is presented by Paulson as part of a "domino sequence." Wessel:
The federal rescue of Citi led directly to the rescue of General Motors and Chrysler. "Nancy Pelosi [the speaker of the House]… told me point-blank that it was politically impossible to rescue Citi and not help the automakers. She had until recently opposed bailouts for the car companies, which she considered poorly managed."
Top management of Citi, last two iterations: Vikram Pandit, Chuck Prince, Bob Rubin, and Richard Parsons.
Top management of GM, last two iterations: Rick Wagoner, Jack Smith, Ed Whitacre, Jr.
As Business Week (via Wikipedia)
dryly noted of Smith and Wagoner:
After GM lost $30 billion during a single three-year stretch in the early 1990s, Wagoner and Chairman John F. "Jack" Smith Jr. forced GM "back to basics" to battle "30 years of management mistakes" that left him with little room to maneuver.
I don't know about anyone else, but I'd take the latter set over the failed hedge fund manager, failed CEO, ineffective Chairman of the Board, and guiding force for TWX behind the AOL/TWX merger.
UPDATE: Jeff Gerth has more on
GE's condition.* American icon, indeed.
*Given Gerth's track record, the article should be taken with a ten-pound bag of salt.
by Ken Houghton (noreply@blogger.com) on February 07, 2010 02:13 AM
February 06, 2010
Robert Waldmann
Barry Ritholtz argues that the problem with mortgages was underwriting standards and not securitization. He appeals to the very great authority of Monty Python. Click the link.
Ritholtz seems not to be familiar with this new idea in economic theory called "Nash equilibrium". Over -rated yes. Totally irrelevant not so much. One can not assume that underwriting standards are exogenous. If there had been no MBS, no firm would have underwritten those mortgages. It was exactly because it was possible to blend them, and then sell them to people who didn't spin the mortgage tapes before buying, that the mortgages existed in the first place.
Let me work with his analogy. First, while I have great respect for the Monty Python team, few people have been killed by canned Salmon. Even blended into mousse, it kills fairly quickly and can be tracked back to the canner. The way bacteria work is that if you mix some contaminated stuff with other stuff you have trouble for sure. It doesn't work that things seem fine until people notice.
At a way lower cultural level than Ritholtz I appeal to road runner cartoons. Wile E. Coyote runs along in mid air until he notices. Then he falls. As noted by everyone, this is the way financial markets really work. The non Monty Python quality humor is based on the fact that gravity doesn't really work that way. Neither do bacteria. Analogies between rotten mortgages and rotten Salmon fail for this reason.
Notably, the ingredients in the Salmon mousse are few enough that the dead diners immediately know what went wrong when death points at the mousse. That's not the way MBS work let alone CDOs of MBSs or CDOS of tranches of CDOS.
A better analogy would be making hamburger. Bits from hundreds of steers end up in the same package at the supermarket. If one bit has E. coli on it, you can get sick. If they tried to sell you that bit, you wouldn't buy it because it would stink. However, mixed in with hundreds of uncontaminated bits of beef, it doesn't stink.
Is there a hamburger problem? Yes there is. One is much more likely to get food poisoning from hamburger than from unprocessed meat. Is the solution special regulation of hamburger? It sure is.
by Robert (noreply@blogger.com) on February 06, 2010 11:23 PM
This is from last week but I just couldn't let it pass without reacting. According to The Guardian (UK), Pope Benedict XVI, the former (and more appropriately named) Cardinal Ratzinger, has condemned British equality legislation for running contrary to "natural law."
He was apparently referring to two recent developments, the first being a law from last year that bars discrimination against same-sex couples by adoption agencies. He claimed that's a "limitation on the freedom of religious communities to act in accordance with their beliefs" because, bluntly, Catholic adoption agencies don't wanna deal wit' no fags.
The other is a pending law that
narrows the special exemption enjoyed by churches allowing them to exclude people whose lifestyles do not fit in with the religious ethos of an organisation when hiring staff.
How "the natural law upon which the equality of all human beings is grounded" which Ratzinger invoked involves the "freedom" to be a bigot went unexplained.
Despite the recent string of stinging losses in Maine, New York, and New Jersey, the slow progress toward full social and legal acceptance of LGBT folks and same-sex relationships continues both
here and
abroad.
"At the start of the decade, if you were gay and wanted to get married, you couldn't do it anywhere," said Hayley Gorenberg, the deputy legal director of Lambda Legal, a U.S. advocacy group for gay rights. "If you look at the progress since then, it's striking."
It is.
Seven nations allow same-sex marriages and twenty more have some form of civil union or domestic partnership. Some cities, such as Mexico City, do as well. And even n the US, often a laggard on such matters despite our claims to open-mindedness and "live and let live," it appears clear that over time the tide is flowing in one direction only:
toward justice.
Excuse the expression, but keep the faith.
by LarryE (noreply@blogger.com) on February 06, 2010 09:59 PM
Floyd Norris cites John C. Dugan, the man whose agency was charged with regulating AIG Financial Products in the NYT:
[T]hey believe that the banking system on its own is unlikely to have the ability to provide enough credit to sustain an economic recovery in the United States.
Gosh, really?
Norris quotes Dugan:
"We need a vibrant, credible securitization market to help fund the real economy going forward," Mr. Dugan said this week. He was preaching to the choir — a meeting of the American Securitization Forum — but it is an opinion widely held in financial markets.
Remind me again why all those banks were "bailed out"? Wasn't it supposed to be to kick-start the economy again?
by Ken Houghton (noreply@blogger.com) on February 06, 2010 05:52 PM
I lifted these comments by rl love concerning a way to look at our current discussion about jobs from Linda Beale's post on Tax Foundation analysis:
Rl love writes on the nature of trade for the US:
Stiglitz: " ... the export of T-bills is different from the export of cars or computers or almost anything else: it does not create jobs. That is why countries whose currency is being used as a reserve, and exporting T-bills rather than goods, often face an insufficiency of aggregate demand."
Now, if this 'insufficiency' is combined with the increasing reliance in the US on financial services, and on gains via the trans-national corporations, it becomes much easier to understand the logic of the 'trickle-down' theory in the context of Globalization. I am not advocating 'trickle down' here, but it does make our mess easier to understand. Stiglitz again:"...note that the world's economies hold more than 4.5 trillion of reserves,increasing at a rate of about 17% a year. In other words, every year some $750 billion dollars of purchasing power is removed from the global economy, money that is effectively buried in the ground."
The point then is that efforts to create jobs, such as Bush's tax cuts, or such as those that are part of the stimulus attempts, are not possible to analyze with traditional criteria. Tax cuts for example do nothing to increase global demand for US goods, and, the additional US debt decreases global demand by locking up global purchasing power. Essentially, it has become almost pointless to evaluate the US economy as if it might be understood without the global implications, but that is mostly what economists in the US do, and largely as a result of denial. The simple truth is that the presumption that developing nations 'should', share 'their' demographic dividend with the developed nations was folly from the start, and based on a faulty premise that ignores the negative externalities in the economies of scale computations, and, additional layers of presumption regarding energy and all labor costs. So, the question is, does anyone actually believe that tweaking the US economy might solve our problems?
..................
More from Stiglitz:" the Uruguay Round made an unlevel playing field less level. Developed countries impose far higher---on average four times higher---tariffs against developing countries than against developed ones. A poor country like Angola pays as much in tariffs to the US as does rich Belgium; Guatemala pays as much as New Zealand. And this discrimination exists even after the developed countries have granted so-called preferences to developing countries. Rich countries have cost poor countries three times more in trade restrictions than they give in total development aid."
And some economists in the US argue that tax cuts will solve our aggregate demand problems, as if the US role in the global economy has no consequences. Others claim that ending the alleged dependence on 'foreign oil' is the end all solution as if this has nothing to do with the global demand for US goods. As if Uncle Sam might just thumb his nose at the oil producing nations that we owe a couple of trillion to, as if. ~ray
................................
It is too bad that this subject matter is not more popular. Corporate taxes could be raised for instance, in say the G8 or so, and this could provide the much needed revenues to address some of the global demand issues such as those regarding the exploitive trade practices etc. An 'exploitation reparations fund' could also improve two other problems as well. 1) A higher corporate tax could cause shareholders to apply pressure to Executives in order to bring down compensation levels at the management level. 2) An institutional wealth transfer aimed at raising global aggregate demand would bring balance to the very imbalances that have caused the economies of Japan and the US to be overwhelmed with investment capital.
The lack of 'popularity' though in these types of solutions is indicative of just how protective the citizens of the developed nations have become. At some point, "to conserve', is the monkey with his hand stuck in the proverbial jar. And it is interesting how populations with roughly half of their voters who see themselves as 'progressives', when combined into a collective form, they 'seem' to transform in regards to global policies into power concentrations that are essentially fascist or ultra-conservative. Is it possible that the acceptance of selfish behaviors, over a long period of time, have caused a new form of collective mental illness, of a collective delusion? ~ray
(Making Globalization Work, 2007, pg.78)
...............................
by Rdan (noreply@blogger.com) on February 06, 2010 01:33 PM
reader sammy submits this question:
Population Density and Ideology
Sammy compared the famous Red/Blue electoral map (by county) with a map of Population Density
and found pretty strong correlation. Areas with high population density vote Democratic, while areas with low population density vote Republican.
What, if anything, explains this correlation?
Sammy's theory is:
1) People living in high-density areas have a stronger need for government services and control, as everyone's actions have a greater effect on others, simply du to proximity. This need/desire expresses itself by pulling the (D) lever.
2) Higher population densities result in stronger peer pressure, which enhances a (D) majority.
Before you offer your own theory, you might want to test it against the exit polls
here.
(My own thought is in comments)
by Rdan (noreply@blogger.com) on February 06, 2010 12:22 PM
I have some topical threads for Sat. and Sun. but not tonight. Two are poke in the eye sort of topics.
by Rdan (noreply@blogger.com) on February 06, 2010 12:51 AM
February 05, 2010
Robert Waldmann
Matthew Yglesias discusses the financial crisis and the idea of causation. He shows that he was a philosophy major. I'm delighted. The question is whether the answer to the question "What caused the financial crisis?" is of the form "A, because if A had not been true, then there wouldn't have been a financial crisis." Yglesias notes potential problems with that approach. I critique after the jump.
