Robert Waldmann

Paul Krugman thinks that a US politician is excessively opposed to tariffs.

End of days near.

I think the president has this wrong:

President Obama on Sunday praised the energy bill passed by the House late last week as an “extraordinary first step,” but he spoke out against a provision that would impose trade penalties on countries that do not accept limits on global warming pollution.

[snip]

The truth is that there’s perfectly sound economics behind border adjustments related to cap-and-trade.

Krugman goes on to make a perfectly convincing case (click the link) but would the Krugman of 1992 have discussed this in public with protectionist politicians listening ?

Already Krugman has shocked DeLong by agreeing with Reich.

Being a seven-hour drive away, I don't have as much direct knowledge of the NYC economy as I did a year or so ago. So I have to rely on Different Metrics.

Here is one DrektheUninteresting (see #6) (of Scatterplot and Total Drek fame) will love, when he resurfaces.

For those who want a contemporary view of how bad things have gotten in the U.S. economy in general and NYC, just check out the result of this eBay auction.

The winning bid was $10,250. The last time this item was auctioned, a mere six months ago (though in Los Angeles), it went for $12,000.

And a mere three years ago, the item was sold, in NYC, to two separate bidders (it being relatively non-rival), for $20,000 each.

Forget housing prices. If you want a metric to judge the decline of the NYC-area economy, just consider the decline in bidding even as the value of the underlying has gone up.

by Bruce Webb

In comments on the last post MG was challenging 2Slugs contention that the real issue was Medicare, while BuffPilot was accusing me of ignoring Obama spending. Well I am on my way out the door and will let the CBO do the talking for me:


That near term temporary light blue peak? Obama stimulus spending. That rising tide of deep blue? Medicare and medicaid.

QED.

Discuss.

CATO was making much hay a few days ago about budget problems in California, New York, and New Jersey, which can be explained, respectively, by the Governor's veto of an Assembly-passed budget a few months ago, the decline in tax revenues from financial services firms and continuing loss of upstate industry, and underfunded pension obligations whose origins date back to Christie's cocaine-inspired budgets of the mid-1990s.

Strangely (via Dr. Black), they missed the crises in a few other states, most especially including the state governed by Republic hero Mitch Daniels:

Republican Gov. Mitch Daniels has warned residents that most of the state's services -- including its parks, the Bureau of Motor Vehicles and state-regulated casinos -- would be shuttered unless a budget is passed today.

Closing down the casinos? Now that is extreme.

Mitch Daniels, doing for my old home state what he did for the country.

by cactus

Unsolicited Advice to Makers of Computers - From a Heavy User

I have three Windows based PCs, and the ex-GF has a Mac. One of the Windows based PCs is a desktop, all the rest of our machines are laptops. One is a mini purchased three months ago, and the oldest machine (the desktop) is two years old. All but one are name brands... and a few months ago there was another (name brand) machine that has since died. Until recently I was a consultant, so there was a need for much number crunching in our household.

But here's the thing - not one of the machines is fully operational. Peripherals don't work, or don't work with the machine, or don't work reliably. We're not computer geeks in this household, but we're not exactly ignorant either. I spent a summer working in a computer repairshop and I have no problems opening up a machine and poking around if need be. I've even been known to do some prodding and the occasional fondling when the situation called for it. The ex-GF is more the help-desk type, and I've been forced to deal with that lately too. It usually doesn't help. Its not helping the ex-GF either; her machine just came back from the "Genius Bar" and I wouldn't be surprised if it goes back pretty soon.

I realized that maybe as recently as four or five years ago, every computer I bought lasted four or five years or more, and usually gave me no problems. On the rare occasions when I had to call the help desk, it solved the problem once and for all. I'm about to take the new mini to repair shop and tell them a) to do something about the the wireless modem turning itself off at random times for a week at a time and b) make the $#%^ cd reader I bought work with the thing. I'm prepared to pay as much as the mini itself cost me just to have it working once and for all and never again have to deal with the tech support people. I estimate I've spent about eighteen hours trying to fix these two problems myself (with and without tech support) and I'm tired and aggravated. My time is worth something, and avoidance of aggravation is worth more.

I was kvetching to my Dad, but his response was: "How many other industries are there which produce such complex pieces of equipment so cheaply?" I guess when you grew up with punch cards, you bring a different perspective to the table. And he's right - you can't build something this complex for this little and expect it to work. But computer makers aren't advertising their machines as being any less reliable than the machines that a decade ago were being engineered to be dropped from a third story window and still function as if nothing happened.

All this got me thinking about the 1968 Buick Skylark I drove while I was high school and college. It was older than I was (I'm a 1970 model year, having, rolled off the assembly line in late 1969), and you had to fill it up every time you left the house, plus once more on the way back. And it could take a beating; a woman ran into me once with a Lincoln, and while I would not be surprised if that was the end of the Lincoln, I fixed the damage to the Skylark with a hammer. No amenities except an ashtray, but the damn thing worked for twenty five years. Which means it was still running long after most of the Buicks made in the 1970s and 1980s had been scrapped. (I don't have statistics to back up that statement, but like everyone else, I've been in Buicks made in the 1970s and 1980s.) On paper Buicks from the 1970s and 1980s were much better vehicles, coming with fancy features such as shoulder restraints, automatic windows, better mileage, and a suspension system that didn't allow the $#%^ing boat to rock for a twenty-three minute window after every turn.

My guess is that the 1970s and 1980s models were also better for GM's profitability, at least at first. After all, they had to be replaced a lot sooner, which meant more cash flow. At least at the time. But eventually, people stopped buying American vehicles. I had three American cars before I called it quits. The aggravation of dealing with all the little things that went wrong wasn't worth the hassle. Its not just that the vehicles themselves had issues; the dealers I dealt with weren't much better. All sorts of bits and pieces like vent covers and knobs fell off my then brand-new Camaro, and the windows never sealed properly from day one, but none of the dealers ever fixed these problems.

As I see it, computer manufacturers today are emulating GM in the 1970s and 1980s. They're starting the process of driving away their customer base. What makes their situation, for now, better than GM's in the 1970s and 1980s is that it seems like all the computer makers are doing it. There is nobody out there producing quality machines, even at slightly higher prices. I suspect there is a market for more reliable machines - even if that reliability comes at the expense of a few features or a higher price, provided its advertised and sold that way. It doesn't have to be engineered to take a bullet, but it does have to work. All the time. Convince me that it does and I'll pay a premium. And I suspect there are a lot of people like me out there.
___________________________________________
by cactus

Robert Waldmann

Suggests that serious readers go read Brad Delong's comment on Greg Mankiw's comment on Paul Krugman's assertion that George Will and Gred Mankiw are "either remarkably ignorant or simply disingenuous." Totally asking for it, Mankiw also commented on Krugman's post referring to DeLong and Krugman as a tag team.

I just want to note that Greg Mankiw chooses a very odd example to illustrate his ignorance of basic economic theory.

He wrote

[Obama's] economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices..."

Mankiw chose to talk about the market for gasoline !



OK prof Mankiw I have a proposal. This evening get out of Your office, get on Mass Ave and drive South. You will see a river. Across that river you will see a huge red glowing triangle. Do you know what that triangle advertises ? Yes it's the Citgo sign. It avertises a publicly owned oil company and chain of gas stations.

So if you have no problem with a public provider of gasoline, why are you opposed to a public provider of health care ?

Somewhat more importantly, the idea that the market for gasoline shows that we can trust the private sector to give us "Consumer choice and honest competition" is beyond bizarre. Ever heard of Standard Oil professor Mankiw ? The fact is that it requires constant struggle to preserve competition and a market based approach of offering a public plan has advantages compared to a litigation based approach.

It just so happens that the health insurance market is not at all competitive in many regions, that profits of large health insurance companies have exploded and that the fraction of money paid to health insurance companies which they send on to health care providers have plummeted. Sort of like the market for gasoline that the private sector gave us before massive public intervention.

America's health insurance companies had better decide if they prefer a public option or actual enforcement of the Sherman antitrust act. Splitting up health insurance companies (what was done to achieve competition in the market for gasoline) would be rather more disruptive to policy holders (and executives) than allowing the medicare administration to compete with them.

I'd say Mankiw has a point. Health insurance is like gasoline in the sense that the market has failed -- that profit seeking corporations have managed to reduce competition to levels such that their profits explode. The main differences are that it's the 21st century and the President is using a market based rather than a punitive approach to the problem.

Claiming that there is currently a competitive market for health insurance in the USA is like claiming that they sky is green.

I subscribe to too many RSS blog feeds. So everyone once in a while one pops up and I think, "Should I drop this"?

And so it is with Evolutionary Economics, which occasionally seems like a self-parody of what would happen if you recited Economics 101 cant with an added, even-less-scientific, "evolutionary psychology" glean to it.

However, they occasionally publish interesting work, such as this.

And then there's the paper they describe as "in Japanese." Unfortunately, they mean Hiragana script, which thoroughly defeated my efforts in the early 1990s. And while Babel Fish is willing to try, the result is less than encouraging:

ら哲学者や為政者を解放した。また，顕示選好理論によれば，個人の選択を観察すれば，
そのような行動が導かれる効用関数が存在する。効用の個人間比較が問題にならない状況

becomes

...[a]nd others the philosopher and the administrator were released. In addition, according to revelation preference theory, if selection of the individual is observed, the use function where that kind of conduct is led exists. The circumstance where comparison between the individuals of use does not become problem

which has a few verb problems, I suspect.

Anyone want to read and translate and do a guest-post about this one?

by Bruce Webb

In a previous post I highlighted the chapter of CBO's Long-Term Budget Outlook that pertained to Social Security. But the Report goes beyond that and in fact focuses on two different possible scenarios outlined in the following Table:

The shorthand way of defining 'extended baseline' is 'Bush tax cuts expire on schedule' while 'alternative fiscal' equates to 'extending tax cuts'. There are additional components like AMT and physician compensation which have been consistently adjusted to avoid the impacts of then current law projections (feel free to expand on this in comments) but the real question boils down to 'sunset tax cuts' or 'extend them'. So what would be the consequences? More figures under the fold.


Under 'extended baseline' the deficit in 2035 projects to be 5.6% of GDP. Is this good? Well no, I don't think it is even acceptable. But it is a lot better place to start that the 14.6% of GDP deficit we get from 'alternative fiscal'.

Now the above are snapshots. What if we aggregate this over 25, 50, and 75 year intervals? Well you get Box 1-1.


Now these annual and aggregated deficts all need to get financed by borrowing. How does that shake out?

So if we let the Bush tax cuts sunset we buy ourselves about 20 years to figure out what to do long-term. If we extend them we are looking at a situation by 2037 where debt held by the public is a full 200% of GDP as opposed to 75% under current law (i.e. tax cuts sunset).

So those people who are attacking Obama spending effects on the deficit over the next 10 to 20 years using CBO numbers need to confront the fact that there is a lot more long term impact from the foolish policy of tax cuts on top marginal rates.

Let the hot, hot fun begin!

rdan


Finacial Times points us to WTO thinking on trade issues and cap and trade agreements. (log in required)

Countries implementing cap-and-trade systems for greenhouse gases may be able to use border taxes to protect domestic industries, after the World Trade Organisation gave a cautious nod to such measures.

In a report to be published on Friday, written jointly with the United Nations Environment Programme, the WTO said it was possible to implement border measures for environmental reasons under its rules.

EDITOR’S CHOICE
Europe moves to reduce pollutants - Jun-26EU invests in China carbon capture facility - Jun-25Carbon credits placate US farmers - Jun-25Australia delays vote on carbon trading - Jun-25

by: Divorced one like Bush



Ok folks. It's real, this familiarity with the health care reform debate. It is a real memory you are experiencing, that deja vu feeling. Only, the reason it seems so much as deja vu is because what your being told is the trigger of the deja vu is not the real memory. Hillary Care is not the correct memory for the current debate and thus it "feels" like you have been there before: deja vu. However, you really have been there before, and thus it is a real memory, not a similar feeling. It was Nixon, 1971. And, the experience of the mind games that are being tempted upon you are as real and cautioning a memory as having burned your hand on a hot pan, or caught a knief falling.


February 17, 1971

Ehrlichman: We have now narrowed down the vice president's problems on this thing to one issue, and that is whether we should include these Health Maintenance Organizations like Edgar Kaiser's Permanente thing.
Nixon: Now let me ask you...You know I'm not to keen on any of these damn medical programs.
Ehrlichman: This is a private enterprise one.
Nixon: Well that appeals to me.
Ehrlichman: Edgar Kaiser is running this Permanente deal for profit. And the reason that he can, the reason he can do it...I had Edgar Kaiser come in, talk to me about this. And I went into some depth. All of the incentives are toward less medical care. Because the less care they give them, the more money they make.
Nixon: Fine
Ehrlichman: ...and the incentives run the right way.
Nixon: Not bad.

February 18, 1971
Nixon's Special Message to Congress proposing a National Health Strategy

I'm going to start with his last paragraph:

Nineteen months ago I said that America's medical system faced a "massive crisis." Since that statement was made, that crisis has deepened. All of us must now join together in a common effort to meet this crisis--each doing

Going forward, I only excerpted the parts related to insurance because the truth now as then is that the real issue when this nation talks about health care reform, is that we are only talking about how the money will travel to pay for it. Cost controls are always second and presented as a results of how the money will travel. Improved outcomes are always third and a result of how the money will travel. Tort reform equals how the money will travel. More people having access? Again a result of how the money will travel.

What follows are Nixon's arguments for keeping a private system. The points should all sound very familiar. There are a few items however that might surprise you as to him being a republican compared to today's “republican”. In the end, it is still the republican (and now also DLC) ideology of free market rhetoric supporting a discussion of what I consider the false market in “health care reform”: The third party, the middleman.

This is long after the jump. Please take the time to read Nixon's words. Reading such history first hand is the only means we have for growing a more mature social personality.

As you read, pay attention to the reasoning and expected results, then compare them to today. Today, is the actual results. The results are what we are living.

Recognize the sales pitch. Recognize the appeal to humanistic needs as part of the pitch for the product. Nixon was not trying to sell a better America. That was just jive talk to sell HMO's. Recognize such in today's presentation.

Continuing Nixon's presentation:
Our record, then, is not as good as it should be. Costs have skyrocketed but values have not kept pace. We are investing more of our nation's resources in the health of our people but we are not getting a full return on our investment.

This new strategy should be built on four basic principles.
1. Assuring Equal Access
2. Balancing Supply and Demand.
3. Organizing for Efficiency. There are two particularly useful ways of doing this:

A. Emphasizing Health Maintenance. In most cases our present medical system operates episodically--people come to it in moments of distress--when they require its most expensive services. Yet both the
system, and those it serves would be better off if less expensive services could be delivered on a more
regular basis... In short, we should build a true "health" system-and not a "sickness" system alone. We should work to maintain health and not merely to restore it.
B. Preserving Cost Consciousness. As we determine just who should bear the various costs of health care, we should remember that only as people are aware of those costs will they be motivated to reduce them. When consumers pay virtually nothing for services and when, at the same time, those who provide services know that all their costs will also be met, then neither the consumer nor the provider has an incentive to use the system efficiently.

4. Building on Strengths. We should also avoid holding the whole of our health care system responsible for failures in some of its parts. There is a natural temptation in dealing with any complex problem to say: "Let us wipe the slate clean and start from scratch." But to do this-to dismantle our entire health insurance system, for example--would be to ignore those important parts of the system which have provided useful service...

One of those strengths is the diversity of our system--and the range of choice it therefore provides to doctors and patients alike. I believe the public will always be better served by a pluralistic system than by a monolithic one, by a system which creates many effective centers of responsibility--both public and private--rather than one that concentrates authority in a single governmental source.

A. REORGANIZING THE DELIVERY OF SERVICE

In recent years, a new method for delivering health services has achieved growing respect. This new approach has two essential attributes. It brings together a comprehensive range of medical services in a single organization so that a patient is assured of convenient access to all of them. And it provides needed services for a fixed contract fee which is paid in advance by all subscribers.

Such an organization can have a variety of forms and names and sponsors. One of the strengths of this new concept, in fact, is its great flexibility. The general term which has been applied to all of these units is "HMO"--"Health Maintenance Organization."
The most important advantage of Health Maintenance Organizations is that they increase the value of the services a consumer receives for each health dollar. This happens, first, because such organizations provide a strong financial incentive for better preventive care and for greater efficiency. A fixed-price contract for comprehensive care reverses this illogical incentive. Under this arrangement, income grows not with the number of days a person is sick but with the number of days he is well. HMO's therefore have a strong financial interest in preventing illness, or, failing that, in treating it in its early stages, promoting a thorough recovery, and preventing any reoccurrence. Like doctors in ancient China, they are paid to keep their clients healthy. For them, economic interests work to re-enforce their professional interests.

...So is this administration. That is why we proposed legislation last March to enable Medicare recipients to join such programs. That is why I am now making the following additional recommendations:
2. To help new HMO's get started-an expensive and complicated task--we should establish a new $23 million program of planning grants to aid potential sponsors--in both the private and public sector.
At the same time, we should provide additional support to help sponsors raise the necessary capital, construct needed facilities, and sustain initial operating deficits until they achieve an enrollment which allows them to pay their own way. For this purpose, I propose a program of Federal loan guarantees which will enable private sponsors to raise some $300 million in private loans during the first year of the program. (In 2009 dollars that's: $1,594,443,347.32 using the Consumer Price Index, $1,270,112,394.52 using the GDP deflator, using value of consumer bundle, $1,572,128,637.06 using the unskilled wage, $2,589,331,122.17 using the nominal GDP per capita, $3,796,805,962.20 using the relative share of GDP)

F. A NATIONAL HEALTH INSURANCE PARTNERS HIP
In my State of the Union Message, I pledged to present a program "to ensure that no American family will be prevented from obtaining basic medical care by inability to pay." I am announcing that program today. It is a comprehensive national health insurance program, one in which the public and the private sectors would join in a new partnership to provide adequate health insurance for the American people.

In the last twenty years, the segment of our population owning health insurance has grown from 50 percent to 87 percent and the portion of medical bills paid for by insurance has gone from 35 percent to 60 percent. But despite this impressive growth, there are still serious gaps in present health insurance coverage. Four such gaps deserve particular attention. (Ok, well this has definitely been reversed.)
First--too many health insurance policies focus on hospital and surgical costs and leave critical outpatient services uncovered... Because demand goes where the dollars are, the result is an unnecessary--and expensive--- overutilization of acute care facilities. The average hospital stay today is a full day longer than it was eight years ago. (Yup, fixed that one.)

A second problem is the failure of most private insurance policies to protect against the catastrophic costs of major illnesses and accidents. Only 40 percent of our people have catastrophic cost insurance of any sort and most of that insurance has upper limits of $10,000 or $15,000. This means that insurance often runs out while expenses are still mounting. For many of our families, the anguish of a serious illness is thus compounded by acute financial anxiety. Even the joy of recovery can often be clouded by the burden of debt--and even by the threat of bankruptcy.
A third problem with much of our insurance at the present time is that it cannot be applied to membership in a Health Maintenance Organization--and thus effectively precludes such membership. No employee will pay to join such a plan, no matter how attractive it might seem to him, when deductions from his paycheck--along with contributions from his employer--are being used to purchase another health insurance policy.

The fourth deficiency we must correct in present insurance coverage is its failure to help the poor gain sufficient access to our medical system. Just one index of this failure is the fact that fifty percent of poor children are not even immunized against common childhood diseases. (We are above 80% now.) The disability rate for families below the poverty line is at least 50 percent higher than for families with incomes above $10,000.

Our National Health Insurance Partnership is designed to correct these inadequacies--not by destroying our present insurance system but by improving it. Rather than giving up on a system which has been developing impressively, we should work to bring about further growth which will fill in the gaps we have identified. To this end, I am recommending the following combination of public and private efforts.

1. I am proposing that a National Health Insurance Standards Act be adopted which will require employers to provide basic health insurance coverage for their employees. (Guess that answers the question of why we have an employment based system. Oops! Hey, no Walmart then either.)

2. I am also proposing that a new Family Health Insurance Plan be established to meet the special needs of poor families who would not be covered by the proposed National Health Insurance Standards Act--those that are headed by unemployed, intermittently employed or self-employed persons.
Accordingly, I propose that the part of Medicaid which covers most welfare families be eliminated. The new Family Health Insurance Plan that takes its place would be fully financed and administered by the Federal Government. It would provide health insurance to all poor families with children headed by self-employed or unemployed persons whose income is below a certain level. For a family of four persons, the eligibility ceiling would be $5,000. (I'll say it for Fox News: Democrat President Nixon today proposed...)

Our program would also require the establishment in each State of special insurance pools which would offer insurance at reasonable group rates to people who did not qualify for other programs: the self-employed, for example, and poor risk individuals who often cannot get insurance. Did I hear something about co-ops?)

I also urge the Congress to take further steps to improve Medicare. For one thing, beneficiaries should be allowed to use the program to join Health Maintenance Organizations. (Well it took 30+ years, but they got that: Medicare Advantage.)

...To begin with, there simply is no need to eliminate an entire segment of our private economy and at the same time add a multibillion dollar responsibility to the Federal budget. Such a step should not be taken unless all other steps have failed.
More than that, such action would be dangerous. It would deny people the right to choose how they will pay for their health care. It would remove competition from the insurance system--and with it an incentive to experiment and innovate...There is a better way--a more practical, more effective, less expensive, and less dangerous way--to reform and renew our nation's health system.

