Economics

Krugman: On Economic Arrogance

According to press reports, the Trump administration is basing its budget projections on the assumption that the U.S. economy will grow very rapidly over the next decade — in fact, almost twice as fast as independent institutions like the Congressional Budget Office and the Federal Reserve expect. There is, as far as we can tell, no serious analysis behind this optimism; instead, the number was plugged in to make the fiscal outlook appear better.

I guess this was only to be expected from a man who keeps insisting that crime, which is actually near record lows, is at a record high, that millions of illegal ballots were responsible for his popular vote loss, and so on: In Trumpworld, numbers are what you want them to be, and anything else is fake news. But the truth is that unwarranted arrogance about economics isn’t Trump-specific. On the contrary, it’s the modern Republican norm. And the question is why.

(via On Economic Arrogance - The New York Times)

Math has a liberal bias.

A Good Idea, Even if It’s From Republicans

robertreich:

A group of former Republican officials (including James A. Baker, Henry Paulson, George P. Shultz, Marty Feldstein and Greg Mankiw) is proposing a carbon tax starting the tax at $40 per ton, that would gradually increase. 

The proceeds of the tax would be distributed to every American.

The average family of four would receive $2,000 annually in dividends. As the tax rises, so would their dividends. Since everyone would receive the same amount of revenue from the tax regardless of their income level, the dividend would make a bigger difference for poorer families than for wealthier ones.

It’s a win-win: Less carbon in the atmosphere, and more equal distribution of income.

That it’s being proposed by Republicans doesn’t make the idea any less worthy. 

I’m aware that some on the left would rather use revenues from such a tax to invest in clean energy and other social causes rather than return the revenues directly to the public. That detail can be worked out.

The idea is getting a hearing in the White House. And in these dreadful times, that’s good news indeed.

“The average family of four would receive $2,000 annually in dividends. As the tax rises, so would their dividends. Since everyone would receive the same amount of revenue from the tax regardless of their income level, the dividend would make a bigger difference for poorer families than for wealthier ones.”

Repeal of liquidation tool would be a major unnecessary error

The OLA is a new bankruptcy-type provision included in Dodd-Frank that gives the Federal Deposit Insurance Corporation the authority to resolve insolvent systemic financial institutions (think future Lehman-like episodes). It allows the FDIC to borrow funds from the Treasury to support the liquidation of such firms with the proviso that in the event of any losses, fees will be levied on bank holding companies and other financial institutions to fully reimburse the Treasury. This authority is a wholly rational response to the gaping hole in our financial architecture evinced by the catastrophic Lehman failure, where policymakers’ only alternatives were uncontrolled bankruptcy or taxpayer-financed bailout. Had it been in place in 2008, much carnage could have been avoided.

So, much is wrong with eliminating OLA in order to get about $20bn in CBO-blessed revenue.

(via Repeal of liquidation tool would be a major unnecessary error)

Larry Summers is right here. This is dry but worth a read.

The unemployment rate in the city of Seattle – the tip of the...



The unemployment rate in the city of Seattle – the tip of the spear when it comes to minimum wage experiments – has now hit a new cycle low of 3.4%, as the city continues to thrive. I’m not sure what else there is to say at this point. The doomsayers were wrong. The sky has not fallen. The restaurant business, by all accounts, is booming (in fact, probably reaching a saturation point when one looks at eateries per capita). I think it’s safe to say we’ve got enough data – over almost two years now – to declare that Seattle has not suffered adverse consequences from its increases in the minimum wage, and has certainly not experienced the dire effects foretold by the anti-min wage crowd.

(via Seattle Minimum Wage Experiment is Over - The Big Picture)

Donald Trump’s trade team has based their analysis on a remarkably silly mistake

Donald Trump’s trade team has based their analysis on a remarkably silly mistake:

Reading this, you might wonder why it is that in the real world, economists actually do try to develop complex computer models of the economy. The answer is that the alternative method Ross and Navarro are proposing doesn’t even remotely work.

This is 101ism. The idea that a simple Econ-101 level understanding of a topic will just scale up to the macro level. The assumption that every market will work like a guns and butter chart from day three of Econ 101 is easily disproved, but this doesn’t stop 101ism. People like simple solutions. This DSGE charts are hard, have Greek letters and lots of math. 101ism sells.

@TBPInvictus here: In light of a recent monthly release from the...



@TBPInvictus here: In light of a recent monthly release from the Bureau of Labor Statistics (BLS), time for a quick trip to the glorious pacific northwest and the Seattle, WA area to revisit what’s been happening there in the wake of that city’s rising minimum wage. You may recall that even prior to Seattle’s minimum…Read More

(via Seattle Minimum Wage Experiment is Over - The Big Picture)

The minimum wage can be raised to 50% of the median wage without disemplyment effects.

TheMoneyIllusion » Trump favors teasier money

TheMoneyIllusion » Trump favors teasier money:

So what are Trump’s views? Very simple. For elderly savers, Trump favors higher interest rates. For big developers, he favors low rates. For consumers, he wants a strong dollar. For exporters, he wants a weaker dollar. Each group will get what they want, but not all in the same universe. You see, Trump’s monetary views are best described as a wave function, which will collapse to a single outcome on January 20th. Trump is the first post-modern candidate, the first to understand that truth is what the voters let you get aways with, and that the multiverse offers the possibility of achieving seemingly irreconcilable aims.

Kansas Republicans Finally Admit That Their Tax Cuts For The Wealthy Have Failed

We hoped they would just be a magic lantern and everybody would react to it. But, eh, it’s hard to get a company to uproot their business when they’re established and move to another place just because of this difference in tax policy.

(via Kansas Republicans Finally Admit That Their Tax Cuts For The Wealthy Have Failed)

Waiting for people to argue that taxes just were not cut enough.

Six Problems with the GOP Debate on Financial Reform - Roosevelt Institute

Six Problems with the GOP Debate on Financial Reform - Roosevelt Institute:

Nobody Wants to Be a SIFI

Actually, institutions declared systemically important fight against it, hard. GE sold off GE Capital, and in the process its chairman said “GE will work closely with [regulators] to take the actions necessary to de-designate GE Capital as a Systemically Important Financial Institution.” They wanted out.

MetLife is suing the government because it was designated SIFI status. Carl Icahn is pushing AIG to break itself up to avoid its SIFI status. JP Morgan sold off 6 percent of its assets to prevent having the highest SIFI capital surcharge applied to them. The Too Big To Fail subsidy that is supposed to explain why people would want SIFI status has shrunk dramatically toward zero since the crisis. There is no bragging. There is solid resistance, as there should be.

The candidates funded by the hedge fund industry and the big banks wold be complaining about Financial reforms and The Volcker rule if it wasn’t a burden to their funders. Banks do not want to be tagged as a SIFI. The costs imposed on them are too great. They would much rather externalize their risks to others and ultimately the tax payers. Internalizing their risks it bad for bonus season.

Predatory Islamic State Wrings Money From Those It Rules

Predatory Islamic State Wrings Money From Those It Rules:

Across wide expanses of Syria and Iraq, the Islamic State, with the goal of building a credible government, has set up a predatory and violent bureaucracy that wrings every last American dollar, Iraqi dinar and Syrian pound it can from those who live under its control or pass through its territory. Interviews with more than a dozen people living inside or recently escaped from the Islamic State-controlled territory, and Western and Middle Eastern officials who track the militants’ finances, describe the group as exacting tolls and traffic tickets; rent for government buildings; utility bills for water and electricity; taxes on income, crops and cattle; and fines for smoking or wearing the wrong clothes.

Extraction economy.

The Minimum Wage: How Much Is Too Much?

Research suggests that a minimum wage set as high as $12 an hour will do more good than harm for low-wage workers, but a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.

(via The Minimum Wage: How Much Is Too Much? - The New York Times)

Krueger and Card are the authors of the seminal study that suggests that raising the minimum wage doesn’t necessarily reduce employment. He thinks $15/hr is too high. Too many people quoting that study are unaware the authors think $15/hr is too high.

Paul Krugman:Trump Is Right on Economics

all indications are that Mr. Bush’s attacks on Mr. Trump are falling flat, because the Republican base doesn’t actually share the Republican establishment’s economic delusions.

(via Trump Is Right on Economics - The New York Times)

When Trump came out for raising income taxes on the rich, like him for saving social security and for increased spending on domestic infrastructure I was sure that he was going to lose his Tea Party base. But he didn’t. Krugman’s explanation actually makes some sense.

Krugman on Gravity and Trade

that the volume of trade between Kanesh and various trading partners seems to fit a gravity equation: trade between any two regional economies is roughly proportional to the product of their GDPs and inversely related to distance. Neat.

But what does the seemingly universal applicability of the gravity equation tell us?

It’s the law!

(via Gravity)

Krugman on trade is always worth a read.

Obama's economics team is taking on one of America's most underrated economic problems

Obama's economics team is taking on one of America's most underrated economic problems:

Regulating entry into certain kinds of professions on the grounds of health and safety makes sense, but once a process is set up to exclude people from doing a job, incumbent practitioners have a strong economic incentive to use the licensing board as a means to eliminate competition.

This was tried by Jerry Brown (I think) and the attack ads making health and safety started before the ink was dry on the bill’s first draft.

New York wage board approves $15 minimum wage for fast food workers: The plan makes no sense.

Economists often judge the appropriateness of a minimum wage by comparing it with the local median wage—the theory being that, in cities with higher pay across the board, a higher minimum will be less of a burden….In New York City, $15 in 2018 would still amount to more than 60 percent of the metro area’s median wage, which is high. In cities like Buffalo and Binghamton, $15 by 2021 would be worth more than 70 percent of the area median, which is extremely high.

(via New York wage board approves $15 minimum wage for fast food workers: The plan makes no sense.)

One of the disingenuous debate tactics you see when people discuss the minimum wage is to suggest “why not a million dollars an hour?” as if proposed minimum wage levels are just pulled out of air based on what feels good. Levels like 10.10 and 12.60 are based on looking at median wages as well as other factors in the market. When you do the math, $15 is too high. Unless the goal is to cap the size of fast food chains at 30 locations.

Entrepreneurs don’t have a special gene for risk—they come from families with money - Quartz

When basic needs are met, it’s easier to be creative; when you know you have a safety net, you are more willing to take risks. “Many other researchers have replicated the finding that entrepreneurship is more about cash than dash,” University of Warwick professor Andrew Oswald tells Quartz. “Genes probably matter, as in most things in life, but not much.”

“If one does not have money in the form of a family with money, the chances of becoming an entrepreneur drop quite a bit,” Levine tells Quartz.

(via Entrepreneurs don’t have a special gene for risk—they come from families with money - Quartz)

Slavery’s Long Shadow

the political scientist Larry Bartels, analyzed the move of the white working class away from Democrats, a move made famous in Thomas Frank’s “What’s the Matter With Kansas?” Mr. Frank argued that working-class whites were being induced to vote against their own interests by the right’s exploitation of cultural issues. But Mr. Bartels showed that the working-class turn against Democrats wasn’t a national phenomenon — it was entirely restricted to the South, where whites turned overwhelmingly Republican after the passage of the Civil Rights Act and Richard Nixon’s adoption of the so-called Southern strategy.

Only one former member of the Confederacy has expanded Medicaid, and while a few Northern states are also part of the movement, more than 80 percent of the population in Medicaid-refusing America lives in states that practiced slavery before the Civil War. And it’s not just health reform: a history of slavery is a strong predictor of everything from gun control (or rather its absence), to low minimum wages and hostility to unions, to tax policy.

(via Slavery’s Long Shadow - The New York Times)

Krugman on veiwing the modern, post-Nixon GOP as the neo-Confederacy.

Libertarian Economists Should've Loved Silk Road—Here's Why They Didn't

Libertarian Economists Should've Loved Silk Road—Here's Why They Didn't:

Silk Road has been called an economic experiment gone wrong. And if you look at Ulbricht’s trial, it’s clear that many things went wrong. Even the most idealistic supporters of Silk Road couldn’t ignore that it turned Ulbricht into a kingpin who acted violently toward those who he thought might compromise the anonymity of the marketplace.

Libertarian experiments keep turning out exactly how liberals say they will turn out.

You can fondle the cube, but it will not respond.

You can fondle the cube, but it will not respond.:

It looks like the gold bubble is over and the price will be back to the pre-crisis trend line about the same time that the economy, unemployment and other metrics reach the pre-crisis trend lines. So it’s time to dust off the greatest.quote.about.gold.EVER.

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers — whether jewelry and industrial users, frightened individuals, or speculators — must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops — and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil XOM -1.37% will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

A Strong Welfare State Produces More Entrepreneurs

A Strong Welfare State Produces More Entrepreneurs:

The mechanism in each case is the same: publicly funded insurance lowers the risk of starting a business, since entrepreneurs needn’t fear financial ruin. (This same logic explains why more forgiving bankruptcy laws are associated with more entrepreneurship.)

Completely sensible argument that leaves me wondering why GEDI statistics seem to show little to no correlation between welfare state expenditures and entrepreneurship. But WMF stats show a correlation between time and cost to start a business and entrepreneurship.

Liberals, Conservatives, and Jobs

Liberals, Conservatives, and Jobs:

If creating “millions” of jobs means adding 2 million or more in a given year, then we did that in three of Jimmy Carter’s four years in office, and 13 times since Reagan left the White House — 8 times under Bill Clinton, twice under George W. Bush, and three times so far under Barack Obama. Actually, the only times we haven’t added millions of jobs under Democrats have been in the aftermath of severe shocks — the oil shock of 1979 and the financial crisis of 2008. Am I claiming that Democratic presidents were responsible for all this job creation? No, not at all, nor do I need to. The point, instead, is that their policies didn’t prevent a lot of employment growth. That is, what you learn from both national experience and the California story is that you can raise taxes on the rich and expand access to health care without killing the economy.

Giving housing to the homeless is three times cheaper than leaving them on the streets

Giving housing to the homeless is three times cheaper than leaving them on the streets:

The most recent report along these lines was a May Central Florida Commission on Homelessness study indicating that the region spends $31,000 a year per homeless person on “the salaries of law-enforcement officers to arrest and transport homeless individuals — largely for nonviolent offenses such as trespassing, public intoxication or sleeping in parks — as well as the cost of jail stays, emergency-room visits and hospitalization for medical and psychiatric issues.” Between 2005 and 2012 the rate of homelessness in America declined 17 percent By contrast, getting each homeless person a house and a caseworker to supervise their needs would cost about $10,000 per person.

Something economists thought was impossible is happening in Europe

Something economists thought was impossible is happening in Europe:

Something really weird is happening in Europe. Interest rates on a range of debt — mostly government bonds from countries like Denmark, Switzerland, and Germany but also corporate bonds from Nestlé and, briefly, Shell — have gone negative. And not just negative in fancy inflation-adjusted terms like US government debt. It’s just negative. As in you give the owner of a Nestlé bond 100 euros, and four years later Nestlé gives you back less than that.* In my experience, ordinary people are not especially excited about this. But among finance and economic types, I promise you that it’s a huge deal — the economics equivalent of stumbling into a huge scientific discovery entirely by accident.

This the exact opposite of a the sovereign debt crisis that the austerity crowd has been warning about. The demand for debt is so high that people are willing to lose money to purchase it.

Those Radical VSPs

Those Radical VSPs:

although many of the press reports describe Syriza as “far-left”, it’s actually preaching fairly conventional economics, while the supposedly responsible officials of Brussels and Berlin have been relying on radical doctrines like expansionary austerity and a growth cliff at 90 percent. The same has to a certain extent been true in the US context. Once again: textbook macroeconomics says that focusing on deficit reduction in a depressed economy, where the zero lower bound constrains the effectiveness of monetary policy, is a very bad idea. And although nobody will believe it, textbook macro has actually been a very good guide to the economy since the financial crisis, as Jared Bernstein also emphasizes.

Krugman points out how current right of center economic theory isn’t based on conservative economic or on textbook mainstream economics. Its based on very radical and very untested ideas that aren’t working out.

Obama's bank tax is a big idea that might actually get done - Vox

Obama's bank tax is a big idea that might actually get done - Vox:

What Obama proposed was a 0.07 percent tax on borrowing by America’s largest banks. The way this works is that banks with over $50 billion in assets (which is about 100 banks) would need to pay a 7 cent tax to the federal government on every $100 that they borrow. That has two goals — raising revenue and restraining risky debt from bailout-prone institutions. And Congress isn’t going to pass it.

This would both make a bailout less likely, it would create a fund that would pay for a bailout. And it would fall onto the banks directly. Why is anyone against this?

American transit activists need to speak up about exorbitant construction costs

American transit activists need to speak up about exorbitant construction costs:

But the problem hits transit the hardest because the basic fact of the matter is that political and economic elites don’t rely on mass transit. The clearest case is the growing popularity of mixed-traffic streetcar projects. These are much cheaper than grade-separated light- or heavy-rail, but still far more expensive than a conventional bus without actually moving people any faster. In terms of offering a transportation service, spending money on a streetcar is much worse than spending the same amount of money on multiple new bus routes or upgrades to existing ones. Soon this bus will have a streetcar in its way | Elvert Barnes/Flickr Streetcars appeal, however, because those high costs create construction jobs and because the aura of classiness around them appeals to real estate developers and other would-be drivers of gentrification. So cities across America are opening stub streetcar lines rather than investing in improving the transit experience of bus riders.

A Canadian City Once Eliminated Poverty And Nearly Everyone Forgot About It

A Canadian City Once Eliminated Poverty And Nearly Everyone Forgot About It:

Between 1974 and 1979, residents of a small Manitoba city were selected to be subjects in a project that ensured basic annual incomes for everyone. For five years, monthly cheques were delivered to the poorest residents of Dauphin, Man. – no strings attached. And for five years, poverty was completely eliminated. The program was dubbed “Mincome” – a neologism of “minimum income” – and it was the first of its kind in North America. It stood out from similar American projects at the time because it didn’t shut out seniors and the disabled from qualification. The project’s original intent was to evaluate if giving cheques to the working poor, enough to top-up their incomes to a living wage, would kill people’s motivation to work. It didn’t. But the Conservative government that took power provincially in 1977 – and federally in 1979 – had no interest in implementing the project more widely. Researchers were told to pack up the project’s records into 1,800 boxes and place them in storage. A final report was never released.

Why Poor People Stay Poor

Why Poor People Stay Poor:

I once lost a whole truck over a few hundred bucks. It had been towed, and when I called the company they told me they’d need a few hundred dollars for the fee. I didn’t have a few hundred dollars. So I told them when I got paid next and that I’d call back then. It was a huge pain in the ass for those days. It was the rainy season, and I wound up walking to work, adding another six miles or so a day to my imaginary pedometer. It was my own fault that I’d been towed, really, and I spent more than a couple hours ruing myself. I finally made it to payday, and when I went to get the truck, they told me that I now owed over a thousand dollars, nearly triple my paycheck. They charged a couple hundred dollars a day in storage fees. I explained that I didn’t have that kind of money, couldn’t even get it. They told me that I had some few months to get it together, including the storage for however long it took me to get it back, or that they’d simply sell it. They would, of course, give me any money above and beyond their fees if they recovered that much. I was working two jobs at the time. Both were part time. Neither paid a hundred bucks a day, much less two. I wound up losing my jobs. So did my husband. We couldn’t get from point A to point B quickly enough, and we showed up to work, late, either soaked to the skin or sweating like pigs one too many times. And with no work, we wound up losing our apartment. It’s amazing what things that are absolute crises for me are simple annoyances for people with money. Anything can make you lose your apartment, because any unexpected problem that pops up, like they do, can set off that Rube Goldberg device.

Conspicuous Consumption? Yes, but It’s Not Crazy

Conspicuous Consumption? Yes, but It’s Not Crazy:

One common claim is that the wealthy routinely violate the economist’s law of demand. A bedrock principle of economic rationality, this law holds that as the price of a good rises, consumers buy less of it. Many analysts, however, portray the rich as people who lust after what are known as “Veblen goods” — commodities whose sales actually increase when their prices rise

The Business Tycoons of Airbnb

The Business Tycoons of Airbnb:

Getting ahead on Airbnb is much more simple: just sign multiple leases in desirable locations. Of course, that requires upfront investment and financial savvy. But once it’s up and running, an Airbnb rental network can become seriously lucrative. One operation of 272 listings booked $6.8 million in revenue from 2010 through June of this year, according to the attorney general. The economic forces at play are similar to what the French economist Thomas Piketty discusses in his recent blockbuster book, ‘’Capital in the Twenty-First Century,’’ only in miniature. In a slow-growth economy, Piketty argues, wealth delivers better returns than labor, so those with wealth to invest in things (like, for example, rent-earning apartments) will tend to get wealthier; those without probably won’t. Listing a spare room on Airbnb might keep you current on your always-climbing Manhattan rent, but real entrepreneurship (as always) requires real dough.

AirBnB is literally a platform for wealthy people to engage in rent seeking.

In Front Of Your Macroeconomic Nose

In Front Of Your Macroeconomic Nose:

at this point we’ve been at the zero lower bound for six years; we’ve seen a 400 percent rise in the monetary base without a takeoff in inflation; we’ve seen record peacetime deficits go along with record low long-term interest rates. Liquidity trap economics aren’t a speculative hypothesis at this point, they’re the world we’ve been living in for years. How can that go unnoticed?

It’s not unnoticed. There is plenty of people who noticed. But since the truth isn’t the right wing approved talking point, it isn’t being talked about.

Inequality Is Bad For Income Growth Of the Poor (But Not For That of the Rich)

Inequality Is Bad For Income Growth Of the Poor (But Not For That of the Rich):

The average state-level Gini coefficient in the US over the entire 50-year period is 0.43, with a standard deviation of 0.04. Now if a state’s level of inequality were reduced by four Gini points (about one standard deviation of the average) keeping everything else equal, the rate of growth of the very poor (people at the fifth or tenth percentile of income distribution) would increase by 0.9% per capita per annum (pc pa) on average. Since the incomes of the very poor on average grew by 0.8% pc pa, such a reduction in inequality wouldmore than double their growth rate on average. At the other end of the spectrum, the same decrease in inequality would reduce the growth rate of the rich (the top 5%) by 0.3% per capita annually. The rich’s average growth rate over the past half-century was 2% pc pa, so their growth would be cut by about one seventh.

Worth a read.