OK jumpers, here I admit that, while I am delighted to have philosophy applied to finance, I think that among other things Yglesias made up some pseudo problems. He is commenting on an excerpt from a post by Barry Ritholtz
Understand that this is a theoretical discussion based on counter-factuals — what is likely to have occurred if various elements leading up to the crisis were different. We are trying to discern the differences between primary and secondary factors, separating the causes from the exacerbators.
Whenever someone asserts as a cause an event or force relative to a particular outcome, you should always ask: “Is this a “BUT FOR cause of that outcome?” In terms of a specific result or outcome, “But for” this factor, how would the outcome have changed? Would the result have been the same or different?
I will comment on the passage quoted by Yglesias (note I have not read the post).
That little passage is vulnerable to a serious practical critique. It relies a lot on the word "likely." Now one thing we have learned from the crisis is that it is a bad mistake to look at the most likely outcome and assume it is certain. In practice, the sort of result we can get from trying to understand the causes of the crisis is that it probably wouldn't have occurred without those causes. That's not good enough for financial regulation.
More to the point, we can figure out that a crisis in 2007-8-9 would have been unlikely but for the following factors, but we can't conclude that without those factors another crisis is unlikely to ever occur. Obviously different crises can have different causes. If the same factors exacerbate crises with different causes, it might be better to address the exacerbators and not the causes of the current crisis.
This is not the criticism Yglesias makes. I'm going to try to be relatively brief for now and focus on two issues. First he notes that but for causation and legal liability are different. He has examples in which people are, and should be, punished for damage they didn't cause in the sense that it wouldn't have happened but for their actions.
Then he writes "One is that when something very large-scale and bad happens, we probably have a few different interests. One is in punishing perpetrators and one is in preventing recurrence." Huh ?!?! Matthew Yglesias and I are inclined to be consequentialists (in my case at least it means I was inclined to be a utilitarian -- was exposed to convincing arguments against utilitarianism and watered down my beliefs to something vague enough to be unrefuted).
I at least absolutely believe that the only possible justification for a punishment is to prevent a recurrence. I definitely do not think that we have an legitimate interest in punishing perpetrators except to the extent that it prevents an occurrence. I had thought that Yglesias agreed with me on this. He certainly has repeatedly described himself as mostly consequentialist.
This implies that I oppose vengeance for the purpose of vengeance. That, in turn, doesn't imply much in practice. I think one effective way to prevent a recurrence of the crisis would be to tar and feather 10% of bankers chosen at random as collective punishment. I do not advocate this course of action, because tarring and feathering is torture and because there are costs of having terrified bankers which are even worse than the occasional financial crisis due to excessive risk taking.
Then Yglesias comes up with an abstract example.
The second is that when something complicated happens, it's plausible that you’ll see confusing webs of preemption that defy simple counterfactual analysis. Imagine that A, B, C, D, E, F, and G all happened. And suppose that to produce a crisis you need A, plus either B or C, plus any two of E, F, and G. If you try to do a “but-for” analysis on all seven factors, you’re going to reach the conclusion that “A caused the crisis” while B, C, D, E, F, and G all may have contributed in some way but didn't actually cause it. But it's not clear that that's the right thing to say. And it's definitely not clear that the correct policy response is to focus on A. Maybe A had lots of really beneficial effects, while B and C are both useless.
Here he is probably making a correct analysis of how attempted "but for" causal analysis will mislead us. However, the shorthand of referring to factors with letters is key. This is one case in which language influences causal analysis (in a way in which id doesn't influence logical inference). Let's say there is another language in which the same word is used with two English meanings B and C. In Italian the same word "fare" means "to make" or "to do" and the same word "forza" means "strength" and "force." On the other hand there are two translations of "to be" "essere" and "stare" and of "to love"If they do the but for analysis they will conclude that both A and "B or C" are causes.
This means that we can make a mistake if we take the division of entities into categories to be either a known truth or a harmless convenience. Here Yglesias doesn't say that understanding what caused something is unimportant. He notes that it is hard. I tend to share his belief that analysis of causation by English speaking lawyers and judges is invalid, because they take the English language as know to be right and true (unlike all other languages) or, more exactly, because they assume that the decision to reason in English is harmless, innocent and doesn't matter.
Philosophers know that arguments which seem valid are proven to rest on unexamined conventions. They do this by inventing new words. I agree with Yglesias that one problem with legal efforts to find causation is that they rely to much on plain English and are too suspicious of neologisms and jargon.
I am not joking.
OK that was the punchline but we are after the jump so I go on.
In the simple case of A, B, C, D and E, where each can be true or false it is possible to construct the whole set of possibilities (there are 32) and say which imply a crisis. This means that the same long boring report is written whether we think that "A or B" is an elementary category and saying "A but not B" a pointless quibble or if we think that "A" and "B" are elementary categories and "A or B" is derived from them.
In the real world, it is absolutely impossible to get anywhere without risking having been lead there by the irrelevant history of the evolution of language. The innocent language in which every possible state of the world has it's own name has an infinite vocabulary and no one can learn it. IIUC philosophers have long since given up on finding a language such that using that language can't lead us astray.
Just to go on and on some of Yglesias's other examples are interestingly irrelevant.
After the Ritholtz passage he continues
I’m broadly sympathetic to that account, but it’s worth emphasizing that there are a lot of complications. Consider this example from L.A. Paul and Ned Hall, “Causation and Preemption”:
Suzy and Billy, two friends, both throw rocks at a bottle. Suzy is quicker, and consequently it is her rock, and not Billy's, that breaks the bottle. But Billy, though not as fast, is just as accurate: Had Suzy not thrown, or had her rock somehow been interrupted mid-flight, Billy's rock would have broken the bottle moments later.
So you can't say that the "but for Suzy’s toss, the bottle wouldn't have broken." But I think a normal person would want to say that Suzy broke the bottle. There’s a lot of work done on this and other philosophical topics. But I would note that in a politics/policy context it often just depends on what we care about.
Yes and, in this case, what we care about is preventing a recurrence so, for our purposes, Billy's and Suzy's actions are the same. They are like B and C in the abstract example.
In plain English, "Sally broke the bottle" is true and "Bill broke the bottle". The example shows how we can't completely describe the events usefully with two sentences of only 4 words each. This is not a surprise.
OK this is the example which caused me to write this post.
Imagine I'm in the elephant house at the zoo on a crowded day. A couple of elephants get loose and start stampeding through the crowd. I have a gun on me, and spot some dude I don’t like and decide to take advantage of the chaos by shooting him in the end. Eventually, it turns out that 80 percent of the people who were in the elephant house that day wind up dead as a result of the stampede. From a “but-for” perspective, it's not clear that I actually caused the dude’s death. But from a legal perspective, it's clear that I'm a murderer. The point of the statute is precisely to punish people who shoot other people in the head. But from a policy perspective, the bigger issue here is arguably elephant stampedes rather than guns at the zoo. At a minimum, elephant stampedes are killing more people.
Again huh ?!?!? I would say that the purpose of the murder statute is to prevent murder and the purpose of preventing murder is to keep people alive. To mean, punishing murderers is a means to an end not an end in itself. So I think the character named "I" should be jailed. We jail for 2 reasons and both have to do with intention and not "but for" causation. We want to deter murderers. Punishing someone for killing someone who would have died anyway but he didn't know it works just as well. Deterrence depends on what people think will happen to them and people generally don't kill other people if they know the other person is about to get stomped by an elephant (some bloodthirsty person might and there is no point in deterring him but no harm either so punishing people for killing people who are going to die anyway is just as useful as a deterrent (also we are all going to die sooner or later)).
Another purpose of jail is to incapacitate. We lock people up because the crime they have committed convinces us that they are likely to commit more crimes. In theory if we could determine who would commit crimes in the future consequentalism tells us we should lock them up before they have committed a crime. The rule that people are to be locked up only after they have committed a crime is needed, because the alternative is to grant some person or group arbitrary power to lock others up if they say they think the others will commit a crime.
Our forecast of future murder depends again on intent.
Now I will argue that I am really really fanatically consequentialist and have been for a long long time. When I was in 4th grade, I said that the prison sentence for attempted murder should be longer than the prison sentence for murder. My logic was based on incapacitation (I'm pretty sure I didn't believe in deterrence at all then). The prediction of future murders depends on the intent I argued (as I argued above). Plus if the attempted murder is unsuccessful we know that there is someone that the defendant wants to kill. If the murder had been successful, maybe the murderer would be satisfied.
This is very consequentialist thinking. It totally freaked out my classmates and teacher.
Years later, I understood what was wrong with my reasoning. I was assuming that we knew for sure that an act was an attempted murder. In the real world, severe punishment for attempted murder would lead to locking up people whose aim was assault not murder. Indeed the word lead me astray. There are many degrees of intent from trying and seeing if it works to absolute determination to make it work. The difference between a murder and an attempted murder may be partly chance, but it can also be partly based on determination.
My proposal was like locking up people who will commit crimes but haven't yet. Under absurd assumptions about what we know, it makes consequentialist sense, but in the real world, we can't know that much or trust people who claim to know that much.
by Robert (noreply@blogger.com) on February 05, 2010 10:10 PM
FINS from the Wall Street Journal names Linda Beale and ataxingmatter in Top Five:
Sharp analysis and blunt delivery make this academic take on taxes work. The blogger Linda Beale writes entries that don't shy away from tearing down or giving props to fellow tax bloggers. It is no wonder that Beale, as a law professor and former corporate tax attorney with a Ph.D. in linguistics, is expert in strong argument.
The WSJ writes:
Poring through tax documents at peak season can become so, well, taxing. Industry blogs, with their pithy analysis, can be a great to way make sense of regulatory changes and acronyms. Think of them as the IRS Tax Manual with more personality. Some even have a healthy dose of skepticism. Here is a roundup of some blogs worth visiting to stay on top of industry news.
1. TaxProf Blog: Penned by Paul Caron, a law professor at the University of Cincinnati, this blog offers a diverse menu of industry news, event updates from coast to coast, and stories worth a second glance. And Caron isn't above devoting entries to celebrities. You'll find links to such goodies as a Steven Colbert video on estate-tax repeal and a recent write-up about the Arizona Cardinals' Antrel Rolle's IRS woes. And, like most professors, the TaxProf provides plenty of supplementary reads at the end of most entries.
2. Tax Policy Blog: Don't be deterred by the bland name. The Tax Foundation, a nonpartisan tax-research group based in Washington, presents changing tax policy on the federal, state and local levels in a digestible style. Though they highlight the work of scholars, the posts are written to appeal to a neophyte. The site recently, for example, waded through the reactions of experts and columnists to the tax proposals mentioned in President Obama's State of the Union Address. Prior to the speech, the site also posted questions to ponder in anticipation of Obama's proposals on middle-class taxes, replete with current tax stats, of course.