38 years since this speech. A speech that has all the same talking points regarding a private, free market based system as we heard with Hillary Care and today. We did the employer based HMO version of private insurance after the other version (BCBS employer based) did not work including the HMO medicare experiment in this decade. We are worse off than ever by all reports from all parties. It was not “ a better way--a more practical, more effective, less expensive, and less dangerous way...”. It has failed. People are in more danger today. All other ways have failed: a no health insurance system, an employer based non-profit private system, an employer based for profit private system and privatizing a single payer, government run system. The time has come. We have met the exception that Nixon gave the nation. We can now prove or disprove that there is such a creature as the “rational consumer”.

Ehrlichman: Edgar Kaiser is running this Permanente deal for profit. And the reason that he can, the reason he can do it...I had Edgar Kaiser come in, talk to me about this. And I went into some depth. All of the incentives are toward less medical care. Because the less care they give them, the more money they make.
Nixon: Fine
Ehrlichman: ...and the incentives run the right way.
Nixon: Not bad.

Tina at Scatterplot Explains It All to You (now in paperback).

Robert Waldmann

A good sign of a totally bogus argument is reliance on contradictory presumptions of fact. When one is simply wrong, one can often make a convincing argument by inventing facts. When one is being absurd, one can fall into the temptation to invent inconsistent facts.

In this article in the Washington Post Ceci Conolly is being absurd. She argues that progressives (such as movon) who attack Democratic Senators who don't support a public option are endangering health care reform. For brevity only I will call the first group "leftists" and the second "centrists." "Centrists" is not as accurate as "people who care more about the value of insurance company shares than equity or efficiency and who are willing to sell their votes for campaign contributions" would be more accurate but too long.

She presents two arguments one stated in her own name in what is supposed to be a news article and one ascribed to an anonymous source whom she does not criticize.

The first is that the centrists have the power and might destroy health care reform if their feelings are hurt. Hence her personally stated opinion that leftist pressure is a bad idea because "the intraparty rift runs the risk of alienating centrist Democrats who will be needed to pass a bill." Now I know it was rude of me to suggest that said centrists are more or less corrupt, but at least I didn't assert as Connolly did that they are willing to leave people without health insurance out of pique.

The second is that centrist Democrats are better than Republicans and terribly weak so that criticizing them will cause them to lose office -- just look what a close call Ben Nelson had last time. Hence the anonymous source "The strategist, who asked for anonymity because he was criticizing colleagues, said: "These are friends of ours. I would much rather see a quiet call placed by [Obama chief of staff] Rahm Emanuel saying this isn't helpful. Instead, we try to decimate them?"" So which are they people so powerful that they must not be offended or they will damage the country or people so weak that one tenth of them will die horrible deaths if they are criticized ?

One of the other Conolly and Penn or maybe Schoen .

Oh and did the strategist also ask that it not be mentioned whether or not he or she is paid by big business for helping them with public relations ?

Just reading the headline, I knew I'd be hearing about this at eschaton who linked to Adam Green.

Boy am I late on this. I'm not even the first Waldman[n] to denounce Connolly.

rdan

I found this saying over at Oildrum in the comments on a post about asset deflation and price inflation through the rise in prices for oil and some other commodities instead of money/interest rate centered thinking.

"People don't change when they see the light; they change when they feel the heat." (source unknown)

Add the campaign of writing to the SEC at Zero Hedge and create some heat.

rdan

Americas Program, Center for International Policy provided a translation of news from Peru, in relation to the working of the recently signed free trade agreement (Jan. 16, 2009) and effective Feb.1, 2009.

Three MI-17 helicopters took off from the base of the National Police in El Milagro at six in the morning of Friday, June 5. They flew over Devil's Curve, the part of the highway that joins the jungle with the northern coast, which had been occupied for the past 10 days by some 5,000 Awajún and Wampi indigenous peoples. The copters launched tear gas on the crowd (other versions say that they also shot machine guns), while simultaneously a group of agents attacked the road block by ground, firing AKM rifles. A hundred people were wounded by gunshot and between 20-25 were killed.

I haven't found anything on twitter. Why the difference in our coverage?

Update: hat tip reader juanjo for the twitter link to Bagua.

Some blogs suggest a topic when posting open threads. Should this be tried? And who has a list? Of course, some should simply be open.

With today's (well, yesterday's) five closings, the total of failings of U.S. banks since March of last year to 69.

Of those, slightly more than 20% (14) are from the state of Georgia. Excepting the much larger California, there have been more failings in Georgia than in any two other states combined.

Also as a matter of record, the 69 failings since last March constitute more than 70% of the 97 failings since October of 2000. So, in round numbers, 15% of the time accounts for 70% of the failings.

Bubbles beget bubbles. Anyone find anything more to it than that?

rdan

Reader Jack sends this link to Michael Jackson's death:

This is the best commentary on Michael Jackson that you're likely to read. That's only because it's not written by a member of the media, but a well educated and well intentioned person instead.

From: Informed Comment by Juan Cole:

Michael Jackson's sad death at age 50 has provoked an outpouring of emotion around the whole world. Because of globalization, it is an event that affects fans in Asia and the Middle East, as well. In early 2007, his brother Jermaine, a Muslim, announced that Michael would embrace that religion. In November of 2008, just months before his death press reports said that Michael Jackson had formally converted to Islam.

Jackson was a man of multiple identities, which helped account for his enormous worldwide popularity. It seems clear that he was deeply traumatized by his rough show business childhood, and that things happened to him to arrest his development. Just as a stem cell can grow into any organ, Michael's eternal boyishness made him a chameleon. Increasingly androgynous, he expressed both male and female. A boy and yet a father, he was both child and adult. In part because of his vitiligo, he interrogated his blackness and became, like some other powerful and wealthy African-Americans of his generation, racially ambiguous. Toward the end of his life he bridged his family's Jehovah's Witness brand of Christianity with a profound interest in Islam. He was all things to all people in part precisely because of his Peter Pan syndrome. A child can grow up to become anything, after all.

Our findings do not provide much support for the usefulness of monetary aggregates in forecasting inflation.

See more at the St. Louis Fed.

Did building realistic macroeconomic models just get a touch more difficult?

When I first heard that Michael Jackson died, I thought immediately of Chuck Sullivan. I met him once, probably in the early 1990s, after his sponsorship of The Jacksons's Victory tour savaged his fortune. Unlike the other Moguls I Have Seen, it seemed his reversal of fortune impacted his mood. (More likely, I just caught him on a bad day.)http://www.blogger.com/post-create.g?blogID=5048766

So I decided to do an AB post about the Victory tour, which was probably the beginning of the end for MJ's claim to being "the new Elvis," since it was the last time he toured with his family.

Fortunately, as my Loyal Reader (a loyal Patriots fan) notes, I don't have to. Chad Finn at the Boston Globe tells the story:

[A] disastrous business venture by the Sullivan family -- the founding owners of the franchise -- indirectly helped Kraft fulfill his dream of owning the Patriots....Charles Sullivan had used the stadium as collateral to fund the Jackson brothers' Victory Tour back in 1984. Over-leveraged, Sullivan went bankrupt and was forced to sell the arena.

The rest, as they say, is HIStory.

UPDATE: More discussion of the Victory tour, the Reagan Administration, and the bitter attitude of a future Supreme Court jutice at the NYT blog h/t Greg Mitchell's Twitter feed).

Dear Barry:

The need for posts such as this one recurs because the large majority of economists are idiots. (Multiple exceptions noted—but not enough to change the truth of the initial statement.)

As the regulatory reform report notes (quoted by PK at the last link above):

In fact, enforcement of CRA was weakened during the boom and the worst abuses were made by firms not covered by CRA.

But the truth should never be allowed to get in the way of Economic Theory.

by Bruce Webb

Congressional Budget Office Long Term Budget Outlook
Discuss.

(Social Security is chapter 3)

(Update) Not a lot of meat here. CBO offers two outlooks for Social Security, one which projects a payroll gap of 1.33% (extended baseline) and another 1.54%. (alternative fiscal scenario). The former assumes that the 2001 and 2003 tax cuts sunset on schedule and the AMT is not indexed for inflation, the latter assumes the opposite. In any event either is below the Trustees' current law projection of 2.00%. Meaning the cost of the Northwest Plan would be adjusted down by a third or a quarter respectively.



Oh my gosh! As the percentage of people of retirement age doubles so does the amount of GDP needed to house and feed them! Hmm, what the hell is wrong with that? Retirees not having to shuffle up to the table to beg for scraps? Getting their proportionate share of GDP? The horrors!



And for the privatizers out there, be sure to compensate for the fact that 36% of benefits goes to survivors and disabled workers when calculating your ROI.

by reader ilsm

GAO Testimony 09-969T, On Cost and Performance of the V-22 Osprey.

“Availability challenges also impacted the MV-22. In Iraq, the V-22’s mission capability (MC) and full-mission capability (FMC) rates fell significantly below required levels as well as rates achieved by legacy helicopters.6 The V-22 MC minimum requirement is 82 percent, with an objective of 87 percent, compared with actual MC rates for the three squadrons of 68, 57 and 61 percent.” Pg 7.

Availability is the percent of a fleet of systems which are serviceable to be committed to military missions. The only valid way to measure availability is across fleets. Here GAO errs slightly and uses mission capability in the same paragraph; possibly because it is the metric the Navy wants to use to save face. GAO goes on to state that the required mission capability is not achieved. Mission capability is important to the individual squadron which has to perform instant operations with its assigned aircraft, which are all serviceable going into the operation. This does not account for systems in long term unserviceable condition, which are counted in availability figures.
Generally, mission capability runs 20% higher than availability, but availability is hidden on new stuff, while shouted about on older stuff, because there would be severe embarrassment if you considered that 40% of the brand new V-22 were not available (okay 60% available sounds much better, buy a car which is broke 40% of the time, how good does the warranty service need to be?).
The Navy and GAO are not sure which metrics to use. One of the reasons that US quality fell in the 70’s was avoiding measuring the hard things gets you in trouble; a weakness of the DoD acquisition process. But the spending is more important than meaningful results.
Missing mission capable suggests that basic reliability and maintenance performance are not part of V-22 repertoire. Quality may not have been affordable during the long development cycle, and the savings are now costing in added support and lost use of the V-22
Not surprising the MV-22 was deemed unsuitable in 2000. Nothing seems to have improved in the past 9 years.
A lot of reliable beaks could have been whittled and as useful as the unavailable, not mission capable V-22 taking up maintenance space.
___________________________________________
by reader ilsm

Via Eszter, there is one thing that is very clear from this graphic (duplicated below because I can't figure out how to embed it):

There is an excess of home-based internet capacity in the United States, for which people are definitionally paying too much.

The question is whether this is a problem. If you argue it is not—that the excess spending gets reinvested and used to develop new products and services that, on balance, benefit the economy—then please explain this in the context of any contemporary economic model.

Discuss in comments.

rdan

The Economist reminds us of a common notion, but not explored a lot in the news. Decline in demand overall, and finance, is a major concern for trade partners, but is complicated because products often travel from country to country in stages of completion to finished product.

Economists believe that an additional reason for these sharp and co-ordinated drops lies in a fundamental change in the nature of global trade over the past three decades, as a result of the rise of global supply chains. When David Ricardo posited that comparative advantage was the basis of trade, he conceived of countries specialising in products, such as wine or cloth. Now, they specialise not so much in final products as in a step, or steps, in the production process, what economists call “vertical specialisation”. Vertical specialisation has grown by about 30% and accounts for a third of the growth in trade over the past 20 to 30 years.

Vertical specialisation led trade to grow much faster than it would have otherwise. Earlier, a tractor made in America would use American steel and parts: its only contribution to trade would come if the finished item were exported. Now, that tractor may use steel from India that is stamped and pressed in Mexico, before being exported to Tanzania. Global supply chains have increased the amount of international trade involved in getting a product made and delivered to its final user.

On the flip side, declines in demand that would once have resulted primarily in a fall in domestic output, and would only have had a second-order effect on other countries' exports because of the decline in domestic incomes, now immediately affect trade flows in several countries. The same mechanism that was responsible for the remarkably rapid growth in trade since the early 1980s is now amplifying the extent to which trade responds to a decline in demand, which explains the remarkable synchronisation with which trade is declining everywhere.

Kiplinger offers an example of such a process, the manufacture of plastic pipe. Product crosses the border multiple times as it is completed.

Update: Voxeu covers the issue, of course, very thoroughly.

Much of U.S.-Canadian trade involves goods crossing the border multiple times before the products in which they're used are finally completed. Indeed, supply chain integration has long been one of the main benefits of NAFTA, given its role in increasing trade and lowering production costs. Makers of water and wastewater equipment, the manufacturers hit hardest by the stimulus bill's Buy American rules, accounted for $10 billion in cross-border trade last year. Other industries with North American supply chains will get dragged down, too, if they're unable to buy from Canada and Mexico.

Consider the case of IPEX, a Canadian-based manufacturer of thermoplastic pipe systems for the construction sector, to see how the problem is playing out on both sides of the U.S.-Canadian border. Before it can participate in a U.S. construction project, IPEX is now asked to sign a certificate affirming that all its products are made in the U.S. Since IPEX's supply chain is integrated across the border, its product load is invariably a mix of Canadian and U.S. parts. The result is that it is either unable to bid on the project or the parts are turned away if they have already been shipped to a construction site.

"Before Feb. 17, we had access to the U.S. market," says Veso Sobot, an IPEX engineer, referring to the date the stimulus bill became law. "Since Feb. 17, we have not." That's bad news for companies such as Westlake Chemicals. Westlake, based in Houston, manufactures the raw materials IPEX uses to make its pipes. IPEX's troubles in the U.S. market will force it to cut back production.

"America ships way more product into Canada than Canada ships into America," says Sobot. "If we injure either one of us, we're injuring ourselves collectively, and we won't be able to compete effectively on the world stage."

rdan

American Economic Alert points us to a lack in who has a voice in manufacturing. The Economic Recovery Advisory Board was set up in 2008:

ERAB's makeup is a case in point. Headed by former Federal Reserve Chairman Paul Volcker, the panel contains members from many perspectives beyond what Mr. Obama calls the Washington "echo chamber." But ERAB needs more than the academics, labor leaders, financiers, chief executive officers and former officials whom the president has appointed (along with a media representative and a major Realtor).
Like the rest of Mr. Obama's advisory team, the board also needs adequate business representation from the economy's real wealth-creating sector - the goods-producing industries that Washington has too long neglected and whose revival is essential to overcome a crisis born of overconsuming, overborrowing and excessive debt.
ERAB does contain two representatives from manufacturing - which dominates the goods-producing sectors. But the picks - Jeffrey Immelt of General Electric (GE) and Jim Owens of Caterpillar - head multinational companies whose top declared priorities do not include expanding output in the United States.
Two years ago, for example, senior GE executive Lloyd Trotter told an investor conference that by 2010, more than 50 percent of the company's worldwide manufacturing would be performed outside the United States. As recently as 2002, that figure was only 28 percent. At the end of 2006, Mr. Immelt said that in five years, GE would likely at least double the share of its global purchases from low-income countries, like China and India, from the then-current level of 19 percent.
As Mr. Trotter explained: "Low-cost country savings are generally 20 [percent] every time we do it."
As Mr. Immelt made clear, except for goods restricted by export controls, there are many other products "that we can move substantially outside the United States." Mr. Immelt did specify that these offshored goods wouldn't be sold only locally, but worldwide, including of course to U.S. customers.
Because the United States still represents nearly a third of the world economy and an outsize share of its consumption, it's easy to see how Americans fit into this business model as customers. It's much harder to see how they fit in as producers to any comparable extent. With America's chances for recovery depending ultimately boosting production relative to consumption, Mr. Obama clearly needs to hear a fundamentally different manufacturing perspective.
Caterpillar doesn't fit the bill, either - even though the president keeps touting its achievements (during a visit to its Peoria, Ill., headquarters) and its challenges (at the Group of 20 summit). For many years, the company has indeed kept a much higher share of its worldwide employees in the United States than most other U.S. multinational manufacturers. But it preserved U.S. jobs mainly by crushing its unions and slashing wages, down to near Wal-Mart levels for new hires. That's a recipe for fixing Americans' broken finances only if living standards fall even more dramatically.
Moreover, Mr. Owens lately has been moving many more Caterpillar jobs and production offshore despite these employee sacrifices. From 2006 to 2008 alone, according to the company's latest figures, its U.S. work force rose by nearly 10 percent, but its foreign work force increased by more than 29 percent. As a result, the U.S. share of its global work force has slipped during this period from 51.5 percent to 47.4 percent. And during this period, Caterpillar's foreign work force grew fastest by far - more than doubling - in predominantly low-wage Asia.

...

More important, the economy remains so weak that Mr. Obama can't afford to wait for new priorities from Mr. Immelt or any of his peers. The administration urgently needs to start hearing consistently from executives fiercely devoted to producing, innovating, and creating good jobs in the United States, and boasting decades of experience in succeeding. The U.S. Business and Industry Council knows nearly 1,900 of them. It owns our member companies. We would be honored to recommend any of them to help the president put the economy back on track.

Caterpillar is scheduled to replace older factories in the US with new facilities in China...three new facilities I believe, to manufacture and sell for Chinese consumption as well as ours. However, I have not found announcements of plant closings at this time.


It is not the fact of new plants in China that is a problem. Chinese government stimulus spending emphasizes infrastructure spending as well. What is a global economy going to look like, and what response needs doing other than simple slogans like "Buy American".

In which Robert Waldmann finds economic theory useful.

A question: when does deficit financed public spending cause higher interest rates which cause private investment to be lower than it would be other things (including the spending) equal.

Proposed answer, not when we are in a liquidity trap.

Depending on the definition of liquidity trap this answer is wrong or not relevant to the current situation.

Now I confess that some economists (including me) sometimes rely on an equivocation to argue that we are in a liquidity trap and therefore there will be no crowding out via interest rates. The evidence that we are in a liquidity trap is that safe short term interest rates are very low. However, for there to be no crowding out via interest rates it is necessary either that deficit financed public spending doesn't affect long term interest rates, or that long term interest rates don't affect investment.

Also note that investment depends on factors other than just interest rates. In the data, high investment is associated with high GNP growth as well as with low interest rates, so even if there is some crowding out via interest rates, the net effect of the spending on private investment can be positive.

One justification for looking only at safe short term interest rates and the whole yield curve is that, if safe short term interest rates are zero expansionary monetary policy is pushing on a rope (as is absolutely demonstrated by recent experience). This means fiscal policy is the only available demand policy so "is there any crowding out via interest rates" is not the key issue. So we should define a liquidity trap as a period with safe short term interest rates are zero and define a new term for the whole term structure is zero -- say a super liquidity trap and get to a second proposed answer

Not when we are in a super liquidity trap. After the jump I criticize my second proposed answer.



It is clear from the data that increased deficits and expected future deficits cause higher long term nominal interest rates. Direct measurement of real interest rates via markets for TIPS (indexed to the CPI) is a recent phenomenon. The anticipated effect of Bush deficits on long term interest rates didn't IIRC show up. The counter-argument basically is that the period whith both TIPS and insane US fiscal policy is identical to the period of insane People's Bank of China policy.

However, it is also possible that deficits affect long term interest rates only via inflation. Economic theory suggests that investment should depend on real not nominal interest rates. So it is possible that there is no crowding out via interest rates due to deficit spending.

Oddly, there is a strange argument which is the same up to the last sentence and then draws the opposite conclusion. The argument is high deficits cause high expected inflation which causes high nominal long term interest rates which cause reduced investment. One often meets this argument in non-academic discussion of the economy. My reaction has always been "huh?!?" (also before I took my first economics course). I don't think it is possible to write down an economic model in which people are rational and price indices are available and indexed contracts can be written, in which long term nominal interest rates matter.

I now discover that I find economic theory useful in my efforts to understand this argument. I don't generally find economic theory useful. Certainly my opinions on the economy and economic policy haven't been influenced at all by my own work in economic theory which is modest but not zero.

However, I didn't find economic theory useful in a way which is flattering to economic theory. My reasoning is that an argument which is so theoretically unsound probably wouldn't survive if it weren't supported by actual experience. Now this argument might rely on an underestimate of human idiocy, but I find it convincing.

If all firms considered only their expected long term real interest rate when deciding on investment, then people would notice.

It is very possible that nominal interest rates matter because debt contracts aren't indexed. For example take floating interest rate loans with fixed nominal repayment schedules. Higher inflation implies a more rapid rate of required real repayment. Ooops. There are many many such contracts. It is hard to reconcile the existence of such contracts with rationality but they exist. If people look at debt service ratios and count nominal not real interest as the cost of debt then they will be confused by inflation. And so forth and so on.

To me the fact that the argument makes no sense in theory leads me to suspect that it is important in practice.

By Spencer

In today's New York Times business section I read this headline:


Weak Dollar Helps Send Profit Down at Oracle

As I read the article I found this statement:

The company attributed the declines to the effects of a stronger dollar, which makes deals done in other currencies worth less.

I wonder which statement is correct.

In general, the best relationship between the dollar and earnings growth is a negative relationship between the change in the dollar lagged about one year.

P.S. Earlier chart updated to show last year. Thanks Greg.

Note, despite all the headlines about the weak dollar, in May the dollar was 15% above its year ago level. Like bonds, late last year when the markets feared a depression scenario the dollar rallied strongly, and the recent weakness looks more like a return to normal than anything else.

rdan

UNU Conversation Series

As the think-tank for the United Nations and its member states, the United Nations University brings some of the most important intellectual and policy voices from around the globe, including Olivier Blanchard, Janos Bogardi, Francois Bourguignon, Noam Chomsky, Richard Cooper, Evsey Gurvich, Thomas Hoenig, Robert Johnson, Jomo Kwame Sundaram, Wim Naude, Léonce Ndikumana, Eisuke Sakakibara, Luc Soete, Joseph Stiglitz, Roberto Mangabeira Unger, Aude Zieseniss de Thuin, to name a few, to help bring clarity to some of the key issues at the center of the economic crisis.