The Wisdom of Peter Schiff

The Wisdom of Peter Schiff:

what Schiff says very clearly is that according to his worldview, rolling the printing presses should cause inflation (by the normal definition) even in a depressed economy, and that high unemployment should in fact make inflation higher, not lower. He has that exactly right: the central dispute is between those who see depressions as the result of inadequate demand, implying that inflation will fall and that printing money does nothing unless it boosts employment, and those who see depressions as the result of maladapation of resources or something — anyway, something on the supply side — who predict that running the printing presses will lead to runaway inflation. How could you test those rival views? Why, how about having a huge slump, to which central banks respond with aggressive monetary expansion? And that is, of course, the test we’ve just run. And everywhere you look, inflation is low, verging on deflation. So we’ve just run the Schiff test — and his brand of economics, by his own criteria, loses with flying colors. And that goes for just about all anti-Keynesian doctrines: we ran as close to a clean experiment as you’re ever going to get, and the answer is no.

And it isn’t just the US economy. The same experiment was run across Europe and in Japan. Schiff’s theory is zero for twelve. In no economy did we get results they his theory would demand.

On the phenomenon of bullshit jobs

On the phenomenon of bullshit jobs:

It’s as if someone were out there making up pointless jobs just for the sake of keeping us all working. And here, precisely, lies the mystery. In capitalism, this is precisely what is not supposed to happen. Sure, in the old inefficient socialist states like the Soviet Union, where employment was considered both a right and a sacred duty, the system made up as many jobs as they had to (this is why in Soviet department stores it took three clerks to sell a piece of meat). But, of course, this is the sort of very problem market competition is supposed to fix. According to economic theory, at least, the last thing a profit-seeking firm is going to do is shell out money to workers they don’t really need to employ. Still, somehow, it happens. While corporations may engage in ruthless downsizing, the layoffs and speed-ups invariably fall on that class of people who are actually making, moving, fixing and maintaining things; through some strange alchemy no one can quite explain, the number of salaried paper-pushers ultimately seems to expand, and more and more employees find themselves, not unlike Soviet workers actually, working 40 or even 50 hour weeks on paper, but effectively working 15 hours just as Keynes predicted, since the rest of their time is spent organizing or attending motivational seminars, updating their facebook profiles or downloading TV box-sets.

Even more perverse, there seems to be a broad sense that this is the way things should be. This is one of the secret strengths of right-wing populism. You can see it when tabloids whip up resentment against tube workers for paralysing London during contract disputes: the very fact that tube workers can paralyse London shows that their work is actually necessary, but this seems to be precisely what annoys people. It’s even clearer in the US, where Republicans have had remarkable success mobilizing resentment against school teachers, or auto workers (and not, significantly, against the school administrators or auto industry managers who actually cause the problems) for their supposedly bloated wages and benefits. It’s as if they are being told “but you get to teach children! Or make cars! You get to have real jobs! And on top of that you have the nerve to also expect middle-class pensions and health care?”

Don’t always agree with Graeber, but this is worth a read.

The Art of Not Working at Work

The Art of Not Working at Work:

One Swedish bank clerk said he was only doing 15 minutes’ worth of work a day. Under these circumstances, feigned obedience and fake commitment become so central to working that a deviation from those acts can result in embarrassment for everyone. As she recalls: “One day, in the middle of a meeting on motivation, I dared to say that the only reason I came to work was to put food on the table. There were 15 seconds of absolute silence, and everyone seemed uncomfortable.

According to repeated surveys by Salary.com, not having “enough work to do” is the most common reason for slacking off at work. The service sector offers new types of work in which periods of downtime are long and tougher to eliminate than on the assembly line: A florist watching over an empty flower shop, a logistics manager who did all his work between 2 and 3 p.m., and a bank clerk responsible for a not-so-popular insurance program are some examples of employees I talked with who never actively strived to work less.

I swear this is half the people who work in IT. I remember hearing a manager talking about an employee that watched nearly 20 hours of youtube video a week for over a six month period. When you factor other net time, it might about 75% of any given week doing non-work.

Then there are whole chunks of organizations that don’t do anything useful. An 11 person group that tracked data that was rarely ever requested because the same data was availably on the web for free much easier.

Why are there so many workers who don’t actually useful work?

The takeaway from six years of economic troubles? Keynes was right.

The takeaway from six years of economic troubles? Keynes was right.:

Countries that took emergency measures to reduce public borrowing have mostly suffered weaker growth, as in the case of Britain from 2010 to 2012, Japan this year and the United States after the 2013 “sequester” and fiscal cliff deal. In more extreme cases, such as Italy and Spain, fiscal tightening has plunged them back into deep recession and aggravated financial crises. Meanwhile countries that ignored their deficit problems, as in the United States for most of the post-crisis period, or where governments decided to downplay their fiscal tightening plans, as in Britain this year or Japan in 2013, have generally done better, both in terms of economics and finance.

But this is the key quote:

Monetarism overturned the Keynesian fiscal consensus that prevailed from the 1930s to the 1970s, by introducing one simple assumption into the models that guided governments and central banks. The case for Keynesian fiscal stimulus in deep recessions was simply assumed away by asserting that interest rates could always be reduced sufficiently to stimulate private investment, discourage private savings and so restore growth. As a result, the private sector as a whole would never suffer for long from a shortfall in spending. Therefore government borrowing would never be needed to balance inadequate private demand.

As a result of these assumptions, interest rate decisions by central banks came to be seen as the only effective tool of macroeconomic management, while fiscal policy was relegated to a microeconomic supporting role. Tax structures and public spending levels were seen as supply-side issues influencing incentives and resource allocation, but the demand impact of government borrowing was largely ignored. Whether government borrowing expanded or contracted, interest rates would rise or fall to offset the Keynesian demand effects. Independent central bankers would manage macroeconomic demand with monetary policy, leaving governments to set taxes and spending plans to achieve political or supply-side objectives.

Worth a read.

Inflation Derp Abides

Inflation Derp Abides:

Jim Rogers declared that “we are all going to pay a terrible price for all this money-printing and debt.” And I asked the obvious question: How long has Rogers been predicting a printing-press-and-deficits disaster? The answer is, a very, very long time. Here he is in October 2008 — six full years ago — declaring that we were setting the stage for a “massive inflation holocaust.”

What I expect is that inflation will be slightly higher than normal and the people claiming inflation holocaust for the past six years will act as if they were right all along.

A $20 an hour minimum wage really would cost a lot of people their jobs

A $20 an hour minimum wage really would cost a lot of people their jobs:

The good news about Denmark is that their unemployment rate is only very slightly higher than the USA’s and was lower in the recent past. The Danish economy as a whole does a good job of keeping people employed, and it also does a much better job than the American economy of delivering high living standards for the poor. But mandating high wages for fast food workers has more or less the impact you would expect — low levels of fast food employment.

The standard response to raising the minimum wage is always why not a million dollars and hour as if that’s under consideration. $20 is too hight. Much to high. That doesn’t mean that $0 is the correct answer.

Pro Big Corporate IRS: Agency Guts Whistleblower Program, Leaves Billions on the Table

Pro Big Corporate IRS: Agency Guts Whistleblower Program, Leaves Billions on the Table:

It’s widely known among tax professionals that the US does little in the way of tax enforcement, and the little that it does do is directed against individuals and small businesses. What is not so widely known is how deep the institutional bias is in the IRS in favor of letting big corporate tax cheats get away with it. Conventional wisdom is similar to the rationalization of weak enforcement at the SEC: that the agency is afraid that if they go after big companies, they’ll have the penalties and fines challenged in court, and they’ll often lose by virtue of being outgunned by better lawyer…It turns out that the picture is vastly worse than that. In 2006, recognizing that the IRS was losing over $450 billion a year in revenue to tax evasion, Congress mandated that the agency establish a whistleblower office and pay whistleblowers 15% to 30% of amounts recovered from their filings. Unfortunately, as a whistleblower from the IRS’ Office of the General Counsel in New York has revealed, the IRS at its highest levels is opposed to implementing the policy.

The best proof yet that nobody has actually read Piketty's book

The best proof yet that nobody has actually read Piketty's book:

In other words, very few economists believe that Thomas Piketty’s equation r > g explains the rise in US inequality over the past 40 years. The punchline here, however, is that Piketty’s book does not say that r > g explains the rise in US inequality over the past 40 years.

The best criticisms of Piketty have not come from the media or right wing hacks. They’ve come from policy wonks in the center.

Secret Deficit Lovers

Secret Deficit Lovers:

Deficit scolds actually love big budget deficits, and hate it when those deficits get smaller. Why? Because fears of a fiscal crisis — fears that they feed assiduously — are their best hope of getting what they really want: big cuts in social programs. A few years ago they almost managed to bully the nation into cutting Social Security and/or raising the Medicare eligibility age; they even had hopes of turning Medicare into an underfinanced voucher program. Now that window of opportunity is closing fast.

How to Reduce Global Warming for Fun and Profit

How to Reduce Global Warming for Fun and Profit:

We’re not actually so far off from turning emissions into commodities, it turns out. In the United States alone, a number of companies aim to convert waste carbon dioxide into chemicals that can be used to make products we buy every day

The only people who think regulating CO2 will end capitalism are Libertarians and Marxists. Anyone who has an understanding of economics that doesn’t begin and end in the 19th century understands that markets react to regulations in the exact same way they react to everything else. Incentives change, prices adjust, people come up with new ideas that make money.

New study shows that the savings from 'tort reform' are mythical

New study shows that the savings from 'tort reform' are mythical:

"Tort reform," which is usually billed as the answer to "frivolous malpractice lawsuits," has been a central plank in the Republican program for healthcare reform for decades. The notion has lived on despite copious evidence that that the so-called defensive medicine practiced by doctors merely to stave off lawsuits accounts for, at best, 2% to 3% of U.S. healthcare costs. As for "frivolous lawsuits," they’re a problem that exists mostly in the minds of conservatives and the medical establishment. A new study led by Michael B. Rothberg of the Cleveland Clinic and published in the Journal of the American Medical Association aimed to measure how much defensive medicine there is, really, and how much it costs. The researchers’ conclusion is that defensive medicine accounts for about 2.9% of healthcare spending. In other words, out of the estimated $2.7-trillion U.S. healthcare bill, defensive medicine accounts for $78 billion.

Denying Climate Change 'Will Cost Us Billions Of Dollars, ' U.S. Budget Director Warns

Denying Climate Change 'Will Cost Us Billions Of Dollars,' U.S. Budget Director Warns:

“From where I sit, climate action is a must do; climate inaction is a can’t do; and climate denial scores – and I don’t mean scoring points on the board,” Donovan said. “I mean that it scores in the budget. Climate denial will cost us billions of dollars.”

The Biggest Robbers In America Are Employers

The Biggest Robbers In America Are Employers:

The amount of money employers had to pay because they were found guilty of wage theft is nearly three times greater than all the money stolen in robberies, according to a new report from the Economic Policy Institute (EPI).

That $50 billion figure dwarfs the $14 billion taken from victims of robberies, burglaries, larcenies, and car thefts in 2012. That’s less than a third of the cost of wage theft, according to EPI’s estimations.

The NLRB needs to be reformed for the post labour union era. It should be the advocate for those who are robbed by their employers and it isn’t.

When The Economist blamed Irish peasants for starving to death

When The Economist blamed Irish peasants for starving to death:

its extraordinary blindness to how real life economic power relations work is reminiscent of the magazine’s beginnings in the 19th century, when it fulminated at the very idea that the British government should do anything about the Irish famine that was happening on its doorstep. After all, it was the peasants’ own fault that they were starving.

Laissez faire is often used as an excuse to blame victim.

Tax Burden in U.S. Not as Heavy as It Looks, Report Says

Tax Burden in U.S. Not as Heavy as It Looks, Report Says:

We’ve been told repeatedly that the United States has the highest corporate tax rate in the developed world — 35 percent — which is higher than the nominal tax rates in places like Ireland (12.5 percent), Britain (21 percent) and the Netherlands (25 percent) and the 24.1 percent average rate of all countries that are part of the Organization for Economic Cooperation and Development.

All of that’s true, but Professor Kleinbard contends that most United States multinational companies don’t pay anywhere near 35 percent. Companies paid, on average, 12.6 percent,

Cutting those rates will not get companies to bring more money into the US economy. They would still keep the money were it could be moved more easily. And that is in commonwealth nations that can easily do business with London banks.

Rich Kid, Poor Kid: For 30 Years, Baltimore Study Tracked Who Gets Ahead

Rich Kid, Poor Kid: For 30 Years, Baltimore Study Tracked Who Gets Ahead:

a study published in June suggests that the things that really make the difference — between prison and college, success and failure, sometimes even life and death — are money and family. … They found that a child’s fate is in many ways fixed at birth — determined by family strength and the parents’ financial status. The kids who got a better start — because their parents were married and working — ended up better off. Most of the poor kids from single-parent families stayed poor.

At this point this a typical story about how poverty self perpetuates. Bad options, bad choices leading to bad results.

Then I got to this part:

The researchers found that more affluent white men in the study reported the highest frequency of drug abuse and binge drinking, yet they still had the most upward mobility.

Great options, bad choices, great results. How do you explain that?

Build We Won’t

Build We Won’t:

We can’t simply write a check to the highway fund, we’re told, because that would increase the deficit. And deficits are evil, at least when there’s a Democrat in the White House, even if the government can borrow at incredibly low interest rates. And we can’t raise gas taxes because that would be a tax increase, and tax increases are even more evil than deficits. So our roads must be allowed to fall into disrepair.

How Tea Party tax cuts are turning Kansas into a smoking ruin

How Tea Party tax cuts are turning Kansas into a smoking ruin:

The state’s rainy-day fund is dwindling to zero. Month after month, revenue comes in even lower than fiscal officials’ most dire expectations. In the rest of the country, school budgets are finally beginning to recover from the toll of the last recession; in Kansas, they’re still falling. Healthcare, assistance for the poor, courts, and other state services are being eviscerated.

The cynic in me thinks that’s the result they want. To cut taxes on the wealthy and services for the poor and blame the poor economy on immigrants and Obama.

Joblessness not due to skills gap, experts say

Joblessness not due to skills gap, experts say:

The starting wage in manufacturing in the seven-county Pittsburgh region fell from $19,855 in the beginning of 2009, half a year before the end of the Great Recession, to $18,828 this January, or $3,000 less than what the wages would have been if they kept pace with inflation 4 1/2 years into the recovery.

"Every time you hear someone say ‘I can’t find the workers I need,’ add the phrase ‘at the wage I want to pay’," said Heidi Shierholz, an economist for the Economic Policy Institute, a Washington, D.C., economic research organization.

People are choosing not to work because the pay is too low. Not surprising.

Amartya Sen: I think that Piketty’s conclusions mostly stand

Amartya Sen: I think that Piketty’s conclusions mostly stand:

I think that Piketty’s conclusions mostly stand. There are one or two exceptions, including the fact that these conclusions probably apply a little less to the United Kingdom than to many of the other countries which he discusses – they certainly apply to the United States very well. So I think that the summary story that inequality has been growing quite sharply in recent decades, and in recent years in particular, is true.

The Piketty Panic

The Piketty Panic:

what’s really new about “Capital” is the way it demolishes that most cherished of conservative myths, the insistence that we’re living in a meritocracy in which great wealth is earned and deserved.

In the warped little minds of the hard right, the real problem isn’t capitalism (which they redefine as needed) but crony capitalism (which they also redefine as needed) where the very wealthy use the state to steal wealth. But we also can’t tax those people because that’s theft and will reduce the incentive for them to work hard. And pointing out the contradiction is Marxism.

Apple and Google’s wage-fixing cartel involved dozens more companies, over one million employees

Apple and Google’s wage-fixing cartel involved dozens more companies, over one million employees:

My libertarian friends keep telling me that in a free market this type of thing simply can not happen. That companies will bid-up the wages of in-demand workers and could never take action to suppress those wages without state involvement. After all, in a free market everything is voluntary.

Those million tech workers must have voluntary agreed to the wage suppression agreement somehow. In some way I just can not see.

Work Like a German

Work Like a German:

Germany suffered a more precipitous drop in gross domestic product than the United States, but it experienced almost no change in unemployment. Here, it doubled. Today, unemployment in Germany is actually lower than it was pre-crisis, and long-term unemployment is negligible.

Rather than enforce austerity on the population, German reformed and improved its social safety net during the crisis and is better for it.

We have a growing problem with disability insurance. But because its whiter, more southern and more male than the nation as a whole, no one dare call it welfare. When white southern men get paid to not work it’s not welfare.

Bitcoin Wound Up Being Just As Broken as the Corrupt Banking System It Was Trying to Kill

Bitcoin Wound Up Being Just As Broken as the Corrupt Banking System It Was Trying to Kill:

Bitcoin became a thing based largely on the enthusiasm of the same types of people who pushed gold to $1,921 an ounce in 2011 — not surprisingly, this was shortly after Congress’ Big Red Shoes performance in the debt-ceiling crisis that August. Both were based on the notion that Congress, the Fed and the European Union were running traditional currency into the ground. This was always a crazy idea. It was a reaction to emergency monetary policy rooted in a mix of a misunderstanding of what former Fed Chair Ben Bernanke was doing and cultural-political alienation that dates back to the right’s reaction to the sixties, if not the dawn of time. … But the real point is that if you have to even ask what Bitcoin is, Bitcoin really isn’t much

The value of bitcoins stolen seems to be greater than the value of bitcoins traded for goods and services not related to bitcoin speculation. When you point this out you are branded a hater.

The Real Poverty Trap

The Real Poverty Trap:

the evidence suggests that welfare-state programs enhance social mobility, thanks to little things like children of the poor having adequate nutrition and medical care. And conversely,of course, when such programs are absent or inadequate, the poor find themselves in a trap they often can’t escape, not because they lack the incentive, but because they lack the resources.

The stats make the article worth a read. Basically, if you make it easier for people to be less poor, people will be less likely to be poor. No surprise there.

Krugman: Envy Versus Anger

Krugman: Envy Versus Anger:

But the polling data don’t say anything about envy: when people say that they have lost their belief that hard work will be rewarded, they aren’t saying that they are envious of the rich; they’re saying that they have lost their belief that hard work will be rewarded. To the extent that people have negative feelings about the one percent, the emotion involved isn’t envy — it’s anger, which isn’t at all the same thing. Envy is when you have negative feelings about rich because of what they have; anger is when you have negative feelings about the rich because of what they do.

The standard defense is to dismiss criticism of 1% by the 99% as envy and criticism of the 1% by the 1% as hypocrisy. How convenient that literally no one is able to criticize the 1% without that being proof that there is something wrong with them.

Federal Budget Deficit Falls to Smallest Level Since 2008

Federal Budget Deficit Falls to Smallest Level Since 2008:

In nominal terms, that is the smallest deficit since 2008, and signals the end of a five-year stretch beginning with the onset of the recession when the country’s fiscal gap came in at more than $1 trillion each year. As a share of the nation’s economy, the budget deficit fell to about 4.1 percent, from a high of more than 10 percent during the depths of the Great Recession.

So can we talk about issues other than cutting social programs now? At what point can we start talking about policy that does’t involve cutting taxes for the wealthy and gutting programs for the poor?

The nation’s budget wars have reduced the deficit by $3.3 trillion

The nation’s budget wars have reduced the deficit by $3.3 trillion:

The endless rounds of deficit reduction in Washington in recent years have significantly improved the nation’s budget outlook, reducing projected borrowing by $3.3 trillion through 2024, according to new estimates by Senate Budget Committee chairman Patty Murray (D-Wash.)…As this chart from Murray shows, the discretionary budget, which funds the Pentagon and other agencies, will absorb nearly half of the cuts, or $1.6 trillion…A quarter of the impact comes from the higher taxes on the wealthy that were adopted during the fiscal cliff fight. And another 20 percent comes from not borrowing as much and not having to pay more than $700 billion in interest that otherwise would have accrued. Mandatory programs, which include Social Security and Medicare, were barely nicked, meanwhile, accounting for just 7 percent of overall savings.

Was that 7% worth it? Were cuts to programs that help the people who need help the most really worth it? Considering how much more we can cut defense programs the pentagon doesn’t even want.

Bitcoin Schadenfreude

Bitcoin Schadenfreude:

Just think about it: billions in value in bitcoins just waiting to be stolen by anybody. Russia and China (and other nations) have huge digital warfare operations that could target those bitcoins, either officially or extracurricularly. No matter how cryptographically safe, systems can be penetrated through hardware or personnel. And no government guarantees! I wonder who will write them insurance knowing this?

Dunning-Krugerrands. Bitcoin looks like a good idea if you know literally nothing about the history of financial regulations. Why those regulations exist and what problems they solved.

I Crashed a Wall Street Secret Society

I Crashed a Wall Street Secret Society:

Kappa Beta Phi was, in large part, a fear-based organization. Here were executives who had strong ideas about politics, society, and the work of their colleagues, but who would never have the courage to voice those opinions in a public setting. Their cowardice had reduced them to sniping at their perceived enemies in the form of satirical songs and sketches, among only those people who had been handpicked to share their view of the world. And the idea of a reporter making those views public had caused them to throw a mass temper tantrum.

I have heard of KBP in passing before so I already knew it existed. I had no idea their annual event was so crazy.

How Silicon Valley’s most celebrated CEOs conspired to drive down 100,000 tech engineers’ wages

How Silicon Valley’s most celebrated CEOs conspired to drive down 100,000 tech engineers’ wages:

The secret wage-theft agreements between Apple, Google, Intel, Adobe, Intuit, and Pixar (now owned by Disney) are described in court papers obtained by PandoDaily as “an overarching conspiracy” in violation of the Sherman Antitrust Act and the Clayton Antitrust Act, and at times it reads like something lifted straight out of the robber baron era that produced those laws.

Wage theft. It isn’t just for burger flippers anymore.

Basic Economics Has a Liberal Bias

Basic Economics Has a Liberal Bias:

People to the left of econ 101 will typically invoke the phrase “political economy” to explain why, for example, econ 101 underrates labor unions. Conversely those to the right of econ 101 will instead invoke the phrase “public choice” to explain why, for example, econ 101 overrates utility regulation. But in both cases the critics are saying the same thing, namely that the moderately liberal policies advocated by introduction to economics textbooks are ignoring certain realities of institutional design, practical politics, power dynamics, etc.