3. Don't Mess With Taxes: Though tax professionals hardly need tax advice, the colorful news items and perspective dispensed by Kay Bell, a self-proclaimed tax geek and native Texan, makes this site worth the visit. The blog's roundup of humorous and wonky industry news items is a refreshing take on an otherwise dry business. Sprinkled in are tips on how to make the work less tedious. For a straight-talk approach, Bell has a second blog, Eyes on the IRS.
4. Tax Watch: Run by the folks at Thomson Reuters, Tax Watch is a great resource to get up-to-the-minute tax news. This site would be particularly useful for those who like to monitor all things taxes on Capitol Hill.
5. A Taxing Matter: Sharp analysis and blunt delivery make this academic take on taxes work. The blogger Linda Beale writes entries that don't shy away from tearing down or giving props to fellow tax bloggers. It is no wonder that Beale, as a law professor and former corporate tax attorney with a Ph.D. in linguistics, is expert in strong argument.
by Rdan (noreply@blogger.com) on February 05, 2010 07:03 PM
Even during the last "jobless recovery," people did not continue to become discouraged. Things have changed.
by Ken Houghton (noreply@blogger.com) on February 05, 2010 06:53 PM
by Bruce Webb
Would that have been a fair headline for the following story: Richard Shelby Puts Hold On President Obama's Nomineesl? Because the facts are pretty clear, Shelby placed these holds mainly because of concerns over as Politico delicately puts it "Pentagon’s bidding process for air-to-air refueling tankers". We can put that a little more starkly. The Pentagon wants to buy a replacement of much of its KC-135 Air Tanker fleet. You can read the background in this Wiki article KC-X but it really comes down to the following question. Are we going to buy these planes from Boeing or from a consortium of AEDS/Lockheed where AEDS is better known to Americans as AirBus? In other words American Boeing 767 or Old Europe Airbus A-330?
Now the actual question is deeper than that. Boeing outsources a lot of its work overseas and the Airbus tankers would be assembled in Alabama, hence Shelby's interest but my question is this. If in 2007 Senator Barbara Boxer had stepped in and put a hold on every single Bush nominee in the interest of keeping a slice of the profits in the hands of California based Lockheed would Fox News and the Republican noise machine just have let it go? Or would the airways be full of screams and cries about how 'San Francisco liberal' Barbara Boxer was simply selling out America in favor of a bunch of Cheese Eating Surrender Monkeys?
Shelby single-handedly decided to hold the Federal Government hostage so that a U.S. military contract would be awarded to a foreign country, worse yet that country is France. But don't expect that to be the lead at Fox, even the stories in the rest of the MSM seem oddly resistant to putting the words "European" or "Airbus" into their stories. Might make a Republican look bad or something, maybe even unpatriotic. Have the Teabaggers caught wind of this yet?
by Bruce Webb (bruce.c.webb@gmail.com) on February 05, 2010 05:46 PM
While I applaud the cautious optimism of Spencer and Tom, I'm more inclined to quote Joseph Brusuelas:
[T]he January payrolls added a dollop of Zen like logic to a recovery that is shaping up like no other. An additional 111,000 workers entered the labor force, yet the unemployment rate fell to 9.7% while private sector employment continued to contract. Hours worked, demand for temporary workers and the hiring in the service sector all improved. However, without the benchmark revisions, the unemployment rate would have increased to 10.6% which better captures the condition of an economy that has seen 8.4 million workers displaced during the recession.
The bump in manufacturing was more than balanced by the drop in the Service Sector, as more and more
flower shops cut staff in the face of slack demand and
unavailable credit.
If the bank bailout was to bailout the banks—defibrillating them to kick-start the economy's heart, as it were—then it appears to be time to admit that that program was too small. Or to stop the other programs that are making it
more advantageous for banks to hold funds than lend them. Any way you look at it, the optimistic view that declining unemployment has started
doesn't appear to be the way to bet.
by Ken Houghton (noreply@blogger.com) on February 05, 2010 05:23 PM
by Tom Bozzo
The unexpected drop in the unemployment rate for January made me more than usually curious about the household survey results, and things there actually look OK for a change. The flat unemployment rate between November and December '09 was the less-than-virtuous result of declining labor force participation pacing the decline in employment. This month's decline in the unemployment rate reflects increasing labor-force participation and employment-to-population ratios; unemployment levels and underemployment rates [1] are also down. The unemployment decline appears to be statistically significant based on the BLS's (inexact) guidance on sampling variability in household survey estimates.
The headline employment figure, in contrast, is not a statistically (or qualitatively) significant result, hence the summary's "essentially unchanged" language. The everlovin' net birth-death model is subtracting more jobs this month than it did in January '09 — -427,000 jobs vs. -356,000 a year ago — so if we're actually at a turning point expect this adjustment to be a drag on measured employment. The mild upturn in manufacturing employment follows other strong data from that sector, and it's also not unexpected to see temporary employment accounting for the measured service sector growth.
Brad DeLong has been scratching his head over seasonal adjustment to the unemployment claims series; I'm wondering about what's showing up as a December employment dip. The not-seasonally-adjusted data usually features a small November-to-December drop. Last year's -538,000 was less than in '08 (around -1 million) but more than previous years. A December dip after a strong November doesn't feel right, so go figure.
Calculated Risk and Spencer have graphs and much more discussion.
[1] I expect the last paragraph of the Times story to be revised later to reflect this.
by Tom Bozzo (noreply@blogger.com) on February 05, 2010 04:02 PM
by Linda Beale
The Tax Foundation--at it again with bunk about overtaxed corporations
Ok, I'm tired of it. Aren't you? The Tax Foundation--an organization that claims bipartisanship but these days seems to be a shill for corporate managers and owners--is at it again, claiming that US businesses "are paying the second-highest corporate tax rate in the world." That's misleading at best, and maybe just downright hypocritical.
The Tax Foundation knows that the US statutory tax rates (set at 35% for the biggest corporations, but at much lower rates for the majority of corporations that have less than $10 million in assets) are not paid on the full amount of income by corporations, and in fact the effective tax rates (amount of tax paid as a percentage of income earned) are much much lower--enough lower so that the US counts as a tax haven on the tax rates scale.
Further, the US taxes for US businesses are plenty competitive. Taxes are most likely not the reason they go abroad: it seems to be much more likely that they do so to get away with paying their workers near slave-labor wages rather than enough for a decent standard of living. And even that isn't passed on to customers--it provides the moolah to pay managers ridiculously high salaries and pay rent dividends to shareholders.
Moreover, tax cuts for corporations don't really create jobs. If they did, we wouldn't have had the great recession, since the Bush tax bills included a whole smorgasboard of tax cuts for businesses, including the infamous "American Jobs Creation Act of 2004" that cut corporate rates (almost tax-free repatriation of foreign-earned income, manufacturing deduction that lowered the corporate rate for most US industries, all kinds of tax expenditures for extractive industries, various changes to subpart F that favored corporate taxpayers, bonus depreciation, etc.). If tax cuts for businesses worked, those bills should have resulted in millions upon millions of new jobs. Instead, it looks like most of the benefit of the low-taxed repatriation of profits went to stock buybacks and other manager/owner-friendly provisions, not job creation. IN fact, as pointed out in earlier postings, many of the corporations employing the low-taxed repatriation laid off workers! So much for tax cuts as a way to create jobs.....
But the organization continues putting out one press release after another claiming that our business tax system is "out of line with the rest of the industrialized world" or that we don't have jobs because of a too-high corporate tax rate.
Bunk. Hoopla. Exaggeration.
The Tax Foundation press release then goes on to commit even worse sins. It complains about "playing one class against another" in setting tax policy. Fact is, the wealthy class has been engaging in class warfare in this country for decades. Talking about appropriate distributive policies is the right thing to do. We need to address the growing problem of income inequality and the resulting diminishing standards of living for many in a country that is extraordinarily wealthy in the aggregate.
________________________________
crossposted with ataxingmatter
by Rdan (noreply@blogger.com) on February 05, 2010 01:59 PM
Lots of people have commented on the Research 2000 poll of self-described Republicans done for DailyKos. And it's true that the results are disturbing because of the strong undercurrent of paranoia and ignorance they show in our society. That undercurrent is nothing new; it's been there since the beginning - but the present strength of it is notable.
You've seen the numbers, I'm sure, but I wanted to give a slightly different perspective on them before noting one question and its associated answers that I haven't seen addressed much.
First, the perspective. Consider what we could call the Big 5 questions: Should Obama be impeached, was he born in the US, is he a socialist, does he want the terrorists to win, and is he a racist. For what I expect are obvious reasons, I'm ignoring possible replies of the sort that some of us might give like "yes, he should be impeached for continuing the Bush legacy of crushing civil liberties and fighting illegal wars" and "yes, he wants the terrorists to win - because we're the real terrorists" and taking, as I expect those polled took, the questions in their most obvious sense.
The smallest wacko vote on a question, the 24% who answered yes to "does he want the terrorists to win," represents the largest percentage of those polled who could believe all five of those contentions.
But what's the smallest percentage? To do that, to eliminate the possibility of overlapping "no"s, we have to multiply the percentages. And the result: 0.65%. That is, according to this poll, an absolute minimum of about one out of every 150 self-described Republicans holds all five of those positions. If you include the "not sure"s, more than one in 10 self-described Republicans thinks all five of those claims either is or might be true. Doesn't matter how you feel about Obama, that sort of disconnect from basic reality is creepy.
As for that undiscussed question, which perhaps helps explain the answers to those other five, this was it:
Should public school students be taught that the book of Genesis in the Bible explains how God created the world?
Now, it would be entirely possible to read that question as asking if the Bible should be used to explain how the Judeo-Christian religious tradition explains the world, in the same sense as other religions have their own creation mythologies. But I'm quite sure that was not the intention and equally sure it's not how it was read. Rather, it was read as "should Genesis be the basis on which public schools teach how the world came into being?" Should, that is, the Bible be used as a science textbook.
A stunning - even to me -
77% of self-identified Republicans said yes. Neither sex nor age nor location made much of a difference. (The only exception was race: 79% of "White" said yes, while 58% of "other/refused" did so.)