...

The portal of the UNU Conversation Series will be launched on June 23 2009 and
available at www.ony.unu.edu/unueconomiccrisis. As these conversations are meant to be a work in progress, your feedback, comments and suggestions on the conversations are welcome and can be addressed to economiccrisis@unu.edu.

Update: Link fixed

by cactus

Inflation or Deflation, That is the Question

These days some smart people are expecting inflation, other smart people are expecting deflation, and there's another big batch of smart people who are either expecting both or don't know. I figured - why should smart people have all the fun?

So I came up with a working hypothesis that the evaporation of wealth created a hole in the public's collective balance sheet which the Fed is trying to fill with money. While the hole doesn't have to be completely filled for there to be inflation, I suspect while the hole is mostly empty pumping money in won't create inflation. After all, for years following the dot com bomb, the Fed kept the money supply nice and loose and there was no inflation. (And yes, I'm sidestepping what constitutes a mostly empty hole and at what point it becomes filled enough for inflation to be a worry.)

I got net worth for households and nonprofits (sorry, but the Fed groups nonprofits in there and I can't find this series without nonprofits) and m2 from the fed, both quarterly. I annualized quarterly inflation, then adjusted both series (net worth and M2) and then divided by population. I then graphed 'em both. (Note - normally I would use M1 as opposed to M2 because the Fed has more control over M1. However, in this instance, it seems that some of the actions we've seen the Fed plus the gubmint take are intended to loosen up components of M2 that are not encompassed in M1, so I'm going with M2 here.)



The hole in the public's collective balance sheet appears to be quite a bit bigger than the pile of money the Fed has shoveled into it, or rather, into the big players on Wall Street. (Note the big difference in the scale of the two axes!!) Thus, for the time being at least, I think we're closer to deflation (in general) than inflation (in general).

I realize this isn't the usual way to think about inflation, and I'm not sure its right. Any thoughts?

---

Data
households and nonprofit organizations net worth (market value) asset
CPI, M1, M2 and Population
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by cactus

by Linda Beale

There is an interesting book that I am just beginning, by George A. Akerlof & Robert J. Shiller. It's called "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism". The jacket says that the authors "challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity." It is clearly a Keynesian approach--the jacket, again, says they make the case for "a more robust, behaviorally informed Kenyesianism".

Sounds like a tall order, and I have not yet read or thought about enough of the book to know whether it is satisfied or not. But I do find the emphasis on fairness of considerable interest.

Fairness has long been a keystone of tax policy, and yet there are a number of tax scholars who consider efficiency the quintessential policy consideration and sometimes appear to relegate fairness to the corner for hobgoblins of small minds. So I wonder if this book, and its recognition of the overriding importance of fairness to economic analysis, is indicative of a fundamental change in the academic approach to economics and related fields that have tended to push fairness aside.

Here's a quote from Albert Rees (Chicago PhD in labor economics) that starts off the second chapter on fairness.

The neoclassical theory of wage determination, which I taught for 30 years and have tried to explain in my textbook...has nothing to say about fairness. ... Beginning in the mid-1970s, I began to find myself in a series of roles in which I have participated in setting or controlling wages or salaries. ... In none of htese roles did I find the theory that I taught so long to be the slightest help. The factors involved in setting wages and salaries in the real world seemed to be very different from those specified in the neoclassical theory. The one factor that seemed to be of overwhelming importance in all these situations was fairness. (Akerlof & Shiller at 20, quoting Rees, The Economics of Trade Unions, Univ. of Chicago Press, 1973).

The authors go on to admit that Rees exaggerates, but then they provide a critical insight.

However many articles there have been on fairness, and however important economists may consider fairness, it has been continually pushed into a back channel in economic thinking. ... But fairness may be just as important as the economic motivations that are given prime time. (Akerlof & Shiller at 20.)

So what economic theories of fairness do the authors suggest merit consideration? They highlight socilogy's equity theory of exchanges, which consider far more than the monetary value of the counterparties' positions, adding subjective evaluations about status, gratitude and similar factors. Another if the theory of social norms, that suggests that people are happiest when they live up to what they think they should be doing, including conducting themselves fairly with others (and being treated fairly by others).

And how should fairness be taken into account? Essentially, Alerkoff and Shiller argue that the old way of treating "real" economics as fundamental and fairness as an afterthought has to go. In stead, if fairness motivations are discounted, justification must be provided for doing so.

This approach, they say, explains much better than traditional economics the reality of unemployment and the fact that most firms pay their workers more than the market would require. It has to do with one's sense of fairness--if workers sense they are being treated more than fairly (and their wage is the ulimate symbol of this treatment), they will fully buy into the goals of their employers." If they are treated unfairly, they will tend to shirk. Id. at 105.

The difficulty of course, is in settling upon a definitive theory of fairness. In tax, we often talk about "ability to pay", in a relative sense, as the critical definition, which is in turn the justification for a progressive rate schedule that taxes wealthy people at a rate considerably (or, after 40 years of rate lowering, somewhat) higher than it taxes middle income people. Libertarians, among others, have pushed back against the ability to pay concept of fairness, arguing for one version or another of a flat tax. It is one of the critical struggles, from my perspective, in the current class warfare whereby some groups are pushing for zero taxation on capital income (through a national sales tax or consumption-base rather than an income-based tax system). In other words, though there is a long-held consensus position about fairness in tax, there is currently considerable foment around the very concept of fairness. I'm glad to see fairness appropriately emphasized, but that is just the first step to developing a fairer tax system or a more complete economic theory.

rdan

I have been chasing information on the budget deficits and potential impacts, the US trade deficit, and the cap and trade arguments linked to HR 2454 Waxman-Markey bill of hundreds of pages. Mostly it was figuring out how assumptions in data and baselines (such as the CBO reports) made a difference in the shrillness of the discussions on many blogs, including here. Then I visited David's blog and laughed out loud. Cleared my head for a new try.

David Zetland at Aguanomics helped lift my spirits a little today from a tired and unreflective male perspective I suppose. I was tired of being an uberwonk at that moment, with too many details and charts, and it fit the bill.

22 June 2009

Monday Morning Smile

Indian Chief Two Eagles was asked by a white government official, "You have observed the white man for 90 years. You've seen his wars and his technological advances. You've seen his progress, and the damage he's done."

The Chief nodded in agreement.

The official continued, "Considering all these events, in your opinion, where did the white man go wrong?"

The Chief stared at the government official for over a minute and then calmly replied. "When white man find land, Indians running it, no taxes, no debt, plenty buffalo, plenty beaver, clean water. Women did all the work, Medicine man free. Indian man spend all day hunting and fishing; all night having sex."

Then the chief leaned back and smiled. "Only white man dumb enough to think he could improve system like that."

hattip to JWT

by reader ilsm


The good and the bad (not ugly) analysis of the radically restructured US Army Future Combat System (FCS) if offered by GAO 09-793T:

The testimony covers the lessons from the “restructure” of the US Army’s Boeing (Lead System Integrator, LSI, Bush administration non-ovation) FCS.

The report lists “Good” things to do again, but offers no justification for the funds spent pursuing a super weapon technological solution to an arcane set of problems: “Holistic vision of the future force/ Focus on leveraging capabilities through an information (holistic) network”.

Another goal is "Integrating a common vehicle platform, standardizing support and linking all elements in a networked self reporting information infrastructure giving commanders insight into location and conditions of individuals, vehicles and maneuver units." This has been a goal of commanders since Xerxes, which is to have a picture of operations and threats in the “battlespace” and is something hotly pursued for air and sea battles as well. What is so innovative about this?

“Government insight into subcontractor selection and management." Here the GAO thinks it is good for the Army to do what it hired the LSI to do. I do not think this is any better than “trust but verify”, which is a contract form largely unused called cost plus contracting with the to terminate a loser before too much money is lost.

“Establishment of organizations to train with and evaluate technologies to be spun out to current forces”. This is an endorsement of the Louisiana maneuvers of 1940. Some technologists believe, wrongly, that you should build a system, then find a use for it. That is hoping and wishing some future adversary wants to fight the way you wish. That was okay in Western Europe in 1939 because all sides had agreed to fight WW I over, but the future may not have so many hard headed militarists who view war as a joust.

All the good is not so good, nor suggests much to be repeated.

Next is the bad, and a common observation seen in the 60’s through today:
“Not executable within reasonable bounds of technical, engineering, time, or financial resources, “. The LSI and the Army did not know what they could do for the money. This supports other GAO observations about having knowledge before spending the money. This is common in each GAO set of findings. The program team says they can name the song in 4 notes and end up needing the whole chorus.(metaphore, of course)

“Technology and management immature and unable to meet DOD’s own standards for technology and design,” As above “undue optimism” of the technology and the integration into a “workable” solution.

“Weights and software code grew, key network systems were delayed, and technologies took longer to mature,” Resulted from technological optimism.

“By 2009, it was still not known that the FCS concept would work. Oversight has been extremely challenging, given the program’s vast scope (huge number of bucks better spent elsewhere) and the innovative, but close, partner-like relationship between the Army and the LSI” (Too close, too “success” oriented; how much money had to be sent after bad before failure was too expensive to hide?)

Oversight has been extremely challenging is code(“Success oriented”)for 'don’t tell the bad news until it cannot be avoided, and raising the alarm proved that both the LSI and the Army were not doing the job!

These sets of statements of "good and bad" apply to most DoD acquisitions. Nothing changes, but new program people arrive who forget the past and move ahead to unknown demands on an ever optimistic industry, (which can do anything as long as time and money are not limited).

The point missed is that the only justification for this excursion into trying to run an impossible development is that FCS is needed for “modernization”. Good thing, the US would have been in trouble if the FCS were really needed to provide the common defense.

For the money I might as well whittle beaks……………..

But my dividend structure is less important than Boeing’s.
__________________________________________
by reader ilsm (lightly edited for readability)

by Cactus

Iran and American Conservatives


In Iran, protesters - a mostly young, college educated intellectual urban crowd - are getting their heads bashed in by the regime. Conservatives in the US are championing them and criticizing the administration for doing nothing. I'm curious - over the past few decades, how have conservatives in the US reacted when a mostly young, college educated intellectual urban crowd has protested over one thing or another here in the US? Have conservatives generally championed these people? If not, what is the difference between the two situations?
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by cactus

by cactus

I was going through some old posts of mine looking for something I had written when I stumbled on a gem I had completely forgotten. A few years ago, I had a post that quoted a piece in the American Spectator. Sadly, it seems for some reason they've seen fit to take it off-line, but here's a bit from my cut-and-paste job from a few years ago:

Kudlow: ...The companies that lead that change will lead the NASDAQ to 10,000.
TAS: In this decade?
Kudlow: By 2010 it should reach 10,000. The Dow Jones--which is really an old-economy value index--should keep rising, because the old dogs are learning new tricks.
TAS: The NASDAQ at 10,000 will please my wife. But what about my mother? Where do you expect the Dow to be at the end of the decade?
Kudlow: I've been on the record for 35,000 for awhile.

Last I checked, the Nasdaq was at eighteen hundred and change, the Dow was about 8500. So figure we've got a 5X run-up due on the Nasdaq, and a 4X move on the Dow, all by the time we reach 2010. Unless, of course, Larry is wrong again. We all make the occasional mistake, but has anyone bothered to go back and check on this guy's track record? All through 2008 he was talking about the goldilocks economy. I'm having a hard time coming up with something he was actually right on. Why do people listen to him?
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by cactus

by reader Sammy

Waxman-Markey: Intense Pain, No Environmental Gain

I know you guys won't like the source.... but try to deal with the issue.

From this Editorial:

If the pending Waxman-Markey energy and climate bill (HR 2454) becomes law, utility bills will soar. Farm and business energy costs will skyrocket — and be passed on to consumers, or defrayed by layoffs. Everything Americans grow, make, buy and do will be far pricier. And bureaucrats will control our lives.

Compared to no cap-and-tax regime, Waxman-Markey would cost the United States a cumulative $9.6 trillion in real GDP losses by 2035, concludes a study by the Heritage Foundation's Center for Data Analysis. The bill would also cause an additional 1.1 million job losses each year, raise electricity rates 90% after adjusting for inflation, provoke a 74% hike in inflation-adjusted gasoline prices, and add $1,500 to the average family's annual energy bill, says Heritage.

The Cong ressional Budget Office says the poorest one-fifth of families could see annual energy costs rise $700 — while high-income families could see costs rise $2,200. Harvard economist Martin Feldstein estimates that the average person could pay an extra $1,500 per20year for energy. And those are just direct energy costs.

Written largely by professional environmentalists, the numbingly complex 942-page bill would require an 83% reduction in U.S. carbon dioxide emissions by 2050 — a level last seen in 1908......

There are disputes over the costs of cap and trade (of course), as modelling is extremely complex and fraught with assumptions.

Republican opponents have used the cost figure of $3,100 per household per year based on an MIT study which found a generic cap and trade program would raise an average of $366 billion per year in auction revenues for the federal government 2015-2030, divided by 117 million households. This assumes that the increase in permit costs will be passed to consumers, which seems reasonable to me, YMMV.

Recently,the EPA produced a study for Congress that pegged annual costs at $98-$140 per household. Heritage challenges this analysis here.

The major difference in the two studies, as well as the dissent of one of the authors of the MIT study, is that the smaller cost estimates assume that since the permit costs get paid to the Federal Government they are "returned" to each household, presumably in the form of public services. Ha ha ha ha.

But the bigger question is why?

Even worse, the draconian rules would have no detectable benefits, even assuming CO2 does cause climate change. Using global warming alarmists' own computer models, research climatologist Chip Knappenberger calculated that the painful 83% reductions would result in global temperatures rising a mere 0.1 degrees F less by 2050 than doing nothing. That's because Chinese and Indian emissions would quickly dwarf America's job-killing reductions.

______________________________
by reader Sammy


Update 3:00 PM: Rdan here- This was prematurely released by mistake, in that the most recent post is somewhat different. My apologies to Sammy and readers.

Additional sources National Black Chamber of Commerce, Carbon Tax versus cap and trade, state by state differences demonstrating national averages as mis-leading and the complexity of carbon foorprints per capita by state, and Scientific American on some objections to cap and trade models.

Robert Waldmann

The unexpected increase in US productivity growth in the 90's and naughties is an economic puzzle. At the time it was widely argued that investments in information and communications technology had finally finally paid off, that computers and the internet allowed vastly improved corporation wide inventory control and the increased output given inputs reflected lower work in progress inventories. ... hmmmm maybe.

After the jump I will get serious, but here I will describe a theory which just came to me. I was thinking "The internet caused productivity to Increase ?!?!? That doesn't fit my experience. The internet caused my personal productivity to drop from low to minimal, and I know I'm not the only one." In fact, my impression is that office workers, that is cubicle serfs, now spend a large fraction of their working time time in the office, surfing the internet.

Heeey, I thought, maybe that's it. Maybe office workers contribution to actual production is negative. So my theory is that office workers, on average, mostly harass the people who actually make goods and provide services. Now that the internet has distracted us, the people who actually produce things have more time for actual production and waste less time responding to us.

You got to admit it answers a whole lot of quetions.


OK seriously what do I really think. I do think it has to do with office workers and, in particular, middle management. I don't think middle management actually interfered with production, but middle managers and affiliated secretaries and janitors and such count in the denominator of labor productivity. In the 90s there was a wave of downsizing and delayering. Basically top management in many firms decided to thin the ranks of middle management on the grounds that middle managers weren't doing aything useful. The outcome says that the top managers were ruthless and right.

To me the key figure is the almost completely forgotten and hated by the few who know who he is Phillip Caldwell. He's the guy who replaced Henry Ford II as CEO of Ford about the time Ford president Lee Iacocca was fired went off to save Chrystler. Iaccoca was very famous for a while, the guy after Caldwell -- Donald Peterson -- was a corporate hero for a while. Caldwell was a subject that the business press preferred to avoid. When he arrived, he laid of 30,000 people from Ford headquarters staff. He totally disrupted the lives of hard working people who were doing the jobs they were assigned and who had no responsibility for any strategic mistakes (made by various actual human Fords and Mr Iacocca). What a total jerk.

However, no one noticed a decline in the contribution of Ford headquarters to Ford, and, by the way, Ford is not bankrupt.

An even earlier example was the ruthless Jack "the ripper" Welch at GE. Ruthless layoffs in his first years, record profits later.

Basically I think the story is simple -- Parkinson's law -- bureaucracies naturally grow without limit. That includes the management of large corporations. Everyone knows that middle managers are mainly making work for other middle managers writing memos and calling meetings and stuff, but top management does not want to lay people off and especially not managers who are sort of like them instead of production workers who are sort of like equipment.

Before the productivity speed up there was the takeover wave. Corporate predators who converted huge amounts of equity to debt had to be ruthless to survive. Current top management decided they had to do what a predator would do after a takeover to avoid a takeover. They discovered that it was actually quite easy (middle managers don't riot or even strike) and very very profitable. The Drexel Burnham Lambert turned out to have roots as solid as Burham woods, junk bonds turned out to be junk, gambling S&L's went bankrupt and the takeover wave ended.

But CEOs had found a source of huge flows of profits -- slash middle management, and decided to keep the money for themselves paying themselves monster compensation for their ruthlessness.

That's my theory.

I think the standard theory is investment in computers and long slow painful learning what the hell to do with a computer by doing. The huge investment started in the 70s, but, given how helpless most people were with computers (and how user unfriendly computers were back then). Basically this is a theory that the productivity slowdown of the 70s and less so in the 80s was due to measurement error. Learning how to deal with computers is, in fact, investment in human capital, but the stock of human capital is not measured so measured GNP = consumption plus government consumption plus net exports plus investment in *physical* capital was much lower than GNP = measured GNP plus people learning to work with computers (plus other learning at a normal rate).

OK maybe. Betcha the person who came up with that theory had a *lot* of trouble learning to deal with computers *and* that he or she typed it up on a beloved PC.

Another theory is that output in the 90s and naughties was grossly missmeasured as houses and fiber optic cables and stuff were booked at their bubbly market prices, that is, that people weren't producing more they were just imagining that the things they were producing were worth a lot compared to (among other indices) the wages of the workers.

I'm sure my brand new play on the internet and leave actual workers alone hypothesis is false, so back to work pressing a graduate student who is doing actual research while I blog to deliver the written product.

rdan

Barkley Rosser at Econospeak raises several economic points to consider in the current political turmoil in Iran, stagflation (inflation over 17.1%) and significant unemployment (16.3%) among the whole population and perhaps double among the young (2006 data suggests the median age at 24/25 years).

...There are various numbers out there, but after digging around it would seem to me that the best estimate on the overall unemployment rate is that it was about 10.4% in December 2004 (http://www.payvand.com/news/04/dec/1102.html), but that by February 2009 it had hit 16.3% (http://www.encyclopedia.com/doc/1G1-594557005.html).

...the inflation in Iran also appears to have risen as well from 13.5% in 2006 to 17.1% in 2008, prodiving the dread genie of stagflation (http://www.indexmundi.com/iran/inflation_rate(consumer-prices).html) , with some reports suggesting it has soared to over 20% in 2009, all of this with much higher oil prices than in 2005, which should have made things easy for Ahmadinejad economically. It should also be noted that most sources show youth unemployment being anywhere from 50-100% higher than the overall rate, thus quite possibly over 30% now, with that of young women possibly as high as 50%. No wonder that Ahmadinejad has been hurting badly on the economic issue, both with fervent youth now in the streets, as well as with such previous backer as the conservative bazaari merchants and even reportedly with elements of the military and Revolutionary Guards who respected Mousavi's performance as prime minister during most of the Iran-Iraq war in the 1980s.

The real question now, in the face of clear electoral fraud by the regime, is why Khamene'i has switched sides and is backing Ahmadinejad this time over Mousavi, who appears not to have threatened the foundation of the regime before now. Khamene'i has called for there to be no demonstrations today in Iran, with the threat that any might be put down violently. This becomes even more problematic given that the one authority able to replace his is the council headed by former president Rafsanjani, whom he reputedly supported in 2005, but who now supports Mousavi by the best reports. Clearly this is a moment of deep decision in Iran...

Robert Waldmann

The Washington Post just fired Dan Froomkin. This has caused considerable outrage on the web. Interestingly, my personal reaction was that Froomkin doesn't need the Post -- he will get high traffic with a new affiliation or with an independent blog.

After the jump a recollection about how Froomkin has been getting in trouble for his journalism for over 30 years.



31 years ago today I was a freshman in the same dormitory as James Bradford DeLong. Dan Froomkin was then a senior in Sidwell Friends High School visiting colleges. He slept on a couch in the suit Brad shared with 3 other students (yes a suit, even freshmen have relatively decent accommodations at Harvard). Froomkin had a slightly tense reception. Brad had written an article about his first impressions of Harvard and, in particular, his suitmates published in the Sidwell Friends newspaper. Froomkin had illustrated it with drawings based on Brad's descriptions of said totally innocent people whom I will not name on the web.

By some strange coincidence, Froomkin's drawing of on suit mate -- J.Y. -- turned out, by pure coincidence, to be a very funny but harsh charicature of a completely different suitmate altogether* -- J.E. and Mr E. was not pleased.

Thus I have seen Froomkin (then age 17 or 18) nonplussed by the reaction of one of the subjects of his journalistic efforts.

Somehow, I think this is a bit of a distinction as I don't think many people have seen that.

*deliberately phrased in memory of pointless redundant words once written by George Orwell -- another rare event.

lifted from comments, by reader vtcodger

Vtcodger says:

You're right that Single Payer is probably the best answer for the US. And it is probably where we will end up. But apparently, we have to beat ourselves up some more before the Washington-NewYork elite are willing to face up to reality. So, we're going to go through a phase of mandatory health insurance -- subsidized for low income Americans. And maybe we will at least enforce some efficiencies such as uniform insurance paperwork. Even many conservatives are amenable to that.