That is 100% spot on. I just do not see how it fits in with his title. Maybe I am missing something but it reads like Yglesias is making the mistake of confusing economics with a morality play.

Rand Paul, You Failed Econ 101. Supply, Demand and the Minimum Wage

Rand Paul, You Failed Econ 101. Supply, Demand and the Minimum Wage:

Two decades ago, both coffee and water were virtually free. Starbucks raised the price of coffee dramatically, leading to every main street and corner in America offering Starbucks coffee at $2 or more per cup. Now you need to go to a government-subsidized McDonald’s or Walmart to get a cup of coffee for a buck. Over the same time period, pricey water in little bottles became ubiquitous.

I see no reason to believe that Senator Paul is actually concerned about unemployment when he opposes increases in the minimum wage. It’s just the best counter argument he has laying around.

Simulation attempts to show why the rich get richer in unregulated markets.

Simulation attempts to show why the rich get richer in unregulated markets.:

This is a simulation of an economic marketplace in which there is a population of actors, each of which has a level of wealth (a single number) that changes over time.

Interesting work that reminds me of story about Milton Friedman’s grad students playing monopoly and modifying the rules to see how it changes outcome. They actually worked out a redistribution system that keeps people in the game by taxing wealthy players when they pass go and putting that money in free parking. The poorest players would then get a cut from free parking. That change kept the game going much longer then it normally would.

The Undeserving Rich

The Undeserving Rich:

conservatives seem fixated on the notion that poverty is basically the result of character problems among the poor. This may once have had a grain of truth to it, but for the past three decades and more the main obstacle facing the poor has been the lack of jobs paying decent wages. But the myth of the undeserving poor persists, and so does a counterpart myth, that of the deserving rich.

I’m waiting on the right wing responses to this. I’m guessing the same old crap about taxation and gubmint.

What Happens When the Poor Receive a Stipend?

What Happens When the Poor Receive a Stipend?:

What precisely did the income change? Ongoing interviews with both parents and children suggested one variable in particular. The money, which amounted to between one-third and one-quarter of poor families’ income at one point, seemed to improve parenting quality.

That “helps parents be better parents,” she said.

Turns out that giving poor people money helps then escape poverty.

Enemies of the Poor

Enemies of the Poor:

our patchwork, uncoordinated system of antipoverty programs does have the effect of penalizing efforts by lower-income households to improve their position: the more they earn, the fewer benefits they can collect. In effect, these households face very high marginal tax rates. A large fraction, in some cases 80 cents or more, of each additional dollar they earn is clawed back by the government.The question is what we could do to reduce these high effective tax rates.

That’s Friedman’s argument for a negative income tax.

Mankiw makes an argument against raising the minimum wage

Mankiw makes an argument against raising the minimum wage:

Mankiw makes an argument against raising the minimum wage.

My two big issues with this is that the EITC acts as a de-facto subsidy to those who hire low wage workers. This subsidy would, (using Mankiw’s logic) dis-incentivize productivity gains via automation and advantage industries that are built around low-wage, low skill work.

So, why should the income tax system be used to subsidy low-wage, low-skill, low productivity workers and the industries that require them rather than advantage higher-skill, higher-wage higher productivity work?

Voucher-mania: Conservatives have exactly one answer for all spending questions

Voucher-mania: Conservatives have exactly one answer for all spending questions :

it is probably only a matter of time before some ambitious young right-wing intellectual devises a scheme of personal defense vouchers, which individuals could choose to spend on U.S. military services, foreign armies and navies, mercenary gangs or, perhaps, to bribe the enemy into sparing him or her.

Aaron Greenspan's interesting critique of bitcoin

Aaron Greenspan's interesting critique of bitcoin:

No one has ever reasonably proposed that instead of using possession of water as a store of value that we should use consumption of water as proof of prior possession, which is then assigned value. The incentive to consume enormous, wasteful amounts of water would be too strong. Yet this is exactly how Bitcoin works: you are rewarded with new coins once your computer has consumed a certain amount of electricity (measured by the complexity of computing hashes of data, which takes time). Worse yet, the amount of electricity required to be wasted to earn a reward predictably increases, which means that the more Bitcoins one wants, the more one has to waste.

So bitcoins have value because they used to be electricity? I really don’t see that making sense but the idea is interesting. 

Why did austerity fail? The Poor Behave Differently From the Rich

Why did austerity fail? The Poor Behave Differently From the Rich:

 models failed to predict the consequences of the austerity programs that several European countries adopted in 2010. It turned out that actual people didn’t behave like the imaginary proxy. Economists are learning that the poor and the wealthy respond differently to austerity and stimulus. This could present challenges to politicians. If people behave differently, then policy might have to treat them differently.

Austerity was doomed from the start.

444 million for a hockey arena, no money for pensions?

444 million for a hockey arena, no money for pensions? :

So when the politicians running Michigan’s state government claim there are no resources that could shore up the pension plan, that’s just not true. What is true is that there’s plenty of money for the state and city to meet the pension promises they made to public employees – but politicians in charge of spending want that money to go to corporations that disproportionately fund politicians’ election campaigns. To insist otherwise – to do what Orr is doing and pretend there’s no money around – is just shockingly dishonest.

 

Economist's View: Breadlines Return

Economist's View: Breadlines Return:

The Times’s Patrick McGeehan described a line snaking down Fulton Street in Brooklyn last week, with people waiting to enter a food pantry run by the Bed-Stuy Campaign Against Hunger. The line was not an anomaly. Demand at all of New York City’s food pantries and soup kitchens has spiked since federal food stamps were cut

I can’t help but wonder if the point of all the cuts, the drug tests and the rhetoric is just to further humiliate the poor. To grind them down. To have them spend all their time waiting in lines for handouts.

Where is the Outrage over Employer-Sponsored Coverage in the “Rate Shock” Debate?

Where is the Outrage over Employer-Sponsored Coverage in the “Rate Shock” Debate?:

McIntyre by way of Thoma:

Some 90% of people with private insurance receive it through an employer, and those plans are generally priced using “pure” experience-rating. This means the company serves as one giant risk pool, and a firm’s youngest employees have the exact same insurance premium as their eldest colleagues.

Yet, I’ve seen exactly zero Obamacare opponents railing to amend the employer-based practices that require most young healthies to pay more than their “fair share.” No one is plying Congress to amend HIPAA or the ADA so young invincibles can pay premiums appropriate to their health status. No one is calling out employers on their “redistributionist” policies, even though uniform insurance premiums force a substantial transfer from the young to the old.

If you’re expecting honest debate from the people who came up with death panels and takeover messaging, you are asking too much.

How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much

How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much:

In 2010, Germany produced more than 5.5 million automobiles; the U.S produced 2.7 million. At the same time, the average auto worker in Germany made $67.14 per hour in salary in benefits; the average one in the U.S. made $33.77 per hour.

“the salient difference is that, in Germany, the automakers operate within an environment that precludes a race to the bottom; in the U.S., they operate within an environment that encourages such a race.”

The right shift of the past 30 years has been far more focused with punishing the poor than actually promoting economic growth. 

Millionaire tax migration is a myth!

Millionaire tax migration is a myth!:

Those echoing Cuomo’s tax migration myth defend their argument by citing a decline in the number of New York millionaires from 2007 to 2009 after the state passed a tax surcharge. Yet, the real story is what Crain’s Business reports: “New York lost millionaires (between 2007 and 2009) primarily because New Yorkers made less money and saw their property values drop during the recession, not because they moved to other states.”

If you compare median incomes by zip code with property taxes by zip code you’ll see that the wealthy seem to live in places with significantly higher tax burdens. By choice.

Obamacare part-timism: A myth debunked.

Obamacare part-timism: A myth debunked.:

My strong suspicion is that if the ACA has an impact on the labor force (which it probably will) it will be through a different mechanism. Right now “in order to qualify for health benefits” is a very good reason to work full-time, even if you’d rather have more free time and less money at your current wage level. The Affordable Care Act will make this benefit qualification rationale less compelling,


The changes to part time employment in the past few years has almost nothing to do with Obamacare and everything to do with improved scheduling and time management systems in retail, hospitality and fast food sectors.

Flim Flam Forever

Flim Flam Forever:

the really crucial thing for the WH is a matter of principle: no deal unless the extortion ends. And Rs just can’t or won’t give up the idea that they deserve to be rewarded for not blowing up the world.

Krugman nails it. Obama was too easy on the GOP early on thinking they would reward his cooperation. He let think this as a valuable tactic. And now it has to end.

The Tea Party thinks it hates Wall Street. It doesn’t.

The Tea Party thinks it hates Wall Street. It doesn’t.:

many Tea Party Republicans are in favor of the same bills favored by the financial industry. Take the Financial Takeover Repeal Act of 2013, a one-line bill sponsored by Sen. David Vitter (R-La.) that repeals Dodd-Frank and replaces it with nothing. This bill has 22 co-sponsors this year, including notable Tea Party senators such Mike Lee, Rand Paul and Ted Cruz.

The best way to explain the Tea Party and Wall Street is The enemy of my imaginary enemy is my imaginary friend. The Tea Party is in favor of imaginary Randian makers and opposed to imaginary Randian looters. Wall Street thinks the same. The only rift is who they imagine the looters and makers are. This is the problem with Randian thinking. 

Austerity pushing Europe into social and economic decline, says Red Cross

Austerity pushing Europe into social and economic decline, says Red Cross:

"Many from the middle class have spiralled down to poverty. The amount of people depending on Red Cross food distributions in 22 of the surveyed countries has increased by 75% between 2009 and 2012. More people are getting poor, the poor are getting poorer."

Sad thing is that many will read that and blame the Red Cross handouts for creating poverty and dependance. 

Austerity isn’t working. 

The Debt Ceiling and the Housing Bust

The Debt Ceiling and the Housing Bust:

You can argue that these spending cuts wouldn’t have as much impact as the housing bust, because payment would be delayed, not cancelled, and at least some players would continue to expect eventual payment. On the other hand, as I pointed out in my last post, this time around we would have disconnected the automatic stabilizers — as GDP fell, revenues would fall, forcing another round of spending cuts, and so on.


GOP seems to prefer vicious cycles to virtuous ones. 

Krugman: Automatic Destabilizers

Krugman: Automatic Destabilizers:

The immediate question is whether Treasury can, in fact, “prioritize” — pay interest on the debt while stiffing everyone else, from vendors to Social Security recipients. If they can, they might choose to do this to avoid financial meltdown.

My worry s that once people stop getting paid the GOP will decided that they have more leverage and make greater demands. 

Rich Man's Recovery

Rich Man's Recovery

>These numbers should (but probably won't) finally kill claims that rising inequality is all about the highly educated doing better than those with less training. Only a small fraction of college graduates make it into the charmed circle of the 1 percent. Meanwhile, many, even most, highly educated young people are having a very rough time. They have their degrees, often acquired at the cost of heavy debts, butmany remain unemployed or underemployed

How to Charge $546 for Six Liters of Saltwater

How to Charge $546 for Six Liters of Saltwater

as the tale of the humble IV bag shows all too clearly, it is secrecy that helps keep prices high: hidden in the underbrush of transactions among multiple buyers and sellers, and in the hieroglyphics of hospital bills. At every step from manufacturer to patient, there are confidential deals among the major players, including drug companies, purchasing organizations and distributors, and insurers. These deals so obscure prices and profits that even participants cannot say what the simplest component of care actually costs, let alone what it should cost.

The term is information asymmetry. And it is one of the reasons why health care in the US is so damn costly and everyone claims that they are not the ones making money on health care.

Moment of Truthiness

Moment of Truthiness

Do people like Mr. Cantor or Mr. Paul know that what they're saying isn't true? Do they care? Probably not. In Stephen Colbert's famous formulation, claims about runaway deficits may not be true, but they have truthiness, and that's all that matters.

And please stop saying both sides are just as bad. MSNBC is not reporting we are running a surplus. The NYT isn’t reporting there is no deficit. Its isn’t the same.

Why Did Milton Friedman Think a Modern Economy Needed Heavy-Handed Government Regulation in the Liquidity Services Industry and Nowhere Else?

Why Did Milton Friedman Think a Modern Economy Needed Heavy-Handed Government Regulation in the Liquidity Services Industry and Nowhere Else?

he was confident that someday he or somebody else—maybe even me—would find a good, concise, convincing way of proving the point that a modern economy needed very heavy-handed government intervention in regulating the commercial banking industry but nowhere else. It was, he thought, something about the social waste of unnecessary bankruptcy, the catastrophic consequences of bank failures, debt deflation, and the fact that the price of liquidity services was intimately tied up with the units of account that we used to denominate our web of debt.

SEC Charges Texas Man With Running Bitcoin-Denominated Ponzi Scheme

SEC Charges Texas Man With Running Bitcoin-Denominated Ponzi Scheme

The SEC alleges that Shavers promised investors up to 7 percent weekly interest based on BTCST's Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin "off the radar" in quick fashion or large quantities. In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments. Shavers also diverted investors' Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors' Bitcoin for U.S. dollars to pay his personal expenses.

Detroit was creatively destroyed by creative destruction

Detroit was creatively destroyed by creative destruction

free-market enthusiasts love to quote Joseph Schumpeter about the inevitability of "creative destruction" - but they and their audiences invariably picture themselves as being the creative destroyers, not the creatively destroyed. Well, guess what: Someone always ends up being the modern equivalent of a buggy-whip producer, and it might be you.

Jack Welch versus Milton Friedman

Jack Welch versus Milton Friedman

On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy... your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal... Short-term profits should be allied with an increase in the long-term value of a company.

Welch basically invalidating the theory of the firm, inspired by Friedman.

Generic vs. brand-name pills: Research shows billions of dollars are wasted on over-the-counter medicine.

Generic vs. brand-name pills: Research shows billions of dollars are wasted on over-the-counter medicine.

Registered nurses have more modest incomes than doctors, but are shown to be far more likely to buy generic pain relievers than other people with similar incomes. Most strikingly of all, professional pharmacists-the people who know which pills are which-are even less likely to buy name brand than are doctors and nurses. This all strongly suggests that rich people avoid generics not because the pills are inferior, or even because they're showing off, but simply because they're careless. … Nobody I know thinks advertising works on them or on anyone else. But it's clear that even when marketers don't have any meaningful information to convey about why you should buy their product, investments in branding nonetheless move purchasing decisions.

The Carbon Tax:Economists Have A One-Page Solution To Climate Change

The Carbon Tax:Economists Have A One-Page Solution To Climate Change

This is why economists love a carbon tax: One change to the tax code and the entire economy shifts to reduce carbon emissions. No complicated regulations. No rules for what kind of gas mileage cars have to get or what specific fraction of electricity has to come from wind or solar or renewables. That’s by and large the way we do it now. Reilly says the current web of rules is a more complicated and more expensive way of getting the same outcome as a carbon tax. … Reilly says, you can reduce, say, income tax to balance out the new taxes people are paying for carbon emissions. People pay more for gas, but they get to keep more of their income. I called around and talked to a bunch of economists about this, and they said the basic idea was sound: If you give the carbon-tax money back by cutting income taxes, you can probably offset a lot of the pain.

My problem with the carbon tax, versus Cap-and-Trade is that with a carbon tax, it goes directly to consumers. Who are just as likely to vote for people who promise the cut the carbon tax without offsets as they are to vote for people who promise to cut income taxes without offsets.

High-income kids who don't graduate from college are 2.5 times more likely to end up rich than low-income kids who do get a degree

High-income kids who don't graduate from college are 2.5 times more likely to end up rich than low-income kids who do get a degree

The American Dream isn’t dead. It’s just moved to Denmark.

The argument that we should tolerate growing inequality because of our great mobility is based on fiction. We have growing inequality and shrinking mobility.

Krugman: Where Are The Deficit Celebrations?

Krugman: Where Are The Deficit Celebrations?

For three years and more Beltway politics has been all about the deficit. Urgent action was needed to avert crisis. A Grand Bargain absolutely had to be reached. Fix the Debt, now now now!

So where are the celebrations now that the debt issue looks, if not solved, at least greatly mitigated? And it's not just recovering revenues: health costs, the biggest driver of long-run spending, have slowed dramatically

Maybe they didn’t actually care about debt and deficit? Maybe the people who said nothing while W grew the debt don’t care about fiscal issues at all. They care about cutting the parts of the state that provide services for the bottom 99% and transferring that wealth to the top 1%

Krugman: Not Everything Is Political

Krugman: Not Everything Is Political

in practice it turns out that many conservatives are unwilling to concede that Keynesian macro has any validity to it, or that you can sometimes run the printing presses without unleashing runaway inflation, because they fear that any such admission would open the doors to much wider government intervention. But that's exactly my point! They're letting their views about how the world works be dictated by their vision of the kind of society they want; they're politicizing their economic analysis. And that's why they keep getting everything wrong.

This is why we can not have a policy discussion. Because one side doesn’t care about how the world actually works, only the kind of world they wish to live in.

Conservatives Had Better Hope George W. Bush Was a Dummy

Conservatives Had Better Hope George W. Bush Was a Dummy

if conservatives want us to believe that the United States blundered through a major terrorist attack, two major failed military adventures, dismal economic performance, and then finally an epic economic collpase all while under the watch of a very bright and attentive leader then it seems like a much deeper failure of the movement.

Bitcoin represents what ought to be the final refutation of the efficient-markets hypothesis

Bitcoin represents what ought to be the final refutation of the efficient-markets hypothesis

But in the case of Bitcoin, there is no source of value whatsoever. The computing power used to mine the Bitcoin is gone once the run has finished and cannot be reused for a more productive purpose. If Bitcoins cease to be accepted in payment for goods and services, their value will be precisely zero.

According to the efficient-markets hypothesis (EMH), which still dominates the analysis of financial markets, this should be impossible. The EMH states that the market value of an asset is equal to the best available estimate of the value of the services or income flows it will generate. In the case of a company stock, this is the discounted value of future earnings. Since Bitcoins do not generate any actual earnings, they must appreciate in value to ensure that people are willing to hold them. But an endless appreciation, with no flow of earnings or liquidation value, is precisely the kind of bubble the EMH says can't happen.

Quiggin hits the nail on the head with this one. Bitcoin should be called bubblecoin.

When interest rates are close to the rate of economic growth, Gagnon continues, you can run a budget deficit forever as long as the primary deficit is balanced. The debt load as a share of the economy won't increase over time. And if interest rates are lower than the pace of growth - as they are now - the load will actually shrink while you run those smaller deficits.

When interest rates are close to the rate of economic growth, Gagnon continues, you can run a budget deficit forever as long as the primary deficit is balanced. The debt load as a share of the economy won't increase over time. And if interest rates are lower than the pace of growth - as they are now - the load will actually shrink while you run those smaller deficits.
Why do people hate deficits? | Wonkblog

with Hayek, as with Reagan, the truly amazing thing is that we have people citing as a source of wisdom someone who has been as thoroughly refuted by history as anyone can be. Three generations into the modern welfare state, and western democracies look less Stalinist than ever.

with Hayek, as with Reagan, the truly amazing thing is that we have people citing as a source of wisdom someone who has been as thoroughly refuted by history as anyone can be. Three generations into the modern welfare state, and western democracies look less Stalinist than ever.
Jack-booted Insurance-bringing Thugs

What Problem Are DC's New Food Truck Regulations Trying To Solve?

What Problem Are DC's New Food Truck Regulations Trying To Solve?

I know some people of a market urbanist persuasion take the view that trucks’ very existence is a sign of the failure of zoning codes and regulations, but I actually think trucks are an important lunch solution on the merits.

I would not be surprised if these regulations are being pushed by the fast food industry.

Prices out of Park Slope: America needs more filtering and less gentrification.

Prices out of Park Slope: America needs more filtering and less gentrification.

it’s still possible to step back from the distributive conflict, and say that as long as we’re parceling out a fixed supply of Park Slope someone is going to get stuck with that longer subway ride. But if you can actually make more Park Slope-either by building more houses there or improving the quality of subway access to other parts of Brooklyn-then you’re making progress on a more fundamental level.

When Europe began its infatuation with austerity, top officials dismissed concerns that slashing spending and raising taxes in depressed economies might deepen their depressions. On the contrary, they insisted, such policies would actually boost economies by inspiring confidence. But the confidence fairy was a no-show. Nations imposing harsh austerity suffered deep economic downturns; the harsher the austerity, the deeper the downturn. Indeed, this relationship has been so strong that the International Monetary Fund, in a striking mea culpa, admitted that it had underestimated the damage austerity would inflict.

When Europe began its infatuation with austerity, top officials dismissed concerns that slashing spending and raising taxes in depressed economies might deepen their depressions. On the contrary, they insisted, such policies would actually boost economies by inspiring confidence. But the confidence fairy was a no-show. Nations imposing harsh austerity suffered deep economic downturns; the harsher the austerity, the deeper the downturn. Indeed, this relationship has been so strong that the International Monetary Fund, in a striking mea culpa, admitted that it had underestimated the damage austerity would inflict.

Austerity, Italian-Style - NYTimes.com

And the response is always the same. It wasn’t enough austerity! They didn’t go far enough! Cut more!

How to Make School Lunches Healthier

How to Make School Lunches Healthier

A better option was to replace these snacks with an array of fruits. This way, when students were waiting to check out, the impulse temptations were healthier options. Fruit sales increased, snack food sales decreased, and total revenue did not significantly decrease.

Oddly enough, the same sales techniques used to sell junk food work to sell fruits and veggies.

Economics 101 tells us to be very cautious about attempts to legislate market outcomes. Every textbook - mine included - lays out the unintended consequences that flow from policies like rent controls or agricultural price supports. And even most liberal economists would, I suspect, agree that setting a minimum wage of, say, $20 an hour would create a lot of problems. But that's not what's on the table. And there are strong reasons to believe that the kind of minimum wage increase the president is proposing would have overwhelmingly positive effects.

Economics 101 tells us to be very cautious about attempts to legislate market outcomes. Every textbook - mine included - lays out the unintended consequences that flow from policies like rent controls or agricultural price supports. And even most liberal economists would, I suspect, agree that setting a minimum wage of, say, $20 an hour would create a lot of problems. But that's not what's on the table. And there are strong reasons to believe that the kind of minimum wage increase the president is proposing would have overwhelmingly positive effects.

Raise That Wage - NYTimes.com

All the people claiming that those in favor of raising the minimum wage are ignorant of, or not considering basic econ101 are clearly wrong. But they will keep making that claim anyway.