It's an absolute rejection of science. In toto. It goes beyond the obvious case of evolution - and therefore of paleontology, not to mention all of modern biology - to of necessity rejecting geology as well. And beyond that, to of necessity also rejecting physics and chemistry, the tools used to verify the assertions of geology about the age of the Earth. Science is to be denied.
It is a celebration of ignorance by people who do not know, do not want to know, and do not want others to know. These are frightening people.
I mean, just how do they think their TVs work? Magic incantation?
"Come, let us gather before the magic box to behold the wisdom revealed therein by Glennus Beckus, the
Bigus Dickus."
We're doomed.
by LarryE (noreply@blogger.com) on February 05, 2010 03:26 AM
February 04, 2010
by Rebecca Wilder
Japan to increase holding of US assets
Here's one that was tucked away in the Financial Times, Japan Post Bank urged to diversify holdings. With all of the talk about China, its currency, and the question of the Chinese "financing the U.S. deficit", the media always forgets about Japan!
From the FT:
One of the largest buyers of Japanese government bonds is under pressure to diversify its holdings in a move that will reverberate throughout the huge JGB market.
Shizuka Kamei, Japanese financial services minister, said on Monday that Japan Post Bank should diversify its investments into US Treasuries and corporate bonds in an effort to reduce the risks of over-concentration in JGBs.
and later..
A big shift by the postal bank away from JGBs could have unsettling implications for the market. Japan Post helped digest 45 per cent of the increase in outstanding JGBs between 2001 and 2007 and already holds about 24 per cent of outstanding JGBs, according to Ruixue Xu, rates strategist at Royal Bank of Scotland in Tokyo.
However, analysts do not expect Japan Post to shift away from JGBs immediately.
Although it has attempted to expand lending since it was privatised in 2007, Japan Post has largely failed to make inroads in new businesses and remains dependent on buying JGBs.
Japan Post Bank - one of four government companies that was scheduled for an
IPO offer, but
to my knowledge that has been stalled - holds ¥176,990.8
bn in deposits, or $US1.96tn, and the equivalent of $US2.2tn in total assets. That rivals Bank of America,
the US' largest bank holding company by assets.
Who's going to purchase Treasury bonds? That's right, Japan (at least the very large Japan Post Bank, in this case): the largest foreign holder of US assets at 12.11% of the total (see above chart).
The disclaimer at the end of the FT article (in bold) is important - banks are sitting on quite a bit of reserves, and purchasing
JGB's creates a very safe and clean balance sheet on which to sit. However, it is very
interesting that the government is pushing US bonds. Why not German?
And the chart of the day: Japan's 5-yr
CDS is 113% higher than in Q4 2009. In fact, the G3, Japan, the US, and Germany, are all seeing heightened
CDS spreads.
Debt is on the mind.
Rebecca Wilder with
Newsneconomics
by Rdan (noreply@blogger.com) on February 04, 2010 09:52 PM
Was 2009 a great year to be a bank? The headlines all say so. (The 140 U.S. banks that were closed by the FDIC last year may disagree some.) But, as Isabelle Kaminska of Alphaville notes, very little of the gains posted for last year came from anything related to talent:
Deutsche Bank reported net income of €5bn for the year 2009 on Thursday, compared to a €3.9bn loss in 2008.
This, we would say, is a pretty impressive turnaround in anyone’s business....
Deutsche attributes much of that growth to the successful re-orientation of its business towards customer business and liquid, ‘flow’ products. While it’s not broken out within the results, we’re willing to bet that a large slice of that re-orientation was therefore focused on managing flow emanating from the group’s ever growing synthetic exchange-traded-product and foreign exchange businesses — both of which happen to do very well when spreads are wide, and volatility is high.
When I first started working in the investment side of the banking industry, 20-some years ago, the traders and marketers were especially careful to distinguish themselves from the "retail" side of banking. Indeed, the retail bankers were described as "9-6-3" people: lend at 9%, take deposits at 6%, and be on the golf course by 3:00.
Now that that same type of effort is producing all those record profits, is it time to decide that the legendary "management skills" of Jimmy Cayne, Vikram Pandit, and Neutron Jack (who turned GE from a products company into a finance company) might not have been all that different from that of a polyester-suited small-town bank manager?
by Ken Houghton (noreply@blogger.com) on February 04, 2010 08:19 PM
Here is an article by a retired Navy officer who found she couldn’t live under “Don’t Ask, Don’t Tell” because, no matter how many sacrifices she was willing to make for the nation, the Navy wasn’t willing to support her the way it supported its other members without question.
Retired Navy Capt. Joan E. Darrah served 29½ years as a naval intelligence officer and was chief of staff and deputy commander at the Office of Naval Intelligence. She has received several awards: three Legion of Merits, three Meritorious Service Medals, three Navy Commendation Medals and the Navy Achievement Medal. Darrah lives with her partner of 19 years, Lynne Kennedy, in Alexandria, Virginia.
(CNN) — When I first joined the Navy, I had no idea that I was gay. I was well into my career when I realized this fact, but I was doing well as evidenced by the awards and promotions I was receiving.
In addition, I really enjoyed what I was doing and felt I was making a difference. So I opted to continue to serve, even though I knew that I would have to hide my true identity.
For most of my career in the Navy, I lived two lives and went to work each day wondering if that would be my last. Whenever the admiral would call me to his office, 99.9 percent of me was certain that it was to discuss an operational issue. But there was always that fear in the back of my mind that somehow I had been “outed,” and he was calling me to his office to tell me that I was fired. So many simple things that straight people take for granted could have ended my career, even a comment such as “My partner and I went to the movies last night.” . . .
I had pretended to be straight and played the games most gays in the military are all too familiar with — not daring to have a picture of Lynne on my desk, being reluctant to go out to dinner with her . . .
At 8:30 a.m. on September 11, I went to a meeting in the Pentagon. At 9:30 a.m. I left that meeting. At 9:37 a.m., American Airlines Flight No. 77 slammed into the Pentagon and destroyed the exact space I had left less than eight minutes earlier, killing seven of my colleagues.
In the days and weeks that followed, I went to several funerals and memorial services for shipmates who had been killed. Most of my co-workers attended these services with their spouses whose support was critical at this difficult time, yet I was forced to go alone.
As the numbness began to wear off, it hit me how incredibly alone Lynne would have been had I been killed. The military is known for how it pulls together and helps people; we talk of the “military family,” which is a way of saying we always look after each other, especially in times of need. But none of that support would have been available for Lynne, because under “don’t ask, don’t tell,” she couldn’t exist.
In fact, Lynne would have been one of the last people to know had I been killed, because nowhere in my paperwork or emergency contact information had I dared to list her name.
This realization caused us to stop and reassess exactly what was most important in our lives. During that process, we realized that the “don’t ask, don’t tell” policy was causing us to make a much bigger sacrifice than either of us had ever admitted. Eight months later, in June 2002, I retired after more than 29 years in the U.S. Navy, an organization I will always love and respect.
The same people who go into conniptions about “supporting our troops” – and the troops themselves – will actively destroy the lives of troops who are gay. The military has not only eviscerated its own operational capacity, but they have put tens of thousands of their own members in an unsustainable bind that makes it impossible for them to do their jobs with any sense of comfort or security. (Never mind the 68 Arabic and Farsi interpreters discharged while the Iraq war was at its highest peak or the more than 13,000 discharged under DADT altogether, never mind the hundreds of thousands living in fear and secrecy over the years – they also drove away the Chief of Staff of Naval Intelligence immediately after 9/11. Think that matters?)
Imagine going to your job every single day for 30 years knowing that you could be court-martialed simply for having a relationship. Imagine hiding everything about your life – even being afraid to meet your own partner in public – because your co-workers would literally put you on trial if they found out the simplest thing about it. Imagine denying and lying about your loved ones, watching everything you say every day to avoid making the mistake of letting it slip that they exist, wondering every time you go into your boss’s office, every day of your career, whether you will be fired and then tried by a military court, because you have a lover or a family.
And then imagine being expected to work like that – being expected to take on the highest and most sensitive responsibilities in the nation, even risk your life, under those conditions, for and with the people who stand ready to do that to you at any moment. And knowing that if anything happened to you, not only would your military “family” refuse to pay the slightest respect to your own family and loved ones, while falling over themselves to provide support, pay benefits, conduct ceremonies, and every other thing for the families of your comrades, but they would actively shut your family off from the caring process – deny all claims to benefit, refuse to let them receive your remains or make any decisions about your funeral, in fact not even bother to tell them you had died. Oh, and the little folded flag? They can buy their own. Gay families don’t get American flags, though why they would want one I can’t imagine.
by KTK on February 04, 2010 07:39 PM
by cactus
Real GDP per Capita and Tax Cuts, Top Marginal Income Tax Rate Edition
One often hears that cutting marginal income tax rates, particularly on high individuals, leads to faster economic growth. Let's dispense with argumentification, opinionizing and pontificatulationizing and graph us some data. Data for this post - top marginal rates from the IRS and real GDP per capita from the Bureau of Economic Analysis.
The first graph shows the annual change in real GDP per capita from one year to the next. I took a few liberties with the graph, namely:
1. I color coded each bar - black means the devil raised taxes, white is for the sweetness and light of a tax cut, and gray means no change to top marginal rates.
2. I included a couple of text boxes. The first shows the average growth in real GDP per capita when you have tax cuts, tax hikes, and no change, and it does so for two periods - 1930 to 2009 and 1952 - 2009.
3. The second text box shows the number of instances of tax cuts, tax hikes, and no change to the tax burden over the two periods.
The graph goes back to 1930 because data on real GDP per capita only goes back to 1929. Here's what it looks like:
(Graph 1)
Faster economic economic growth occurs in years when you have tax hikes than tax cuts. Wait, that can't be right. This graph is not showing the Truth! So how do we salvage it? Well, maybe the problem is that it takes awhile for the American public to react to a tax cut. After all, it has to be a huge surprise when a person who has talked about the virtues of tax cuts for thirty years actually (get this!) cuts taxes when he becomes President. I still remember the shock we were all in back when GW cut taxes in 2003 - who could possibly have expected tax cuts from a guy who had cut taxes in 01 and 02 and had been promoting tax cuts as the solution to everything from gout to bad haircuts? So maybe we have to assume that it can take a while for tax cuts to have their glorious effect, allowing us to soar into growthy nirvana.