The problems we apparently are not going to face up to just yet include:

1. The high cost of training medical personell (who then must make high wages to pay for their education).

2. The high cost of prescription drugs

3. High overhead in private health insurance.

4. Overinvestment in costly diagnostic equipment. (In many cases it would be cheaper to move the patients to the equipment than to provide equipment in diverse locations).

5. Unwillingness to set up an affordable low cost basic health screening network to handle preliminary screening of patients.

6. Failure to put/require accessible "sticker prices" on health services.

7. A bunch of other stuff I can't remotely keep track of.

Anyway, we might get better coverage and minor efficiencies out of round one of health care reform. There will be more rounds.

And in a painful decade or three, we'll probably end up with single payer.
-----------------------------
lifted from comments, by vtcodger

Robert Waldmann

has been playing hooky. Look it's the end of the semester. My actual job involves some actual work these days (ETA of a Thesis defense 40 minutes). Also, I note no popular demand for my opinions on the Obama administration plan to reform financial regulation, and I still know jack about finance.

So I'll just comment on Paul Krugman commenting on the plan. First, I note, that this is not a jeremiad -- the shrill one sees a half full glass. So the reform must be better than I expected. He does have two criticisms (after the jump)



1) Ratings Agencies

Furthermore, the plan says very little of substance about reforming the rating agencies,

WTF ! Have I missed something ? Has a law already been passed forbidding ratings agencies to charge the entities whose securities they rate for "consulting" ? I mean Christopher Cox said that had to be done. Obviously the system can't work with blatant open corruption of ratings agencies.

Let's see

The new rules are aimed at bringing more accountability and transparency to the bond-rating system. They effectively prohibit any firms from rating debt they helped structure and bar analysts from accepting gifts or entertainment exceeding $25 in value from the issuers of the debt they rate.

Oh excellent. As far as I can tell, a ratings agency A can charge flybynight financial for consulting on instrument A and rate instrument B and ratings agency B can charge for consulting on instrument B and rate instrument A.

The rule has to be that issuers of instruments have no flexibility at all about how much they pay ratings agencies. Yes that means all new instruments *must* be rated and issuers must pay a standard fee to each of a list of regulator approved ratings agencies unless and until some regulator decides the agency is worthless and takes it off the list of federally imposed mandatory raters, because it's ratings were not good enough predictors of default.

Come on, fool me once, shame on you, fool me twice ... you can't fool me twice. Back in the good old days the integrity of the ratings agencies was a precious and miraculous national treasure, but wishing for a second such miracle is not a plan.


1) Executive Compensation

“Federal regulators should issue standards and guidelines to better align executive compensation practices of financial firms with long-term shareholder value” — is a description of what should happen, rather than a plan to make it happen.

Here, strangely, I had a concern about strict limits on executive compensation packages. Some fool argued that it would keep the brightest people out of finance. That would be a feature not a bug. Unfortunately, the active margin is work for an investment bank or set up a hedge fund. If the few people in finance who actually have a clue all set up hedge funds, then the all of the people running (and trading for) investment banks which are too big to fail will be fools.

A simple ceiling on compensation for officers of corporations will just make the competent officers of financial corporations become partners in hedge funds.

Of course Krugman understands this (as does Brad DeLong and every hedge fund manager with whom I am personally acquainted). The rules have to tie compensation to long term performance -- that is require bonuses to be paid only in non-transferable shares or whatever the hell they do in silicon valley.

by cactus


Via Steve Benen and The Reality-Based Community, an interview in >Foreign Policy with Mohsen Makhmalbaf, Mousavi's spokesman outside Iran:

FP: There has been growing criticism here in Washington that U.S. President Barack Obama hasn't said or done enough to support those demonstrating in the streets of Iran. Do you think Obama is being too careful? Or even that he is helping Ahmadinejad by being cautious?
MM: Obama has said that there is no difference between Ahmadinejad and Mousavi. Does he like it himself [when someone is] saying that there is no difference between Obama and [George W.] Bush? Ahmadinejad is the Bush of Iran. And Mousavi is the Obama of Iran.

I did a bit of traveling - mostly in South America - over the past few decades. GW's presidency certainly didn't create any warm and fuzzies for the US anywhere I went. And apparently the same was true in many places I didn't go either.

But despite that, there is a lot of truth to the quote from FP magazine... Mousavi would probably seem more similar, from our perspective, to Ahmadinejad than we want to pretend he is. And Obama, so far, when it comes to the "bail-out" has been more similar to Bush than most Americans (be they the fighting 25% or the rest of us) would like to admit.
__________________________________
by cactus

Rdan here with an update for a rally set for Saturday as reported by PressTV, an Iranian based news organization in English:

top Reformist body, made up of influential clerics, has asked for authorization to hold a pro-Mousavi rally on Saturday in the Iranian capital, Tehran.

The Association of Combatant Clerics (Majma'-e Rowhaniyun-e Mobarez) made the request via a letter to Tehran's governor's office, Kalameh website reported on Thursday.

The rally is scheduled to be held on Saturday from 4 to 7 pm (1230 to 1530 GMT) from Enqelab (Revolution) Square to Azadi (Freedom) Square in protest at the results of the country's 10th presidential elections.

Response as quoted in PressTV:

No permission has been granted to Iranian Reformist groups to hold a Saturday rally in protest at the presidential election results, says Tehran's governor general.

"I hope that this rally will not be held as no legal permission has been granted for this rally," Morteza Tamadon said on Friday.

rdan

Stefanie Kelton of New Economic Perspectives points us to Jamie Galbraith and one of his conference papers on public/private investment and globalization. (Re-posted with permission from the author.)

Economic Growth and Public Investment

You may check James K. Galbraith's interesting conference paper". (warning pdf)
An important point is that "contrary to popular myth, U.S. economic development has never been solely the result of private investment."
He goes on to demystify the belief that government deficits crowd out private investment and that the US federal goverment relies on foreigners to finance its spending.


"The Macroeconomic Considerations of a Public Investment Strategy" here.

"Interest Rates. Critics assert that efforts to expand the scope of the public sector will drive up interest rates and crowd out private business investment. The accusation is particularly likely to be heard when a proposal explicitly foresees the use of the credit market, deficits, and public debt to finance the expansion.
Are these fears justified? There is a two-part answer to this question, the first related to economic theory, and the second to the specific conditions facing the United States in the world credit markets. The theory of “crowding out” is based on a common misconception of the nature of savings in our economy, namely the idea that savings are a “pool,” fixed in size, from which the public and private sectors alike draw to finance their desired rates of spending. No such pool exists. Rather, what we measure as savings is created after the fact, by the spending decisions of governments and private businesses. These decisions create income; the difference between income and consumption (the latter, strongly established by habit), is savings...We can conclude, first, that there is no direct connection between federal budget deficits or surpluses and long-term interest rates."

"Financing Abroad and the Dollar: The deficit in the external accounts is the accounting counterpart—the exact equal—of the sum of public and private sector deficits in the domestic economy.
This phenomenon is often referred to as “borrowing from foreigners to finance current consumption,” but again the shorthand is misleading. When an American purchases a Japanese car, credit is created and extended by an American bank.
Rather, a bank loan made in the United States has created a dollar asset, which subsequently has been purchased by an institution (the Bank of Japan) that has no immediate use for it and merely chooses to store it in a liquid, interest- bearing form."

Update: A follow up post on the same topic Will run up in government debt doom us?

by Tom aka Rusty Rustbelt

The federal government is concerned about the incidence of Medicare re-admissions.

Typical scenario: an elderly patient is admitted to the hospital for pneumonia and related distress. After a four day stay the patient is discharged to a long-term care facility.

A week later the patient is readmitted with acute distress, after the nurse requests orders from the patient’s physician. After several days the patient is again discharged to the nursing home.

This cycle is very costly to Medicare, and the feds would like to see it slow down.

(Based on conversations with long-term care nurses and reviews of Minimum Data Set (MDS) summaries, the patients are usually very old, very frail, but not at death’s door quite yet.)

One solution is to ‘train” physicians and families not to be so quick to send the patient back to the hospital. This is tough on families, who often pressure the physician to readmit. Sometimes the patient demands readmission, it is easy for the physician to say yes. This can also be tough on the nursing home, where higher acuities are colliding with the nursing shortage.

A proposed solution is bundling. President Obama mentioned it in his 6/15 speech to the AMA. How does it work? The hospital gets a flat fee per incidence and then has to pay the physician, nursing home, ambulance/transport company, physical therapist, etc.

This requires a lot of administrative work and some intense negotiations, and puts the hospital at significant risk.

Could this work? Maybe. Is it good for Medicare? Probably yes. Good for patients? Unknown. Good for physicians? It depends.
___________________________________________
Tom aka Rusty Rustbelt

by Linda Beale

[Excerpted from an earlier posting on ataxingmatter]

On ataxingmatter, I considered Michigan's tough problems and proposed a solution that could offer a way to deal fairly with the many issues the State faces. Michigan, as everybody knows, is a depressed state these days. High unemployment, high foreclosure rates, and even the Red Wings can't win it all. As two of the Big Three auto companies go into bankruptcy, Michigan is shedding jobs as fast as ice melts on a sidewalk on a hot summer day in Mississippi. Michigan, in other words, has real problems, and real needs that the state government should address.

My suggestion? It's time to change Michigan's income tax. Michigan has its share of very wealthy people--just look at the millionaires' homes in the wealthy suburbs of Detroit, from the Grosse Pointes to those new 'burbs to the Northeast. But the wealthy in Michigan pay the same flat income tax rate that the middle class pays--4.35%. A family of four starts paying that on wages above the personal exemption of $13,200 (after other deductions, if any). But a family of four with a salary of $500,000 pays the same rate.

Obviously, those few dollars mean a lot to the poor family and hardly anything to the wealthy one. That's why the federal income tax has had a progressive rate structure since its inception. It's also why almost all of the states that have a broad-based income tax, have a progressive tax rate structure, generally ranging between 3 and 8 or 9% of adjusted gross income (sometimes as modified under state rules). Only seven have a flat rate structure. See this chart from the Federation of Tax Administrators for a synopsis of state rate structures and exemptions. (Note--apparently, the tables to which I linked yesterday are not accessible at the link at this time. Wikipedia has some of the same information, at this link.)

Michigan should enact a progressive rate structure. How about a zero bracket for the first $25,000 in income, and then a progressive rate structure moving from the current 4.35% on the first $100,000 above that, to 5.35% on the next $200,000, to 6.35% on the next $400,000, to 7.35% on the next $2 million, to 8.35% on anything above $2,725,000. (Look at this study, which has information on city and state tax burdens, including income, property and sales taxes, and you'll see that Detroit has very high tax burdens--because of the flight of its industrial base and the white flight to the suburbs; so most of the wealthy who work in Detroit don't live in the city and don't pay those higher taxes--they live in the surrounding suburbs that can't be annexed to the city.).

Would people move out of Michigan because of the income tax change? Sure, some in the upper brackets would. (They're already doing so, of course, because of the Great Recession, which has hit Michigan particularly hard.) But most other states already have a progressive income tax, often reaching 6% on fairly low incomes--so many of those states' effective tax rates would be much higher than Michigan's current flat rate and maybe higher than the proposed change. So those that move because of the tax would have to choose a state that had a lesser tax than Michigan's new one--and states with lower rates may also have a troubled economy. But a reasonable tax of less than 7% on the first $725,000 would make a difference in the ability of Michigan to help create a sustainable economic environment through expenditures for human capital infrastructure (i.e., for K-12 through university funding) and physical public infrastructure. Not to mention that it would also be much fairer, by taxing people on their ability to pay.

Is this a "pie in the sky" proposal or one that has some chance of enactment in the current political climate. A big negative factor that operates at the federal and state level is the anti-tax rhetoric on the right. Tax increases have been an incessant target of the libertarian "think tanks" that oppose most government programs for vulnerable populations and most tax increases, as a matter of faith. Tthese groups have blanketed the internet with PR pieces proselytizing for their faith. See, for example, my various critiques of the the Cato Institute's Dan Mitchell's videos for the "Center for Freedom and Prosperity": CFP's Laffer Curve Video (Feb. 18, 2008) and The Laffer Curve II--proof? (Mar. 10, 2008) and More Class Warfare from the Cato Institute's Dan Mitchell (June 17, 2009).

This anti-tax propaganda has made it politically difficult for any person in Congress to address tax increases in a deliberate, thoughtful way. Especially in the Senate, the anti-tax groups' rhetoric--about corporate taxes, capital gains taxation, and rate structures, in particular--has made it hard to have an open and in-depth discussion of alternatives. As a consequence, the tax agenda in Congress continues to be dominated, to a considerable extent, by objectives that favor those in the top distributional quintile. Take the alternative minimum tax (AMT) as one example. Congress continues to pass annual "patches" to the AMT to prevent the clawback that would otherwise result from the interaction between the lower rates of the regular tax as amended under Bush and the AMT, which was left without corresponding changes. But these "patches" are not limited to much smaller amount needed to keep whole the below-$100,000 crowd. They instead cost many tens of billions annually to keep taxes lower for those most affected in the $200,000 to $500,0000 range. (The AMT generally doesn't result in additional tax liability for the "super-rich", since they are ordinarily in the highest tax brackets so their AMT calculation is still less than their regular tax liability.) Yet the patch is urged by the anti-tax rhetoric and touted as preventing tax increases for the middle class. Those same influences are at play in the several states, making it just as difficult to enact progressive tax changes at the state and local levels.

But state legislatures are, for all that, somewhat more exposed to and perhaps even more aware of their local constituencies. The populist distaste for the amount of government money going to financial institutions (and bankers) in the bailout--and the high bonuses for bankers in banks on the public dole--has made an impression. States often have more stringent requirements about running deficits, which has the potential for forcing more decisive action, for good (setting taxes at the right amount to fund needed programs) or for worse (refusing to increase taxe, to 'starve the beast', and axing government programs of high importance). The problems are growing more visible, as California's hobbling by Proposition 13 and its inability to enact needed tax increases has put it in a state of crisis that is shutting the doors to essential state services. See Krugman, State of Paralysis, NY Times (May 24, 2009).

There is some movement in some states. As a commenter noted on the original ataxingmatter post, Wisconsin's governor proposed an added 1% on joint filers' income in excess of $300,000 ($225,000 for individual filers), bringing Wisconsin's top rate to 7.75%. (The budget also proposed dropping the exemption for capital gains, taxed at the same rate as ordinary income, from 60% to 40%.) See Wisconsin Tax Summary 2009-2011, Wisc. Estate Planning and Tax law Blog (Mar. 13, 2009). Meanwhile, Pennsylvania, which increased its personal income tax rate from 2.8% to 3.07% in 2003 in the first change since 1991, is considering at least a temporary income tax increase to 3.57% to avoid cutting state employees and Medicaid reimbursements to hospitals. See, e.g., Hamill, Proposal to Raise Income tax in Pennsylvania, NY Times (June 16, 2009) (noting proposal for a 16% increase for 3 years); Bumsted, Tax increase needed to erase state's $3.2 billion deficit: Evans, Pittsburgh Tribune-Review, June 5, 2009.

Addendum: California's Democratic leaders announced today that they intend to send a partial budget fix amounting to $23.2 billion to the governor that will include massive cuts to public education and health and human services, along with $2 billion in new taxes--$1.50 per pack on cigarettes ($1 billion annual revenue projected) and 9.9% tax on each barrel of law ($900 million projected). According to BNA Daily Tax RealTime (June 17, 6:54 pm), Senate President Pro Tempore Steinberg said that "Our biggest argument [with the Republicans] is over the $2 billion in taxes."

by Divorced one like Bush

For your consideration here are some real numbers from a Medicare Advantage policy via United Health Care

Cat Scan billed $1042.00
Not Covered $ 831.68
That means the contracted charge for this service with UHC is $210.32.
Copay $ 42.06
UHC payment $ 168.26

The "copay" is 20%.

Same plan has a "Deductible/Copay" individual combined limit of $3800.00/yr.

Ok, lets look at this. Eye Exam.
This is for my dad in the nursing home.
Service code 92004 $217.00. Medicare paid Zero.
Same code, 92004 via the doc my daughter saw was $160. This was discounted to $40.00and my share was zero.

Here is the issue, rational consumer and all that, how can we expect to get costs under control if the billed amounts and the paid/contracted amounts are so far apart? The consumer does not know the contracted rates, so the consumer can not purchase the insurance that pays the least. Thus, the consumer can not be "rational" when choosing health care. (Like we're rational at anytime with this!) Basically, there is nothing in our current approach to the issue that economic theory would suggest is viable. Or maybe economic theory doesn't apply?

At the same time, how do we know that these contracted prices are the correct price such that the market is "clearing" properly or in "equilibrium" of some sorts such that there is a reasonable profit for the providers and payers with reasonable cost for the consumer while producing the product of highest quality (as in it did not harm you and did actually help you)? These prices could be distressed prices in that the provider accepts them so that they can capture some of the patients planning to make up the difference in cash patients or other higher contracted fees. For the lawyers that read this blog, we are talking about "contracts of adhesion". That is a contract signed where one party has most of the power. But then, what would you expect when you exempt a type of business from the anti-monopoly laws. In the past they were public utilities.

This leads to the question of just how can congress and Obama believe (and it is a belief because all examples of what is being proposed have failed in the past, MA being the most recent) their "public plan" is going to ultimately produce the savings that will allow coverage of 50 million more people, better product quality and happy, smiling Americans? After all, if the contracted rates are all over the map, then there will be massive cost shifting either by insured selection or subscriber (patient) deductible manipulation. And, there will still be a need for all the administration to "manage" the care which is in actuality a paper chase game.

We talk about pricing. Medicare wants to reduce the rates and that will just shift the burden onto the privates is the complaint. Well, I got news for all of you. The privates use the medicare fee schedules all the time and then start cutting from there. So, this is a bogus complaint by the privates/non-profits.

I assure you, though you may disagree, there is no way to fix health care via market theory when the approach is to believe that the market is with the middle man; the insurers. Private, public or non-profit, the problem with health care cost and all that leads to can not be found there because that is not the real market.

How much more and for how long do we continue to pay the privates more via Medicare Advantage before congress gets this message that the issue can not be fixed by focusing on a false market? From 2004.

Note this report on Nick Skala presentation of June 4, 2009 in front of the "Progressive Caucus".

“Bill Gould emailed me after reading my testimony and materials I was going to present to tell me that they were not acceptable and that there could be no comparison between single payer and the public option with side by side comparison,” Skala told Single Payer Action. “Darcy Burner told me that they would construe talking about the public option — even comparing it to single payer — as an attack on the members of the Progressive Caucus.”

Darcy Burner; the candidate that Blue America backed. Head of the American Progressive Caucus Policy Foundation whose tag line is:

organization whose mission is to bring together the collective wisdom of progressives inside and outside of Congress to promote
* the health and economic well-being of us all.

Both are caucus' that should be aware that the people want a medicare like program. The numbers are landslide size. The numbers should completely put to bed the meme of "not politically possible" if this nation actually worked it's Constitution. And, if there is a caucus that should be working the Constitution as the normal course of it's function, it should be a caucus that titles it's self "Progressive". Certainly a person who was a candidate for Blue America should get it!

Talking about a single payer system to the congress people who are part of a caucus FOUNDED by Senator Bernie Sanders, a "self described socialist" who is promoting single payer every chance he can, is to be construed as "an attack on the members"? ARE YOU FUCKING KIDDING ME! What! Prgressive suddenly do not like to learn about stuff...factually?

“During the presentation it was very nasty,” Skala said. “I got some very dirty looks from Darcy Burner. During the question period and once during the testimony, I was interrupted, told that the Progressive Caucus had taken a position on this issue and unless I had something positive to contribute, then there wasn’t really much point to answering my questions.

Here is Nick Skala's actual presentation.

So, what does it say about a nation that states it is a democracy and yet the very organizations who should understand the implications of naming one self such, is unwilling to do the peoples bidding? This is not hard folks. A caucus' job is not to do what is politically simple, it is to make the perceived politically impossible a social reality based on that caucus' ideals. Well, if your ideals are "progressive", if you are a part of a group founded by a socialist, and 65 to 70%of the people want something that by all Fox News reports is progressive and socialist then: How much easier can it get?

By Spencer;

The CPI rose 0.1% in May as the core CPI rose 0.1% and energy rose 0.2%.

The real significance of the rise in energy prices shows up in this table that shows the composition of real average hourly earnings -- the final column in the table.

In the fourth quarter real earnings rose sharply as oil prices collapsed from almost $150/bbl to some $30/bbl.. The large jump in real earnings is probably what drove the first quarter rise in real personal consumption expenditures.

But so far this year real average weekly earnings have fallen 0.6% as the drop in hours worked and rising inflation -- largely oil prices -- have more than offset a 0.8% gain in nominal average hourly earnings. This is the real threat to the recovery as rising oil prices offset the positive impact of the green-shoots and tax cuts that were apparent in the first quarter.

105 years ago today, James Joyce lost his virginity.

Eventually, he wrote a very funny book about the day.

May all our days be as productive.

by reader ilsm

From the Sunday June 14 Economist View discussion over Tyler Cowen’s article on Medicare crushing the federal budget, as the DOD budget has for many years. Tyler states the devastating growth of cost is due to "the financial incentives for doctors and medical institutions to recommend more procedures, whether or not they are effective" rather than insurance companies or profits of drug companies.

Imagine if the "comparative effectiveness" measure were applied to the warfare state.
In fact, an attempt at this was made by Sen. Levin in this new session; however, the bill that was passed is hugely watered down.
Weapon System Acquisition Improvement Act of 2009 See the link to section 101.