High Taxes Are Not a Prime Reason for Relocation

High Taxes Are Not a Prime Reason for Relocation

The Myth of the Rich Who Flee From Taxes "It's very clear that, over all, modest changes in top tax rates do not affect millionaire migration," he told me this week. "Neither tax increases nor tax cuts on the rich have affected their migration rates."

The idea that rich people are more concerned about money they pay in taxes rather than the money they make or the services they utilize seems counterintuitive to anyone looking at marginal utility of income at the high end.

Disco-era Macroeconomics

Disco-era Macroeconomics

People on the right tend to use "Keynesian" to mean "liberal stuff I don't like", but aside from that definition, the 70s tell us nothing about the issues we're discussing right now. You can argue that monetary policy was too loose, that the Fed was too expansionary in 1972 (when Arthur Burns was trying to reelect Richard Nixon) and that it failed to tighten in the face of oil-shock-driven inflation. But again, the idea that this experience has any relevance to expansionary fiscal policy in the face of a liquidity trap is totally bogus.

Worth a read.

No, Marco Rubio, government did not cause the housing crisis

No, Marco Rubio, government did not cause the housing crisis

For obvious reasons, this argument is very popular on the right, but there's precious little to back it up. The core claim can be a bit slippery, but it tends to go something like this: the existence and affordability goals of Fannie Mae and Freddie Mac (the GSEs) and the Community Reinvestment Act (CRA) were a major reason we had a subprime-driven housing bubble and then a crash. The only problem? Pretty much all the evidence on the housing crisis shows that that's not true.

worth a read.

Yglesias: the case for a higher minimum wage doesn't strictly require that there be no disemployment effect

Yglesias: the case for a higher minimum wage doesn't strictly require that there be no disemployment effect

the case for a higher minimum wage doesn’t strictly require that there be no disemployment effect. After all, if you can boost earnings for a huge swathe of low-income Americans at the cost of one guy losing his job that seems like an acceptable price to pay. Two guys? Still acceptable. And so on.

The Baffling Economics of Thomas the Tank Engine

The Baffling Economics of Thomas the Tank Engine

The Island of Sodor has a major comparative advantage: the best artificial intelligence researchers in the world. AI research on the Island of Sodor is massively ahead of the rest of the world. The trains on Sodor have been designed to understand natural language, solve problems for themselves, recognize new situations, and even have emotions and personalities.

Worth a read. Follow this over to the Forbes article and read that as well.

The haters love to claim that people like me view more demand, more money printing, as the solution to all problems. But of course that's not true. Aggregate demand won't solve a problem of low productivity, or inadequate productive capacity, or for that matter extreme inequality due to technology or market power. But it can solve certain problems, which happen to be the problems we have now.

The haters love to claim that people like me view more demand, more money printing, as the solution to all problems. But of course that's not true. Aggregate demand won't solve a problem of low productivity, or inadequate productive capacity, or for that matter extreme inequality due to technology or market power. But it can solve certain problems, which happen to be the problems we have now.
Money, Wealth, and Models - NYTimes.com

Yglesias: The American economy is simultaneously overregulated and underregulated

Yglesias: The American economy is simultaneously overregulated and underregulated

The way I would put this is that the American economy is simultaneously overregulated and underregulated. It is much too difficult to get business and occupational licenses…Business licensing is different. “This city has too many restaurants to choose from” is not a real public policy problem, it’s only a problem for incumbent restauranteurs who don’t want to face competition.

In a nutshell, regulations can make sense in the case of information asymmetry and in cases of negative externality. They usually don’t make sense as price controls. And in many cases, business and occupational licenses, taxi medallions, street vendor quotas and the like act as defacto price controls.

Is State Capitalism Winning?

Is State Capitalism Winning?

In the age-old contest of economic-growth models, state capitalism has seemed to be gaining the upper hand in recent years. Avatars of liberal capitalism like the United States and the United Kingdom continued to perform anemically in 2012, while many Asian countries, relying on various versions of dirigisme, have not only grown rapidly and steadily over the last several decades, but have also weathered recent economic storms with surprising grace. So, is it time to update the economics textbooks?

Not an easy read, but worth reading.

Outside that bubble, a fair number of people have noticed that Keynesian economics has performed spectacularly in the crisis - it successfully predicted that deficits wouldn't drive up interest rates, that monetary expansion wouldn't be inflationary, that austerity policies in Britain and elsewhere would hit economic growth. And no, don't tell me that Keynesians predicted that the Obama stimulus would produce full employment; serious Keynesians, like me, were more or less frantically warning back in early 2009 that the stimulus was too small. But in Ryan's world everyone knows that Keynesian economics has failed.

Outside that bubble, a fair number of people have noticed that Keynesian economics has performed spectacularly in the crisis - it successfully predicted that deficits wouldn't drive up interest rates, that monetary expansion wouldn't be inflationary, that austerity policies in Britain and elsewhere would hit economic growth. And no, don't tell me that Keynesians predicted that the Obama stimulus would produce full employment; serious Keynesians, like me, were more or less frantically warning back in early 2009 that the stimulus was too small. But in Ryan's world everyone knows that Keynesian economics has failed.
Failures - NYTimes.com

we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he's holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac - a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, "My god, we can't dress the secretary up as a clown!" Even when it will make him a hero who saves the day?

we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he's holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac - a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, "My god, we can't dress the secretary up as a clown!" Even when it will make him a hero who saves the day?
Rage Against the Coin - NYTimes.com

They [Republicans] say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they're behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected," he (Obama) said. "That seems to be their only overriding, unifying theme.

They [Republicans] say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they're behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected," he (Obama) said. "That seems to be their only overriding, unifying theme.
Is Obama finally figuring it out?

The key thing to remember - and what the GOP hopes you won't understand - is that raising the debt ceiling only empowers the president to spend money that he's authorized to spend by Congressional legislation; nothing more. Conversely, a party that refuses to raise the debt limit is saying that it's prepared to inflict vast damage on America in order to achieve things that it couldn't achieve through actual legislation - in effect, that it's prepared to use vandalism to subvert the constitutional process.

The key thing to remember - and what the GOP hopes you won't understand - is that raising the debt ceiling only empowers the president to spend money that he's authorized to spend by Congressional legislation; nothing more. Conversely, a party that refuses to raise the debt limit is saying that it's prepared to inflict vast damage on America in order to achieve things that it couldn't achieve through actual legislation - in effect, that it's prepared to use vandalism to subvert the constitutional process.
The Hostage Drama Begins - NYTimes.com

A Modest Proposal: What If We Required Mandatory Gun Insurance?

A Modest Proposal: What If We Required Mandatory Gun Insurance?

If you have a rifle and it’s only used for hunting, low rates. If you have a Glock and you carry it in an open-carry town or state, your rates will be very high — because odds are so much higher that innocent bystanders may get caught in a shootout. The more training and safety classes you take, the cheaper the premium.

I like this idea. And we can make the insurance tax deductible in cases where it makes sense. No one has to give up their gun, but those who might be putting others at risk with irresponsible gun ownership will pay into a fund to pay for tax deductions for responsible gun owners.

Alan Grayson Walmart is 'the largest recipient of public aid in the country'

Alan Grayson: Walmart is 'the largest recipient of public aid in the country'

"The taxpayer pays for the earned income credit," he said. "The taxpayer pays for Medicaid. The taxpayer pays for unemployment insurance when they cut hours down. And the taxpayer pays for other forms of public assistance like food stamps. I think the taxpayer is getting fed up of paying these things when, in fact, Walmart could give every employee its got, even the CEO, a 30 percent raise and still be profitable."

How Costco Became the Anti-Wal-Mart

How Costco Became the Anti-Wal-Mart

Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco “it’s better to be an employee or a customer than a shareholder.” Mr. Sinegal begs to differ. He rejects Wall Street’s assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street’s profit demands. Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco’s customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers’ expense. “This is not altruistic,” he said. “This is good business.”

Only 3% of the very rich are entrepreneurs

Only 3% of the very rich are entrepreneurs

According to both Marketwatch and economist Edward Wolff, over 90 percent of the assets owned by millionaires are held in a combination of low-risk investments (bonds and cash), personal business accounts, the stock market, and real estate. Only 3.6 percent of taxpayers in the top .1% were classified as entrepreneurs based on 2004 tax returns. A 2009 Kauffman Foundation study found that the great majority of entrepreneurs come from middle-class backgrounds, with less than 1 percent of all entrepreneurs coming from very rich or very poor backgrounds

As someone who spent a few years working on a portfolio management system used to manage risk for high net worth clients, this doesn’t surprise me.

the deficit-scold movement was never really about the deficit

Recent events have also demonstrated clearly what was already apparent to careful observers: the deficit-scold movement was never really about the deficit. Instead, it was about using deficit fears to shred the social safety net. And letting that happen wouldn't just be bad policy; it would be a betrayal of the Americans who just re-elected a health-reformer president and voted in some of the most progressive senators ever.
—Krugman on the deficit scolds Deficit Hawks and Hypocrites - NYTimes.com

Soup Kitchens Caused the Great Depression

Soup Kitchens Caused the Great Depression

Quiggin's post takes on both Mulligan's specifics and the broader claim that increased use of the social safety net is a cause rather than a result of the depressed economy. As one of his commenters points out, this amounts to the claim that soup kitchens caused the Great Depression. Quiggin does an admirable job of refuting this claim. I would, however, add one more point. If you really believe that the problem is that excessive generosity to the downtrodden is reducing the incentive to work, so that what we really have is a supply problem rather than a demand problem, you should expect to see upward pressure on wages.

For the last few years we have had downward pressure on wages consistent with a demand problem. And it is unlikely that soup kitchens were a cause of the Great Depression.

Blaming China Masks our Real Economic Problems

Blaming China Masks our Real Economic Problems

For the most part, the response of economists to the candidates' exchange over trade was highly negative. Economists are strong advocates of open, unimpeded trade between nations, and with all that economists have done to promote the idea that specialization and trade is mutually beneficial - an argument with the public that has persisted for hundreds of years how could the candidates regress into this primitive mercantile thinking?

Worth a read.

anyone who believes that the gold standard era was marked by price stability, or for that matter any kind of stability, just hasn't looked at the evidence. The fact is that prices have been far more stable under that dangerous inflationist Ben Bernanke than they ever were when gold ruled.

anyone who believes that the gold standard era was marked by price stability, or for that matter any kind of stability, just hasn't looked at the evidence. The fact is that prices have been far more stable under that dangerous inflationist Ben Bernanke than they ever were when gold ruled.
Golden Instability - NYTimes.com

Those who claim that inflation is vastly understated often appeal to the authority of Shadowstats

Those who claim that inflation is vastly understated often appeal to the authority of Shadowstats, a site that purports to provide true measures of many economic variables. Shadowstats doesn't come cheap: currently, an annual subscription costs $175. Six years ago, an annual subscription cost ... $175.
Another Alternative Inflation Measure - NYTimes.com

Mitt Romney Would Pay 0.82 Percent in Taxes Under Paul Ryan's Plan

Mitt Romney Would Pay 0.82 Percent in Taxes Under Paul Ryan's Plan

Romney would have paid an effective tax rate of around 0.82 percent under the Ryan plan, rather than the 13.9 percent he actually did. How would someone with more than $21 million in taxable income pay so little? Well, the vast majority of Romney’s income came from capital gains, interest, and dividends. And Ryan wants to eliminate all taxes on capital gains, interest and dividends. Romney, of course, criticized this idea when Newt Gingrich proposed it back in January by pointing out that zeroing out taxes on savings and investment would mean zeroing out his own taxes.

Basically, the Romney campaign is just the latest Romney tax avoidance scheme.

Paul Ryan used inside info to profit from the financial crisis

Paul Ryan used inside info to profit from the financial crisis

Ryan attended a closed meeting with congressional leaders, Bush’s Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben Bernanke on September 18, 2008. The purpose of the meeting was to disclose the coming economic meltdown and beg Congress to pass legislation to help collapsing banks. Instead of doing anything to help, Ryan left the meeting and on that very same day Paul Ryan sold shares of stock he owned in several troubled banks and reinvested the proceeds in Goldman Sachs, a bank that the meeting had disclosed was not in trouble.

we have lots of empirical work on the effects of tax changes at the top - and none of it supports the Romney camp's claims. What we've just learned is that they were faking it all along. There is no plan to offset the tax cuts; Romney is just intending to blow up the deficit to lavish favors on the wealthy, then use it as an excuse to savage Social Security and Medicare.

we have lots of empirical work on the effects of tax changes at the top - and none of it supports the Romney camp's claims. What we've just learned is that they were faking it all along. There is no plan to offset the tax cuts; Romney is just intending to blow up the deficit to lavish favors on the wealthy, then use it as an excuse to savage Social Security and Medicare.
Dooh Nibor - NYTimes.com

40 Economists Say The GOP Has Abandoned Economic Reality

40 Economists Say The GOP Has Abandoned Economic Reality

A survey of forty economists from across the ideological and partisan spectrum has concluded that on some of its most cherished issues, the Republican Party has simply taken leave of economic reality. For instance, economists Betsey Stevenson and Justin Wolfers noted that one of the results from the survey - run by the University of Chicago's Booth School of Business, which is hardly known for a left-wing slant - is an overwhelming agreement that the 2009 Recovery Act (i.e. the stimulus) brought down unemployment.

And the GOP responded by with a long diatribe about socialism and abortion written in crayon.

The myth of the libertarian Internet.

The myth of the libertarian Internet.

Imagine a world in which airplane technology was advancing rapidly but digital communications technology was stagnating. I think libertarians would have a ready explaination. Aviation, though hardly unregulated, is supervised by the government for basic safety of operations and then firms and inventors are allowed to roam freely. The Internet, by contrast, is a cesspool of government intervention. Rather than founded on the independent spirit of the Wright Brothers, the Internet is literally the bastard offspring of a government civil defense program and European physics research consortium. The Internet consists of a bunch of wires that need to be run underground, generally under city streets, ensuring that construction can only happen with the cooperation of local political officials. The cable and telephone companies who provide access are regulated by both state and federal governments, often with inconsistent and overlapping schemes.

Yglesias exposes the libertarian tactic of pointing to success and chanting capitalism and pointing to failure and chanting Da-Gubment! with little concern about details.

Libertarians don't even know when to gloat

Libertarians don't even know when to gloat

I also favor smaller government, but that doesn't make big government the cause of every economic problem. If the Spanish and Greek governments shrank enough to balance their budgets, they'd still have 24% unemployment, if not more. Their economies are hopelessly uncompetitive at the current exchange rate. Milton Friedman understood that. What in the world has happened to the modern libertarian movement?

Libertarians are no longer about liberty, they are about blaming government for everything. They are about non-policy, not market based policy. Denialism rather than skepticism. Friedman is so far removed from modern Libertarianism that it isn’t even funny.

Revealed - the capitalist network that runs the world - New Scientist

Revealed - the capitalist network that runs the world - New Scientist

The idea that a few bankers control a large chunk of the global economy might not seem like news to New York’s Occupy Wall Street movement and protesters elsewhere (see photo). But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations

Take this with a grain of salt. Being connected may not be the same as being in control. And I am not sure what assumptions they made and how true they may be. But the study is an interesting one and might give rise to more.

The World Is Experiencing The Opposite Of A Sovereign Debt Crisis

The World Is Experiencing The Opposite Of A Sovereign Debt Crisis

You might be tempted to say, well, okay but the Fed is manipulating rates, or that the US is just the “cleanest dirty shirt” but both of these explanations fail when you look at the wide sweep of borrowing costs around the world.

This is the exact opposite of what should be happening if the Peter Schiff’s and Ron Paul’s of the world were right about a currency crisis causing spikes in inflation and interest rates as they have been predicting for almost a decade now.

Krugman, Say's Law and the silliness of Going Galt

Krugman, Say's Law and the silliness of Going Galt

Now suppose that President Obama has reduced Mr. Wheelerdealer to despair; not only does the president waste money by doing things like feeding children, he says mean things about some rich people, which is just like the Nazis invading Poland, or something. So Wheelerdealer decides to go Galt. Well, actually just one-third Galt, reducing his working time to just 2000 hours a year so he can spend more time with his wife and mistress. According to marginal productivity theory, this does in fact shrink the economy: Wheelerdealer adds $10,000 worth of production for every hour he works, so his semi-withdrawal reduces GDP by $10 million. Bad! But what is the impact on the incomes of Americans other than Wheelerdealer? GDP is down by $10 million - but payments to Wheelerdealer are also down by $10 million. So the impact on the incomes of non-Wheelerdealer America is ... zero. Enjoy your leisure, John!

At some point we will be forced to admit that the folks who live on the equity side of the ledger are over paid and under taxed and this is a problem for people on the asset side of the ledger. If they all went Galt, no one would miss them and many people, mostly wage workers, would be better off.

What is the Libor scandal?

What is the Libor scandal?

growing evidence that Libor numbers have been deliberately manipulated by banks for years means that millions of people have been paying the wrong interest rate on all manner of financial products. Vast sums of money have been wrongly snatched from innocent people and created equally vast undeserved windfalls for others. The basic structure of the world's financial system has once again been exposed as fundamentally broken.

And once again, the right says nothing about it, or claims it isn’t a problem because there is no way to fix the problem via tax cuts and deregulation. And if there is no way to fix it via tax cuts and deregulation, it can’t possibly be a real problem.

How LIBOR Impacts Financial Models and Why the Scandal Matters

How LIBOR Impacts Financial Models and Why the Scandal Matters

Matt Taibbi asks why nobody is freaking out about the LIBOR scandal, Robert Reich calls it the scandal of all scandals, and Dylan Matthews has a great explainer of the whole thing here. Abigail Field has more at Reality Check. This can be confusing stuff, so I want to go through a very simple example of how this impacts the markets.

The right isn’t talking about it because they haven’t figured out an angle to blame this on too much regulation or taxes being to high. Once they figure out a way to claim the scandal was caused by something they oppose, they will start talking about it. Until then, enjoy this really good explanation by Mike Konczal at Rortybomb.

David Brooks Says That Mitt Romney and the Republicans Are Not Very Good at Arithmetic

David Brooks Says That Mitt Romney and the Republicans Are Not Very Good at Arithmetic

Greece, Spain, and Italy have among the least developed welfare states in Europe. If someone wants to make an argument that there is some inherent problem with the welfare state model then we should look for crises in Sweden, Denmark and Germany, all states with far more generous welfare states than these Mediterranean countries. In fact, the welfare states of northern Europe are doing relatively well through the crisis, it is difficult to understand how anyone can look at the pattern of the crisis across Europe and conclude that it implies that the welfare state model has reached its end.

Dean Baker make a really good point that no one on the right will listen to. And most certainly not Mr. Brooks. But this is the kicker:

If the U.S. paid the same amount per person for health care as Denmark, Germany, or Sweden we would be looking at massive budget surpluses.

If you just look at the numbers, a better welfare state model would put us in a much better economic situation. Not that anyone on the right would consider such a thing.

Devaluation Is Austerity Done Right

Devaluation Is Austerity Done Right

Currency devaluation is best understood not as an alternative to austerity, but as the correct way for a debt-burdened society to implement austerity.

Why did Iceland recover and Ireland get worse? Iceland had a currency to debase. And they debased their currency enough to reset the economy and grow again. Three cheers for currency debasement. Ireland on the other hand, couldn’t debase the Euro. Like a nation on a gold standard, they had no way to make monetary policy changes to get the economy moving.

So if austerity works, shouldn’t it be the other way around? A stagnant Iceland and a booming Ireland?

Reagan Was a Keynesian

Reagan Was a Keynesian

Reagan, not Obama, was the big spender. While there was a brief burst of government spending early in the Obama administration - mainly for emergency aid programs like unemployment insurance and food stamps - that burst is long past. Indeed, at this point, government spending is falling fast, with real per capita spending falling over the past year at a rate not seen since the demobilization that followed the Korean War. Why was government spending much stronger under Reagan than in the current slump? "Weaponized Keynesianism" - Reagan's big military buildup - played some role. But the big difference was real per capita spending at the state and local level, which continued to rise under Reagan but has fallen significantly this time around. … if you want to see government responding to economic hard times with the "tax and spend" policies conservatives always denounce, you should look to the Reagan era - not the Obama years.

The current GOP is so far removed from the GOP under Reagan it is almost unrecognizable.

Economic Theory Doesn't Say That Small Business Owners Maximize Profits

Economic Theory Doesn't Say That Small Business Owners Maximize Profits

to the best of my knowledge there is no economic theory that says small business owners maximize profits. Think about it from a workers’ perspective. People who work on commercial fishing operations earn a lot more money than most people with comparable levels of education. But nobody thinks it defies economic theory that America’s retail clerks don’t quit their jobs en masse to go fishing. Commercial fishing is dangerous and you have to live on a boat. All else being equal, people prefer to earn more money but they also prefer to do safe work and have the opportunity to socialize. What economic theory says is that workers maximize utility and therefore employers who want to get workers to do something that’s unusually dangerous or unusually unpleasant will have to pay a premium. A small business operator is in the same situation. She’s balancing income against other lifestyle factors, including the hours put in on the job, the pleasantness of the work, the sense of self-esteem that comes from having something to do, possibly a sentimental attachment to a particular location or certain employees. What economic theory says is that a profit maximizing small business person has to be someone with a very unusual utility function.

This can not be repeated enough. Small businesses rarely behave the way politicians describe.

Taxi Medallions How New York's terrible taxi system makes fares higher and drivers poorer

Taxi Medallions: How New York's terrible taxi system makes fares higher and drivers poorer

When New York's Taxi and Limousine Commission held a public hearing last week to consider whether to raise taxi fares by 20 percent, cabdrivers pled poverty and passengers argued that fares are too high. Paradoxically, both groups were right. This lose-lose scenario is only possible under the taxi medallion system, a regulatory scheme in which the right to operate a taxi is thoroughly divorced from the actual work of driving one. It's a classic example of the perils of financialization, the process through which economic potential is turned into a liquid and leveraged asset. By converting a portion of cabbies' future revenue into a freely tradable asset, New York, Chicago, San Francisco, and a host of other cities have created a powerful investor class, medallion owners and financiers, whose interests routinely compete with those of drivers and passengers.