So the next graph is color coded differently - black means the devil raised taxes, either this year, last year, the year before that, or two, three, or four years before that. White means the same look-back, except this time we're talking tax cuts. Gray is a situation in which either there's been no change in the tax rate rate (this year or in the previous four), or both tax cut(s) and tax hike(s) occurred during that period. For instance, from 1939 to 1940, the top rate was raised from 79.0% to 81.1%. It feel to 81.0% in 1941, and then rose to 88% in 1942 and again to 94% in 1944. Because of the tax cut (however infinitesimal) in 1941, 1941 through 1945 are colored gray.
I note that once again, I threw in a couple of text boxes. So here it is:
(Graph 2)
Well, this still cannot possibly be right. Why is the data hiding the True Facts? This is clearly gonna take more digging. So let's be a bit more systematic and cut to the chase.
The next graph shows the average annual growth rate in real GDP per capita within 0, 1, 2, ... and 9 years of a tax cut (with no intervening tax hike) from 1930 to 2009. It also shows the average annual growth rate within 0, 1, 2, ... and 9 years of a tax hike (with no intervening tax cut). And of course, it shows the same for periods in which there was no change in the top tax bracket and/or in which there were both tax cuts and tax hikes. Thus, at year 0, growth rates are the one shown in Graph 1. At year 0 to 4, growth rates are the shown in Graph 2. And so on and so forth.
Here's what that looks like:
(Graph 3)
Well, nine years out and there's no situation in which tax cuts beat tax hikes.
So one last time to the well... this next graph is similar to Graph 3, but it only includes data for the period from 1952 to 2009.
(Graph 4)
Finally. Some evidence. All of this allows us to state that "carefully selecting data allows one to show that that tax cuts are correlated with rapid growth in the first and second year after the cut, but even that degree of cherry picking indicates that the year of the tax cut, as well as 3 or more years out, growth is faster when taxes are hiked than when they are cut."
Or we can simply go the Fox News route and say: "Behold the Truth as passed down in the Gospel of St. Ronnie. Tax cuts lead to faster growth."
I have a few possible explanations for these four graphs. One - the best one - I'm not going to mention since it requires some number crunching to confirm and I simply don't have the time right now. Maybe in the coming weeks. But here are a few more for the two year positive window on tax cuts:
1. Some of those "going Galt" folks are actually serious. Some of them really do make business decisions based on taxes. But people who make business decisions based on reductions of the income tax don't know how to run a business. Their initial foray into the business world (or initial expansion) frees up some capital and makes things look good for a while, and then they flop.
2. Similar to 1., except that the business decisions are actually accounting conveniences at first which grow to have real effects a couple years down the road.
3. Those anticipating tax cuts put off converting paper earnings into real taxable earnings until after the tax cuts have gone into effect. Thus, for a few years you have "pent up" profits coming out which disappear after a while.
So why, except for a cherry-picked window, are tax cuts not as good for growth as tax hikes are? A few thoughts:
1. At the margin, given the relative size of the gov't and private sector, and given that both are made up mostly of very inept and/or corrupt people, the gov't is not less efficient than the private sector.
2. Less money in the public sector constrains the gov't at those times when it needs to act and when the private sector won't or can't? (E.g., how much less freedom of movement does the gov't have now than it would had the supluses of the late 90s continued through 2008?)
3. The Megan McArdle hypothesis - if the data shows something different from what we know the truth must be, well, something is wrong with the data and anyone who believes what the data seems to show is craaaazy. Call it a poor man's version of
Maier's Law, with the entire Austrian school way ahead of the second corollary to that law.
Questions, comments, contributions, donations?
__________________________________
by cactus
by Rdan (noreply@blogger.com) on February 04, 2010 10:00 AM
by Tom aka Rusty Rustbelt
While Rome Burns, Nero Fiddles – Health Care Edition
While the House and Senate were trying to overhaul the entire health care system, key Medicare regulations were left in limbo. Those provisions are still in limbo.
Medicare physician reimbursement based on Sustainable Growth Rate (SGR) have been controversial and generally considered unworkable since being passed. The solution has been an annual fix rather than a permanent fix. The House bill had a permanent fix, but went nowhere.
As a result of not being fixed, some physicians will see draconian cuts in Medicare reimbursements as of March 1. Primary care docs will see a small increase in rates. Or there may be a fix, or maybe not.
Physical therapists who provide Medicare services are now subject to a cap, amounting to rationing, for elderly patients. This capping system was instituted in 1997 but an annual fix has prevented implementation. Now that too is in limbo, and therapists may be “donating” services in 2010, while waiting on an answer. If the cap remains, services will have to be rationed..
Seniors are very dependent on various forms of therapy to regain mobility and self-sufficiency after fractures, surgeries and strokes. Would we prefer nursing home placement instead?
If health care reform enlarges the role of the federal government, and this is how the feds do business, this could prove interesting.
Newsflash: Apparently Obama's 2011 budget assumes a fix for physician SGR. 2010? In limbo.
_____________________________________
Tom aka Rusty Rustbelt
by Rdan (noreply@blogger.com) on February 04, 2010 09:34 AM
February 03, 2010
For those who missed it yesterday, Palace defeated the Wolves at Selhurst Park last night, 3-1 (only a goal in the 90th minute breaking the shutout) behind a hat trick from defenseman-moved-forward Danny Butterfield, who played a similar role in Saturday's 2-0 win over Peterborough.
Most interesting is this observation from Palace manager Neil Warnock:
"Transfer deadline day was a long day for me. I think Fulham offered £30,000 for three of our academy players, and Chelsea came in for some too. That's disgusting. And everybody knows that [the full-back Nathaniel] Clyne almost went to Wolves yesterday, and I was disappointed with the offer we accepted for him. But he turned them down and the money we would have got for him we'll get from this Cup run now."
Fire sales rarely make economic sense if you're caretaking a Going Concern and willing to provide bridge financing. That
the latter was secured the day after the Transfer Deadline may not be coincident.
by Ken Houghton (noreply@blogger.com) on February 03, 2010 09:14 PM
Via my usual source, Citi has launched a blog.
Kids, don't try this at home.
The highlight is "Help Us Build a New Citi":
Join the conversation about reform, recovery and responsible finance.Tell us what’s on your mind.
Comments may be as many as 200 characters. Suggestions for comments welcome in comments here.
by Ken Houghton (noreply@blogger.com) on February 03, 2010 06:06 PM
by Tom Bozzo
Brad DeLong observes that the FY2011 budget features "big, very big" tightening on the revenue and spending sides (2.5% of GDP "from 2010 to 2011") for the prevailing labor market conditions. DeLong wants his "morning in America" (don't we all?), and is understandably alarmed at the pessimistic forecast of the rate of labor market improvement. Paul Krugman echoes the sentiment on "near-term" fiscal tightening.
As is always the case, the tightening question has to be "relative to what?" [1] Receipts as a fraction of GDP are expected to increase fairly substantially, for example, but that's largely a consequence of expected economic growth.
Compared to the current-policy baseline, the FY 2011 (10/2010-9/2011) budget increases the FY 2011 deficit by around 0.8 percent of GDP. In FY 2012, the budget would subtract around 0.7 percent of GDP from the current-policy deficit. Krugman is correct to attribute this to the winding-down of ARRA stimulus and of our "overseas contingency operations" better known as the wars in Iraq and Afghanistan. Go see Table S-2 here [PDF]. Additionally, current policy has some stimulus on top of current law. Allowing most of the Bush tax cuts to become permanent reduces FY 2011 receipts by around 0.9 percent of GDP. (See Table 14-2, here.)
As for the timing, the budget assumes (see Table 2-1) that real GDP in quarter 4 of calendar year 2010 will be 3 percent higher year-over-year; in Q4 of 2011 (a/k/a Q1 of FY 2012), real GDP is expected to increase another 4.3 percent. Even with the tightening, Q4 2012 real GDP would increase another 4.3 percent y/y. So the FY 2012 tightening only arrives after two years of modest growth.
If measures labeled as such are actually to be temporary economic stimulus measures, they obviously must end sometime. Ending them after the expansion ends is stupid — the tightening would reinforce the subsequent downturn — so it's going to take some steam out of the expansion one way or another. The most pressing timing concern would be not to take away the stimulus before it's clear that the recent GDP growth is sustainable; I'd argue that after two years of growth, should we get there, the case that measured GDP growth is a matter of one-time shots and/or statistical glitches will be fairly weak.
The slow assumed labor market recovery Brad DeLong notes might be seen as a mirror-image of the GDP recovery assumed in the budget baseline:
The budget's baseline economy (with the triangle marks) isn't as pessimistic as OMB is willing to imagine in public (and if you're Ken Houghton, you might see all of these as irrationally exuberant), but the 'output gap' opened by the recession is assumed to close very slowly. While higher-frequency data are not equally optimistic, there's building evidence (so far, outside of employment) for a reasonably strong recovery. And as Maynard explains at Creative Destruction, it's arguably in the administration's interest to err on the pessimistic side since people (again, even including some economists) don't understand counterfactuals and thus tend to inappropriately place blame (or credit) for surprises.
[1] Every economics professor who disparages the "jobs created or saved" concept should be immediately stripped of tenure and exposed to the current labor market for forgetting that all economic analysis is counterfactual.
by Tom Bozzo (noreply@blogger.com) on February 03, 2010 06:02 PM
by Bruce Webb
Well it looks like we are going to get a Deficit Commission and one way or another Social Security will be on the table. But what exactly does that mean for either Social Security or the total deficit picture? Before answering that lets review a couple of basics.
In talking deficit reduction we need to distinguish between 'deficit' and 'debt'. A 'deficit' is basically an accounting convention, it is worthwhile to calculate various gaps between income and cost. But not everything labeled 'income' actually represents cash extracted from the economy, in particular interest on Intragovernmental Holdings is not in fact financed by such dollars, although it is real as real in the long run, in the immediate term it is simply a bookkeeping entry. Which leads to some really odd results. In order to keep things straight the CBO maintains two different measures for deficits: 'primary deficit' which measures actual cash flow and 'deficit' which includes that interest. Now in general newspapers report the deficit and not the primary deficit, when we talk about an Obama $1.6 trillion deficit for FY2010 that figure silently includes interest on the Intragovernmental Holdings as a positive number, whereas a calculation of primary deficit wouldn't include it at all.