There will be a director of Cost Analysis and Program Evaluation. Appropriately acronymed: CAPE under which the incumbents will be hidden from any effectiveness.
There will be an attempt at using life cycle costs. And effectiveness (like has been on the books as long as I remember but not done).
There will be, finally, more thought about engineering management.
The teeth were in affirming the existing Nunn McCurdy, or unit cost acquisition procedures. There are so many loopholes in that paragraph there is no chance the warfare state will be delivering any measure of "comparative effectiveness" or pass any form of opportunity cost merit.

The main loop holes is here:

Sec 206 "Critical Cost Growth" from the wikisource link addresses large growth
in unit price or procurement costs. Can be beaten by not buying logistics
support and or cutting requirements, by this point likely already done. Later
in the section there are 5 or 6 loopholes the Sec Def can use to get around
terminating for critical cost growth. And they are reviewed by congress'
committees who will accept any excuse not to terminate a cash cow.


So, GAO will continue to report on the 95 largest programs taking too long to finish, costing too much, and delivering nothing for the resources consumed.

A refuge of charlatans is “being serious” about complying with laws that have so many loopholes their con is hidden.
__________________________
by reader ilsm
(lightly edited for readability)

rdan

Transcript of speech via CBS News.

Economist View points to Peter Orzag in Financial Times.

by Divorced one like Bush

Time for some real numbers. This example is also an example for people to understand the need for fixing our system of paying for health care. Because, even in the senior years, the cost can bankrupt you.

My parents, 2008 adjusted gross income $43,291. $19,745 is capital gains from a one time sale of land. This land was taken by the state of RI via eminent domain law. See, Fidelity didn't have enough land (300 acres via a low rent to the state in exchange for some jobs) if Dow Chemical was going to put a plant there. Dow never built. The land was worth around $400K on the open commercial market. They got $180K divided by 3. The land was in the family for centuries.

$15,502 in SS not taxed.

My step-father is in the nursing home. Mom is currently paying the bill because they own the house. It's around $6500/m. He's on a few meds. 9 to be exact.

The Plan: No deductible. $2700 in total drug costs (co-pay plus plan pay) covered before the "coverage gap".

Total expense as of 4/30: $2804.20. Coverage Gap: $4350. Amount toward the Gap: $1098.06 Balance of TrOOP (true out of pocket): $3251.94.

After the "Coverage Gap" he enters Catastrophic Coverage. The cost is $2.40/generic, $6/brand name.

So, he's in the nursing home. He might be able to get off of 1 maybe 2 of these if we can get him home. Still, the cost of his meds have been running $370/m. Now that he has entered the "Coverage Gap" the cost will be $700/m. That is 4.6 months of paying before the rest of the insurance kicks in sometime in September 2009.

$43,291 - $19,745 (cap gains) + 15,502 (SS) = $39,048 to live on.
$39,048 - 4350 (Coverage Gap) = 34,698.00 to live on.

Of course, some things have changed since the "crash". $8149 of that $34, 698 was dividends. They cashed out this year. So, that leaves $26,549 to live on. We could have waited the crash out, but see, dad's in a nursing home. Either the home takes it, or the economy takes it. Either way, it's not there to generate money from money.

$26,549 - $5989 (property tax) - $3922 (utilities) - $3038 (Insurance) - $5230 (auto expenses) = $8370 to live on.
Last year there was $8328 in medical expenses EXCLUDING meds. I don't expect that much this year, but there could be at least half that. Mom needs some stents for the renal arteries before her vascular system pops from the very high Bp.

Total medical, out of pocket expenses, 2008: $9484. Potential this year: $8,000 to12,000 approximately not including the nursing home costs. That is $26,680 to date. Even if he is home, there will be cost for home care help.

What does someone do who is not in their position? Of course, if the medical is as last year, they will be in the hole financially.

Time for our military readers to step up.

Various basement bloggers belonging to the 101st Fighting Keyboardists continually tell us the next step is Israel bombing Iran. But can someone explain exactly how this would work in detail? I mean in actual detail including 1) Israeli strike capabilities, 2) Iranian air defense capabilities, 3a) how you get overflight rights or 3b) how you give a big FU to the Turks or Saudis if you don't try to get those rights, and 4) the biggie, how do you establish and maintain aerial refueling capacity?

I can see fairly reasonable scenarios under which Israel could pull a fast one and get bombers on target in Iran, but I don't see any that allow them to get back to Israel that don't require full co-operation from the United States. Which co-operation would be legally the equivalent of a declaration of war.

A few months ago Israel reportedly did a practice run over much the same distances but instead of flying East flew West over the Med. Which didn't require them getting overflight rights from anyone, still less having to take air defense capabilities into account. This map tells me a much different story. Someone, anyone lay out a serious case of how Israel physically pulls this off.

http://en.wikipedia.org/wiki/Turkish_Air_Force Note that Turkey is part of NATO and has 210 F-16s and around 200 F-4s. It is not like they could just be brushed aside.

http://en.wikipedia.org/wiki/Royal_Saudi_Air_Force American equipped and trained with all the money in the world for buying and upgrading equipment. Among other aircraft around 150 F-15s.

http://en.wikipedia.org/wiki/Islamic_Republic_of_Iran_Air_Force Handicapped somewhat in that their original fleet was American supplied and so have suffered from parts embargoes. But in recent years have had plenty of opportunity to buy Russian planes and missiles.

http://en.wikipedia.org/wiki/Israeli_Air_Force Nobody doubts the IAF are good, but do they really have the fire power to both bomb Iran AND protect whatever air-refueling capability they would need? Or do their planes really have the range to fly both ways while ignoring surface-to-air defences from territories they are crossing?

This isn't a game of Battleship, or Stratego, or Risk. Real Commanders need to have real plans to get real planes on target across real terrain plus a plan to safely extract those planes. I don't see any way of doing this without the full compliance of President Obama. Which raises two questions for any would be war monger.

One. How do you get Obama to greenlight this? or Two. What do you do if he says 'No'? Given the realities revealed by this map. Because from all I see there is a lot more involved than Bibi just saying 'Go'.

by cactus

I've had a few posts on healthcare in the past, such as looking at how costs increased across various presidential administrations to my own run-ins with insurance companies. So I was kind of interested in this piece on healthcare on the WSJ by Karl Rove. Let me pick a few passages and comment...

The first is it's unnecessary. Advocates say a government-run insurance program is needed to provide competition for private health insurance. But 1,300 companies sell health insurance plans. That's competition enough.

Translation: Because competition is the best of all of scenarios, if we have competition enough, we can conclude that all is well with the current health insurance market. Kinda sounds like we don't want any more insurance companies.

Second, a public option will undercut private insurers and pass the tab to taxpayers and health providers just as it does in existing government-run programs. For example, Medicare pays hospitals 71% and doctors 81% of what private insurers pay.

Who covers the rest? Government passes the bill for the outstanding balance to providers and families not covered by government programs.

But those who have neither Medicare nor private health insurance pay even more. Which means that a private insurance companies pass the bill for the outstanding balance to providers and families not covered by private insurance programs. And since Rove makes it clear that's bad when the gubmint does it... its not entirely clear why its not bad when the private insurers do the same thing.

But be that as it may, even if everyone had private health insurance, and all private health insurance companies were equally efficient, by bargaining prices down they would be passing "the bill for the outstanding balance to providers." Unless, of course, th power of the market is such that savings materialize out of thin air and nobody gets hurt.

Fixing prices at less than market rates will continue under any public option.

What prices qualify as less than market rates? As noted above, non-insured people pay more for healthcare. Does that mean insurance companies pay less than market rates? What about the private insurance company that squeezes healthcare providers the most - it pays less than all other health insurance companies. Is it paying below market rates? Well, here's the thing - market rates are what prices agreed on by willing buyers and willing sellers. Nobody is forced to provide health care... except emergency rooms, and even they can simply shut down if they choose.

Third, government-run health insurance would crater the private insurance market, forcing most Americans onto the government plan. The Lewin Group estimates 70% of people with private insurance -- 120 million Americans -- will quickly lose what they now get from private companies and be forced onto the government-run rolls as businesses decide it is more cost-effective for them to drop coverage.

Why? If private insurance companies are more efficient, why would this happen? On the other hand, if private insurance companies are less efficient, who needs them?

And BTW, allow me to restate one of these sentences...

The Lewin Group A division of United Healthcare Group estimates 70% of people with private insurance -- 120 million Americans -- will quickly lose what they now get from private companies and be forced onto the government-run rolls as businesses decide it is more cost-effective for them to drop coverage.

Somehow that sentence reads a bit less convincing now, doesn't it?

Fourth, the public option is far too expensive. The cost of Medicare -- the purest form of a government-run "public choice" for seniors -- will start exceeding its payroll-tax "trust fund" in 2017.

This just adds to the earlier question - if the gov't run option is far too expensive, how would it manage to crater the far more efficient private insurance companies? By passing "the bill for the outstanding balance to providers?" But we've already seen that the private insurance companies do that too.

Medicare and Medicaid cost much more than estimated when they were adopted.

Yeah, and that was 1965. Even Walmart's costs are much bigger than they anticipated in 1965.

One reason is there's no competition for these government-run insurance programs.

So now we've come full circle - there's no competition for government-run insurance programs because government-run insurance would crater private insurance programs. And because there's no competition, costs are higher. Shorter Karl Rove: costs are higher because they're lower. And costs are lower because they're higher.

Fifth, the public option puts government firmly in the middle of the relationship between patients and their doctors. If you think insurance companies are bad, imagine what happens when government is the insurance carrier, with little or no competition and no concern you'll change to another company.

Let's see... a few months ago, my wife spent a few hours on the phone trying to explain to our insurance carrier that they had been defrauded by a medical provider who charged them for services which were never provided to me... including being billed for the time of a doctor I never saw. The insurance company happily paid anyway - why should they care if they're being blatantly defrauded when they can just pass on the cost to their customers? But I can top that - about fifteen years ago, my insurance company paid for almost all the costs I incurred while delivering a child. My co-pay was small - its been a long time so I don't remember how much, but maybe it amounted to a couple hundred bucks. That a) I hadn't been in a hospital within months of the supposed delivery date, b) I don't have any kids, and c) I'm a guy apparently apparently wasn't enough to throw a monkey wrench in the proceedings. I got news for Karl Rove - if your choices when it comes to keeping down costs are preventing fraud by doctors or refusing to approve procedures your customers want, if you go with the latter you really don't have any concern those customers will change to another company. None.

Health care desperately needs far-reaching reforms that put patients and their doctors in charge, bring the benefits of competition and market forces to bear, and ensure access to affordable and portable health care for every American. Republicans have plans to achieve this, and they must make their case for reform in every available forum.

Hence, those proposals enacted while GW was in office and Republicans controlled the Congress.

He ends with this:

Defeating the public option should be a top priority for the GOP this year. Otherwise, our nation will be changed in damaging ways almost impossible to reverse.

Snark fails.
_______________________________
by cactus

Another dual-bankruptcy female with real estate problems. Wonder what the difference will be?

rdan

This chart from Calculated Risk shows the surplus and deficit as a per centage of GDP since 1960.



Howard Rich mentioned in his post that the deficit was a function of "the leak in demand of the American economy."

Juan reminds us that China is not a passive player to our 'demand' pull'.

Juan points out that (lifted from comments):

Here's a bit of context from the Chinese side:

"(Caijing.com.cn) Chinese bank lending increased to more than 5 trillion yuan between January and April, nearly three times the credit level reported during the same period last year. ...

... A National Statistics Bureau survey of 22 regions found industrial profits totaled only 323 billion yuan during the first quarter, down 32 percent from a year earlier. That means annual profits for all industries will amount to only about 1.6 trillion yuan this year.

Outstanding loans currently stand at 35 trillion yuan. Assuming companies have kept a moderate debt ratio averaging less than 50 percent, their capital investments now exceed 35 trillion yuan. And profits of 1.6 trillion yuan versus 35 trillion in capital investment means an annual return rate of only 4.57 percent, below the weighted loan interest rate of 4.76 percent we saw in March. In this sense, companies seem to be in a rather weak position to finance debt with earnings. ..."

Such a profit collapse and not too effective policies would, I think, increase pressure to export, i.e. it is not simply a demand-pull situation, not simply demand 'leakage' from the U.S.

Adding to the 'push' side:

Quote: "China has increased tax rebates for exporters for the seventh time since August 2008, as part of the effort to support exporters hit by the collapse in overseas demand. Food companies, electronic and digital media product makers, as well as the ceramics and plastics industries will benefit from the policy, according to the statement. The new rebates are effective from June 1. The Ministry of Finance boosted the tax rebate for exporters in labor-intensive industries in a move designed to minimize job losses, the ministry said in a statement posted on its website on June 8. Export volumes dropped nearly 20 percent year-on-year in the first quarter."


The Chinese political economy is not at all so robust as many still believe -- economist Lu Lei, author of the first article, even mentions the possibility of 'negative growth'.

rdan

I will put up two open threads for a little while to see what happens since I am averse to censoring. The first is Open thread with GW, the other Open thread w/out GW. The latter could be about economics of some kind. This is the one without, since we put up the other yesterday.

rdan

Re-posted with permission from the author.

Trade deficits resume upward climb
Howard Richman

The US trade statistics for April were just reported yesterday. The US trade deficits, overall, went up for the second month in a row, despite a continuing decline in both imports and exports.

The largest component of our trade deficits continues to be our trade deficit with China. As shown in the graph below, that trade deficit in goods (the April stats for China don't include services) also climbed for the second month in a row:





Bloomberg.com reports that economists are now predicting growing trade deficits as President Obama's recovery plan causes imports to start to grow while US exports continue to shrink. Here is how Bloomberg put it:

Imports may be first to rebound later this year as the U.S. economy begins to expand, while exports languish until a recovery takes hold among trading partners from Japan to Germany, widening the deficit further....

The size of our trade deficit is the size of the leak of demand from the American economy. The Obama administration is trying to pump up the American economy with its recovery plan, but the faster they pump, the faster the trade deficits grow. The administration is trying to blow up a tire without patching its leak. The result is predictable.

Robert Waldmann

Will Wilkinson* demonstrates his absolute inability to understand the concept of "opportunity cost" and complete lack of common sense after the jump.

* update: spelling Kirrected.

Cash for Clunkers
by Will Wilkinson on June 10, 2009

OK. Let me get this straight. I can get $4500 toward a new car as long as my old car gets terrible gas mileage. Well, I’ve got a 1996 Civic, which gets 30-something MPG. But it’s worth less than $4500. So I guess I should sell it for what it’s worth ($2-3000) maybe, buy a total piece of shit for as cheap as possible, and then exchange that for $4500 off a new car? I’d be several grand ahead. Of course, most of the models of new car I’ve got my eye on get worse mileage than a 1996 Civic. So if this plan induced me to buy a new car when I wasn’t going to, which it might, and I get the kind of car I think want, taxpayers will have paid me $4500 to drive a nicer but less fuel efficient car than I’ve got. Thanks democracy!

Or maybe I should just buy a clunker, get the trade-in, then instantly sell the brand new car for $2000 off sticker and pocket the rest. Anyway, better move quick. Lemons go fast when everybody’s thirsty for lemonade.

Wilkinson's argument is that if a clunker is suddenly worth $4000 dollars more then he can make a killing by buying a clunker for its current price. There is no explanation for why someone would sell a clunker which is worth, among other things, a $4000 discount on a new car for less than $4,000.

In Wilkinson's economic model, something which makes a good valuable give him, Will Wilkonson a profit opportunity, a windfall, even if he doesn't own the good. The price he can get for the good goes up. The price he has to pay for the good doesn't go up, because that's the way the market works.

There are lots of people buying new cars, there is a finite supply of clunkers. Owners of clunkers aren't going to sell one to Will Willconson for much less than $4,000 out of the goodness of their hearts.

I am rarely shocked by incapacity to understand economic theory or lack of common sense, but this time I am shocked.

This is my last hogging post of the season. Congratulations to Bill Guerin and the rest of the Pens.

by Prof Neil Buchanan of GWU

Just read the whole thing.
The 2009 Social Security Trustees' Report: Good News Behind the Headlines

I could not agree more with Prof. Buchanan's conclusion.

While there is some talk of returning to address Social Security's finances after we fix healthcare costs, it at least appears likely that we will not overreact to the annual trustees' report by deciding to spend valuable legislative resources on a relatively (or perhaps completely) healthy program while other, more pressing problems languish.

At this point, the best that we can hope is for Congress and the President to focus on bringing healthcare costs back under control. If they can accomplish that, they will not only save Medicare but they will also find that Social Security is a program that – although it must of course be carefully monitored – need not be a legislative priority.


Neil H. Buchanan, J.D. Ph. D. (economics), is an Associate Professor at The George Washington University Law School, where he teaches tax law and policy.

Robert Waldmann

Tilman Tacke and I wrote this manuscript looking at income inequality and infant mortality (I've discussed it here before).

I am going to indulge myself describing the paper I wanted to write but couldn't because the data didn't cooperate (gave essentially no empirical support for my pet theory). After the jump, my pet hypothesis:


The surprising stylized fact is that the correlation between inequality and infant mortality is very strong -- too strong to be explained just by the obvious assumption that the probability of an infant death is convex in family income.

In fact, it seems that even given the incomes of the non rich, in countries where the rich are richer, more babies die.

This empirical result actually comes and goes in the data, but it was noted in the early 90s and there is a large literature on it. Also it's back in recent data.

There are many many possible explanations. The one I like is
the life styles of the rich and famous hypothesis, or the bad role model hypothesis.

The idea is that non rich people enjoy having consumption profiles which are similar to those of the rich. This is similar as in "similar triangles" less of all goods and services but in the same proportions. That is, the idea is that non rich people consume luxuries because they enjoy pretending they are rich.

Formally this corresponds to maximizing an ordinary utility function u(c_i) plus one that penalized the difference between the proportions of different goods consumed and that of the role model -- the glamorous rich and famous people v(c_i,c_rich).

Now the second part of the utility function will cause choices which don't maximize the first (obviously if you are maximizing the sum of 2 functions you don't max either one).

The rich and famous might like being like themselves but that doesn't change their consumption (if you are maximizing the sum of a function and a constant you are maximizing the function).

Now consider 2 countries. The non rich have the exact same income in both but the rich have different income. If the rich are very rich, their consumption is very different from that which would maximize u(c_i) for the non rich. This means that the v term pulls choices further from u maximizing and u(c_i) is lower.

If the rich are just a little bit richer than the non rich, the choices of the rich are close to maximizing u(c_i) so the v term has little effect on choices and u(c_i) is higher. If the rich are richer, that part of welfare of the non rich which does not depend on enjoying pretending they are rich is lower. That part of welfare u() will be the one related to measurable things like health.

Well that was pointless (my hope is that it is inimitable style of doing pointless math without any mathematical notation).

The example -- breast feeding. In micro data from poor countries, breast feeding has a strong negative association with the risk of infant mortality (risk of death as low as one third of that of bottle fed babies). Clearly the key issue is mixing formula with unsafe drinking water. However, another issue is that poor people can't always afford enough formula to keep their babies healthy. So to conserve it they over dilute it and the babies are malnourished, or the fill the bottle with something cheap but not as healthy as formula. Here deaths are due to buying too little of a luxury rather than none at all.

Now imagine that the relatively rich can afford formula in 2 countries but in A they have to scrimp and save and in B the cost is no problem. In B more of the relatively rich will bottle feed. This is a reasonable choice (hey I have spent many many hours holding a bottle full of formula oh and more drinking formula from a bottle but don't blame the formula). However it is a dangerous example for the non rich.

So the story is that the association can be explained if one includes the proportion of mothers who breast feed in the regression. The data say You Lose.

by Linda Beale

[also posted on ataxingmatter]

Both President Obama and Senator Max Baucus, key players in the health reform debate, have now indicated that one source of funding for health care reform on the table is a possible limitation in the exclusion from income of employer-provided insurance. See, e.g., Connolly, President Pivots on Taxing Benefits: Obama is Willing to Consider Move to Gain Health Reform, Washington Post, June 3, 2009.

The immediate reaction (seen in the comments section on the cited article) is rejection of this alternative. After all, many of us rely heavily on the fact that we have health insurance through work, and those of us in the lower income brackets probably would not be able to afford health insurance (at least, under the current privatized system) without that benefit.

But is the populist response the right one? We should not lose sight of the fact that the employer-provided insurance exclusion is the biggest tax expenditure in the Code that, like most tax expenditures, also tends to benefit most the highest income individuals. The Center on Budget and Policy Priorities has put out a new report titled Limiting the Tax Exclusion for Employer-Sponsored Insurance Can Help Pay for Health Reform that addresses this question directly. The Center notes that the tax expenditure is "poorly targeted" and benefits most the high income group who "least needs help paying for health insurance." Lower-income taxpayers get less from the benefit because they may not have jobs, even if they have jobs they may choose to forego participation because of the cost of their share of the premium, and even if they participate, they get less of a benefit (in absolute dollar terms) because their tax rate is lower.

Here's the graph showing the benefit relative to the income group.

CBPP suggests that the exclusion can be reformed without eliminating the value of employer-provided health insurance. One of the concerns is that employers will no longer provide the benefit if it becomes taxable, but a "play or pay" requirement could discourage that option and mitigate its effects. CBPP suggests that concerns about a rigid cap that would apply in all cases can be mitigated by adjusting the cap when a firm is relative small (so that more goes to administrative costs) or has more older and sicker workers (so that more health care costs must be covered) and for other, similar issues. The paper provides three specific alternatives for structuring the limitation in order to promote the goal of universal health coverage.

rdan

Linda Beale writes some thoughts on public plans for health care and points us to Ezra Klein and Robert Reich.

Update: Singapore is returned to comments. Going to ataxingmatter is worth the time, as Klein and Reich summarize public plans being put out there.