Financialization also makes what should be a trivial deregulation nearly impossible as it would make the Medallion owners very upset. They would be willing to spend big bucks to prevent any attempt at deregulation.

Ray Dalio calls for more stimulus

Ray Dalio calls for more stimulus

We will also need fiscal stimulation by the government, which of course, is very classic. Governments have to spend more when sales and tax revenue go down and as unemployment and other social benefits kick in and there is a redistribution of wealth. That’s why there is going to be more taxation on the wealthy and more social tension. A deleveraging is not an easy time. But when you are approaching balance again, that’s a good thing.

Dalio leaves Team Friedman and joins Team Keynes.

one thing I've noticed is that everyone on the right, and a fair number of people who should know better, basically believes that Gordon Gekko was right. Before the Gekkos came along, they assert, American business was sluggish, unproductive, and uncompetitive. Then came the LBOs and all that, and our economic energy was unleashed. As I said, everyone on the right knows that this happened. Needless to say, none of it is at all true.

one thing I've noticed is that everyone on the right, and a fair number of people who should know better, basically believes that Gordon Gekko was right. Before the Gekkos came along, they assert, American business was sluggish, unproductive, and uncompetitive. Then came the LBOs and all that, and our economic energy was unleashed. As I said, everyone on the right knows that this happened. Needless to say, none of it is at all true.

Was Greed Good? - NYTimes.com

Krugman looks at the numbers.

Nouriel Roubini: Greece will leave the eurozone sooner or later. Sooner is better.

Nouriel Roubini: Greece will leave the eurozone sooner or later. Sooner is better.

The first option, a sharp weakening of the euro, is unlikely, as Germany is strong and the ECB is not aggressively easing monetary policy. A rapid reduction in unit labor costs, through structural reforms that increased productivity growth in excess of wages, is just as unlikely. It took Germany 10 years to restore its competitiveness this way; Greece cannot remain in a depression for a decade. Likewise, a rapid deflation in prices and wages, known as an "internal devaluation," would lead to five years of ever-deepening depression. If none of those three options is feasible, the only path left is to leave the eurozone. A return to a national currency and a sharp depreciation would quickly restore competitiveness and growth.

This is a must read. Nouriel Roubini on why Greece must leave the Eurozone.

Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast. There seems to be some kind of lesson here about macroeconomics, but I can't quite put my finger on it If austerity worked, the bars for the UK and Italy would be positive. It spending didn't work, the bars for Japan would look like Italy's bar. (via Spending and Growth - NYTimes.com)

In 47 of America's fine states, if you want to accept people's money in order to give them advice on decorating and other people want to pay you to give advice on decorating, then congratulations-you're an interior decorator. In the other three states, and the District of Columbia, you need undergo 2,190 hours of training and apprenticeship and pass an exam before practicing. This, of course, is why homes in DC are wildly better-decorated than the homes in the Maryland and Virginia suburbs or in other large American cities such as New York, Los Angeles, Chicago, Boston, Dallas, and Philadelphia. Except of course that's not true.

In 47 of America’s fine states, if you want to accept people’s money in order to give them advice on decorating and other people want to pay you to give advice on decorating, then congratulations-you’re an interior decorator. In the other three states, and the District of Columbia, you need undergo 2,190 hours of training and apprenticeship and pass an exam before practicing. This, of course, is why homes in DC are wildly better-decorated than the homes in the Maryland and Virginia suburbs or in other large American cities such as New York, Los Angeles, Chicago, Boston, Dallas, and Philadelphia. Except of course that’s not true.
Licensed To Decorate

Scott Walker to campaign on made-up jobs data.

Scott Walker to campaign on made-up jobs data.

Wisconsin lost 23,900 jobs between March 2011 and 2012, according to the bureau, which will release fresh estimates tomorrow. Walker, who promised to create 250,000 jobs by the end of his first term in 2014, says the state is performing better than that. He said while campaigning this week that he would release his own figures as early as today, the Associated Press reported.

The numbers show my policy isn’t working so I will change the numbers we use so I can still promote my policy as a success. Wow.

Bruce Bartlett: What Rule Should the Federal Reserve Follow?

Bruce Bartlett: What Rule Should the Federal Reserve Follow?

Representative Paul is here reciting the "Austrian" theory of the Great Depression. It says that even though there was no inflation during the 1920s, somehow or other inflation nevertheless caused the Great Depression. According to the Bureau of Labor Statistics, prices were either flat or falling throughout the 1920s - i.e., deflation. But the Austrian school believes there was actually some sort of double-secret inflation because the money supply increased. They believe the same thing is happening right now.

Bruce Bartlett explaining Austrian views and how they get basic facts wrong.

America's Helium Privatization Fiasco

America's Helium Privatization Fiasco

in 1996 when Congress decided that the United States did not need a giant strategic helium reserve, Chris Cox, R.-Calif., and his colleagues passed a Helium Privatization Act that ordered the helium supplies to be sold down at a formula-driven price rather than auctioned. That price has turned out to be way below the market rate. That’s encouraging overconsumption of helium, discouraging new helium production, and all-in-all creating a big helium shortage.

I’ve asked this question before and I will ask it again. If you think government can not run anything right, why do you think it can run a privatization program? Second, it looked like the state run helium system worked better (the fact that it was set up by people who actually think the public center can run things might have something to do with it) would you consider going back?

I didn't believe in the liquidity trap and was pretty down on old-fashioned Keynesianism until 1998, when a hard look at Japan and an attempt to understand what was happening there led me to change my mind.

I didn't believe in the liquidity trap and was pretty down on old-fashioned Keynesianism until 1998, when a hard look at Japan and an attempt to understand what was happening there led me to change my mind.

Krugman on Japan and Keynes.

Macroeconomic Morality - NYTimes.com

Tourism: America should make it much easier for foreign visitors to come here.

Tourism: America should make it much easier for foreign visitors to come here.

Talk of exports normally conjures up images of factories and container ships, but many of America's exports are services. The nation's biggest service export is in some sense not an export at all-it's travel and tourism

So can we now start arguing that the national security state is hurting exports?

People in my camp have repeated until we're blue in the face that the case for fiscal expansion is very specific to circumstance - it's desirable when you're in a liquidity trap, and only when you're in a liquidity trap.

People in my camp have repeated until we're blue in the face that the case for fiscal expansion is very specific to circumstance - it's desirable when you're in a liquidity trap, and only when you're in a liquidity trap.

Structural Flashbacks - NYTimes.com

Keynesian Economics 101

Robert Reich: The Answer Isn't Socialism; It's Capitalism that Better Spreads the Benefits of the Productivity Revolution

Robert Reich: The Answer Isn't Socialism; It's Capitalism that Better Spreads the Benefits of the Productivity Revolution

robertreich:

Francois Hollande's victory doesn't and shouldn't mean a movement toward socialism in Europe or elsewhere. Socialism isn't the answer to the basic problem haunting all rich nations.

The answer is to reform capitalism. The world's productivity revolution is outpacing the political will of rich…

Venezuela Faces Shortages in Grocery Staples

Venezuela Faces Shortages in Grocery Staples

By 6:30 a.m., a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries. "Whatever I can get," said Katherine Huga, 23, a mother of two, describing her shopping list. She gave a shrug of resignation. "You buy what they have." Venezuela is one of the world's top oil producers at a time of soaring energy prices, yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.

If the economy is this messed up with oil at historic highs, what happens if oil drop by 10% or 20%? Price controls don’t work. As far as I can tell, Chavez's has turned to really radical and awful price controls to reign in inflation. They should be raising interest rates to control inflation and opening up to free trade.

Mr. Romney constantly talks about job losses under Mr. Obama. Yet all of the net job loss took place in the first few months of 2009, that is, before any of the new administration's policies had time to take effect. So the Ohio speech was a perfect illustration of the way the Romney campaign is banking on amnesia, on the hope that voters don't remember that Mr. Obama inherited an economy that was already in free fall.

Mr. Romney constantly talks about job losses under Mr. Obama. Yet all of the net job loss took place in the first few months of 2009, that is, before any of the new administration's policies had time to take effect. So the Ohio speech was a perfect illustration of the way the Romney campaign is banking on amnesia, on the hope that voters don't remember that Mr. Obama inherited an economy that was already in free fall.
The Amnesia Candidate - NYTimes.com

Robert Reich: The Significance of Citigroup's Shareholder Revolt

Robert Reich: The Significance of Citigroup's Shareholder Revolt

robertreich:

The shareholders of Wall Street giant Citigroup are out to prove that corporate democracy isn't an oxymoron. They've said no to the exorbitant $15 million pay package of Citi's CEO Vikram Pandit, as well as to the giant pay packages of Citi's four other top executives. The vote, at Citigroup's annual meeting in Dallas Tuesday, isn't binding on Citigroup. But it's a warning shot across the bow of every corporate boardroom in America. Shareholders aren't happy about executive pay.

Europe has had several years of experience with harsh austerity programs

Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression. And because investors look at the state of a nation's economy when assessing its ability to repay debt, austerity programs haven't even worked as a way to reduce borrowing costs.
Europe's Economic Suicide - NYTimes.com

District 12 is a quintessential extractive economy. It's oriented around a coal mine, the kind of facility where unskilled labor can be highly productive in light of the value of the underlying commodity. In a free society, market competition for labor and union organizing would drive wages up. But instead the Capitol imposes a single purchaser of mine labor and offers subsistence wages. Emigration to other districts in search of better opportunities is banned, as is exploitation of the apparently bountiful resources of the surrounding forest. With the mass of Seam workers unable to earn a decent wage, even relatively privileged townsfolk have modest living standards. If mineworkers earned more money, the Mellark family bakery would have more customers and more incentive to invest in expanded operations. A growing service economy would grow up around the mine. But the extractive institutions keep the entire District in a state of poverty, despite the availability of advanced technology in the Capitol.

District 12 is a quintessential extractive economy. It's oriented around a coal mine, the kind of facility where unskilled labor can be highly productive in light of the value of the underlying commodity. In a free society, market competition for labor and union organizing would drive wages up. But instead the Capitol imposes a single purchaser of mine labor and offers subsistence wages. Emigration to other districts in search of better opportunities is banned, as is exploitation of the apparently bountiful resources of the surrounding forest. With the mass of Seam workers unable to earn a decent wage, even relatively privileged townsfolk have modest living standards. If mineworkers earned more money, the Mellark family bakery would have more customers and more incentive to invest in expanded operations. A growing service economy would grow up around the mine. But the extractive institutions keep the entire District in a state of poverty, despite the availability of advanced technology in the Capitol.
The Hunger Games: Could a real country have an economy like Panem's? - Slate Magazine

The Spanish government, fearful of the bond markets, enacted tough austerity budget measures that decreased Spanish people's incomes and therefore demand for the products of Spanish firms. This has pushed the country deeper into recession, so it should come as little surprise that their bond sales are now going poorly. That's counterproductive austerity at work.

The Spanish government, fearful of the bond markets, enacted tough austerity budget measures that decreased Spanish people’s incomes and therefore demand for the products of Spanish firms. This has pushed the country deeper into recession, so it should come as little surprise that their bond sales are now going poorly. That’s counterproductive austerity at work.

Counterproductive Austerity in Spain

Contraction isn’t expansion.

when the rating agencies upgraded the UK outlook, the Cameron government hailed this as proof that austerity was working; when they downgraded it due to poor economic performance, the Cameron government declared that this showed the need for even more austerity.

when the rating agencies upgraded the UK outlook, the Cameron government hailed this as proof that austerity was working; when they downgraded it due to poor economic performance, the Cameron government declared that this showed the need for even more austerity.

It’s Always Time For Austerity - NYTimes.com

The beatings will continue until moral improves.

If you want to grow slightly alarmed about the American future, contemplate not just the scale of our trade deficit with China but the fact that our largest export to them by a wide margin is soybeans.

If you want to grow slightly alarmed about the American future, contemplate not just the scale of our trade deficit with China but the fact that our largest export to them by a wide margin is soybeans.
America’s Customers Are Mostly Nearby

Mankiw: Capital Gains vs. Ordinary Income, a little puzzle on policy.

Mankiw: Capital Gains vs. Ordinary Income, a little puzzle on policy.

If you have a job, the money you are paid for your work is ordinary income. If you buy an asset at one time and sell it later for a higher price, the profit you made from holding it is a capital gain. But is it really that easy? Consider five examples, and see if you can identify what is ordinary income and what is a capital gain.

Really great explanation. A must read.

The invisible welfare state of the top one percent

The invisible welfare state of the top one percent

"Indirect social policies offer benefits that are comparable to direct social benefits both in their purposes and in their costs," Mettler and Koch write. "Both are targeted to specific groups of people, aimed to reward some kind of activity or some class of persons whom policymakers deem worthy of public support. From an accounting perspective, as well, both types have the same effect: They impose costs on the federal budget, whether incurred through fiscal obligations or lost revenues."

Notice the complete lack of discussion of austerity for the parts of the welfare state that support the wealthiest?

Why Nations Fail: Uzbekistan Extractive institutions in action

Why Nations Fail: Uzbekistan Extractive institutions in action

Like almost all nations that are poor, Uzbekistan fails because its people operate under extractive economic institutions, which provide few incentives for investment or technological ingenuity, and force people to engage in activities that they do not wish or are not well-suited to (such as farmers being forced to grow crops that they don't want and children being forced to pick cotton rather than learn in school). And the important point is this: these extractive economic institutions are not there by mistake. They have been designed this way for the benefit of the elite. There was no coerced child labor in Uzbekistan when cotton was produced by state-owned firms.

Amazing article from a new favorite blog.

After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/cafe couldn't get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales. However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/cafe. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/cafe that could neither sell books nor make coffee.

After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/cafe couldn't get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales. However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/cafe. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/cafe that could neither sell books nor make coffee.

Note from Athens: Feeling on the ground has palpably changed << Euro Area Debt Crisis by Megan Greene

I realize that the conventional wisdom is that the Greek welfare state is dooming them. But that isn’t really true. The lost economic output from the insane regulatory processes combined with the lack of tax collection is what is screwing up the Greek economy. Those who insist we cut medicare and social security are learning the wrong lesson from Greece.

O'Reilly and Dobbs to Obama: Be More Socialist!

O'Reilly and Dobbs to Obama: Be More Socialist!

O’Reilly and Dobbs were saying that Obama should be taking more coercive action than he’s taking. Against whom? Oil companies. Both O’Reilly and Dobbs emphasized that U.S. oil companies don’t own the oil they think they own. Who owns it? We do, according to O’Reilly and Dobbs. And not we, as in you and me, but we, as in the U.S. government. Dobbs advocated “jaw-boning” oil companies into charging lower prices. He also advocated some kind of government slush trust fund that the oil companies would fund with a special tax. Both O’Reilly and Dobbs got upset about oil companies exporting gasoline. So, based on this and other O’Reilly/Dobbs pronouncements, exports of oil products are bad, exports of other products are good, and imports of almost everything are bad. They must have a very interesting economic model.

Henderson is being just a little unfair to O’Reilly. But other than that, this is just too good not to share.

Opposition to the bailout was driven, in part, by the recognition that nationalization of an industrial enterprise is an open invitation to mismanagement and bad public policy. You could easily imagine a scenario in which the Obama administration made its partisan political objectives a key management priority at Government Motors. Alternatively, you could easily imagine a scenario in which Obama administration trade policy became dominated by the narrow interests of Government Motors rather than the broad interests of the American public. There's a good reason why sensible people don't normally recommend that the government own manufacturing companies. But these bad things didn't happen, and given the total lack of private financing for anything at the time the alternative was liquidation rather than reorganization. I think it's very understandable that Obama's political foes were not prepared at the time to simply assume that the administration was handle a post-nationalization auto industry in a responsible way.

Opposition to the bailout was driven, in part, by the recognition that nationalization of an industrial enterprise is an open invitation to mismanagement and bad public policy. You could easily imagine a scenario in which the Obama administration made its partisan political objectives a key management priority at Government Motors. Alternatively, you could easily imagine a scenario in which Obama administration trade policy became dominated by the narrow interests of Government Motors rather than the broad interests of the American public. There’s a good reason why sensible people don’t normally recommend that the government own manufacturing companies. But these bad things didn’t happen, and given the total lack of private financing for anything at the time the alternative was liquidation rather than reorganization. I think it’s very understandable that Obama’s political foes were not prepared at the time to simply assume that the administration was handle a post-nationalization auto industry in a responsible way.
Economist Devastates Romney On The Auto Bailout

The world's largest commodity trader, Goldman Sachs told its clients that it believed speculators like itself had artificially driven the price of oil at least $20 higher than supply and demand dictate. They even admitted that their work to drive up prices has harmed the American economic recovery

The world's largest commodity trader, Goldman Sachs told its clients that it believed speculators like itself had artificially driven the price of oil at least $20 higher than supply and demand dictate. They even admitted that their work to drive up prices has harmed the American economic recovery
Goldman Sachs Admits Record Speculation To Blame For Skyrocketing Gas Prices | ThinkProgress

Most of Western Europe today is both more equal in incomes and more economically mobile than the United States. And it isn't just Western Europe. Countries as varied as Japan, New Zealand, Singapore, and Pakistan all have higher degrees of income mobility than we do. A nation that prides itself on its lack of class rigidity has, in short, become significantly more economically rigid than many other developed countries.

Most of Western Europe today is both more equal in incomes and more economically mobile than the United States. And it isn't just Western Europe. Countries as varied as Japan, New Zealand, Singapore, and Pakistan all have higher degrees of income mobility than we do. A nation that prides itself on its lack of class rigidity has, in short, become significantly more economically rigid than many other developed countries.
Timothy Noah: The Mobility Myth | The New Republic

At 102%, His Tax Rate Takes the Cake

At 102%, His Tax Rate Takes the Cake

That doesn't mean Mr. Ross pays more in taxes than he earns. His total tax as a percentage of his adjusted gross income was 20 percent, which is much lower than mine. That's because Mr. Ross has so many itemized deductions. Since taxable income is what's left after itemized deductions like mortgage interest, charitable contributions, and state and local taxes are subtracted, it will nearly always be smaller than adjusted gross income and demonstrates how someone can pay more than 100 percent of taxable income in tax.

His tax rate is 102% His total tax on his adjusted gross income was at 20% So…does it make sense to cut his taxes when he rate he actually pays is only 20%?

Racial Education Gap Narrowing, Income Education Gap Growing

Racial Education Gap Narrowing, Income Education Gap Growing

pure income inequality has become much bigger and on a variety of different fronts income-linked stratification has become a bigger deal. One way in which this reflects itself is that the “achievement gap” in school between white kids and black kids used to be bigger than the gap between rich and poor.

I remember someone on Bill Maher’s old show making a joke about this. Conservatives looked at the problem of poor black kids having fewer opportunities to get an education than poor white kids and decided to solve the problem by making sure that poor white kids don’t have any opportunities for a good education either.

you never do find conservatives arguing that we shouldn't worry about higher tax rates on the rich, because they'll just work harder to be able to afford those luxury goods; or that a higher inheritance tax probably expands work effort, because it would force the Paris Hiltons of this world to go out and get real jobs.

you never do find conservatives arguing that we shouldn't worry about higher tax rates on the rich, because they'll just work harder to be able to afford those luxury goods; or that a higher inheritance tax probably expands work effort, because it would force the Paris Hiltons of this world to go out and get real jobs.
Different Slopes for Different Folks - NYTimes.com

It would, of course, be absurd to think that the white working class is suffering because they live in ghettos which reflect and reinforce their shiftlessness in addition to the idea that our country is too soft on crime and too focused on rehabilitating prisoners. The last time the neoconservative intellectual movement had to explain something like this it was about poverty concentrated among African-Americans and in urban environments, and this was their answer. But the white working class lives everywhere - in cities and suburbs, in dynamic towns and dying ones, in conservative ones and liberals ones - and they are having a rough economic time of it everywhere. And nobody is arguing that our criminal justice system is too lenient.

It would, of course, be absurd to think that the white working class is suffering because they live in ghettos which reflect and reinforce their shiftlessness in addition to the idea that our country is too soft on crime and too focused on rehabilitating prisoners. The last time the neoconservative intellectual movement had to explain something like this it was about poverty concentrated among African-Americans and in urban environments, and this was their answer. But the white working class lives everywhere - in cities and suburbs, in dynamic towns and dying ones, in conservative ones and liberals ones - and they are having a rough economic time of it everywhere. And nobody is arguing that our criminal justice system is too lenient.

What's Missing From Charles Murray's Diagnosis of the White Working Class?

The reason they want this to be a cultural problem rather than an economic one has everything to do where the economic analysis leads. It leads to policies that are a near 180 from the policies the right has been pushing for the past 50 years. And like any other fanatic movement, when the prescribed policy fails they look for scapegoats and demand we double down on failure.

Reading 21 books about the financial crisis does not sound, on its face, like a fun experience. After you talk to Lo, it sounds even worse. "After each book, I felt like I knew less," he told me. "For an academic, that's a pretty frustrating feeling.

Reading 21 books about the financial crisis does not sound, on its face, like a fun experience. After you talk to Lo, it sounds even worse. “After each book, I felt like I knew less,” he told me. “For an academic, that’s a pretty frustrating feeling.
What An Economist Learned From Reading 21 Books About The Crisis : Planet Money : NPR

the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce - gold's price as I write this - its value would be about $9.6 trillion. Call this cube pile A. Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Warren Buffett: Why stocks beat gold and bonds

Warren Buffett on gold.

The real workforce of Facebook is all the people who are creating Facebook content. That's closer to 800 million people (roughly their user base) than to 3,000 people (roughly their number of employees). There's nothing new about medica companies getting people to produce content for free (that's what the letters to the editor page or comments section is) but Facebook has built the most amazing vehicle for the appropriation of surplus value that the world has ever known. Ergo its stunning profits and amazing ratio of market capitalization to formal employees.

The real workforce of Facebook is all the people who are creating Facebook content. That’s closer to 800 million people (roughly their user base) than to 3,000 people (roughly their number of employees). There’s nothing new about medica companies getting people to produce content for free (that’s what the letters to the editor page or comments section is) but Facebook has built the most amazing vehicle for the appropriation of surplus value that the world has ever known. Ergo its stunning profits and amazing ratio of market capitalization to formal employees.