Turning to 'debt'. Last week Congress raised the debt ceiling from $12 trillion to close to $15 trillion. But this does not mean Treasury is free to borrow up to $3 trillion in cash prior to going back to Congress, because there are two different components of debt subject to the ceiling. You can check out both the total debt and its two components via a web application maintained by Treasury called Debt to the Penny which would tell you that as of Monday 'Debt held by the Public' was $7.849 trillion while 'Intragovernmental Holdings' were $4.499 trillion for a total of 'Public Debt' of $12.349 trillion, which is the number you normally see reported in the newspapers.
Mostly when people talk 'deficit reduction' they do so not in the context of opening borrowing room in the current year or its effects on interest rates, those those are pretty important things indeed. Instead they tend to think of it in terms of debt reduction or perhaps just a slowing in the growth rate of Public Debt. And one way to accomplish that is to cut spending. Or so you would think, once you start factoring in the curious treatment of interest on Intragovernmental Holdings things start getting strange. Follow me below the fold if you dare.
More than half of the $4.499 trillion in Intragovernmental Holdings are held by the two Social Security Trust Funds, in fact they have $2.5 trillion in Treasury obligations that score as part of Public Debt. But for the sake of this argument I want to simplify that a little:
Suppose you have a Trust Fund with a balance of $2 trillion in notes earning 5% a year which operates along side a benefits program with its own dedicated revenue stream that either will or will not pay all costs in any give year. Now imagine three different scenarios:
A1: the benefits program self-funds with non-interest income equalling cost
B1: the benefits program runs with an operating loss of $100 billion
C1: the benefits program runs with an operating surplus of $100 billion
What are the subsequent impacts on total Public Debt?
Under A1 there is no call on funds from Treasury nor is there any cash flow to it. But Treasury does have to create $100 billion in the form of new Special Treasuries to credit to the Trust Fund to account for interest. This $100 billion adds to Intragovernmental Holdings which in turn adds to Public Debt for a net increase in that debt of $100 billion.
Under B1 there is a call on $100 billion in funds from Treasury to meet costs. To meet that call Treasury has to borrow (or find revenue, same thing for our purposes) $100 billion in Debt held by the Public. In turn it offsets that by not giving any credit to the Trust Fund for accrued interest, instead 'taking' it in exchange for that other dept. The end result is that $100 billion is added to Debt held by the Public and so to Public Debt while nothing is added to Intragovernmental Holdings with a net increase in total Public Debt of $100 billion, i.e. the same amount as A1.
Under C1 the operating surplus of $100 billion flows to Treasury and in principle pays down that same amount in Debt Held by the Public (or reduces borrowing by that amount, same thing) which reduces Debt Held by the Public and hence Public Debt by that amount. But under the rules in play Treasury is required to issue $100 billion in Special Treasuries to 'pay' for that borrowing and another $100 billion in such Treasuries to account for the interest which increases Intragovernmental Holdings and so Public Debt by that amount for a total net increase in total Public Debt of $100 billion. Same as A1 and B1.
So for the specific purpose of calculating Public Debt A1=B1=C1. I suggest this result is pretty damn counter-intuitive but absent some mechanism I am missing that is how the numbers run.
Okay now say in the interest of deficit and debt reduction we cut our benefits program by $100 billion a year while leaving its revenue constant.
A2. The benefits program, previously revenue neutral, now provides a $100 billion cash surplus to Treasury reducing Debt Held by the Public by that amount. In turn Treasury issues $200 billion in Special Treasuries to account for the borrowing and the accrued interest. Net increase in the Public Debt is still $100 billion.
B2: The benefits program, previously running at a $100 billion loss, is no revenue neutral with no cash effect on Treasury meaning that Treasury only has to issue a Special Treasury for $100 billion meaning a net increase in Public Debt of $100 billion.
B3: The benefits program, previously running a $100 billion surplus now is running a $200 billion one, reducing Debt Held by the Public and hence Public Debt by that same amount. But Treasury has to issue $300 billion in Special Treasuries for a net increase in Public Debt of $100 billion.
Now this is getting kind of spooky, not only does A1=B1=C1 for the purposes of the number on the Debt Clock, they are also precisely equal to A2=B2=C2. That is no matter whether the current system is running cash surpluses, cash deficits or is cash neutral cutting $100 billion in spending doesn't move the Debt Clock at all.
Does this mean there is no real world effect? Well of course not, between the six scenarios we have impacts on Debt Held by the Public from up $100 billion to down $200 billion depending on the before and after states, that is real money. But all it really is is a transfer from Social Security beneficiaries to holders of Debt Held by the Public, it is just robbing Grandma so as to make it easier to pay off the Chinese Central Bank.
Making the attempt to attach at least this component of Entitlements Reform to raising the Debt Ceiling kind of a sham. Because for the specific purpose of calculating total Public Debt subject to the limit it is a wash.
Now lets turn to Deficits. Under Unified Budget scoring any surplus to Social Security including accrued interest counts as a positive meaning a $100 billion annual cut in Benefits will yield a $1 trillion ten year score plus any additional interest effects on the Trust Funds which actually would be substantial. Because every $100 billion added to or not subtracted from the Trust Fund will be generating 5% compound interest. But those same interest dollars which score as a positive on a 10 year deficit total actually score as an equal increase in Public Debt. This too is pretty damn counterintuitive, we have the same factor driving deficit and debt in opposite directions.
And just to insert some final confusion what does $100 billion in cost cuts per annum do for our old friend Unfunded Liability. Well it wipes it out, the problem being that it is simply replaced by Public Debt in the form of Special Treasuries even as the dollars used to build that fund were spent long since. Given all this I can't see why any worker would support cuts to Social Security, all that does it cut current obligations while replacing them with Public Debt in the future, a debt that we can't expect the capitalists of the future to be any more willing to pay back than the capitalists of today. As long as the Social Security Trust Funds are throwing off enough interest dollars to cover the gap between Income excluding Interest and Cost there is absolutely no reason why workers should simply sacrifice their own interests here. In this scenario all of the benefit simply flows to the bond market. Now theoretically there would be positive impacts on interest rates which might create some indirect benefits for consumers, and if we were experiencing Carter/Reagan double digit interest rates then maybe a case could be made. But under current conditions I just don't see it.
Anyway the next time some one comes waving that $12 trillion figure as a reason to cut Social Security be sure to ask him to show his work, in this particular case cutting spending actually serves to increase debt. And weirdly enough so does increasing revenue. Such are the weirdities of Trust Fund accounting.
____________________________________________
Final bonus nugget. What would a perfectly balanced Social Security system look like?
One it would run a small cash flow deficit, Treasury would be transferring some money to SS each and every year.
Two still Social Security would overall score as being in surplus for Unified Budget purposes.
Three beyond whatever borrowing was needed for One, Social Security would be adding to Public Debt every year.
Yep a system that is cash flow negative, in permanent surplus AND adding to debt. Perfect! Wrap your head around that for awhile.
by Bruce Webb (bruce.c.webb@gmail.com) on February 03, 2010 05:45 PM
Wow:
Jenny Sanford, the estranged wife of South Carolina Gov. Mark Sanford, told Barbara Walters in an ABC interview that her husband insisted they take the fidelity clause out of their marriage vows.
by Kevin on February 03, 2010 03:26 PM
We are ruled by cowards and fools:
There is almost nothing the Obama administration does regarding terrorism that makes me feel safer. Whether it is guaranteeing captured terrorists that they will not be waterboarded, reciting terrorists their rights, or the legally meandering and confusing rule that some terrorists will be tried in military tribunals and some in civilian courts, what is missing is a firm recognition that what comes first is not the message sent to America’s critics but the message sent to Americans themselves. When, oh when, will this administration wake up?
Osama Bin Laden has already beaten Richard Cohen. Cohen is so scared, so terrified that he is perfectly willing to throw away everything that keeps us safe in order to be protected from his terrors. Maybe, just maybe, if the country was really fundamentally threatened by Bin Laden this might be justifiable. Might. But Bin Laden is not a threat to this country. He cannot conquer it. He cannot cripple it. He cannot bankrupt it, directly. He can kill Americans, in sometimes spectacular fashion, but he cannot threaten the well-being of the country as a whole. And yet Cohen wants to legalize torture:
Whether it is guaranteeing captured terrorists that they will not be waterboarded,
Never mind that torture just doesn’t work. (And it doesn’t. History has proven that torture is effective pretty only for getting people to tell you what you want to hear. ) It is a moral abomination, a strike against the best of our morals and a direct assault on the dignity of the individual. It directly contravenes the Fifth Amendment and punishes a person who has not been convicted of the crime in question. It either breaks the practitioners or turns them into monsters and it absolutely destroys the people it is practiced upon. It is among the lowest forms of human behavior, the mark of the savage. And Cohen wants to embrace in the face of what is, in historical context, a nothing of a threat? What the hell would this coward have done in the face of a Hitler or Stalin?
My wife and I talk about current events all the time, as probably surprises no one. We have young children, so we sometimes uses euphemisms and talk around issues. Recently the eight year old asked for details for something we were talking about, something that involved kidnapping in Haiti. When we tried to talk around what we thought were the scary details, he said “No. Tell me the whole truth.”
Richard Cohen doesn’t have the strength of character of my eight year old. He doesn’t want to know the whole, scary truth. He wants the President to lie to him, to tell him that world isn’t a scary place, that 24 isn’t just a show, that torture is perfect and that nothing will ever, ever hurt him ever again. The real world isn’t like that. It is telling that my eight year old can face up to that and Richard Cohen cannot.
by Kevin on February 03, 2010 12:43 PM
by Dale Coberly
an Op-Ed
BRUCE KRASTING ASKS FOR MORE
A few weeks ago Bruce Krasting published on his own blog an essay claiming that Social Security was going broke and that it would cause the economy to collapse, and the only possible remedy was to means test Social Security.
I replied on Angry Bear that Social Security was not going broke and could never go broke. I pointed out that the Trust Fund was created exactly for the purpose of covering temporary periods of negative cash flow in the regular pay as you go structure of Social Security. That negative cash flow is normally a matter of month to month irregularities in collecting the money and paying it out. A sufficient reserve is kept to bridge extended periods of lower collections and higher payouts caused by, for example, the current recession. And a very large reserve has been allowed to grow in order to effectively allow the baby boomers to pre pay their own retirement.
Because of the demographic "bulge" of the baby boom, the absence of the enhanced Trust Fund, would have allowed a "generational inequity" where the Boomers paid a lower payroll tax to "pay as you go" for the smaller number of retirees in the generation ahead of them; and then the smaller number of workers in the generation behind them would have had to pay a higher tax rate because of the greater number of boomers. The current large Trust Fund is big enough to take care of the retiring baby boomers even during a recession with a ten percent unemployment rate that lasts ten years.