Robert Waldmann

I think I should explain a claim I made in the post below. I assert that the efficient markets hypothesis (EMH) does not imply the rational expecations hypothesis (REH).

The EMH states that asset prices are the same as they would be if everyone had rational expectations. The strong form EMH adds the assumption that everyone has complete information. The semi-strong form, like the REH has implications only for expected values conditional on public information.

The EMH makes no statement about individual portfolios. It is absolutely not assumed or implied that each investor has an efficient portfolio.

In contrast the rational expectations hypothesis says that the expected value of expectational errors conditional on public information is zero. It is, therefore, not a statement about prices only but about behavior generally. As used it definitely amounts to much more the assumption that observable aggregates have the values they would have if everyone had rational expectations. It is common for microeconometric models to be estimated the assumption of rational expectations. Clearly a statement only about aggregates does not have implications for micro data. This use of the phrase "rational expectations" to refer to individual behavior not aggregates is common and, as far as I know, uncontroversial.

The assumption of ratinal expectations also has important theoretical implications. For example, the first welfare theorem requires the assumption of rational expectations. It is absolutely not sufficient for aggregates to be the same as they would be if people had rational expectations. I think it is safe to say that the fist welfare theorem has a well established place in economic thought. The assumption that it is a matter of no relevance is not easily reconciled with the history of the profession.

In the post below, I assumed that this point is plainly obvious. Now I think an extremely elementary proof might be useful. The proof after the jump.




update: totally wrong math corrected.


there are 2 time periods t = 1 and t = 2.
In the model there are 2 assets. 1 is a risk free asset which is the numeraire. one unit of risk free asset gives one unit of consumption good in period 2.

There is also a coin which is flipped. It comes up heads in period 2 with probability 0.5.

The economy is populated by a continuum of agents indexed by i which goes from 0 to one, who maximize the sum of the log of their consumption in period 2. They have identical preferences and endowements. Each owns one unit of the risk free asset.

It is possible for them to bet on the coin. for a price p one can get an asset which pays 1 unit of consumption good if the coin comes up heads.

Rational expectations implies that agents know that the probability the coin comes up heads is 0.5.

If everyone has rational expectations, then the market will clear with p = 0.5 for each t. Each risk averse agent will find it optimal to invest 0 in the risky asset. there is 0 net supply of the risky asset. Markets clear.

This outcome is Pareto efficient and maximizes total utility.

The EMH therefore is satisfied if the price of the risky asset is 0.5.

Now relax the assumption of rational expectations. Assume that agent i beliefs about the probability that the coin will come up heads is i 1 if i>0.5 and 0 if i < 0.5.

The market clearing price is 0.5. at p = 0.5 half of the agents will buy 2 units each of the risky asset from each of the other half of the agents.

The EMH still holds. p = 0.5.

The outcome is somewhat different. In period 2 half of the agents consume 2 and half consume 0. The outcome is no longer Pareto efficient. Each agent has expected welfare equal to negative infinity.

now correct analysis of my original model.

Now assume that Assume that agent i believes that the probability that the coin will come up heads is i. The outcome is somewhere in between. The market clearing price is still 0.5 so the efficient markets hypothesis still holds. However, agent i will have consumption 2-2i if the coin comes up tails and 2i if it comes up heads. Since the agents, except for agent i = 0.5, are making mistakes, their true objective actual expected welfare is lower than it would be if they were rational. All but i=0.5 think that they think they are doing better than just playing safe but they are all doing worse. mr or ms 0.5 plays safe, invests all in the safe asset.


In the model with rational expectations, the optimal policy is laissez faire.

In the model with efficient markets but without rational expectations it would be preferable to ban gambling. Alternatively the state could impose a 100% tax in period 2 and distribute the receipts equally.

I think it is safe to say that there is a difference of interest to economists between a model in which the optimal policy is laissez faire and a model in which the optimal policy is confiscation and equal distribution of all wealth.

update 2: snark deleted.

Robert Waldmann

I usually try to be semi polite. I especially don't usually deliberately write rude things about smart economists. However, here goes. Evidently Tyler Cowen* wrote

In a strict rational expectations model, we might expect some people to overtrust others and one view of rational expectations is that investors’ errors will cancel one another out in each market period. Another view of rational expectations is that investors’ errors will cancel one another out over longer stretches of time but that the aggregate weight of the forecasts in any particular period can be quite biased owing to common entrepreneurial misunderstandings of observed recent history. In the latter case, entrepreneurial errors magnify one another rather than cancel one another out. That is one simple way to account for a widespread financial crisis without doing violence to the rational expectations assumption or denying the mathematical elegance of the law of large numbers.

After the jump an argument which might be of some interest (added as an update) and a rant.

* Update: spelling error corrected.



Update: I just noticed something odd about the paragraph by Cowen. Like many economists he has decided to call "The Efficient Markets Hypothesis", "Rational Expectations." So before his redefinition (which I think must be absolutely condemned as I do below) he wrote "one view of rational expectations is that investors’ errors will cancel one another out in each market period." If by "errors" he means avoidable errors, then that would be the efficient markets hypothesis. However, it would not amount to rational expectations.

When the rational expectations assumption is used, it is used to mean "the things we care about have the same values they would have if everyone were rational." In particular, inferences about welfare which some people actually take seriously, are derived from models including the rational expectations hypothesis.

Then somehow, when it is tested it changes to a quite different hypothesis. "aggregate variables which we can measure have the same values they would have if everyone were rational." So, in finance, it becomes a statement about asset prices. However, for the use of the assumption in contributions to the policy debate to be defensible, one would need a model in which welfare is what it would be if everyone were rational. I am fairly confident that you can't do this unless you assume people are risk neutral, that is make an assumption which is overwhelmingly rejected by the data.

If aggregates act as if people are rational and they make irrational mistakes which cancel out then they will bear more risk than they would if they were rational. Welfare will be lower. The amount of irrational risk bearing can be influenced by policy. The optimal policy is laissez faire *if* people are rational. If they are not rational yet aggregates behave as if they were rational, then the optimal policy will not be laissez faire.

Before moving on to discuss Cowen's effort to dodge data by redefining terms,
I note that it does *not* become a statement about asset prices and trading volume for the simple reason that no one can write down a model with the rational expectations hypothesis which isn't overwhelmingly rejected by the data. I believe that there are simply no models of trading volume including the rational expectations assumption in the literature. For more than 20 years agents who trade with no motive described in the model have been present in (as far as I know) all models of market microstructure. Now it may be hinted that there might be some rational reason for noise traders to trade as they do. However, no one (as far as I know and I am ignorant) has presented such a model, because the volume of trading that could be rationalized is a tiny tiny tiny fraction of observed trading volume.

My original rant is below. 5 minutes after posting, I stand by it, but I think the objection above is actually of some potential interest, while the shrillness below is, of course, something that has been said and written many many times.



Cowen has chosen to redefine the rational expectations hypothesis. He has also defined it so that it is meaningless, unfalsifiable, and not a hypothesis.

His intellectual accomplishment can be reproduced in other fields. If I redefine "The Ptolomaic model" to mean "The hypothesis that the earth orbits the sun" then I can save it from its recent difficulties.

I think he could have made his point more clearly if he decided to redefine "the rational expectations hypothesis" to be the hypothesis that 2+2=4. Oh and while he's at it he could define "the law of large numbers" to mean large numbers are larger than small numbers."

His use of the phrase "law of large numbers" shows that he is absolutely unwilling to consider the actual statement of any actual theorem. Oh and that he doesn't know the difference between mathematics and science.

I think a refutation of Cowen's argument which is just as valid as his argument is "I am Tyler Cowen and I retract abjure and reject my argument". Technically, I am not Tyeler Cowen, but if he can redefine the rational expectations hypothesis as he pleases then why can't I redefine "Tyler Cowen" to mean "Robert Waldmann."

Robert Waldmann

Casual discussion of macroeconomics suffers from the fact that one can get any result one wants by playing with lags. I'm not saying that I think formal econometrics adds much. However, things could be worse. Discussion of the ups and downs of the stock market is even weirder.


Courtney Schlisserman at Bloomberg seriously suggests that Paul Krugman's guess as to when the trough will come explains a shift in stock prices larger than any that can really be justified ex post by anything ever.

“I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer,” he said in a lecture today at the London School of Economics. “Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilizing.”

U.S. stocks erased an earlier decline after Krugman made his comments. The Standard & Poor’s 500 Stock Index was little changed at 939.14 at 4:07 p.m. in New York after slumping as much as 1.5 percent earlier, and the Dow Jones Industrial Average gained 1.36 points to 8,764.49.

This is less ridiculous than the average explanation of stock market gyrations. In fact, it seems to me horribly possible that Schlisserman is right.

Can anyone explain why anyone ever took the efficient markets hypothesis seriously ?

Robert Waldmann

Everyone is commenting on how, according to the New York Times, critics of the health care public option claim that it will provide the same health insuranceas private plans at lower cost to consumers and that this is a problem "unfair competition". (simple rule when they say "unfair competition" they mean "competition").

As part of the very successful, The Onion challenging, NY Times effort at humor LOUISE STORY and ERIC DASH explain what would be wrong with restricting compensation in the financial services sector.

“The industry has already adapted to the political and economic realities,” said Scott E. Talbott, the chief lobbyist for the Financial Services Roundtable, an industry group made up of the nation’s biggest banks and insurance companies. “If they are draconian, they could put the financial services industry at a distinct disadvantage in attracting and retaining top personnel."


Wouldn't that be a shame ? Don't we all want our smartest fellow citizens to go into the financial services industry frenetic clusterstock ? Why hardly a day goes by when I don't hear someone complain about Harvard graduates deciding to become poets, because of draconian restrictions on compensation in the financial services industry.




Now Mr Talbot may imagine that I claim that the extremely smart and hard working people who go into financial services are contributing nothing of value to society. Hah. Maybe their mothers think that, but I think they've contributed a few trillion less than nothing.

No I want reasonably smart but not brilliant bankers who are lazy (not as lazy as I am but lazy). I want financial services sector to be like the food sector. You want bonds, go to the financial services sector, you want beets go to a supermarket. No full time salesmen trying to convince people what to buy. Trading volume like it was the day I was born (Nov 9 1960 a Wednesday).

The article contains an interesting error since the full horror of the financial services sector is, apparently, incomprehensible to Story and Dash.

"The banking industry had been lobbying the Obama administration to exclude traders and other highflying salespeople" from the restrictions.

Ooops. Traders are not "salespeople" they decide what the bank wants to own on its own account, what is underpriced so the bank wants to buy it or overpriced so the bank wants to sell it. The really key people for profits are the salespeople who convince suckers to buy the stuff banks want to sell and sell the stuff banks want to buy. This is the core competence of an investment bank. Traders can set up hedge funds, but then need investment banks to trick the rubes for them.

Note that Story and Dash really can't believe that salespeople are among the immensley paid "When the economy was riding high, bonuses for top Wall Street executives and traders soared to tens of millions of dollars." Hmm where are the salespeople ? Their compensation is *still* a dirty dark secret.

By Spencer.

I recently ran across an interesting example of how looking at an economic series from different perspectives creates very different conclusions.

The original demand collapse at the start of this recession created an inventory problem across virtually all sectors of the goods economy. We now seen to be in a position where the inventory problem has quit getting worse and one of the big questions in the economic outlook is how long it will take various industries to resolve their inventory problems.

One example of the inventory problem is the information technology (IT) industries like computers, communication equipment and semiconductors. If you look at the first chart it gives the impression that the problem is not all that severe and that the I/S ratio appears to be peaking.

If you look at other data you find that for example the semiconductor industry is operating at 54.7% of capacity, a new all time low at compared to the previous low of 61.9% in May, 1975.
So obviously IT industries are slashing production and imports to deal with their inventory problems.

The apparent peaking of the I/S ratio should be saying that the worse is now behind us and
that industries like semiconductors will soon be able to expand output. Much of the expectations that growth will resume in the second half is based on this type of analysis.

But, if you look at the I/S ratio in a little different perspective it tells a very different story.
The second chart shows that the I/S ratio is over 200% of its long term trend. This suggest that the inventory problem is much more severe than the first chart implies and that it will be some time before IT output will bottom. This calls into question the second half recovery scenario
and the recent rally in IT stocks.

OK, there are a couple of questions about the second chart. The first is a question of distortions from using percent ratios. Assume that inventories are 5 points above shipments. If inventories are 105 and shipments are 100 that generates a ratio of 105%. This does not seem bad. But if inventories are 15 and shipments are 10 -- the same 5 point difference -- this generates a ratio
of 150%. So the point that the i/s ratio is much lower now than it was 20 years ago causes percent ratios like the second chart to show much more severe problems.

Second is the issue of whether or not the old trend line is still valid. If you look at the I/S ratio one can make the argument that the old trend changed around 2000 and that the new norm is the light solid line on the chart below rather than the dotted line. If this is the case than the percent ratio is about where it was in the 2000 recession -- still bad, but not nearly as severe as the chart implies.

I just though I would present this case as an interesting diversion from our usual political discussion and issues.

But even with the questions about the desired I/S ratio, this analysis still calls into question one of the major basic premises behind the assumption that the economy will snap back in the second half.

Hopefully this will generate some interesting discussions.

rdan

Square footage or even volume Per Capita/house is a measurement of what?

Taking part in the comment conversation on a couple of posts I have written led me to consider the way we think about home size. Typically, as one reader complained, homes are merely judged by their square footage and disregard the number of occupants. Meaning, that the owner of a large home with a big family might be criticized by small home proponents, while at the same time small homes are shunned for offering too little space for a family. Perhaps, instead of thinking of how large a house should or should not be, we should consider how much space each individual needs, a sort of square feet per capita idea.

The best way to start is by gaining a little historical perspective. The average American home in 1950 was 983 square feet (source) and, according to Census data (PDF), the average American household size was 3.37 people. This means that in 1950 the average American had 292 sfpp (square feet per person).

In the years that followed home size gradually grew and household size gradually fell until, in 2006, the average American household of 2.61 (source) shared a house of 2,349 square feet (source). So, in 2006, the average American had 900 sfpp, and that number has certainly grown in the last two years. I have heard average home size numbers approaching 2,800 square feet for 2008, but I couldn’t find a reliable source to quote.

So, seeing this wide range, the question remains . . . how much space do we need? Has the increase in sfpp seen a correlating increase in the quality of life? Are we three times more comfortable than we were in 1950? Are we three times happier? Could we, perhaps, manage to live in slightly smaller spaces than those with which we have become accustomed, particularly if it proves to have a positive impact on our environment, traffic congestion and other quality of life issues?

Obviously, there are a variety of factors that effect our need for space, and I’m sure many of these will come up in the comments. However, I would argue that, overall, our needs have become somewhat inflated. I would even say that in many cases we have taken our need for square footage into the realm of the absurd, and this does not simply apply to luxury home buyers. Our 1,200 square foot 100k House offers, to the average 2.6 person household, 462 sfpp (significantly more than was enjoyed in 1950), and yet we are constantly met with opposition based solely on size. Our entire housing industry, from building, to furnishing, to financing, is bent in the direction of more, but is it necessary? Does it help us actually live better lives?

Let’s talk it out in the comments. How many square feet does the average person need, and how should that be reflected in the types of homes we build?

Of course, what the house comes equipped with makes a big statement too.

rdan

Micahel Winship in Perspective asks:

And remember Halliburton, the international energy services company of which Cheney used to be the CEO? After the fall of Baghdad, Halliburton and its then-subsidiary KBR were the happy recipients of billions of dollars in outside contracts to take care of the military and rebuild Iraq's petroleum industry. Waste, shoddy workmanship (like faulty wiring that caused fatal electric shocks) and corruption ran wild, Pentagon investigators allege, even as Vice President Cheney was still receiving deferred compensation and stock options.

Reporting for TomDispatch.com, Pratap Chatterjee, author of the book "Halliburton's Army," writes, "In early May, at a hearing on Capitol Hill, DCAA [Defense Contract Audit Agency] director April G. Stephenson told the independent, bipartisan, congressionally mandated Commission on Wartime Contracting in Iraq and Afghanistan that, since 2004, her staff had sent 32 cases of suspected overbilling, bribery and other possible violations of the law to the Pentagon inspector general. The 'vast majority' of these cases, she testified, were linked to KBR, which accounts for a staggering 43 percent of the dollars the Pentagon has spent in Iraq."

In one instance, KBR was charging an average $38,000 apiece for "prefabricated living units" on bases in Iraq; another contractor offered to provide them for $18,000. But, of a questionable $553 million in payments to KBR that the DCAA blocked or suspended, the Pentagon has gone ahead and agreed to pay $439 million, accepting KBR's explanations.

KBR, Halliburton and the private security firm Blackwater have come to symbolize the excesses of outsourcing warfare. So you'd think that with a new sheriff like Barack Obama in town, such practices would be on the "Things Not to Do" list. Not so.

According to new Pentagon statistics, in the second quarter of this year there has been a 23 percent increase in the number of private security contractors working for the Pentagon in Iraq, and a 29 percent hike in Afghanistan. In fact, outside contractors now make up approximately half of our forces fighting in the two countries. "This means," according to Jeremy Scahill, author of the book "Blackwater: The Rise of the World's Most Powerful Mercenary Army," "there are a whopping 242,647 contractors working on these two US wars."

Scahill, who runs an excellent new website called Rebel Reports, spoke with my colleague Bill Moyers on the current edition of Bill Moyers Journal on PBS. "What we have seen happen, as a result of this incredible reliance on private military contractors, is that the United States has created a new system for waging war," he said. By hiring foreign nationals as mercenaries "You turn the entire world into your recruiting ground. You intricately link corporate profits to an escalation of warfare and make it profitable for companies to participate in your wars.

"In the process of doing that you undermine US democratic policies. And you also violate the sovereignty of other nations, because you're making their citizens combatants in a war to which their country is not a party.

"I feel that the end game of all of this could well be the disintegration of the nation-state apparatus in the world. And it could be replaced by a scenario where you have corporations with their own private armies. To me, that would be a devastating development. But it's happening on a micro level. And I fear it will start to happen on a much bigger scale."

Going global has new meanings for us. We just do not understand emotionally the impact of more fugible labor, but the transition will be a whopper.

lifted from comments, written by reader Jack

Tom said: "Some of the reported sales methods sound like they're somewhere between 'bullshit promises' and mild deception. Then again, it's car dealers on the other end of the transactions."

"I probably shouldn't underestimate Congress's inclination to protect those undeserving of protection, but remember these are car salesmen, fer goodness sakes."

Jack replies: Having been on the seller's side of the table for a while now I have a different perspective. It is good that we have lawyers and Larry Summers to provide us with foils for favorable comparison. And for self-service at the expense of whole populations, car sales staff can't hold a candle to Uncle Milton and his acolytes at the Chicago School.

But I digress. It is true that sales of expensive property has its pit falls and the buyer should certainy beware. My studies opinion, however, would suggest that the buyers with the able assistance of the manufacturers have laid the ground rules and set the stage for the battle. In the business there is a popular phrase, "Buyers are liars." Not B.S. promises, but out right lies. The typical buyer takes the bull shit promises of one salesman and cures it to the level of a mountain of crap when looking for the "deal" with another sales man. Think of it this way, in the turbulent seas of the car sales showrooms, only the shark survives.

Buyers like most of all to believe in the biggest lie they may be told. It's the only time a car salesman's word is taken as golden. When it is being presented to the next salesman as the price to beat to earn the business. If car dealers did what the customer wants to earn his business they would all be broke. Retail goods typically have a one or two hundred percent mark up. The left over goods may be marked down as much as 50-60%. Cars are in the area of 13% with occassional cash back to the dealer that may be worth another 2 or 3 percent. Buyers like those impossible 20% discounts, but they are impossible.

No, don't cry for any car dealers or their sales staff. They choose to do what they do and often they can make a decent living doing it. It's a job that often has long and unfruitful hours. We get used to being lied to and having much of our time wasted while having to never assume that someone isn't a qualified buyer. We regale each other with the stories of our most difficult or most absurd customers and shoppers. Then we have a whole other chapter of the story about the manufacturers and their so-called partnership with the dealer network. That's a partner from hell.
_____________________________________
lifted from comments by reader Jack


Rdan...who drives who in that market?

by reader ilsm

A lot of debate going on about the 2010 defense budget in general and the national missile defense programs in specific. The administration is cutting the star war fantasy drill by $1.6B from what some think was needed.

I found a quote Center for Defense information from a Lt Gen Campbell:

“On having 30 GMD interceptors fielded in California and Alaska vs. the planned 44, Lt. Gen. Campbell stated: “That number makes sense to us as we look at the threat and where the threat is going and how quickly we think the threat can get there.” He said the 30 interceptors was “capable of doing what we need it to do against the threat we designed it against; that threat, of course, was North Korea.”[12]

Threat indeed. North Korea poses mainly aggressive pronouncements and has yet to demonstrate a successful launch of a multi stage missile. They have no ICBM’s and the 30 interceptors have not shown any better success than the North Korean missiles.
The US could have whittled beaks and been as capable of doing what is needed against the threat.

Update: Blogrunner includes quite a list of arguing blog sites, often without explanation of the hardware, the risk factors, and efficacy factors. Most rely on political factors. Palin refuses some money (stimulus) but advocates for other like star wars.

by Tom Bozzo

Tyler Cowen writes:

Since old, high-bank-account white males have lots of social status and power, [believers in egalitarianism] cannot bring themselves to regard those males as holding very poor overall endowments.

Cowen claims that the poor old rich white guys' supposedly "poor overall endowments" arise from the impairment of their human capital at the more-or-less imminent end of life. There might be half of an argument here if human capital were the only component of individual wealth. Instead, we have Shorter [*] Tyler Cowen: The rich actually aren't so rich if you don't count their money. Whether and to what extent marrying Neutron Jack increased Mrs. Suzy Welch's human capital as distinct from social and financial capital is left as an exercise for the reader.