Facebook Has The World’s Largest Workforce

I’ve been working on the model that the difference between internet media companies and social networking is content creation. If you create content for your users (like Slate) you’re in publishing. If your users create and share content, you’re a social network. And Usenet was the first large scale social network.

When businesspeople complain about regulations, you should generally be skeptical. The regulations, after all, are there precisely because some businesses can make more money by despoiling the environment, endangering public health and safety, and threatening the financial system. A regulation that's not annoying someone by wrecking his money-making scheme would be completely pointless.

When businesspeople complain about regulations, you should generally be skeptical. The regulations, after all, are there precisely because some businesses can make more money by despoiling the environment, endangering public health and safety, and threatening the financial system. A regulation that's not annoying someone by wrecking his money-making scheme would be completely pointless.
Bruce Braley's Plain Regulations Act: Can the Iowa Democrat force the government to write in clear English? - Slate Magazine

The absurdity of this claim is clearly revealed if one considers capital gains that accrue to short sellers, who pay rather than receive dividends while their positions are open. Following the logic of the argument, one would be forced to conclude that short sellers are taxed at an effective rate of negative 20%, thereby receiving a significant subsidy due to the existence of the corporate tax. The flaw in this reasoning is apparent when one recognizes that asset prices are lower (relative to the zero corporate tax benchmark) not only when a short position is covered, but also when it is entered

The absurdity of this claim is clearly revealed if one considers capital gains that accrue to short sellers, who pay rather than receive dividends while their positions are open. Following the logic of the argument, one would be forced to conclude that short sellers are taxed at an effective rate of negative 20%, thereby receiving a significant subsidy due to the existence of the corporate tax. The flaw in this reasoning is apparent when one recognizes that asset prices are lower (relative to the zero corporate tax benchmark) not only when a short position is covered, but also when it is entered

Economist’s View: Is Romney Double Taxed?

Rajiv Sethi looks at the numbers and concludes that Romney isn’t being double taxed and doesn’t have an effective rate of 45% to 50%.

President Obama's muddled plan to boost employment by hindering trade

President Obama's muddled plan to boost employment by hindering trade

When Obama brags that "over 1,000 Americans are working today because we stopped a surge in Chinese tires," he's implementing a small-scale version of a similar idea. Blocking an influx of cheap Chinese tires does, indeed, preserve jobs for tire-makers. But tire-buyers pay higher prices and presumably curtail their purchases of some other goods or services in exchange. Meanwhile, Chinese tire-makers have lost jobs and are now less likely to buy American soybeans or DVDs of our movies. … This line of thinking swiftly stumbles into self-contradiction. After lambasting companies that "ship jobs overseas," Obama launched into a feel-good anecdote about how "Siemens opened a gas turbine factory in Charlotte and formed a partnership with Central Piedmont Community College." Is a politician in Germany giving a speech lambasting Siemens for shipping jobs to the U.S. and complaining, as Obama did, that it's "not fair when foreign manufacturers have a leg up on ours only because they're heavily subsidized," perhaps through partnerships with community colleges.

This is where Obama gets things wrong. You can compete by having poorly paid workers living in dorms working 60 hour weeks with no concern about the health and safety of those workers or you can compete by having workers produce much more value per hour worked. The former is the developing nations model, the later is the developed nation model. Why I think the later is a better idea for the US should be obvious in the same why it is obvious why China picked the former.

Say's Law For Thee But Not For Me

Say's Law For Thee But Not For Me

Mark Thoma notes a double standard in the conservative outcry over the Keystone XL decision. As he notes, when it comes to the question of whether government spending can create jobs, the usual suspects claim that it's logically impossible: income has to be spent somewhere, so all the government can do is divert funds from other uses. But when it's a private investment, somehow that logic no longer applies.

They also fail to connect tax cuts and tax credits to Say’s Law. The larger point is that they don’t care if the argument is true. It doesn’t have to be true for them to benefit from it.

Deadweight loss exists any time the profit-maximizing price of a unit of something exceeds the cost of producing an extra unit. In a highly competitive market in which many sellers are offering largely undifferentiated goods, profit margins are low and deadweight loss is tiny. But the whole point of copyright is that the owner of the rights to, say, Breaking Bad has a monopoly on sales of new episodes of the show. At the same time, producing an extra copy of a Breaking Bad episode is nearly free. So when the powers that be decide that the profit-maximizing strategy is to charge more than $100 to download all four seasons of Breaking Bad from iTunes, they're creating a situation in which lots of people who'd gain $15 or $85 worth of enjoyment from watching the show can't watch it. This is "deadweight loss," and to the extent that copyright infringement reduces it, infringement is a boon to society.

Deadweight loss exists any time the profit-maximizing price of a unit of something exceeds the cost of producing an extra unit. In a highly competitive market in which many sellers are offering largely undifferentiated goods, profit margins are low and deadweight loss is tiny. But the whole point of copyright is that the owner of the rights to, say, Breaking Bad has a monopoly on sales of new episodes of the show. At the same time, producing an extra copy of a Breaking Bad episode is nearly free. So when the powers that be decide that the profit-maximizing strategy is to charge more than $100 to download all four seasons of Breaking Bad from iTunes, they're creating a situation in which lots of people who'd gain $15 or $85 worth of enjoyment from watching the show can't watch it. This is "deadweight loss," and to the extent that copyright infringement reduces it, infringement is a boon to society.
SOPA: Stopping online piracy would be a social and economic disaster. - Slate Magazine

things like public libraries, used bookstores, and the widespread practice of lending books to friends all cost publishers money. But nobody (I hope) is going to introduce the Stop Used Bookstores Now Act purely on these grounds. The public policy question is not whether the libraries are bad for publishers, but whether libraries are beneficial on balance.

things like public libraries, used bookstores, and the widespread practice of lending books to friends all cost publishers money. But nobody (I hope) is going to introduce the Stop Used Bookstores Now Act purely on these grounds. The public policy question is not whether the libraries are bad for publishers, but whether libraries are beneficial on balance.
SOPA: Stopping online piracy would be a social and economic disaster. - Slate Magazine

The great era of US economic growth was the postwar generation

The great era of US economic growth was the postwar generation; even during the good years of the 90s we didn't achieve comparable growth, and overall, the post-Reagan era was marked by slower growth than the equivalent period of time pre-Reagan. And I haven't even gotten into the income distribution thing. All of which makes me wonder: what goes on in these peoples' minds? Do they never even think of actually looking at the numbers, because they know that Reagan ushered in a great boom?
Reaganite Delusions - NYTimes.com

Leaving the payroll tax intact and reducing Social Security benefits for higher-income seniors is, in effect, an increase in marginal tax rates but it was clear from the discussion at this morning's GOP Presidential debate that few Republicans see it this way. Still, it's true. The way Social Security works is that you pay taxes when you're working and you collect benefits when you retire, with the benefits proportional to what you paid.

Leaving the payroll tax intact and reducing Social Security benefits for higher-income seniors is, in effect, an increase in marginal tax rates but it was clear from the discussion at this morning’s GOP Presidential debate that few Republicans see it this way. Still, it’s true. The way Social Security works is that you pay taxes when you’re working and you collect benefits when you retire, with the benefits proportional to what you paid.
Means Testing Social Security Is A Kind of Tax Increase

In case you thought the European financial crisis was over, today's auction of new German debt garnered an average nominal yield of -0.0122 percent, the first time we've ever seen a negative nominal yield.

In case you thought the European financial crisis was over, today’s auction of new German debt garnered an average nominal yield of -0.0122 percent, the first time we’ve ever seen a negative nominal yield.

Negative Nominal Yields On New Germany Debt

Liquidity trap.

Businesses seek state's new 'benefit corporation' status

Businesses seek state's new 'benefit corporation' status

A dozen companies committed to maximizing social good while turning a profit have filed papers with the state to become California’s first “benefit corporations.” … While that may sound like marketing hype, it’s important from a legal standpoint because it helps shield benefit corporations from lawsuits brought by shareholders who say that company do-gooding has diluted the value of their stock. California becomes the seventh state to adopt this relatively new corporate structure. Until now, California corporate law mandated that shareholders’ interests trump those of all other parties. Entrepreneurs who wanted to incorporate green initiatives or social causes into their businesses were often forced to become nonprofits, limiting their ability to raise venture capital.

Harder for Americans to Rise From Lower Rungs

Harder for Americans to Rise From Lower Rungs

Americans enjoy less economic mobility than their peers in Canada and much of Western Europe. The mobility gap has been widely discussed in academic circles, but a sour season of mass unemployment and street protests has moved the discussion toward center stage.

Low taxes and anemic public services haven’t made for a more dynamic meritocracy so of course the right wants to fix this with lower taxes and fewer services.

right now, there are people declaring that our best days are behind us, that the economy has suffered a general loss of dynamism, that it's unrealistic to expect a quick return to anything like full employment. There were people saying the same thing in the 1930s! Then came the approach of World War II, which finally induced an adequate-sized fiscal stimulus - and suddenly there were enough jobs, and all those unneeded and useless workers turned out to be quite productive, thank you.

right now, there are people declaring that our best days are behind us, that the economy has suffered a general loss of dynamism, that it's unrealistic to expect a quick return to anything like full employment. There were people saying the same thing in the 1930s! Then came the approach of World War II, which finally induced an adequate-sized fiscal stimulus - and suddenly there were enough jobs, and all those unneeded and useless workers turned out to be quite productive, thank you.
The Defeatism of Depression - NYTimes.com

the Austrian/Ron Paul types made some very strong predictions about inflation - and rightly, given their model of how the world works. In their version of reality, it really isn't possible to triple the monetary base without dire effects on the price level. In my version of reality, of course, that's not only possible but what the model predicts in a liquidity trap. So since we did indeed triple the monetary base with nothing much happening to inflation, the right lesson to draw is that their model is all wrong. Unfortunately, I see no hint that anyone in that camp is prepared to consider that possibility.

the Austrian/Ron Paul types made some very strong predictions about inflation - and rightly, given their model of how the world works. In their version of reality, it really isn't possible to triple the monetary base without dire effects on the price level. In my version of reality, of course, that's not only possible but what the model predicts in a liquidity trap. So since we did indeed triple the monetary base with nothing much happening to inflation, the right lesson to draw is that their model is all wrong. Unfortunately, I see no hint that anyone in that camp is prepared to consider that possibility.
Inflation Predictions - NYTimes.com

Paul is unique among the GOP contenders, or for that matter among politicians in general, in making monetary policy his signature issue. So it's worth noting that he is among those who have been wrong about everything in this slump. Here's a sample from earlier this year...

Paul is unique among the GOP contenders, or for that matter among politicians in general, in making monetary policy his signature issue. So it's worth noting that he is among those who have been wrong about everything in this slump. Here's a sample from earlier this year…
Speaking of People Whose Models Have Failed - NYTimes.com

more austerity isn't going to convince the bond markets that Italy is just fine, let alone cut interest rates sufficiently to make contractionary policies expansionary. In fact, austerity - at least if not accompanied by major policy changes in Frankfurt - is probably self-defeating, because it will hurt the Italian economy more than it helps the short-term budget picture.

more austerity isn't going to convince the bond markets that Italy is just fine, let alone cut interest rates sufficiently to make contractionary policies expansionary. In fact, austerity - at least if not accompanied by major policy changes in Frankfurt - is probably self-defeating, because it will hurt the Italian economy more than it helps the short-term budget picture.
Mario and the Confidence Fairy - NYTimes.com

Loser liberalism, by implying that all fortunes are created equal, alternately goes too easy on scoundrels and comes down too hard on people who are merely prosperous. Chris Paul is in the one percent, but he's also a kid from a working class background who's spent his entire career being structurally underpaid and victimized by cartels. By contrast, even substantially lower-paid (and there's lots of room to be both lower-paid than Chris Paul and very highly paid) folks working on Wall Street are making a living in an industry that's systematically dependent on implicit and explicit government guarantees. Making a living as a patent troll is totally different from making a living as a genuine innovator.

Loser liberalism, by implying that all fortunes are created equal, alternately goes too easy on scoundrels and comes down too hard on people who are merely prosperous. Chris Paul is in the one percent, but he’s also a kid from a working class background who’s spent his entire career being structurally underpaid and victimized by cartels. By contrast, even substantially lower-paid (and there’s lots of room to be both lower-paid than Chris Paul and very highly paid) folks working on Wall Street are making a living in an industry that’s systematically dependent on implicit and explicit government guarantees. Making a living as a patent troll is totally different from making a living as a genuine innovator.
Barack Obama’s Loser Liberalism

If the problem is years of "living beyond our means" the solution dictated by cosmic justice is years of laboring in auto plants building cars for South Koreans to drive. If the question is "why are we consuming so much less than we produced" the answer may be "it's because in the past we consumed more than we produced." But right now the question facing America is "why are so many millions of people producing nothing at all." The answer can't be simply that we had too much debt in the past or that we lived beyond our means.

If the problem is years of “living beyond our means” the solution dictated by cosmic justice is years of laboring in auto plants building cars for South Koreans to drive. If the question is “why are we consuming so much less than we produced” the answer may be “it’s because in the past we consumed more than we produced.” But right now the question facing America is “why are so many millions of people producing nothing at all.” The answer can’t be simply that we had too much debt in the past or that we lived beyond our means.
"Japanese" Cars, Made in America and Ready for Export to South Korea

Manufacturing activity is contracting across Europe and most of Asia, data showed on Thursday, and a Chinese official declared that the world economy faces a worse situation than in 2008 when Lehman Brothers collapsed.

Manufacturing activity is contracting across Europe and most of Asia, data showed on Thursday, and a Chinese official declared that the world economy faces a worse situation than in 2008 when Lehman Brothers collapsed.

Factories stall worldwide, U.S. jobless claims rise

Of course I expect that the flat-earth economists to declare that this is due to austerity measures not being austere enough.

a study from Robert Pollin and Heidi Garrett-Peltier finds that defense spending does indeed create jobs under recession conditions but that "$1 billion spent on each of the domestic spending priorities will create substantially more jobs within the U.S. economy than would the same $1 billion spent on the military" with "investments in clean energy, health care and education.

a study from Robert Pollin and Heidi Garrett-Peltier finds that defense spending does indeed create jobs under recession conditions but that “$1 billion spent on each of the domestic spending priorities will create substantially more jobs within the U.S. economy than would the same $1 billion spent on the military” with “investments in clean energy, health care and education.
Armed Keynesianism Assessed

Huntsman and the GOP Debate on Too Big To Fail

There are a series of proposals, mostly surrounding taxes and caps on size, leverage and presumably complexity. The first bullet point, a cap on size relative to GDP, is similar to the SAFE Banking Act, which failed in the 2010 Senate with 33 votes. They all sound like good ideas, though they received little-to-no GOP support during the debates.

Mike Konczal sorts through Huntsman plan to end To big to Fail. Wonky but worth a read.

The average Bush tax cut in 2011 for a taxpayer in the richest one percent is greater than the average income of the other 99 percent ($66,384 compared to $58,506).

The average Bush tax cut in 2011 for a taxpayer in the richest one percent is greater than the average income of the other 99 percent ($66,384 compared to $58,506).
The Average Bush Tax Cut For The 1 Percent This Year Will Be Greater Than The Average Income Of The Other 99 Percent | ThinkProgress

The appetite of red states for federal subsidies mocks the tirades of their politicians against the federal government. In March 2008, on the verge of the Great Recession, 22 Republican states were net recipients of federal subsidies, while only 10 Democratic-leaning states were. Sixteen blue states were net payers of federal taxes, compared to only one red state, Texas (thanks to the oil and gas industry).

The appetite of red states for federal subsidies mocks the tirades of their politicians against the federal government. In March 2008, on the verge of the Great Recession, 22 Republican states were net recipients of federal subsidies, while only 10 Democratic-leaning states were. Sixteen blue states were net payers of federal taxes, compared to only one red state, Texas (thanks to the oil and gas industry).
The red state model is (also) broken - salon.com

Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval

Bloomberg reports that Bank of America (BAC) has shifted about $22 trillion worth of derivative obligations from Merrill Lynch and the BAC holding company to the FDIC insured retail deposit division. Along with this information came the revelation that the FDIC insured unit was already stuffed with $53 trillion worth of these potentially toxic obligations, making a total of $75 trillion.

Seeking Alpha

Coincidentally, the provisions in Dodd-Frank that would ban the Fed from bailing out derivatives brokers were blocked in the house this week. Purely by coincidence.

It is not fine for money to have value simply because it is useful for buying things.

The point of view underlying von Mises’s—and von Hayek, and Marx, and Ron Paul—complaint against fiat money in general and monetary management of the business cycle in particular is this: that value comes from human sweat and toil, not from being clever. Thus it is fine for money to have value if it is 100% backed by gold dug from the earth by sweat and machines and muscles (even if there is no state of the possible future world in which people actually want to exchange their pieces of paper for the gold that supposedly backs it). But it is not fine for money to have value simply because it is useful for buying things.

Another Note on Von Mises’s (and Ron Paul’s) Monetary Mental Disorder

Brad De Long has been spending a lot of time on Mises and Austrian economics. Some really interesting reading.

This is the way the euro ends - not with a bang but with bunga bunga.... if you look around the world you see that the big determining factor for interest rates isn't the level of government debt but whether a government borrows in its own currency. Japan is much more deeply in debt than Italy, but the interest rate on long-term Japanese bonds is only about 1 percent to Italy's 7 percent. Britain's fiscal prospects look worse than Spain's, but Britain can borrow at just a bit over 2 percent, while Spain is paying almost 6 percent. What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else's currency, with all the loss of flexibility that implies.

This is the way the euro ends - not with a bang but with bunga bunga…. if you look around the world you see that the big determining factor for interest rates isn't the level of government debt but whether a government borrows in its own currency. Japan is much more deeply in debt than Italy, but the interest rate on long-term Japanese bonds is only about 1 percent to Italy's 7 percent. Britain's fiscal prospects look worse than Spain's, but Britain can borrow at just a bit over 2 percent, while Spain is paying almost 6 percent.

What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else's currency, with all the loss of flexibility that implies.

Legends of the Fail - NYTimes.com

Rule 1 is that Krugman is usually right. Rule 2 is that if you find yourself disagreeing with Krugman, refer back to rule 1.

I suppose I agree with Will Wilkinson about the importance of "an ethos of initiative, hard work, and individual responsibility" though I have no real idea why he thinks most progressives are against such an ethos. It strikes me that cultivating such an ethos is sort of integral to making a progressive agenda work. I think back sometimes to the time when I stumbled into a Stockholm Metro station and got the person working the booth to explain what I needed to do to use the city's bikeshare system. This wasn't really her job, and the conversation wasn't in her native language, and obviously no practical harm would have come to her if she'd blown me off but I take it that she took pride in working for Stockholm Metro and had a self-conception as someone who's a helpful public servant. Any effective public agency from the United States Marine Corps on down is built in pretty profound ways on an ethos of duty and hard work in an even more profound way than things in the for-profit business sector. People who believe in public sector work and public services must believe in the idea of a strong work-ethic.

I suppose I agree with Will Wilkinson about the importance of "an ethos of initiative, hard work, and individual responsibility" though I have no real idea why he thinks most progressives are against such an ethos. It strikes me that cultivating such an ethos is sort of integral to making a progressive agenda work. I think back sometimes to the time when I stumbled into a Stockholm Metro station and got the person working the booth to explain what I needed to do to use the city's bikeshare system. This wasn't really her job, and the conversation wasn't in her native language, and obviously no practical harm would have come to her if she'd blown me off but I take it that she took pride in working for Stockholm Metro and had a self-conception as someone who's a helpful public servant. Any effective public agency from the United States Marine Corps on down is built in pretty profound ways on an ethos of duty and hard work in an even more profound way than things in the for-profit business sector. People who believe in public sector work and public services must believe in the idea of a strong work-ethic.

Who Killed Hard Work And Personal Responsibility? | ThinkProgress

Worth a read.

it's worth pointing out that special treatment for fracking makes a mockery of free-market principles. Pro-fracking politicians claim to be against subsidies, yet letting an industry impose costs without paying compensation is in effect a huge subsidy. They say they oppose having the government "pick winners," yet they demand special treatment for this industry precisely because they claim it will be a winner.

it's worth pointing out that special treatment for fracking makes a mockery of free-market principles. Pro-fracking politicians claim to be against subsidies, yet letting an industry impose costs without paying compensation is in effect a huge subsidy. They say they oppose having the government "pick winners," yet they demand special treatment for this industry precisely because they claim it will be a winner.

Here Comes Solar Energy - NYTimes.com

I’ve been calling these subsidies for fossil fuels Carbon Socialism.

the way to understand the "Barney Frank did it" school of thought about the crisis is that it's an attempt to turn a huge defeat for conservative ideas into a win. The reality of the financial crisis was that deregulation - which was part of a broader rightward shift in policies that played a large role in creating rapid growth in income inequality - led to an economic catastrophe of the kind that just didn't happen during the 50 years or so when we had effective bank regulation. So the right's answer is to claim not just that the government did it, but that it caused the crisis by its attempts to reduce inequality! It's kind of a masterstroke, in an evil way.

the way to understand the "Barney Frank did it" school of thought about the crisis is that it's an attempt to turn a huge defeat for conservative ideas into a win. The reality of the financial crisis was that deregulation - which was part of a broader rightward shift in policies that played a large role in creating rapid growth in income inequality - led to an economic catastrophe of the kind that just didn't happen during the 50 years or so when we had effective bank regulation. So the right's answer is to claim not just that the government did it, but that it caused the crisis by its attempts to reduce inequality! It's kind of a masterstroke, in an evil way.
Financial Big Lies - NYTimes.com

Groundhog Day Jobs Number Report

Groundhog Day Jobs Number Report

I feel like I'm in the movie Groundhog Day when it comes to the job numbers. I wake up on the first Friday each month to the same story - subpar job growth, no budging in key indicators, the insanity of the "anti-stimulus" of bleeding government jobs - and then wake up to it again next month. This month looks like the past dozen: 80,000 jobs wsere created, while the government sector shed 24,000 jobs.
If the elimination of public sector jobs causes growth in the private sector, then why isn’t that happening?

The Treasury Department set at zero the fixed portion of the yield on Inflation bonds, guaranteeing that new buyers will never earn more than the rate of inflation for the 30-year life of their investment.

The Treasury Department set at zero the fixed portion of the yield on Inflation bonds, guaranteeing that new buyers will never earn more than the rate of inflation for the 30-year life of their investment.