In a private exchange (since published) Krasting seemed to concede this. But he insisted that whatever the justice of the case, the lack of a surplus in Social Security would require Congress to go to the bond market and attempt to borrow money there to make up for the money they have been "borrowing" from Social Security. Krasting predicted that THIS would cause the economy to collapse and the only possible remedy was to means test Social Security.
In my reply to him I said that I was not impressed with claims that the sky was falling, having heard them before, and that the honest way for Congress to make up for the money it could no longer "borrow" from Social Security, if it could not borrow on the bond market, would be for it to raise taxes on the people who had benefitted from the tax cuts that had led to the deficits.
Krasting did not hear this, and instead writes that we are "thick headed" because I at least don't care very much about his calculation of the looming death of the Trust Fund based his very own assumptions about interest rates. His letter is reproduced below. I can't see that it has any merit at all. Perhaps someone who can write more clearly than Krasting can help him make his case.
What Krasting does have on his side is that apparently all the advisors to the President and the Congress agree with him that it is better to destroy the workers retirement security... that they pay for themselves... than to cause the least discomfort to bond traders or the high income folks whose tax cuts have allowed them to get even richer "in the markets.” Apparently the rich don't have to pay their bills. Or even repay the money they borrowed that helped them get richer.
What I sometimes like to point out is that even if the Congress steals the Trust Fund, it would not result in material harm to the workers.... as long as they are allowed to raise their own tax a small amount so they can continue to pay for their own retirement on a "pay as you go" basis. This would be an injustice to them, but it would do far, far, less harm than turning Social Security into a means-tested welfare-as-we-knew-it. And far less harm than raising the retirement age... a perennial favorite among the folks who have jobs they like, and enough money to retire in their forties when their taxes are too high for their sense of what they are owed for their labor.
Conclusion: Krasting apparently wants me to endorse his numbers for interest rates and the death of the Trust Fund. I can't do that. I prefer to let the Social Security Trustees do all the hard forecasting. All I can do is point out what their numbers mean. In this case Krastings numbers mean precisely nothing: Even if his numbers were right... and I don’t think they are, they have no important significance for Social Security.
When Social Security goes cash-flow negative, or what day the Trust Fund "goes broke" does not matter. Social Security can continue to pay for itself forever, with a modest tax rate that pays for the taxpayers own expected costs of retirement.
This may involve a very modest departure from a kind of "generational equity" that simply does not exist in the real world for any other aspect of life. Only an insane person, or one with evil intent would argue to destroy Social Security because one generation might pay or get a percent more or less. It would be like forcing people to give up farming because the price of bread varied from one generation to the next. Even the stock market does not deliver that kind of intergenerational "equity."
It has always been understood that the Trust Fund would go cash flow negative. That is what it was created to be used for. If that is now a problem for the Treasury or the bond market, there are honest ways to deal with that problem. Stealing from Social Security is not honest. And destroying Social Security in the name of deficit reduction or shoring up the bond market is not only dishonest, it is maliciously evil.
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by Dale Coberly
by Rdan (noreply@blogger.com) on February 03, 2010 12:39 PM
February 02, 2010
by Linda Beale
Obama's FY 2011 Budget
The Obama Administration released its FY2011 Budget proposals today which assumes a substantial amount of tax cuts (making the 2001-2003 Bush cuts permanent for most Americans costs about $3.75 trillion over ten years) and some tax increases to cover important programs (about $1.9 trillion), resulting in a substantial net tax cut of almost $2 trillion over ten years. See press release and Green book.
The press release claims that the Administration's plan covers "short-term tax incentives to create jobs and encourage business investment, ...proposals to deliver tax relief to middle class families and small businesses, and its blueprint for restoring fiscal discipline and responsibility to our tax code."
Personally, I think most of the tax cuts are stupid and will do very little to create jobs. Passing a law to permit modification of home mortgage loans in bankruptcy would do more than any item in the bill. And many of the famlies offered "tax relief" are not really middle class--they are the upper middle/lower upper class. They aren't the ones the Administration should be focussing on. The best way we could help ordinary Americans is to get more people at the lower end spending more. That would let the businesses thrive that are threatened by the drop in spending as people face difficult times, and letting businesses thrive means creating new job opportunities. And the best way to do that would be to use the money wasted in these tax cuts on real programs to create jobs--public infrastructure and public education. And how can you claim that a bill that includes even more tax expenditures for businesses that have been proven not to work except that they give managers and owners more money to spend on themselves (or invest overseas) is a bill that "restores fiscal responsibility". Nah. I don't think so.
Naturally, the media are plugging this as a tax hike. See, e.g., Donmoyer, Obama Seeks $1.9 Trillion Tax Rise on Rich, Business, BusinessWeek (Feb. 1, 2010). The Donmoyer story starts out with "the Obama administration wants to increase tasxes on Americans earning more than $200,000 by almost $970 billion." But of course that's achieved by letting the law Congress passed in the Bush adminstration play out as the law was written to play out--eliminating the tax cuts which were described as "temporary" measures that were expected to stimulate the economy. Now, if tax cuts really worked as economic stimulus, we should expect to have seen robust job creation over the entire Bush administration. But even though Bush began two wars of choice (Iraq and Afghanistan), which tends to make the military-industrial complex happy and sometimes also creates more jobs as soldiers go to war and others have to fill in back home, neither the war machine nor the temporary tax cuts managed to crank up the economy past weak growth.
The Obama administration takes as a given extending the Bush tax cuts to everybody earning less than $250,000. Most people in government probably think of that as an average wage, but folks making $250,000 are actually quite well to do. The Administration also proposes continue to "patch" the AMT to protect the upper middle class from paying that tax. The media keep repeating that "originally it was intended to ensnare millionaires and now it gets people at lower incomes" but they never read the history. For a long time, the AMT has been intended to get people who have quite high income ($250,000 to $500,000 qualifies) and who have lots of "preferences" that reduce the amount of tax they pay too much. Instead, the AMT expands the base and taxes it at a nearly flat rate. We need to make some corrections to the AMT, but we don't need to protect the $250,000 to $500,000 group from its impact.
The Obama administration has scaled back its proposals aimed at companies that shift profits offshore. It won't include a proposal to drop the check-the-box rules--an administrative change that facilitated all kinds of offshore gamesmanship by the big multinationals. Instead, the administration proposes to crack down more on transfer pricing. My view--it will be hard to make the crack down effective, because this is a place where businesses have the facts and can manipulate the results. It's clear, though, that the transfer pricing changes are targeting the right area--the transfer of intangible properties that are created in the US, so that future profits are offshore. But will the concept of "excessive returns" do the trick? Not sure.
Obviously, big businesses lobbied with complaints about their "competitiveness" to get these watered down provisions. This is just whining--but whining that works on vulnerable congresspeople who don't want to recognize that the US, after all, is a tax haven, with lower effective corporate tax rates than most OECD countries. It isn't the tax structure that is keeping US corporations --like Campbell Soup, GE, and Caterpillar--from competing. It may be their over-paid management that has lost the ability to think lean and act smart.
Other business tax changes proposed here don't make much sense. Making the research & development credit permanent is another one of those crazy giveaways that will reward drug companies for developing a tweak to a patent that keeps them in monopoly profits a little longer and raises our medical care costs even faster. We should instead be investing that tax expenditure money in funding basic research at universities. The expensing writeoff for businesses investing in equipment is just another concession to the lobbying--nobody has shown that it works, and it probably doesn't work to create jobs. But we keep doing it anyway.
So is there anything I like. Yes. The proposal to ensure that carried interest is characterized appropriately as compensation income. The managers of big equity funds have been playing a game with their wages for years--one that is not clearly sustainable under the Code as written. They claim they earn capital gains, and then they defer their income "to boot" by claiming to work for offshore companies that are essentially mailboxes in the Caribbean run by people in the US. That tax dodge shouldn't work to start with. And the Congress surely should make sure it doesn't with a clear statement clarifying the law that such items are 1) compensation and 2) earned currently.
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crossposted with ataxingmatter
by Rdan (noreply@blogger.com) on February 02, 2010 04:57 PM
The big news of Transfer Deadline Day was that Nathaniel Clyne turned down a move from The Eagles to The Wolves.* As The Guardian noted:
[This] will please everyone at Crystal Palace who isn't an administrator.
Let’s look at the timeline and the reality.
- Palace was ninth in the
Premier Championship [thanks to Tim in comments] League at the time they were put into Administration. (Owners could not pay bills.)
- Being put into Administration carries with it a 10-point penalty on the team. This moved them from ninth to twentieth—from in contention for
the FA Cup Coca Cola Championship playoffs [ibid. to Tim] and possible Promotion to the borderline of Relegation.
UPDATE 2: The Eagles's current FA Cup matchup—being one of five remaining Championship League teams in the Round of 16—is a replay today (3:00pm EST) with...the Wolves. Yes, the same team to which Clyne declined a transfer. Looking at the economics of today's game (h/t My Loyal Reader), there is 90,000 quid to get through to the next round, and an expectation of 247,500 in additional revenues from that round. So the proposed 1.5MM transfer fee for Clyne and Moses has to be adjusted by the decrease in probability (from positive to virtually zero) of receiving that 337,500. Even if you assume only a 40% chance of winning at home, that's an immediate 135,000 quid—9%—decline in the value of the sale.
- Note that the team itself did not change in the least at that point.
- This puts two factors into play: a relegated Eagles squad would be worth less, but the Administrators are looking for short-term cash flow that can best be achieved by selling top players. (We should call this a “borrowing constraint,” perhaps, save that it was the lack of an initial borrowing constraint and the resultant overextension that led to the situation in the first place, so perhaps it is a resource allocation issue.)
The strange thing is that, without the penalty, the incentives of the Administrators would be better-aligned with the long-term goals of the team: putting the best possible product on the field and selling an attractive commodity.**
Note, however, that the previous owners suffer no incremental reputational risk as the team is sold, even though they failed to prepare the firm team for those next steps. (Think Sandy Weill and The Big C or Neutron Jack and the DoD-subsid[iar]y/mortgage lender.) The damage after their departure is borne solely by the players. In this particular case, Nathaniel Clyne’s move of support for the Eagles should be a stronger symbol for potential acquirers of the F.C. than the 1.5 million quid would have been.
*Dissent on this point from Tottenham supporters is understandable, if wrong. Yes, it was a boring day on the transfer front.