So it's pretty easy to construct an exception to Cowen's claim that

The "poorest" people are not those with low incomes but rather those with low human capital endowments."

Take a suitably dimwitted heir to a sufficiently large fortune and I will show you someone not only a lot richer than a comparably bright person who picked his or her parents badly, but in fact just about everyone else.

Now Cowen actually is right to point out that the U.S. health care system provides plenty of care to seniors at the end of life despite what I will agree are often modest endowments of wealth (including, but not necessarily limited to, human capital). The inference that this makes the U.S. health care system more egalitarian than European systems, however, is highly questionable to say the least. First of all, health care for the elderly is the most European part of the U.S. system: more-or-less universal, more-or-less socialized medicine. Second, to the extent European systems spend (relatively) less money on the elderly, they don't have obviously worse outcomes (shorter lives, etc.) to show for it.

Subject the elderly to the more-or-less private sector part of the U.S. system and those financial endowments are likelier to drive allocations of health care resources. And indeed it tends to be individuals with high human capital endowments who get the jobs with benefits that provide decent health care. Certainly the state of the U.S. health care system isn't going to make me, whether egalitarian-minded or acting on pure self-interest, more inclined on the margin to switch places with the middle-aged immigrant behind the McDonald's counter next door to the office. A leveling possibility in the U.S. system is that a bout of unemployment coinciding with an unlucky draw from the distribution of health outcomes can leave a middle-aged economics PhD approximately as screwed as the guy at McDonald's, but reasonable people can reject race-to-the-bottom egalitarianism. I'll wager the lower-endowment exceptions with decent health insurance are disproportionately public-sector employees (where a common complaint from conservatives and libertarians is that they have it too good relative to their private-sector counterparts; see e.g. U.S. Postal Service, bargaining-unit employees of) and other unionized workers.

The egalitarian reformer of the U.S. may reasonably conclude that fairness is best served by making the U.S. system more like the Europeans, or by promoting public plans over private ones.

[*] *‘Shorter’ concept created by Daniel Davies and perfected by Elton Beard.

rdan

Bears will be tackling different aspects of the debate, one of which is the Mass Health Plan (watching Kennedy's office) and other states. Basic plans and costs, decreasing the numbers of uninsured, dealing with the cost structures and power centers in the state, quality of care and such will be examined.

Below is one take on the notions introduced by the President.

Health Beat Blog Maggie Mahar posts on Obama's opening statement on health care:

President Obama: “I strongly believe that Americans should have the choice of a public health insurance option”
In a letter to Senators Ted Kennedy and Max Baucus that the White House just released this afternoon, President Obama spelled out his vision for health care reform, making it clear that he wants a public sector alternative to private insurance: “operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.” (Hat Tip to Jonathan Cohn, over at The Treatment for calling attention to this letter.

So much for speculation that the administration would back down on this issue.

The President also is “putting another $200 to $300 billion on the table,” Cohn notes, “proposing to extract that money from savings in Medicare and Medicaid.” He pairs the offer with a proposal he talked about yesterday that would give the Medicare Payment Advisory Commission (MedPac) the power to implement its recommendations for Medicare reform. (MedPac is an independent panel that advises Congress on Medicare Spending and under legislation sponsored by Senator Jay Rockefeller, MedPac would have authority to set fee schedules for both hospitals and doctors.)

I have written extensively about MedPac’s recommendations on HealthBeat and I’m now writing a post fleshing our precisely how MedPac would squeeze waste out of Medicare spending, while lifting the quality of care. )

In his letter, the President also stressed that “reform cannot mean focusing on expanded coverage alone. Indeed, without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach. So we must attack the root causes of the inflation in health care.” He then points to the large multi-specialty medical centers, where doctors work on salary, that HealthBeat has pointed to as models for learning how to provide more effective care at a lower cost: “ That means promoting the best practices, not simply the most expensive. We should ask why places like the Mayo Clinic in Minnesota, the Cleveland Clinic in Ohio, and other institutions can offer the highest quality care at costs well below the national norm.

June4, 2009
MedPac would have clout and has argued for this approach, using research from Dartmouth as a springboard to control costs.

Now, a new White House is taking MedPac’s recommendations to heart. And Congressional leaders also seem to recognize the link between Medicare reform and national healthcare reform. In April, HealthBeat reported that Senate Finance Chairman Max Baucus had declared that Medicare would become “the big driver” behind national health reform. Now, it’s becoming clear what Baucus meant.

...

Now, a new White House is taking MedPac’s recommendations to heart. And Congressional leaders also seem to recognize the link between Medicare reform and national healthcare reform. In April, HealthBeat reported that Senate Finance Chairman Max Baucus had declared that Medicare would become “the big driver” behind national health reform. Now, it’s becoming clear what Baucus meant.

This is my first official posting on Angry Bear. Let me start with a "thanks and delighted to be here." I look forward to a productive interchange and expansion of the work I have been doing through ataxingmatter, my blog on tax and economic issues. I will continue to maintain the tax blog, and post here about once a week (usually with simultaneous posting on ataxingmatter).

There has been quite a bit said about Obama's proposals for international taxation. If you read ataxingmatter, you know that I think the proposals to tighten up the way the rules work to prevent abuses are important starts in the right direction. Not surprisingly, multinational corporations have suggested that any change to the international regime that increases their taxes will make them even less competitive internationally (implying that they already have too little money to compete well) and ultimately, even quickly, lead to the demise of U.S. jobs. See, e.g., Donmoyer, Ballmer Says Tax Would Move Microsoft Jobs Offshore, Bloomberg.com, June 3, 2009.

One would think from such talk that US multinationals are just hanging on by the sheerest strings, unable to reduce costs further, leaving very small profits (if any) for their shareholders, and barely managing to pay their managers enough to keep decent talent aboard. But is that what Ballmer really means? Isn't it more likely that it is a question of Microsoft hoping to retain all that money for its managers and owners rather than see a penny of it go to government purposes (like education, basic research)? How do we get any idea about what differences taxes make to companies when what managers say can't really be trusted to shed much light on actual plans for the future?

Well, there is some real data on this issue that comes from the 2004 tax legislation--the corporate pay-back bill that was sold to the public with the same old claim that tax cuts would create millions of new jobs. The 2001-2003 tax bills cut revenues, but primarily lowered tax liabilities for individual taxpayers. (As I recall, Bush himself saw about a $37,000 tax cut from the 2001 legislation and Cheney more than double that.) Corporate lobbyists had agreed to this plan--ram the individual tax cuts through first and then pass a big bill fulfilling the multinationals' wish list. The Bush administration and Congress came through in blazing colors for the corporate lobbyists, passing a host of corporate-friendly provisions under the guise of "job creation tax incentives for manufacturers, small businesses, and farmers." (That's the heading for Title II of the so-called American Jobs Creation Act of 2004. Even the names of the various bills ultimately passed in 2004 represent a veritable smorgasbord of propaganda--the "Homeland Investment Act", the "American Jobs Creation Act", and, the same year, the "Working Families Tax Relief Act". )

The Jobs Act provisions included a host of bad policy choices all in the name of freeing up investment cash so that corporations could invest more in the good ol' USA: even more section 179 expensing; even more accelerated depreciation for leaseholds, restaurants, aircraft, and syndication property; S corporation expansion; AMT breaks; more cross-crediting of foreign tax credits; more tax expenditures for the Big Oil, Big Timber and Big Pharm. And there was one other tax expenditure that was heavily lobbied for on behalf of multinational enterprises--a (purportedly one-time) provision for very low taxed repatriation of foreign earnings, in new section 965 of the Code. The MNEs claimed that the break would permit them to create thousands of new US jobs by reinvesting tax savings in their US businesses--investments that just couldn't be managed under the constraints on the current tax burdens on repatriated cash. Repatriation, on the other hand, was supposed to lead to an increase in capital spending in the range of 2-3% over two years (see NBER paper, below, noting J.P. Morgan Securities' estimate) and firms stated both confidentially and publicly that they planned to use repatriated funds for business purposes like acquisitions, capital spending, R&D, debt repayments rather than to pay out profits to shareholders.

The express purpose of the repatriation tax cut was to increase investment and viability of U.S. operations. Hiring new employees, conducting R&D, increasing capital investment in the US were all good uses, and Treasury guidelines indicated that use to pay executive compensation, dividends or stock redemptions would disqualify the repatriations from the tax benefit.

Did the corporate giants deliver? An NBER working paper by Dhammika Dharmapala, Fritz Foley and Kristin Forbes concludes that they did not. Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act, NBER Working Paper No. 15023, June 2009. Here's the conclusion, as stated in the abstract.

Repatriations did not lead to an increase in domestic investment, employment or R&D—even for the firms that lobbied for the tax holiday stating these intentions and for firms that appeared to be financially constrained. Instead, a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders. These results suggest that the domestic operations of U.S. multinationals were not financially constrained and that these firms were reasonably well-governed.

Furthermore, money is fungible. The paper concludes that firms "were able to reallocate funds internally to bypass the publicly stated goals of the Act." Id. at 5. So of the $299 billion that companies brought back from foreign subsidiaries (about 5 times the normally repatriated amount), about 92 percent of it went to shareholders in share buybacks and increased dividends. And interestingly, the firms that brought back the most money under the repatriation scheme were the firms that tended to "shield[] foreign income from U.S. taxation by using tax haven affiliates or holding companies." The study also found that "[f]irms that increased parent equity provisions around the time of the tax holiday ... had significantly higher levels of repatriations. This pattern suggests that the domestic operations of U.S. MNEs were not capital constrained and were instead providing liquidity to affiliates. These firms seem to have taken advantage of the HIA by 'roundtripping,' that is, by replacing retained earnings that would be subject to high repatriation taxes if there were no tax holiday with new paid-in capital." In fact, the paper includes a comparison of MNE and nonmultinationals on financial constraint indicators, showing that the MNEs are less constrained than nonmultinationals under each of the three important indicators.

At least one result was that good guys--the MNEs that didn't use as many tax shelters to shield their foreign income and who regularly repatriated it and paid taxes on it--didn't get nearly as much benefit from this bill as the bad guys--the MNEs that shielded their foreign income as much as they could and held it abroad until they could get this repatriation measure passed through their intensive lobbying pressure. And the bad guys didn't do much of anything in the way of job creation, the political calling card they used to get their special tax break passed.

Seems to me we ought to at least keep this Jobs Act history in mind in the discussion of President Obama's efforts to tighten international taxation rules and the already begun whining by MNEs that they are having such a difficult time competing that any further taxation will force them to move out of the US completely.

Come on, guys, somebody take it to the Next Step.

Matt Y comes closer than anyone else to getting to the truth of the problem with Macroeconomics. Following Justin FoxSteven Levitt's summary, Matt asks the next question:

So why should it be that "in the current regime, if [macro models] are not meticulously constructed from 'micro foundations,' they aren’t allowed to be considered"?

There's a hint in the title of this post.

Edited to fix attribution.

There is a brilliant moment in the first season of Buffy the Vampire Slayer where Giles explains to Willow that his problem with computers is "their smell."

She replies, roughly, "But they have no smell."

"Exactly. And smell is one of the most important senses there is."

Apparently, with a hat tip to The New Yorker's Book Bench, others have decided that it's not the scent of the book so much as the scent with the book that should matter.

BY SPENCER

The employment report appears to report that the rate of job loss is moderating and provides encouraging evidence that the economy probably is not falling as rapidly as it has been.

But the evidence is not that clear cut. Payroll employment reported a 345,000 drop in employment, a significantly smaller loss than in previous months. Moreover, the year over year drop in the household survey continues to be weaker than the payroll report-- generally a leading indicator of a bottom.


However, hours worked fell sharply and that index just matched the 1974 recession as the most severe drop in hours worked. the hours worked data is not as encouraging as the headline data.

	INDEX	%	SMT %
Apr-08	107.4
May-08	106.9	-0.47
Jun-08	106.4	-0.47
Jul-08	106.2	-0.19	-0.37
Aug-08	106.4	0.19	-0.16
Sep-08	105.8	-0.56	-0.19
Oct-08	105.0	-0.76	-0.38
Nov-08	104.1	-0.86	-0.73
Dec-08	103.2	-0.86	-0.83
Jan-09	102.5	-0.68	-0.80
Feb-09	101.9	-0.59	-0.71
Mar-09	100.7	-1.18	-0.81
Apr-09	100.4	-0.30	-0.69
May-09	99.7	-0.70	-0.72

This drop in this measure of economic weakness is also moderating, but it is not showing as much improvement as the other measures.
Moreover, wages gains are continuing to slow sharply.

The combination of weak wage growth and falling hours worked means that nominal weekly wages are actually falling. With oil prices rising this implies that real wages are highly dependent on tax cuts.




When you combine the weakness in weekly earnings growth with rising oil prices it is not especially surprising that the January and February pop in real retail sales has not been repeated. Hopefully, the May jump in auto sales to 9.9 million will generate a rise in real retail sales. But the preliminary reports from retailers are not encouraging.


Correction: the originally reported increase in February real retail sales has been revised away
and I failed to notice it before I posted. Thus, January was the only month to show rising real retail sales over the last eleven months.

by Tom Bozzo

A Washington Post article suggests that car dealers may be getting a bit more sympathy than other stakeholders in the GM and Chrysler bankruptcy adventures:

The dealer complaints have resonated in a way that the objections of bondholders and others have not. Many are leaders in their local communities, where they are a source of jobs and philanthropic dollars, and they are a potential political force for disrupting the Obama administration's effort to quickly restructure the nation's ailing auto giants.

(It also notes that it takes in substantial advertising revenues from Jack Fitzgerald, a Washington-area dealer profiled in the article.)

As Gail Collins says in a different context, "Hell hath no fury like a middleman scorned."

I probably shouldn't underestimate Congress's inclination to protect those undeserving of protection, but remember these are car salesmen, fer goodness sakes. If you wouldn't bail Joe Carsalesman out from the jaws of the Ravenous Bugblatter Beast of Traal, then with respect to John Cardealer, keep in mind that the Cossacks work for the Czar.

While Fitzgerald suggests he's been targeted for criticizing GM and Chrysler for weak product, it's worth remembering that dealers have played their own role in the decline of the Domestic Three. And a central irony is that the terminated dealers' biggest problems stem in no small part from dealer-friendly state franchise laws that among other things helped shield these dealers from certain forms of competition. More below the jump.

For instance, terminated dealers in Wisconsin are subject to state laws which prohibit them from selling "new" cars without a franchise agreement; absent an ad hoc reprieve from the state, they'd be forced to hold onto unsold inventory until the model-year turnover when they could legally sell the cars as "used." This is a particularly pressing issue for Chrysler dealers as their termination date is June 9. Now who do you suppose would (ordinarily) want to keep non-franchisees from selling "new" cars? Pick a state and you can almost certainly find franchise laws intended to insulate car dealers from competition but which may boomerang on dealers ejected from the club.

Dealers also shoulder some of the blame for the current market's coolness to the Detroit automakers. Those of us of an age to remember family loyalties to particular domestic makes may also remember that their automotive nadir was also a dealer-service nadir. GM, in particular, implicitly acknowledged this through the Saturn dealership model, with its customer service aspirations styled on Japanese makes and low-pressure sales approach. That must have done a pretty good job of reforming widely detested sales practices and lousy after-sales service, since it's hard to pin Saturn's goodwill and modest early success on its cars. (My receptiveness to "oh but early Saturns really were wonderful" arguments is tempered by 2-1/2 years of living with my wife's late '96 SL1, which admittedly wasn't remotely as bad as my mother's long-deceased '85 Buick [the car which drove her to Hondas].)

It's been a measure of how screwed-up GM is that Saturn now has a sensible lineup of decent cars (which could be further improved by reference to GM's latest European models) and the closest thing to a rationalized dealer network in the GM brand family, yet seems never to had the chance afforded GM's more damaged traditional brands that had, pre-crisis, much lower sales to boot.

We're encouraged to feel a little sympathy for small businessmen whose lots were stuffed with cars using what sound like high-pressure sales tactics. Some of the reported sales methods sound like they're somewhere between 'bullshit promises' and mild deception. Then again, it's car dealers on the other end of the transactions. Should they not be able to resist pitches of the "I gotta meet my quota and we'll remember you for helping" form?

My problem with "travesty" theories of the Chrysler and GM bankruptcies is that they tend to lose sight of the basic situation that the automakers are well and truly busted, and that the next best alternative to the "travesty" is liquidation in a highly unfavorable market. There's especially little reason to believe that New Chrysler has a future with all of its legacy franchise agreements dragged along.

by cactus

Following up my post earlier this week on abortion, I was thinking about some of the comments left by readers and I decided to follow a simple thought experiment. I was thinking about what happens when parents split up and one gets custody of the kids - usually the other is required to pay some sort of child support. (Let me right from the start make clear - none of this involves me in any way. I can say, with five nines reliability, that I am not anyone's father.)


The theory (i.e., actually, a set of starting assumptions) here is two-fold:


1. The added support is in the best interest of the children
2. Whether that parent wanted children or not (and often that itself is the cause of dispute), there was some consensual action by that parent at one time that led to the creation of the child. Hence, that parent bears some responsibility for the very existence of the child, whether that was their intention or not.


But that leads me to wonder - what if the child was born partly as a result of the, er, intervention of outside forces. For example, my understanding is that a pregnancy resulting from the chance meeting of two random strangers is more likely if alcohol is involved. Of course, beer makers should not be held responsible - after all, there is no particular reason to expect that the use of alcohol will result in pregnancy. But what about the makers of, say Viagra? Or a company that sells fertility drugs? Or a clinic that provides in vitro fertilization? Surely, each of these should expect that use of their product or service makes pregnancy more likely. In fact, for companies in the fertility business and the associated pharmacies and clinics, that's the whole point.


If the parents of a child should be responsible for supporting that child because a) the added support is in the best interest of the child and b) the parent took actions which resulted in the birth of the child, whether intentionally or not, shouldn't these fine companies have the same responsibility, if not more?


---


Now, bear in mind that the above is not my opinion of the way things should work, in large part because outside of this thought experiment I have a slightly different set of initial assumptions. However, the set of assumptions are sufficiently widely held (they were stated by readers a few times in the comments to my earlier post) that its worth looking at where those assumptions lead.
______________________________________________
by cactus

"100 Tanks Along the Square, One Man Stands and Stops Them There"

Update: Rdan here...an update from The Economist

Robert Waldmann

So, in the end, it turns out that the FDIC trust fund will not be raided in order to bail out banks by buying overpriced legacy loans. The FDIC retained control, and has no inclination to blow its trust fund, that is, it refused to make no recourse loans to make it possible to buy pools of mortgages at prices banks are willing to accept (that is at the make believe value that the mortgages currently have on the banks books).

I threatened to type this, and give myself no choice.

I told you so.

Many very smart* people assumed that the 85% financing by no recourse loans meant the FDIC had to write and give away a hugely valuable Geithner put. I thought so too until sammy snarked me into actually reading the plan as announced.

* Please excuse Dr Black's extensive use of technical jargon such as "shit" and "shitpile."

rdan



To begin the conversation now over the next few years. What do we stand for? What is our story? A great start.

Update: h/t MG for the transcript of the speech.

By Spencer.

We are getting an interesting debate between different economic bloggers today and I thought I would put in my two cents worth.

Casey Mulligan at economix began it with an argument that the current recession is not as severe as the 1981-82 recession because that recession was really two recessions and if you combine them they were more severe than this recession.

I agree, we never really had a recovery from the 1980 recession and the second recession before the economy returned to full employment.

But that does not necessarily mean that the combined 1980-82 recession was more severe than the current recession.

To judge that one needs to look at the depth of the recession and see how much excess capacity the double 1980-82 recession created compared to the current recession. Maybe the best way to do that is to look at the GDP GAP or the gap between actual Real GDP and Potential Real GDP as this chart does. You can see how the recovery from the 1980 recession was incomplete and the economy was significantly below potential real GDP when the 1981-82 recession began. But we had something similar this cycle. The 2002 -2009 expansion was so weak that real GDP never got back to potential this cycle just as it did not in 1981. The current recession is not yet over. But if you assume that second quarter real GDP falls at a 4% annual rate it creates a GDP GAP of -8.4% as compared to -8.3% at the 1982 bottom. So even when you build into your comparison that the 1980 -82 recession was really two recession, you still come to the conclusion that the depth of this recession is about the same as the combined 1980-82 recessions. So by this standard, the current recession is just as severe as the 1980-82 recession even when you take into account that the earlier recession was a double recession.

A second way of measuring the depth of a recession is to compare how much excess industrial capacity is created and manufacturing capacity utilization does that. Again the chart shows how in both the 1981 recovery and the 2002-2008 expansions the economy failed to recover to prior peaks and entered the recessions with significant excess capacity already existing. But now manufacturing capacity utilization is at 65.7% versus 68.6% at the 1982 bottom. So again this measure shows the depth of the current recession to be greater than the combined 1980-82 recessions even though the current recession is not yet over.


Finally, we can compare the unemployment rate in the two recessions. The unemployment rate peaked at 10.8% at the end of 1982 as compared to the current rate of 8.9%. Of course the current rate is probably not the peak rate. So we will just have to wait and see how this comparison ends.


But when the depth of the current recession is evaluated in term the GDP GAP, capacity utilization and the unemployment rate it is obvious that this recession is creating as much excess capacity as the combined 1980-82 recessions did. So by these measures the argument by Casey Mulligan that the 1980-82 recession was more severe than this recession just does not stand up.

Robert Waldmann

lifted from
Robert's Stochastic Thoughts


From Scotusblog via Hilzoy.