Bond Yield Hits Historic Low: 0% | Moneyland | TIME.com

Cough, cough, liquidity trap, Cough, cough.

The Recovery The Fed Wants

The Recovery The Fed Wants

the FOMC meekly "anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate." If the unemployment rate is not currently at a level consistent with the mandate and is also not converging rapidly toward a level consistent with the mandate, then in my view the FOMC ought to do something new and dramatic in order to fulfill its mandate. Instead, the FOMC is standing pat. They think 9.1 percent unemployment and moderate growth is fine and they don't intend to do anything about it.

The point is that I know technocrats, and these people aren't - they're faith healers who are making stuff up to suit their prejudices. You can say something similar, although a bit less pointed, about the Obama administration. The line from people there, including the president, has been that it was too technocratic. But the real technocrats - people like Christy Romer and, well, me - were saying right from the beginning that the stimulus was too small, etc.; people like Geithner who opposed stronger action were basing their position on gut feelings about confidence, not number-crunching.

The point is that I know technocrats, and these people aren't - they're faith healers who are making stuff up to suit their prejudices. You can say something similar, although a bit less pointed, about the Obama administration. The line from people there, including the president, has been that it was too technocratic. But the real technocrats - people like Christy Romer and, well, me - were saying right from the beginning that the stimulus was too small, etc.; people like Geithner who opposed stronger action were basing their position on gut feelings about confidence, not number-crunching.

Crats, Maybe, But Not Much Techno - NYTimes.com

They’re avoiding the math because it has a liberal bias. Better to cater to prejudices than reality.

Bloomberg's Awful Comment; What Can We Say For Certain Regarding the GSEs?

Bloomberg's Awful Comment; What Can We Say For Certain Regarding the GSEs?

we should mention that the conservative think tanks spent the 2000s saying the exact opposite of what they are saying now, and the opposite of what Bloomberg said above. They argued that the CRA and the GSEs were getting in the way of getting risky subprime mortgages to risky subprime borrowers. My personal favorite is Cato's Should CRA Stand for "Community Redundancy Act?", (2000, here's a writeup by James Kwak), arguing a position amplified in Cato's 2003 Handbook for Congress Financial Deregulation Chapter: "by increasing the costs to banks of doing business in distressed communities, the CRA makes banks likely to deny credit to marginal borrowers that would qualify for credit if costs were not so high."
Amazing. Yet this lie about the CRA causing the sub-prime crisis persists.

the only difference between debt-financed spending and tax-financed spending is that debt-financed spending needs to be paid back with interest. So by preferring $1.2 trillion in cuts to $2 trillion in cuts and $1 trillion in spending hikes, the GOP position is pushing both long-run spending and long-run taxes much higher than it would be under the Democratic plan.

the only difference between debt-financed spending and tax-financed spending is that debt-financed spending needs to be paid back with interest. So by preferring $1.2 trillion in cuts to $2 trillion in cuts and $1 trillion in spending hikes, the GOP position is pushing both long-run spending and long-run taxes much higher than it would be under the Democratic plan.

Conservative Orthodoxy Makes Spending Higher | ThinkProgress

And somehow we are to believe that the GOP cares about the debt? Or that their interest in cutting spending is about concern about the debt and not policy preference to push desired economic outcomes?

Flat Tax

Two thoughts on flat taxes

  • There is no reason why you need to have a flat tax before you cut any loop-holes. Cutting loop holes and simplifying the tax code can be done without making the tax rates flat or even flatter.
  • If you think the hardest of doing your taxes is the part where you take your adjusted taxable income and look up what your taxes due are on that little chart, then clearly you’ve never done your own taxes or have only taken the standard deductions.

The price of Bitcoin continues to drop by about a dollar every week to ten days, currently settling at about $2.80 USD, and Bitcoin enthusiasts are starting to get worried.

The price of Bitcoin continues to drop by about a dollar every week to ten days, currently settling at about $2.80 USD, and Bitcoin enthusiasts are starting to get worried.

No surprise here. Bitcoin is acting just as it should if Milton Friedman is right about monetary policy. And he is right, almost every time. But I very much doubt this will settle it. This experiment will have to be redone a few hundred times and great expense to the true believers before 16th century economics goes the way of blood letting and theories of the four humors.

Ahem... - Marginal Revolution

Under the rule, banks need to provide the government with a blueprint for a quick and orderly dissolution in case they were to fail. That requirement, a key provision of the Dodd-Frank financial reform law, is intended to avoid the widespread confusion and haphazard actions that occurred during the recent financial crisis, in which some of the world's largest financial institutions collapsed and threatened the entire financial system in the process.

Under the rule, banks need to provide the government with a blueprint for a quick and orderly dissolution in case they were to fail. That requirement, a key provision of the Dodd-Frank financial reform law, is intended to avoid the widespread confusion and haphazard actions that occurred during the recent financial crisis, in which some of the world’s largest financial institutions collapsed and threatened the entire financial system in the process.
Fed requires ‘living wills’ for big banks - The Hill’s On The Money

The Copernican Revolution In Macroeconomics

My view, with both all due respect and all due derision, is that the Robert Lucas types are like the early Copernicans here. There's something admirable in their insistence that it ought to all work out to an easily modeled system grounded in compelling theoretically considerations. The New Keynesian model is a mess, like late-Ptolemaic astronomy, thrown together to account for observed reality. But you don't fly to a moon with an elegant model that delivers mistaken predictions about where the moon's going to be. And what we actually need is a Kepler to give us an elegant model that actually predicts the phenomena, and then a Newton who can explain what that model means.

From The Copernican Revolution In Macroeconomics | ThinkProgress


Not sure I agree with the main point, but worth a read.

How Yelp is killing chain restaurants

First, "a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue." No surprise, good reviews help restaurants. Second, this mainly affects smaller, independent establishments. A Yelp review has no effect on an individual chain restaurant like Applebee's, presumably because people already have firm impressions of those places.

From The Washington Post

Not surprised about this. I use Yelp to look for espresso all the time and usually have no trouble finding someplace other than Starbucks. For something with a low commitment like lunch or coffee, Yelp changes the model for making a choice.

what Britain needs is for everyone to pay down debt, said in obvious obliviousness to the fact that if everyone cuts spending at the same time, income must fall. But then, this kind of obliviousness is very widespread, and my experience is that if you try to point out the problem - if you try to explain that my spending is your income and vice versa - you get a belligerent response. Y=E is seen as a political statement, which in a way it is if one side of the political spectrum insists on believing things that can't be true.

what Britain needs is for everyone to pay down debt, said in obvious obliviousness to the fact that if everyone cuts spending at the same time, income must fall. But then, this kind of obliviousness is very widespread, and my experience is that if you try to point out the problem - if you try to explain that my spending is your income and vice versa - you get a belligerent response. Y=E is seen as a political statement, which in a way it is if one side of the political spectrum insists on believing things that can't be true.
Arithmetic Has A Well-Known Keynesian Bias - NYTimes.com

In the first act, bankers took advantage of deregulation to run wild (and pay themselves princely sums), inflating huge bubbles through reckless lending. In the second act, the bubbles burst - but bankers were bailed out by taxpayers, with remarkably few strings attached, even as ordinary workers continued to suffer the consequences of the bankers' sins. And, in the third act, bankers showed their gratitude by turning on the people who had saved them, throwing their support - and the wealth they still possessed thanks to the bailouts - behind politicians who promised to keep their taxes low and dismantle the mild regulations erected in the aftermath of the crisis. Given this history, how can you not applaud the protesters for finally taking a stand?

In the first act, bankers took advantage of deregulation to run wild (and pay themselves princely sums), inflating huge bubbles through reckless lending. In the second act, the bubbles burst - but bankers were bailed out by taxpayers, with remarkably few strings attached, even as ordinary workers continued to suffer the consequences of the bankers' sins. And, in the third act, bankers showed their gratitude by turning on the people who had saved them, throwing their support - and the wealth they still possessed thanks to the bailouts - behind politicians who promised to keep their taxes low and dismantle the mild regulations erected in the aftermath of the crisis. Given this history, how can you not applaud the protesters for finally taking a stand?

Krugman on the Occupy Wall Street protest.

Confronting the Malefactors - NYTimes.com

Part of what has always fascinated me about the Civil War is that like World War II, it was a war in which the basically non-military culture of modern America - which at that point didn't include the South - used its mastery of the arts of peace and production to overcome more warlike adversaries.

Part of what has always fascinated me about the Civil War is that like World War II, it was a war in which the basically non-military culture of modern America - which at that point didn't include the South - used its mastery of the arts of peace and production to overcome more warlike adversaries.
Mapping Through Georgia - NYTimes.com

a large part of it, it seems obvious, is the intense desire to see economics as a morality play of sin and punishment, where the sinners are, of course, workers and governments, not the bankers. Pain is not an unfortunate consequence of policies, it's what is supposed to happen.

a large part of it, it seems obvious, is the intense desire to see economics as a morality play of sin and punishment, where the sinners are, of course, workers and governments, not the bankers. Pain is not an unfortunate consequence of policies, it's what is supposed to happen.
Defeatism - NYTimes.com

The only real tests we've had of Keynesian economics were the prediction that large budget deficits in a depressed economy wouldn't drive up interest rates, and the prediction that austerity in depressed economies would deepen their depression. How do you think that turned out?

The only real tests we've had of Keynesian economics were the prediction that large budget deficits in a depressed economy wouldn't drive up interest rates, and the prediction that austerity in depressed economies would deepen their depression. How do you think that turned out?
Stimulus Tales - NYTimes.com

Actual Class Warfare

With talk of class warfare in the air, it's perhaps useful for the sake of context to re-examine the 1929 platform of the Communist Party of Great Britain, titled "Class Against Class" and representing an avowedly class warfare approach to an economic crisis. Here's what they had to say on tax policy:

(1) Abolition of all indirect taxes.

(2) Exemption from all kinds of taxation for all wage-earners.

(3) Tax exemption for all working farmers.


From Actual Class Warfare


This is what real class warfare looks like. It isn’t pretty. And it is very different from the current GOP stance that if you want oil companies to pay tax rather than receive subsidies, it’s class warfare.

Republicans claim to be deeply worried by budget deficits. Indeed, Mr. Ryan has called the deficit an "existential threat" to America. Yet they are insisting that the wealthy - who presumably have as much of a stake as everyone else in the nation's future - should not be called upon to play any role in warding off that existential threat. Well, that amounts to a demand that a small number of very lucky people be exempted from the social contract that applies to everyone else. And that, in case you're wondering, is what real class warfare looks like.

Republicans claim to be deeply worried by budget deficits. Indeed, Mr. Ryan has called the deficit an "existential threat" to America. Yet they are insisting that the wealthy - who presumably have as much of a stake as everyone else in the nation's future - should not be called upon to play any role in warding off that existential threat. Well, that amounts to a demand that a small number of very lucky people be exempted from the social contract that applies to everyone else. And that, in case you're wondering, is what real class warfare looks like.
The Social Contract - NYTimes.com

Look at the IRS data on returns for the 400 highest incomes in America (pdf) - specifically, Table 43. If you look at the numbers since 2004, you'll see that in a typical year between 30 and 40 percent of those super-high-income players paid an average tax rate of less than 15 percent; most of them paid less than 20 percent. Bear in mind that for the very wealthy the payroll tax - the main burden on working-class Americans - is trivial, because of the cap on Social Security and the fact that it only applies to earned income. And what becomes clear is that the Obama/Buffet claim is absolutely, totally true.

Look at the IRS data on returns for the 400 highest incomes in America (pdf) - specifically, Table 43. If you look at the numbers since 2004, you'll see that in a typical year between 30 and 40 percent of those super-high-income players paid an average tax rate of less than 15 percent; most of them paid less than 20 percent. Bear in mind that for the very wealthy the payroll tax - the main burden on working-class Americans - is trivial, because of the cap on Social Security and the fact that it only applies to earned income. And what becomes clear is that the Obama/Buffet claim is absolutely, totally true.
Billionaires and Secretaries - NYTimes.com

On average, contractors may be billing the government approximately 1.83 times what the government pays federal employees to perform similar work. When the average annual contractor billing rates were compared with the average annual full compensation paid to private sector employees in the open market, POGO found that in all occupational classifications studied, the contractor billing rates were, on average, more than twice the costs incurred by private sector employers for the same services.

On average, contractors may be billing the government approximately 1.83 times what the government pays federal employees to perform similar work. When the average annual contractor billing rates were compared with the average annual full compensation paid to private sector employees in the open market, POGO found that in all occupational classifications studied, the contractor billing rates were, on average, more than twice the costs incurred by private sector employers for the same services.
Overpaid in D.C. | Mother Jones

These rogue traders are out there because their bosses don't want to know what they're doing. I never get a "rogue burrito" at Chipotle because the management wants people to get burritos that are rolled properly. But suppose the management wants people to obtain the kind of high returns that can only be achieved through unduly risky trades. Well, you can't very well issue a directive telling people to make unduly risky trades. You certainly can, however, create circumstances under which incentives, control, and supervision are structured so as to make it the case that "rogue traders" will pop up here and there and then there rogueishness can be blamed ex post for undertakings that go badly.

These rogue traders are out there because their bosses don't want to know what they're doing. I never get a "rogue burrito" at Chipotle because the management wants people to get burritos that are rolled properly. But suppose the management wants people to obtain the kind of high returns that can only be achieved through unduly risky trades. Well, you can't very well issue a directive telling people to make unduly risky trades. You certainly can, however, create circumstances under which incentives, control, and supervision are structured so as to make it the case that "rogue traders" will pop up here and there and then there rogueishness can be blamed ex post for undertakings that go badly.
ThinkProgress

When bitcoin collapses, it will prove Milton Friedman right once more

This kind of hoarding is made more likely by the way Bitcoin is set up. Whereas the supply of modern, “fiat” currencies is controlled by central banks, the supply of bitcoins is permanently limited; there will never be more than 21 million bitcoins in existence. (The total number of coins is a result of the system’s initial rules governing how many bitcoins miners could earn, and how often.) Bitcoin’s limited money supply is one of the things that people like about it: the currency cannot be debased, as money can when central bankers print more of it. But the flip side is that if the demand for bitcoins rises, for whatever reason, then the value of bitcoins will necessarily rise as well. So if you think that bitcoins are going to become more and more popular, then-again-it’s foolish to spend your bitcoins today. The rational thing to do is hoard them and eventually sell them to new users. But that means there will be fewer bitcoins in circulation (and more in people’s virtual wallets), making them less useful as an actual medium of exchange and making it less likely that businesses and consumers will ever see Bitcoin as legitimate.

From Cryptocurrency - Technology Review

When bitcoin collapses, it will prove Milton Friedman right once more.

The great delusion of the age is that society must be endlessly grateful to the wealthy. They owe nothing to society. Rather, society owes everything to them as "wealth generators" because society contributes nothing to their success. The mores and values that inform the rest of human interaction - reciprocity, proportional distribution of pain and reward, trust and social obligation - must be suspended for them. If we want to enjoy the benefits of a dynamic capitalism we must recognise that the rich are different - and not self-defeatingly tax them. American neo-conservatives and their Republican outriders have worked tirelessly for 50 years to promote this hocus pocus, which offends not only the first principles of humanity, but of what we know about capitalism.

The great delusion of the age is that society must be endlessly grateful to the wealthy. They owe nothing to society. Rather, society owes everything to them as “wealth generators” because society contributes nothing to their success. The mores and values that inform the rest of human interaction - reciprocity, proportional distribution of pain and reward, trust and social obligation - must be suspended for them. If we want to enjoy the benefits of a dynamic capitalism we must recognise that the rich are different - and not self-defeatingly tax them. American neo-conservatives and their Republican outriders have worked tirelessly for 50 years to promote this hocus pocus, which offends not only the first principles of humanity, but of what we know about capitalism.
Growth is about so much more than just the top rate of tax | Will Hutton | Comment is free | The Observer

The point is that the supply-siders were absolutely sure that his policies would produce disaster

It should go without saying that the supply-side idea—which is that tax cuts have such a positive effect on the economy that one need not worry about paying for them with spending cuts—does not persist because of any actual evidence in its favor. If you want, any nonpartisan economist can explain to you at length what really happened during the Reagan years, and why you can’t seriously claim his record as an advertisement for supply-side policies. But surely it is enough to look at the extraordinary recent record of the supply-siders as economic forecasters. In 1993, after the Clinton administration had pushed through an increase in taxes on upper-income families, the very same people who have persuaded Dole to run on a tax-cut platform were very sure about what would happen. Newt Gingrich confidently predicted a severe recession. Articles in Forbes magazine urged readers to get out of the stock market to avoid the inevitable crash. The Wall Street Journal editorial page had no doubts that the tax increase would sharply increase the deficit instead of reducing it. Well here we are, three years later: The economy has created 10 million new jobs, the market is up by 1500 points, and the deficit has been cut in half. I’m not saying that Clinton’s policies led to that result—they account for only part of the good news about the deficit, and hardly any of the rest. But the point is that the supply-siders were absolutely sure that his policies would produce disaster—and indeed, if their doctrine had any truth to it, they would have.

Supply-Side Virus Strikes Again - By Paul Krugman - Slate Magazine

15 Years later and the debate still rages on, facts be damned.

What's so striking about all this, from an economist's point of view, is the absence of anything that sounds like a model. It's all about virtue and vice, with just the assumption that virtue will be rewarded.

What's so striking about all this, from an economist's point of view, is the absence of anything that sounds like a model. It's all about virtue and vice, with just the assumption that virtue will be rewarded.

The Beatings Must Continue - NYTimes.com

The first rule of austerity club is…

Krugman being grouchy in the NYT

Zero job growth, with unemployment still at nosebleed levels. Meanwhile, the interest rate on 10-year US bonds is down to 2.04%, and it's negative on inflation-protected securities.

Aren't you glad we pivoted from jobs to deficits a year and a half ago?

Meanwhile, on the other side of the pond, Is austerity killing Europe's recovery?

After more than a year of aggressive budget cutting by European governments, an economic slowdown on the continent is confronting policymakers from Madrid to Frankfurt with an uncomfortable question: Have they been addressing the wrong problem?

Yah think?

Too bad there weren't any prominent economists warning that the obsession with short-term deficits was a terrible mistake, that austerity would undermine hopes of recovery. Oh, wait.


From Krugman being grouchy in the NYT


This is Krugman’s fault for spending all him time arguing for alien invasions and breaking windows rather than a fact based analysis of the economy to guide practical, implementable public policy. Oh, wait.

Looks like we had 17,000 thousand new private sector jobs in August, which were 100 percent offset by 17,000 lost jobs in the public sector. The striking zero result should galvanize minds, but it's worth noting that this has been the trend all year. The public sector has been steadily shrinking. According to the conservative theory of the economy, when the public sector shrinks that should super-charge the private sector. What's happened in the real world has been that public sector shrinkage has simply been paired with anemic private sector growth. This is what I've called "The Conservative Recovery." Conservatives complain about the results because the President is a Democrat named Barack Obama. But the policy result is what conservatives say they want. Steady cuts to the government sector, offset somewhat by private sector growth.

Looks like we had 17,000 thousand new private sector jobs in August, which were 100 percent offset by 17,000 lost jobs in the public sector.
The striking zero result should galvanize minds, but it's worth noting that this has been the trend all year. The public sector has been steadily shrinking. According to the conservative theory of the economy, when the public sector shrinks that should super-charge the private sector. What's happened in the real world has been that public sector shrinkage has simply been paired with anemic private sector growth. This is what I've called "The Conservative Recovery." Conservatives complain about the results because the President is a Democrat named Barack Obama. But the policy result is what conservatives say they want. Steady cuts to the government sector, offset somewhat by private sector growth.
The Conservative Recovery Teeters Into Recession | ThinkProgress

Euro-Babies on the Rise

European women are still waiting longer to have children, but they're having them at the same rate that they did a generation ago. In short, the initial period in the 1970s and 1980s when women waited to have children left a data set that might be more of a hiccup than a permanent population change.

The briefing is quick to knock down the theory that immigration is the primary driver of Europe's recovering fertility rates.

If we look at age-specific trends, we can see that the fertility decline at younger maternal ages has stabilized, while at later ages, fertility is increasing. Couples are having about the same number of children as couples 30 years ago, but at a later age.


From Freakonomics >> Don't Call it a Comeback: Euro-Babies on the Rise

Another western culture is doomed myth that should be seen as disproved which will likely become a zombie myth that plods on without evidence,

imagine a small country that never borrows money. Alongside funding its normal operations out of tax revenue, it sets a little bit aside each year in an investment fund looking forward to the time when there'll be enough money in the pot to build a giant monument to the country's founder. Then along comes a recession-unemployment rises and revenue plummets. Under the circumstances, deciding to skip a year or two of contributions to the Monument Fund in order to maintain regular levels of public services is the most intuitive thing in the world. What would sound strange would be the idea that economic growth could be maximized by reducing spending to cut the deficit in order to "restore confidence" by making full contributions to the Monument Fund. Who cares about the Monument Fund? Back to the actual situation, the basic logic of "deficit spend in a recession if you can get away with it" holds just as clearly whether you have a Monument Fund or a budget deficit.

imagine a small country that never borrows money. Alongside funding its normal operations out of tax revenue, it sets a little bit aside each year in an investment fund looking forward to the time when there'll be enough money in the pot to build a giant monument to the country's founder. Then along comes a recession-unemployment rises and revenue plummets. Under the circumstances, deciding to skip a year or two of contributions to the Monument Fund in order to maintain regular levels of public services is the most intuitive thing in the world. What would sound strange would be the idea that economic growth could be maximized by reducing spending to cut the deficit in order to "restore confidence" by making full contributions to the Monument Fund. Who cares about the Monument Fund?
Back to the actual situation, the basic logic of "deficit spend in a recession if you can get away with it" holds just as clearly whether you have a Monument Fund or a budget deficit.
—Keynes in one lesson. The Magic Of Zero | ThinkProgress

Calling Warren Buffett A Socialist Is Ludicrous

Of course, it was inevitable. As soon as Warren Buffett came out and publically said that the super-rich, like himself, should be taxed more, knee-jerk, reactionary right wingers were going to throw the "S" word at him.

It is a laughable notion - one of the most successful traders in history wants to march America towards communism. His critics seem to be completely thrown by the fact that Buffett, gasp, has a conscience.