**This doesn’t mean that they might not still be trying to sell players, just that there wouldn’t be a “Fire Sale” sign on their foreheads, which should produce marginally better deals, i.e., those that are more closely aligned with the longer-term interests of the team.
UPDATE 1: Tim in comments notes, correctly, that Administration does, at least, pay the players, leaving transfer fees a possibility. The purpose of Administration remains, however, (1) keeping the League orderly and (2) being able to sell the franchise to other buyers for as much as possible. Since transfer fees are based on negotiation, and Administration ("fire sale") prices seem by definition to be below those that would be negotiated if it were One's Own Money.
So assuming one expects the Eagles to remain a Going Concern—that is, that Selhurst Park next season won't be being developed into a Harrod's—taking the transfer fee upfront is at best a wash, and more likely a reduction in the franchise's value. Especially in a case where there is risk of Relegation.
by Ken Houghton (noreply@blogger.com) on February 02, 2010 04:25 PM
Robert Waldmann
This is a brief follow up on my post on measuring bubbles. The amount lost due to sub-prime mortgages in default is tiny compared to the damage done. How large can the ratio of damage to losses be ?
My answer is it can be infinite -- that it is possible for irrational investing to destroy the financial system, even if the financial system looses nothing on average when reality bites.
Let's imagine a case in which big money center banks secretly bet each other tens of billions on the flip of the coin. Average gains and losses must be zero. However, if counter-parties don't know who bet on heads and who bet on tails, the financial system will seize up as the solvency of all the gambling banks is in doubt.
In the real world, the coin flips were called CDSs. It was known that investment banks and hedge funds had huge positions in CDSs, but it wasn't known who was long and who was short. When the price of CDSs written on CDOs made up of MBSs shot up there were winners and losers. However, unless and until a firm went bankrupt it was unclear who the winners were (after bankruptcy it is clear that the winners are lawyers and everyone else loses on average).
That's enough to disrupt finance and cause a huge worldwide recession. I think that's what did it. Not the average loss but the immense variance of losses across banks.
It's true that banks lost on average. Partly the lost to some hedge funds. This hurts the system because hedge funds don't provide financial services. However, I think the banks could have failed in their role in the economy by making stupid investments even if their losses had added up to zero.
by Robert (noreply@blogger.com) on February 02, 2010 03:03 PM
The GOP doesn’t want the Volker rule or the bank tax to pass:
A proposal by former Federal Reserve Chairman Paul Volcker to limit bank’s proprietary trading will be either be dropped or significantly modified in the Senate, lawmakers and staffers told dealReporter. Senate Banking Committee ranking member Richard Shelby (R-AL) said he opposes the so-called Volcker rule and the Obama administration’s call to levy a USD 90bn tax on banks. . . . Speaking to this news service on Thursday, Shelby said if Democrats push forward with the proposals they risk unravelling much of the bipartisan support already reached regarding the passage of financial regulatory reform in the Senate. Shelby said that the Obama administration risks losing Republican support for the bill if they begin to “politicise” the issue.
Obama should veto any bill that crosses his desk that does not have these components. He – and the rest of the Dems – should spend the rest of the year running on the fact that the GOP doesn’t want to make banks pay for the money we used to save their hides and doesn’t want to take the most effective steps necessary to make sure the bans cannot ever ruin our economy in such a fashion again. This is a case where the GOP is completely out of touch and where losing wont have immediate dire impacts.
It is not very likely that bank behavior will come to a breaking point anytime soon. It takes a while for the conditions for complete meltdown to mature, so losing the regulation fight now will have no immediate impacts unlike health care, for example. In return for losing, Obama and the Dems can highlight how out of touch the GOP really is. It is losing well – losing now to set the terrain for a future victory.
Because the GOP really does seem to not understand the moment. People are not upset because they want something different than the Dems. 82% of the Obama voters who voted for Scott Brown wanted a public option, for example. The people are pissed because the Dems haven’t delivered on the change they promised and assume – because they don’t know how the filibuster is being used – that the Dems and their huge majority haven’t delivered because they don’t want to deliver.
But the GOP appears to think that the public wants social security privatization and severe Medicare restrictions. And, for some reason, it thinks that the status quo with respect to the banks is what people really want. The Democrats and Obama have an opportunity here to make the 2010 elections about, in part, the fact the GOP really, really, really wants a return to the Gilded Age. They are, at their hearts, the party of the aristocrats. Obama should gleefully use a legislative defeat on the bank regulations to point out their top hat and monocles.
by Kevin on February 02, 2010 12:20 PM
Updated Some updates and observations about the Citizens United decision and my two-part response to Glenn Greenwald's defense of it.
It's true, as he says, that the issue of corporate personhood was not directly addressed in the dissent. But, I've learned, it's flatly untrue that it was never raised. An editorial in The Nation says that
[d]issenting Justice Ruth Bader Ginsburg spoke as a strict constructionist when she declared during oral hearings on the case that "a corporation, after all, is not endowed by its creator with inalienable rights." ...
At the hearing on Citizens United, Justice Sonia Sotomayor suggested that instead of expanding the supposed First Amendment rights of corporations, the justices should reconsider the misguided Santa Clara ruling, which "gave birth to corporations as persons." Added Sotomayor, "There could be an argument made that that was the Court's error to start with."
What's more, the dissent written by Justice John Paul Stevens has this to say:
The fact that corporations are different from human beings might seem to need no elaboration, except that the majority opinion almost completely elides it. ...
[C]orporations have no consciences, no beliefs, no feelings, no thoughts, no desires. Corporations help structure and facilitate the activities of human beings, to be sure, and their “personhood” often serves as a useful legal fiction. But they are not themselves members of “We the People” by whom and for whom our Constitution was established. (Opinion of Stevens, pp. 75-76; pp. 162-163 of the above-linked .pdf file.) (Emphasis added.)
Related to that and contrary to what Greenwald would have you believe, the dissent did not hinge solely on a claim of "compelling state interest." Rather, Stevens spent a good deal of time arguing that because corporations are not people it is entirely Constitutional to make distinctions based on that. That is, corporations
can be treated differently from "natural persons," including having their speech regulated more closely, precisely because they are not persons. In fact, he says so in the very first paragraph of his consideration of the merits of the arguments advanced by the majority, where he said that the majority
claims that the First Amendment precludes regulatory distinctions based on speaker identity, including the speaker’s identity as a corporation.
That claim, he wrote, "is wrong." (Opinion of Stevens, p. 23; page 110 of the .pdf file.) Further on, he wrote:
Campaign finance distinctions based on corporate identity tend to be less worrisome, in other words, because the “speakers” are not natural persons, much less members of our political community, and the governmental interests are of the highest order. ...
If taken seriously, our colleagues’ assumption that the identity of a speaker has no relevance to the Government’s ability to regulate political speech would lead to some remarkable conclusions. ... [I]t would appear to afford the same protection to multinational corporations controlled by foreigners as to individual Americans: To do otherwise, after all, could “‘enhance the relative voice’” of some (i.e., humans) over others (i.e., nonhumans). Under the majority’s view, I suppose it may be a First Amendment problem that corporations are not permitted to vote, given that voting is, among other things, a form of speech. (Opinion of Stevens, pp. 32-34; pp. 119-121 of the .pdf.) (Emphasis in original.)
Note here that while I agree with Stevens, my immediate point is more that Greenwald's contention that the minority embraced the notion of corporate personhood as fully and eagerly as the majority and that the issue of a difference between corporations and persons really didn't figure in the debate is flatly false.
And I clearly do agree with Stevens: In that last line, he anticipated one of my own questions, which was:
Could a US corporation that's been around for 35 years run for president? How, once you say that corporations have the same rights as individuals, could you say no?
It also anticipated the move by Murray Hill Incorporated (a PR outfit that does campaigns for labor and progressive groups) to embrace the full meaning of the decision and
run for Congress. (Thanks to
Digby for the link.)
It also appears that another two of my contentions have gotten confirmation, one historical and one contemporaneous.
First, I argued very strongly that "corporations do not actually exist in the physical world" and that
[w]e are entirely within our rights and authorities as a free people to define the rights, protections, and authorities of corporations in whatever way we choose, including imposing whatever limitations we care to place on them.
It turns out that in a case in 1819, Chief Justice John Marshall wrote this for the Court:
“A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it.”
Of course, that was before corporations, just like the Velveteen Rabbit, became "
real" (although the love in this case was that of money and power). Still, for that very reason, it could be argued that it's more likely to represent the intentions of the framers vis-à-vis corporations and the political process.
And second, I insisted that the danger of
Citizens United is
its existence as precedent and the longer-term impact of the philosophy contained in it, one under which putting any restrictions on money in politics becomes an untenable limit on free speech.
Well, guess what (again, link via Digby):
Clearly operating on the premise that the Supreme Court last week changed the entire legal landscape for money in politics[, SCOTUS blog reports,] the D.C. Circuit Court appeared on Wednesday[, January 27,] to be leaning strongly toward giving even more freedom to campaign groups that are set up to operate independently of candidates and parties. From the opening moment of the 65-minute hearing, most of the nine judges on the en banc Court treated the Supreme Court’s ruling in Citizens United v. Federal Election Commission as the beginning, not the end, of expansion of those freedoms.
That didn't take long, did it?
And we're off and running. Some for the hills and some, specifically those who continue to struggle to dismiss the importance of the decision, just off at the mouth.
Updated with a Footnote: Some years ago, someone tried to reject an argument I was advancing by claiming that it was similar to something Ronald Reagan had said. I replied that it just proved that even Ronald Reagan couldn't be wrong all the time.
Apparently, I can say the same of the teabaggers.
TPMMuckraker brings the news:
Some Tea Partiers are expressing vocal opposition to the Supreme Court's recent ruling striking down the ban on corporate political spending - a stance that puts them at odds with the Republican Party and the broader conservative movement. ...
Tea Partiers - especially the rank-and-file activists, as opposed to the movement leaders - often embrace a more populist, anti-corporate position than does the Republican Party, or the conservative movement that under-girds it.
Back in the '90s, these were Perot voters, the people I called "the ag'in'ers - whatever it is, they're ag'in it." They haven't gone away. They've just gotten angrier and more frustrated - but it's an anger still, unhappily, manipulated and directed for the most part against the most obvious target (government) and away from the real target (the power of concentrated wealth). But that doesn't mean they don't know that other target is there.
by LarryE (noreply@blogger.com) on February 02, 2010 07:33 AM