In Pappas v. Giuliani, 290 F.3d 143 (2002), [judge Sotomayor] dissented from the majority's holding that the NYPD could fire a white employee for distributing racist materials.


OK so the reverse racist Latina wasn't quite so intollerant of white racism as the majority of the appeals court or Rudolf Giuliani. Of course it is well known that Giuliani hated the NYPD and was always trying to get them.

Why is it that the person to actually look at Sotomayor's opinions is not a print journalist but rather blogger Tom Goldstein ?

rdan

The blog Name Wire poses a potent question on perception of value and who builds a product:

The recent news that China has surpassed the US as the world’s second largest exporter — now making more cars than Detroit — has got me thinking about what "Made in China" means to US consumers.

Nowadays, "Made in China" on a brand name product no longer means cheap and cheerful, according to the Washington Times. Even Nokia Phones are being made in China. When it comes to fashion brands, however, "Made in Spain" and "Made in Italy" have a certain cachet, but this may be waning.

An Asian Times Online article "China’s Global Luxury Brand Workshop" notes that high end luxury brand names like Prada, Armani and Burberry are outsourcing to China.

By 2009, 60% of the world’s luxury brand names will have their products made there.

Don’t believe me? French fashion brand Louis Vuitton is putting up a factory in China this year. Prada, for its part, outsources its products to so many countries that they are considering putting "Made by Prada" on their labels.

China now makes high end trains and rail, tennis rackets, and lenses.

GE is producing wind turbine blades there and Chinese made Chery are the top selling autos in China last month, for the first time ever.

Robert Waldmann

So I'm reading "Aid Ironies" by Jeff Sachs and nodding my head vigorously.

"The Global Fund to Fight AIDS, TB, and Malaria, and the Global Alliance on Vaccines and Immunizations are both saving lives by the millions, and at remarkably low cost."

Yes

"Americans ... overestimate the actual aid from the US by around thirty times, so they imagine that vast sums are flowing to Africa that are then squandered. "

Yes absolutely very important. An error of that magnitude is not just ignorance, it is prejudice, but it should be possible to force people to face one single solitary vitally important fact. Shouldn't it ?

Then I get to this sentence

"US aid to India for increased food production in the 1960s paved the way for India's growth takeoff afterwards."

Sachs (who I respect immensely) has just outdone Robert Samuelson in the bogus empirics based on whatever the hell lag I please department. He claims that aid in the 60s caused a growth spurt in the 90s. Even NotPaul only blamed Johnson for things that happened a mere 5 years after he left office.

Sachs (unlike R Samuelson) is very smart. Why did he write that sentence ? I think he assumes that people who can overestimate the AID budget by 30 fold can overlook 30 years. I think he has a solid case and doesn't have to make absurd arguments.

rdan

James Kwak of Baseline Scenario asks an important basic question concerning the statement that 'big cars are inherently more profitable for car companies, so smaller is bad for profits', and comes up with this part answer: because we think they do in America, so we can charge more. Anything else you can think of after reading his piece and reviewing his six hypotheses? Not CAFE standards?

Update...The first is that SUVs offer a better ratio of perceived value to production cost. That is, there’s an amount of stuff you need to build a functioning car; once you’ve done that, it doesn’t cost twice as much to make it twice as big, because you’re just adding raw materials. (I’m simplifying, obviously.) But people, being not that bright, think something is worth twice as much if it is twice as big. I still think competition should eliminate this larger profit margin, but see the second argument . . .

which is that SUVs and pickup trucks have been less exposed to foreign competition, so instead of having twelve or so viable competitors in the small-car segment, you mainly had three for SUVs.( Some commenters did not agree with this, pointing out that Toyota and Honda have been building pickup trucks for a long time.) With fewer suppliers, you can charge higher prices.

I should clarify that I don’t think there is anything wrong with the hypotheses I listed above; my point was that hypotheses 2-4 do not depend on SUVs/pickups being bigger, but on other characteristics of them. So there is no fundamental reason why, in the future, the profit margin on big things should be bigger than the profit margin on small things. Similarly, if the advantage is due to less foreign competition, then I think that would have gone away in any case, since just about everyone makes an SUV now (every major Japanese or Korean manufacturer, Volvo, Mercedes, BMW, VW, etc.) – though maybe not a pickup.

If the answer is the perceived value/production cost advantage, then that is arguably fundamental to big things as opposed to small things.

by cactus

The Pro-Life Position and Good Business Practice


Around the time of the Schiavo affair, Angry Bear (the blogger himself!) wrote a post which discussed, among other things, the case of Sam Hudson, a comatose boy who died after his feeding tube was removed by the hospital. That was done against the wishes of his mother, but then, she was penniless and couldn't afford to pay the hospital. Courts have upheld that decision, the precedent has been set, and this sort of thing is no longer news.

Similarly, it should surprise no-one that a pharmaceutical company is under no obligation to provide a drug to an indigent patient, even if that patient has zero possibility of survival without that drug. Ditto makers of medical devices of various kinds. Closer to home, for most of us - we aren't required to provide a meal or shelter to a homeless person outside our front door, even if without these that person would not survive the night.

Its cold blooded, but if we did force hospitals to perform any procedure desired by patients who couldn't pay, or makers of pharmaceuticals and medical devices to serve those who can't afford it, or even the average Joe to help the poor, we'd be infringing on private property rights to a degree that even the poor replica of capitalism we've had in this country over the past few decades could never survive. And while a sizable percentage of the population may wish it were possible to for everyone to be helped in theory - the rest perhaps seeing need as a morality play of some sort - we recognize that we wouldn't want to be placed in a world where we were required to help everyone in every situation. For one thing, we would all collectively go broke. And because we don't want to be forced to into that world, we generally don't force other people to live in that world either.

Except... many Americans would like to force one group of people to give resources - time and money - to another they do not want to support. That group are women who would otherwise have an abortion. After all, carrying a child to term is a burden - it causes changes to the body and in some instances, puts one's life at risk. Its certainly a much bigger burden, say, than forcing some medical devices company to provide stents to those who need them, which as noted above, we would never contemplate doing. And while the fetus or unborn child - pick your favorite term - is innocent of any blame, the same can be said of Sam Hudson, the boy whose feeding was removed, not to mention many of those who need pharmaceuticals, medical devices, or even a warm meal and a place to spend the night.

In a nutshell, the "pro-life" crowd's position is this: if a woman has a voluntary abortion its a sin. However, if a hospital or a pharmaceutical company or some other entity denies her some resource or some treatment that is necessary for the fetus or unborn child to survive and that denial is due to financial considerations, well, that's just good business practice. And the internal contradictions of the "pro-life" crowd are even worse after we're born: if a hospital disconnects a child from a feeding tube and boots him from the hospital knowing full well that those actions mean the child will die painfully within a few days, that's fine, but if the child's mother tries to ease that same child's last moments with an overdose of morphine, that's murder.
______________________________
by cactus

Robert Waldmann

Brad DeLong wrote a brilliant little essay on "The Hidden Purpose of High Finance"

This is a "project sindicate" project, so I think fair use requires me to only quote Brad when he is quoting Keynes except for 3 words, 2 in the quote below and "eggplant."

He dismisses the efficient markets hypothesis half way through and says that high finance has two socially useful effects that it wouldn't have if everyone were rational. In each case the effect is to promote savings. They are

1) the illusion of liquidity. Brad quotes Keynes "the fact 'that each individual investor flatters himself that his commitment is ’liquid’ (though this cannot be true for all investors collectively) calms his nerves and makes him much more willing to run a risk....'"

2) the fun of gambling makes us invest more. Keynes again "[t]he game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll...." Brilliant, OK so much of the brilliance in Keynes's.

After the jump, my rambling thoughts.

update: Brad has a longer essay which anticipates many of my comments on his shorter essay.


That is a brilliant essay. I would say advantage 2 disciplining managers is upside down. Without high finance we wouldn't have the separation of ownership and control in the first place. High finance creates a principal agent problem and does a little tiny bit to solve it. Advantage 2 is really a cost.

The eggplant wedding cake analogy is excellent (although a student of Larry Summers ought to have allowed the use of ketchup).

I think on balance we are not gamblers. Some people are and specialists profit from them. The key point is if enjoyment of gambling caused us to save and invest more, then stocks should be overpriced compared to treasury securities. Ooops Mehra Prescott. Looks like, on balance, people act risk averse. I am assuming that almost all of the risk of investing in stock is due to noise. If the desire to gamble caused increased investment, then the patient trader (imagined by Keynes embodied by Buffett) would avoid common stock like the plague. In the data, quite the contrary.

Liquidity is valuable even without irrationality. I think you are right that the price of liquidity is based mostly on the irrational sense that liquid assets are safe,that is each persons guess that he will guess what the crowd will do before the crowd -- will sell before the peak etc. The theoretical effort to explain the price of liquidity in a model in which the average investor is rational and not irrationally convinced that he is smarter than the average investor is eggplant and ketchup souflé takes great effort, has little substance and is likely to collapse.

You are aiming to find hidden purposes of high finance which are socially useful. "Purpose" here is used in a quasi religious way as "social function." I think you are being diplomatic, but it is almost as if you believe the invisible hand can work without rationality. I'd say the purpose is definitely to separate fools and their money. It works very well at that. What is the purpose of a Casino ? Do casinos achieve that purpose ?

I'd distinguish between high finance (joint stock limited liability corporation, index fund) and really high finance, (call it stoned finance) CDS, CDA etc. A lot of new financial instruments are there to help people hedge. The reconciliation of a great desire to hedge and rationality is the absurd assertion that they are hedging real risk on untraded assets. In fact, people hedge, because they think that they can make more money out of a mispriced asset that way. The demand is based on a huge number of people the average one of which thinks he is above average. Helping compulsive gamblers get in tens of billions over their heads is not socially useful.

by Bruce Webb

In comments Andrew Biggs claims that the NW Plan does not actually eliminate $15.4 trillion in unfunded Social Security liability but instead leaves a 1% payroll gap over the Infinite Future. I have no reason to suspect his math but do suspect he doesn't fully understand the mechanism.

The Northwest Plan ultimately is a response to long term uncertainty in the projections. Under CBO's most recent projections the payroll gap for Social Security is about half of that projected by SSA (1.06% to 2.00%). If the schedule of tax increases set forth in the spreadsheet was set in stone this would mean that if actual economic performance came in in line with CBO then Social Security would over the long term be overfunded, which oddly enough would be a very, very bad thing for Social Security, something I pointed out in installment ten of the AB Soc Sec Series The Danger of Low Cost. The NW Plan avoids this by monitoring the tail of the valuation period. For example under 2009 OASDI Trigger the projected Trust Fund ratio remains remarkable steady from around 2062 to 2080 but then takes a mild but noticeable dip to the end of the projection period. If this trend persists as we change valuation periods with the 2010, 2011, and 2012 Reports it might trigger another increase in the mid 2090s. On the other hand if it reverses we might have to push the 2074 increase forward a bit. If it turns out that CBO is more right than SSA this might mean canceling one of the intermediate year cuts and stretching the rest out some, or alternately reduce the amount of the increase in one or more of the scheduled.

In any event we can always adjust the schedule so that the TF ratio result in the new year 75 always remains between 100 and 300 and as such eliminating unfunded liability over that period and so for some extended period beyond.

I suppose someone could take 2009 OASDI Trigger and extend it from 2082 to 2109 and so capture all the potential costs for 'past and current participants' and so show that the pace of needed increases after 2082 is such that the people of 2062 should consider changing the benefit formula. On the other hand our bigger policy need in the 2060's might be planning how to relocate NYC and the whole state of Florida to higher ground. The very uncertainly inherent in future outcomes mitigates against too much prior planning.

The NW Plan eliminates unfunded liabilities because it sets up a mechanism similar to that under which the Fed predicts inflation, with the advantage that SSA will always have a 75 year planning window. If unfunded liability starts creeping back into the picture 20, 30, or 40 years from now the Dales, Bruces and Arnes of that era can deal with it. There is no reason to assume a priori that they will be more feckless than we are and that events occurring decades after our own deaths are our responsibility. This plan if adopted gives us quite powerful assurance that the Social Security car will still have plenty of life left in it 76 years from now. Good enough for me.

Robert Waldmann

I noticed that Robert Samuelson wrote this Op-ed in the Washington Post. I knew I couldn't stand to read it (I haven't). However, I did encounter it's echos at Matthew Yglesias's and Ezra Klein's. After the jump my denunciation of a paragraph quoted from a column which I haven't read.



In the Post Klein quotes a long passage from the op-ed. It exemplifies idiocy. I quote the quote

All "reforms" do not succeed; some cause more problems than they solve. Johnson's economic policies, inherited from Kennedy, proved disastrous; they led to the 1970s' "stagflation." The "war on poverty" failed. The press should not be hostile, but it ought to be skeptical.

Samuelson's evidence for the failure of Johnson's policies are economic problems which began after he had been out of office for 5 years. This is op-ed level empirics. Evaluate policy by looking at aggregates with a lag from 0 to 13 years after the beginning of the policy. This is not evidence. With that approach one can prove anything. Why look Hoover's policies were followed by the period of, by far, the fastest economic growth the US has ever known (starting 1 month after he left office not 5 years).

Klein assumes that "stagflation" must refer to something very important .. the productivity slowdown. Here he shows his age (half of mine). The word was commonly used in 1975 long before the slowdown was detected. It just meant high unemployment combined with inflation. The causes suspected at the time were the oil price shock (not mentioned by R Samuelson) and, maybe, Aurthur Burns' monetary policy accepting inflation to get the Nixon vote up to 60%. If the Johnson deficits caused such damage then what could we expect from the Reagan Bush and Bush deficits. R Samuelson's "analysis" is insane. There is no way to translate it into a statement about measurable variables so that it comes close to fitting the data.

Klein and Yglesias note that the poverty rate fell roughly in half during the "unsuccessful" war on poverty. Why do most people my age (twice theirs) agree taht the war on poverty was a failure ? I think it is simple. Way back in the day, lefties tried to convince the apolitical to mildly conservative tax payer that it was better to fight poverty than to suffer crime. The poverty rate fell during the war on poverty, but the crime rate soared. This causes a violent reaction. I'd guess than anyone over 10 understands that race and racism had a lot to do with it.
On the other hand, the decline in poverty was not impressive. I mean the poverty line measures absolute poverty. Of course it declines (was the attitude in the 60s). Then when it stopped declining only lefties, and, of course, the poor noticed or cared.

So why does Samuelson dare write such crap ? Well for one thing he is a pundit and has been free to make claims without evidence without ever having to answer criticism for years. For another, he is presenting the conventional wisdom. R Samuelson complains that the press writes to much on politics not on policies and their consequences (at least as interpreted by Klein). He doesn't notice that he has decided that Reagan was right, or partly right, because he was politically successful. Is there any other possible explanation ?

rdan

Women's e news carries a note on a time honored business plan, paying locals to not interfere with production. This is probably not taught to high school kids in America, or college, but most of us benefit at least through cell phones, i pods, and computers on a daily basis. Best to ignore the externality? That is good citizenship?

Prendergast asked senators to support the Congo Conflict Minerals Act, which was introduced by Kansas Sen. Sam Brownback, Illinois Sen. Dick Durbin and Wisconsin Sen. Russ Feingold in April of this year.

The bill aims to break the link between resource exploitation and armed conflict in eastern Congo by requiring companies trading minerals with Congo or neighboring states to disclose mine locations and monitor the financing of armed groups in eastern Congo's mineral-rich areas.

"The sooner the illicit conflict minerals trade is eliminated, the sooner the people of Congo will benefit from their own resources," said Prendergrast.

U.S. consumers, Prendergrast said, can also help by pressuring major electronic companies--from Apple to Sony--to certify that cell phones, computers and other products contain "conflict-free minerals," a campaign tactic popularized by the Sierra Leone-based film "Blood Diamonds."

Such a process would use a tracking system for components, similar to that developed in 2007 under the Kimberly Process. This international certification scheme ensures that trade in rough diamonds doesn't fuel war, as it did in Angola, Cote d'Ivoire, the Democratic Republic of the Congo and Sierra Leone during the 1990s.

Germany has already developed a pilot fingerprinting system for tin that could be expanded to other minerals and help establish certified trading chains, linking legitimate mining sites to the international market.

Dominique Soguel is Women's eNews Arabic editor.

rdan

All of us might reflect on Frank Schaeffer's words concerning hate and incendiary speech. Automatic slogans that tap deep emotion comes easily to all at points in their lives. Assassinations are 'contagious' at times.

Visit msnbc.com for Breaking News, World News, and News about the Economy

by Bruce Webb

Don't step in the Voodoo.

Leap in U.S. debt hits taxpayers with 12% more red ink

Yhe latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

"We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it's not backed up by a house," says David Walker, former U.S. comptroller general, the government's top auditor.

It is nonsense like this that explains why the Northwest Plan for a Real Social Security Fix is better than my previously preferred plan of 'Nothing', it helps to shut Peterson stooges like Walker the hell up.

What Walker is telling us via USA Today (which near as I can see did no 'analysis' at all, just parroting the 'Fiscal Wake-up Tour' message instead) is that if you add the the current value of all US debt, add to that projected costs of Social Security, Medicare and military pensions you come up with a total of $63.8 trillion which if divided by the number of CURRENT households gives you a total of $546 thousand. This is a meaningless number for any number of reasons. One it implicitly defines 'household' as 'current household and any future households stemming from it', that is if you have four kids your ultimate per household burden will be a quarter of that. Plus this calculation ignores all future households stemming from future immigration and of course households stemming from them. It is a junk number. But rather than try to demonstrate the absurdity of the logic and the arithmetic lets just make a big chunk of that debt go away.

If the NW Plan was enacted into law tomorrow $15.4 trillion in 'unfunded liability' would vanish from the books. Poof! With no money down and easy payments starting in 2010. Which is better than any mattress deal out there.

Social Security and the CBO score future liability on a current law basis, change the law you change the score. Lets take three different households. The first is a household making median household income of $50,000. The second is a household with a single earner making the average income of $40,000. The third is a one person household where the worker is earning $12.50 an hour. Under the NW Plan the first household would pay $1.50 more in taxes per week by the second year, the second household $1.20 cents, the third household 75 cents with no further changes in tax rate until 2026. That is all it would take to wipe almost a quarter of that $63.8 trillion off the books.

Because it is all just word games. Under current law the Federal Government is required to pay Social Security benefits on the established schedule as long as it has money coming in to pay for it. But if the dedicated revenue stream falls short of that Congress is fully empowered to change that current law. Is the Federal Government really on the hook for $15.4 trillion in unfunded liability for Social Security? Well under current law as of June 1, 2009 yes. After passage of the NW Plan not. Or for that matter after passage of some 'Bi-Partisan' Commission recommendation not. Trying to equate a current law projected liability into an actual measure of future household debt is just Voodoo Arithmetic. Because at some point Congress will move to add funding to current law or change the current law benefit schedule and in doing so will make that $15.4 trillion dollar 'unfunded liability' vanish like smoke.

Don't fall for the hype. Normal households don't budget that way. Unless you plan to starve to death you have an unfunded liabiliity for all the food you are going to eat between now and your projected mortality date. If you rent you have an unfunded liability for the cost of keeping a roof over your head. Ditto for your utilities, your clothes, your entertainment. For that matter your real unfunded liability for your car, mortgage and credit cards is far above the face value of the loan balance, absent a Lotto victory you are far more in debt than your current balance sheet shows. But what is important is your carrying costs. Can you make rent and car payments and buy groceries and entertain yourself while paying down your principal balance on your revolving debt? Well then you are fine. That doesn't mean you don't need to look down the road at things like future college bills or retirement income, it is that if you do you will probably look at it in terms of your monthly income, can I afford to set aside X hundred dollars a month to pay for Suzie's education, or maybe to save up for the down payment on that new bass boat? After that it is just a matter of making payments out of current income.

So people have a choice regarding Social Security. Do you want to lay awake at night wondering how you can possibly come up with your share of $15.4 trillion? Or just roll over thinking "Well I think I can find an extra buck and a half a week in the next two years and a buck or so more per week per year in 2026. Why am I even worrying?".

NW Plan Spreadsheet (PDF version)

Update: Posted in diaries at Daily Kos

by cactus

Facts That Remain True After the Evidence Proves them Wrong

It wasn't that long ago that much praise was being heard (in certain circles) about all sorts of things that have all kind of imploded as of late. Its 4 AM as I write this, but off the top of my head I'm coming up with a) economies like those of Ireland, Iceland and the Baltic States, b) mucho leverage on the part of investment banks, and c) the folks who manage Harvard's endowment.

You might figure that by now, we'd have concluded that at the tax burdens we observe in this country cutting taxes does not lead to faster growth in general. Sure, you can pick and choose time periods and instances where tax cuts are associated faster growth rates, but in general they simple aren't. This is a topic I've come back to a bunch of times. My first ever post looked at the growth rate of states by tax burden - no favorable evidence for the tax cutting story there. The fastest growth rates we've seen in this country have not been associated so much with Presidents who are remembered for cutting taxes as with Presidents who expanded the role of government. We've also had major recessions following the two most recent big tax cuts (81 and 01). However, the tax cuts = faster growth story meme does not die. That indicates that the "Ireland, Iceland and the Baltic States" doing beautifully is not going to die; we'll eventually hear about how they tanked only after they raised taxes or something similar. (Tip to Heritage - feel free to take this one and run with it at no charge.)


But I was wondering - what is it that determines whether an, ahem, "fact" remains "true" in certain circles long after the evidence is there to refute it?
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by cactus

Rdan

Linda Beale of ataxingmatter will also be writing for Angry Bear beginning this month. Her thorough analysis and style will add to our value to our readers and provides us with a particular expertise in tax matters as well.