From Forbes

Right-wing political correctness has taken the word socialist and turned it as a club to beat anyone who believes in progressive taxation, public goods or any regulation of externalities.

The Anti-Keynesian Two-Step

the way the dialogue works is that first a Keynesian observes that fiscal stimulus can increase growth in a depressed economy. Second, as an attempted reductio, a conservative says "if that was true, then you could increase growth by breaking a bunch of windows." Third, the Keynesian accurately points out that you could, in fact, increase growth by breaking windows. Fourth, the conservative accuses Keynesians of wanting to break windows or believing that window-breaking increases wealth. But nobody ever said that! The point is that we have very good reasons to think smashing windows would be a bad idea-there's more to life than full employment-and that's why Keynesians generally want to boost employment by having people do something useful like renovate schools or repair bridges.

From The Anti-Keynesian Two-Step

Nice summary of the argument.

the electronic devices that Heritage cites are everyday necessities today. Who has iceboxes anymore? Who doesn't need a cell phone to find a job or keep one? Fortunately, these appliances are all significantly cheaper these days, but not so the real everyday basics such as quality child care and out-of-pocket medical costs, both of which have risen much faster than inflation, squeezing the budgets of the poor and middle-class alike. In a nutshell, poverty today is about a lack of access to public goods, not consumer items.

Austerity and Social Protest

Expenditure cuts carry a significant risk of increasing the frequency of riots, anti-government demonstrations, general strikes, political assassinations, and attempts at revolutionary overthrow of the established order. While these are low- probability events in normal years, they become much more common as austerity measures are implemented

From Austerity and Social Protest

Amazing timing for the paper to be released.

Spain, which markets now posit has about a three-in-ten chance of default or restructuring, also had a AAA rating, which it maintained until January 2009. Today it still has a AA rating, one notch higher than Japan's.

Spain, which markets now posit has about a three-in-ten chance of default or restructuring, also had a AAA rating, which it maintained until January 2009. Today it still has a AA rating, one notch higher than Japan's.
Why S. & P.’s Ratings Are Substandard and Porous - NYTimes.com

Whether Republicans want to admit it or not, the economy is advancing exactly as they want it to. The private sector is being left to its own devices; the public sector is shedding jobs and scrapping investments; and the only permitted topic of conversation is about debt reduction.

Whether Republicans want to admit it or not, the economy is advancing exactly as they want it to. The private sector is being left to its own devices; the public sector is shedding jobs and scrapping investments; and the only permitted topic of conversation is about debt reduction.
The GOP Owns The Economy - The Dish | By Andrew Sullivan - The Daily Beast

The point here is not so much the $2 trillion, which makes very little difference to real US fiscal prospects; it's the fact that S&P stands revealed as not understanding basic analysis of budget estimates. I mean, I don't think I would have made that mistake; real budget experts, like the people at the Center on Budget and Policy Priorities, certainly wouldn't have. So what we just saw was amateur hour. And these people are pronouncing on US credit-worthiness?

The point here is not so much the $2 trillion, which makes very little difference to real US fiscal prospects; it's the fact that S&P stands revealed as not understanding basic analysis of budget estimates. I mean, I don't think I would have made that mistake; real budget experts, like the people at the Center on Budget and Policy Priorities, certainly wouldn't have.

So what we just saw was amateur hour. And these people are pronouncing on US credit-worthiness?

—Krugman on S&P
I Heard It Through The Baseline - NYTimes.com

S&P is raising our taxes with the new revenue being sent to China. Thanks Tea Party.

When do the Job Creators arrive?

Government was cut without raising taxes. Taxes are at a 50 year low. The size of local and state governments are rapidly dropping. Enforcement of regulations is reaching a record low. Regulatory costs are near a 50 year low. This is just about everything the GOP has wanted for 30 years now. So when do these mythical job creators arrive?

Putin says U.S. is parasite on global economy

Russian Prime Minister Vladimir Putin accused the United States Monday of living beyond its means “like a parasite” on the global economy and said dollar dominance was a threat to the financial markets.

From Putin says U.S. is parasite on global economy | Reuters

Putin is an awful proto-despot that is holding back both political and economic development in his country. But his comments on the dollar should be a warning. The way the Tea-Party wing of the GOP is acting, they are actively hurting the ability for the US economy to repair itself.

Basically the Republicans said we'll blow up the world economy unless you give us exactly what we want, and the President said OK. That's what happened... . We're having a debate in Washington which is all about, "we're going to make this economy worse, but are we going to make it worse on 90 percent of the Republican's terms or 10o percent of the Republican's terms?" And the answer is 100 percent.

Basically the Republicans said we’ll blow up the world economy unless you give us exactly what we want, and the President said OK. That’s what happened… . We’re having a debate in Washington which is all about, “we’re going to make this economy worse, but are we going to make it worse on 90 percent of the Republican's terms or 10o percent of the Republican's terms?” And the answer is 100 percent.
Krugman: America is heading for a “lost decade” - War Room - salon.com

The era of Keynesian fiscal policy is dead and may never have been alive in the first place. Yet economic success stories caused by adherence to policies that most observers would consider "Keynesian" still can be found - even in small Southern cities with Republican mayors.

The era of Keynesian fiscal policy is dead and may never have been alive in the first place. Yet economic success stories caused by adherence to policies that most observers would consider "Keynesian" still can be found - even in small Southern cities with Republican mayors.

Keynesian Economics Alive and Well in Greenville | ThinkProgress

If Keynesian policies don’t work, then why do they work?

As Chait says, the first thing you need to understand is that modern Republicans don't care about deficits. They only pretend to care when they believe that deficit hawkery can be used to dismantle social programs; as soon as the conversation turns to taxes, or anything else that would require them and their friends to make even the smallest sacrifice, deficits don't matter at all.

As Chait says, the first thing you need to understand is that modern Republicans don't care about deficits. They only pretend to care when they believe that deficit hawkery can be used to dismantle social programs; as soon as the conversation turns to taxes, or anything else that would require them and their friends to make even the smallest sacrifice, deficits don't matter at all.
Very Serious Suckers - NYTimes.com

The deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America's long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

The deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America's long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.
Paul Krugman - The President Surrenders on Debt Ceiling - NYTimes.com

Under President Bush's plan, an average family of four's inflation-adjusted disposable income would increase by $4,544 in fiscal year (FY) 2011, and the national debt would effectively be paid off by FY 2010.

Under President Bush's plan, an average family of four's inflation-adjusted disposable income would increase by $4,544 in fiscal year (FY) 2011, and the national debt would effectively be paid off by FY 2010.
The Economic Impact of President Bush's Tax Relief Plan - Heritage Foundation (via mikehudack)


It appears that a great deal of China's economic growth has been through the strategy of the government building massive cities and universities that there is no demand for. All of the materials and labor that goes into these massive projects improves GDP. Unfortunately, its led to an estimated 64 million empty apartment units in China that are too expensive for most Chinese families to afford (there is only a little over 30 million multi-unit housing units in the U.S.). Occupancy rates in these new cities are at less than 25%. And the 'world's largest shopping mall' is almost completely empty.

Our nation's economy and international reputation as the world's presiding grownup has already been badly damaged. It is a self-inflicted wound of monumental stupidity. I am usually willing to acknowledge that Democrats can be as silly, and hidebound, as Republicans-but not this time. There is zero equivalence here. The vast majority of Democrats have been more than reasonable, more than willing to accept cuts in some of their most valued programs.

Our nation's economy and international reputation as the world's presiding grownup has already been badly damaged. It is a self-inflicted wound of monumental stupidity. I am usually willing to acknowledge that Democrats can be as silly, and hidebound, as Republicans-but not this time. There is zero equivalence here. The vast majority of Democrats have been more than reasonable, more than willing to accept cuts in some of their most valued programs.
Joe Klein on The Nihilism Of The GOP - The Dish | By Andrew Sullivan - The Daily Beast

Lawyers, Coins, and Money

there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days.


From Lawyers, Coins, and Money - NYTimes.com

I hate the idea, but only slightly less than the idea of having to do this again in six months.

Conservative Origins of Obamacare

Romneycare, is a three-legged stool of regulation and subsidies: community rating requiring insurers to make the same policies available to everyone regardless of health status; an individual mandate, requiring everyone to purchase insurance, so that healthy people don't opt out; and subsidies to keep insurance affordable for those with lower incomes.

The original Heritage plan from 1989 had all these features.

These days, Heritage strives mightily to deny the obvious


From NYTimes.com

Heritage declares we have always been at war with Eastasia.

What Eurosclerosis? "More detailed analysis shows that the remaining gap comes from lower employment rates in Europe for the young and old; prime-age workers, especially men, are if anything more likely to be working in Europe. And you should note that this European performance comes despite the fact that tax levels and levels of social benefits are vastly higher than they are here. Any US politician proposing even a partial move in Europe's direction would be accused of being a job-killer. Somehow, though, the jobs survive." (via The End of Eurosclerosis - NYTimes.com)

I bet if they rename the Debt Ceiling the Debt Roof, more people would be in favor of raising it.

Somebody please explain to the GOP that a debt devaluation is functionally the same as a tax increase. And that a higher rate for debt will make it harder to balance the budget and pay down the debt. If the tranche of the debt made up of interest on prior debt goes up, both the budget and the debt will go up. This is that hard to understand.

Debt and Forgetfulness

Between 1993 and 2001, federal debt held by the public fell from 49.2 percent of GDP to 32.5 percent of GDP. What stopped the paydown of debt wasn't liberal big spending; it was demands from conservatives that the surplus be used to cut taxes. George Bush said that a surplus means that the government is collecting too much money; Alan Greenspan warned that we were paying off our debt too fast.

Oh, and I was very much against those tax cuts, arguing that we should pay down the debt to prepare for future needs. As a reward, I now get accused of inconsistency, for saying that deficits were bad under Bush but good now.


From Debt and Forgetfulness

What critics of Keynes don’t understand is that it isn’t about deficit spending. Ideally, it is about saving when times are good and spending when times are bad. Counter-cyclical spending to keep the highs from getting too high and the lows from being too low.

Ending Carbon Socialism

If you seriously believe in markets, you should believe that given the right incentives - namely, putting a price on emissions, through either a tax or a tradable permit scheme - the economy will find lots of ways to emit less. You should definitely not believe, as anti-environmentalists claim, that the result would be economic disaster.

The point is that renewable energy like wind and solar has not gone through a comparable process of improvement - yet - because the incentives haven't been there. But once we get to the point where a carbon price makes these commercially viable, there's every reason to expect huge improvement over time through, yes, the magic of the marketplace.


From Ending Carbon Socialism

I’ve been fond of calling the statis quo on energy policy Carbon Socialism.

The dangers of being wrong on Keynes

Keynes - and others who later elaborated on his work, like Hyman Minsky - taught us that although markets are usually self-correcting, they occasionally enter destructive feedback loops in which a shock to, say, the financial system scares business and consumers so badly that they hoard money, which worsens the damage to the system, which further persuades other economic players to hoard, and so on and so forth.

In that situation, the role of the government is to break the cycle. Because businesses and consumers have stopped spending, the government breaks the cycle by spending.


From The dangers of being wrong on Keynes - The Washington Post

Keynes in a nutshell.

we have turned good workers into criminals and turned criminals into bad workers

Jose Ranye, 37, bragged he's the best picker in Americus, the largest community near the farm. His whirling hands filled one bucket in 25 seconds. He said he dumped about 200 buckets of cucumbers before lunch, meaning he earned roughly $20 an hour. He expected to double his tickets before the end of the day.

None of the probationers could keep pace. Pay records showed the best filled only 134 buckets a day, and some as little as 20. They lingered at the water cooler behind the truck, sat on overturned red buckets for smoke breaks and stopped working to take cell phone calls.

In short, we have turned good workers into criminals and turned criminals into bad workers, losing on both ends of the deal. Incredible.


From The fruits of immigration


The disaster that is Georgia’s immigration laws. Can we reconsider guest worker visas now?

Suppose the government had two choices. It could either pay for infrastructure improvements as it went along out of tax revenue or it could borrow money build the infrastructure now and then repay the money with tax revenues. Ordinarily the question would be, does the advantage of building quickly outweigh the cost of the interest. However, right now the interest cost is negative. The government saves money by borrowing now rather than waiting and paying cash. ThinkProgress

Two explanations of why several countries with high taxes seem able to enjoy above average growth: (i) that countries with higher social trust levels are able to develop larger government sectors without harming the economy, and (ii) that countries with large governments compensate for high taxes and spending by implementing market-friendly policies in other areas. Both explanations are supported by current research.

Two explanations of why several countries with high taxes seem able to enjoy above average growth: (i) that countries with higher social trust levels are able to develop larger government sectors without harming the economy, and (ii) that countries with large governments compensate for high taxes and spending by implementing market-friendly policies in other areas. Both explanations are supported by current research.
Government size and economic growth - Marginal Revolution

Hedge Fund Hippies

Mr. Biggs, former chief global strategist for U.S. investment banking powerhouse Morgan Stanley, demanded the U.S. government temporarily return to ideas used in the Great Depression as a way to get the country back to higher growth.

"What the U.S. really needs is a massive infrastructure program ... similar to the WPA back in the 1930s," he says.

The plan would be to employ some of the many unemployed people, jump start the economy, as well as help catch up with Asia, which is building state-of-the-art infrastructure from new mechanized port facilities to high-speed trains.

He suggested financing such building through the sale of U.S. Treasuries.


From Hedge Fund Hippies


Must be one of those left-wing commie-pinko hedge fund traders.

(via Yet Another Conservative Economist Thinks Barack Obama Can Travel Through Time | ThinkProgress) Business investment started trending toward way back in 2006 and did the bulk of its plunging in 2008. It also seems to me that George W Bush was president at this time. Soon after Barack Obama took office, investment bottomed-out and began to rebound. Neither Obama's rhetoric nor his policies can possibly be responsible for the Obama-era drop in investment for the simple reason that no such drop occurred.

Get Back To Reality!

Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, “they will come.” It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It’s difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate.

From Get Back To Reality!

So is this Noam Chomsky or Bill Gross of PIMCO talking?

A Hamiltonian Solution For Europe

It would start with the recognition that Greece is insolvent. It can't pay the money it owes. One or two or maybe three other countries also may be insolvent. And the existence of solvency problems in some states is creating liquidity problems for other larger states. So there's some insolvency, and even though the insolvency is concentrated in a relatively small number of small states it's a problem for a much broader set of European people. At the same time, if you look at the total amount of sovereign debt in Europe and compare it to the Eurozone's total fiscal capacity, the debt is very manageable. The Eurozone as a whole is a very solvent, creditworthy entity. So in principle you could consolidate all that outstanding European debt into a single Eurozone-wide debt financed by a modest European Solidarity VAT Surcharge. Then you'd have to severely curtail (if not eliminate) the EU member states' ability to engage in deficit spending, limiting them to some kind of authority to borrow from a central European entity. The EU itself would become a debt-issuing, taxing entity like a real country.

From A Hamiltonian Solution For Europe


Yglesias comparison of the current European Union and the US under the Articles of Confederation is flawed but not without merit.

Future of jobs in a world filled with automation and robots

Future of jobs in a world filled with automation and robots

mikehudack:

Roboticist Hans Moravec predicts that by 2020, robots will simulate the intelligence of a monkey. That may not seem smart, but with adequate software, it will be intelligent enough to perform most of today's jobs. And here's the "killer-ap" - future 'bots can build labor-free copies of themselves increasing their numbers exponentially. By mid-2020s, some predict, humanoids could outnumber people.

One day one person will control all the robots and no human will have a job. What will we do then?

If robots can create robots, the supply should be large enough that the cost for a robot is rather minimal. Near infinite labor means the costs to mine garbage dumps for materials becomes doable. So is clearing brown fields of hazardous material. Even building a canal across Arizona. So what can you call a world that has access to near infinite labor other than Utopia?

Thoughts on Voodoo

In short, there's a very good case to be made that austerity now isn't just a bad idea because of its impact on the economy and the unemployed; it may well fail even at the task of helping the budget balance.

It's important to realize that I'm not saying that government spending always pays for itself, and that saving money is always counterproductive. These kinds of effects are specific to a liquidity trap situation. But that's the situation we're in.


From NYT

More detail in the article.

Bush tax cuts 10th anniversary: They've been a failure in every conceivable way.

The massive Bush tax cuts mark their 10th birthday this week. Sadly, despite my best efforts to find something redeeming about them-honest!-there is little to celebrate. By nearly all of the metrics set out by President Bush himself, the cuts were a colossal failure.

From Bush tax cuts 10th anniversary: They’ve been a failure in every conceivable way.

So no one would be crazy enough to suggest even more tax cuts, right?

Higher Inflation Would Slow U.S.-China Currency Adjustment | ThinkProgress

Kindred Winecoff introduces the excellent point that the fact that the U.S. is experiencing an inflation rate that's lower than China's means that the real exchange rate is adjusting faster than the nominal rate. Consequently, "[t]o the extent that we want to boost employment through exporting, increased inflation could prolong that process."

Or to look at it another way, our inability to get China to allow for more rapid appreciation of the Yuan is arguably pressing us toward a lower-than-ideal inflation rate.


From Higher Inflation Would Slow U.S.-China Currency Adjustment | ThinkProgress

Good point.

Lysenkoism as economic policy in the Diamond nomination

I think the rejection of a Nobel laureate for a seat at the Fed is tied, in a fundamental way, to the willingness of economists with decent professional reputations to sign on to the increasingly crazy proclamations issued by Republican politicians. Whether they are honest with themselves or not, what they've realized is that they face a loyalty test - or maybe that's an apparatchik test; if they have any ambitions of serving in a policy position, they have to prove themselves willing to follow the party line wherever it goes.

From Everything Is Political

Lysenkoism as economic policy.

The Rentier Regime

What explains this opposition to any and all attempts to mitigate the economic disaster? I can think of a number of causes, but Kuttner makes a very good point: everything we're seeing makes sense if you think of the right as representing the interests of rentiers, of creditors who have claims from the past - bonds, loans, cash - as opposed to people actually trying to make a living through producing stuff. Deflation is hell for workers and business owners, but it's heaven for creditors.


From NYT

Borders on conspiracy theory but interesting point.

LAST October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve - at least according to the Republican senators who have blocked my nomination. How can this be?

LAST October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve - at least according to the Republican senators who have blocked my nomination. How can this be?
—Peter A Diamond When a Nobel Prize Isn't Enough - NYTimes.com

Six plans to balance the budget

Policy teams from the six groups taking part in the Solutions Initiative-the American Enterprise Institute, the Bipartisan Policy Center, the Center for American Progress, the Economic Policy Institute, The Heritage Foundation, and the Roosevelt Institute Campus Network (representing the perspective of younger Americans)-all provided comprehensive plans to meet the budget challenge head on. The goal is sound fiscal policy over the long run, so that we put in place structural reforms that will resolve these problems for a generation or more.

The six plans contain specific policy recommendations, reflecting the groups' unique perspectives and priorities, and look out 10 and 25 years into the future. To make the plans more easily comparable, we asked that they be developed from a common starting point based upon the Congressional Budget Office's long-term projections. We also asked the Tax Policy Center and Barry Anderson (former acting director at CBO) to serve as independent scorekeepers, reviewing the plans and applying consistent analytical techniques to all of the proposals. The end result is an apples-to-apples comparison of spending, taxes, deficits, and debt that illustrates the impact and interaction of various policy choices made by the grantees.

From Six plans to balance the budget

pretty much covers the spectrum from Center-Left to Center-Right to Right-out-of-their-minds-at-Heritage.

The Ongoing Conservative Recovery

Over the past year, we've consistently seen the economy engage in so-so private sector job growth offset by job losses in the public sector. The results are, if you ask me, bad. But in a decent world, conservatives would be forced to acknowledge that these are the results they claim to want. The private sector's not being held back by the grasping arm of big government. Government is shrinking. And the shrinking of the government sector isn't leading to any kind of private sector explosion. It's simply offsetting meager private sector growth.

From The Ongoing Conservative Recovery


This is assuming that conservatives want that because they think that it is good economics policy. I think its much more likely that they want those results irregardless of the economic consequences. They want to shrink government to shrink government.

Gold is not an investment, it's a speculation

Investments are made by evaluating underlying value. Speculative bets are made by looking at the price of something and simply hoping the price goes up. Investing is about value; gambling is about price.

Gold has no real underlying value. I know there is a market for it. I know it is real, just like real estate was real in 2007.

But what is the value of a bar of gold?

It has no value except the one assigned by a herd of speculators. This is true for most commodities. They don't actually produce anything. They are raw material. No value. No dividend. No cash flow.


From NYT

When you’re on the same side as Beck and TV pitchmen and there is GS and Soros on the other side of the bet, you are the dumb money.

The stock market is controlled by algorithms that are fighting with each other

In the London Review of Books, Donald MacKenzie has a fascinating article that introduces us to the trading algorithms that control how trading takes place in global markets. The thing that’s really interesting is that these algorithms are starting to feed on each other, sniffing out each others intentions and trying to trick each other into making buys or sells that are favorable to the companies that unleashed the algorithms in the first place. Are we heading to a point where our economy is in the hands of bots?


From The stock market is controlled by algorithms that are fighting with each other - io9


This reminds me of Core Wars

Robots and Utopia

if robots are able to drastically eliminate the need to pay human beings to provide physical goods and services, then there'll be plenty of people with plenty of time and their hands to create cultural goods for free.

We're talking about a future in which there's neither a shortage of goods nor a shortage of people. We're talking, in other words, about utopia. For whatever reason, optimism is coded as a rightwing attitude in the contemporary United States, but people with their origins on the right ought to recognize these trends as the abundance of goods that makes it both possible and necessary to transcend capitalism and move to a world of from each according to his abilities to each according to his needs. Market exchange is a response to scarcity, and in many domains we're moving past scarcity.

From Robots and Utopia

SciFi fantasies aside, there will still be some shortages in some types of goods. Likely goods that we can’t yet imagine.

The Conservative Recovery Continues

this is the recovery conservatives say they want. The balance of economic activity is shifting away from the public sector and toward the private sector. So why is it that we have people running around the country-not just ignorant grassroots folks or talk show entrepreneurs, but billionaire political organizers like David Koch-screaming about incipient socialism?

From The Conservative Recovery Continues


I think this has something to do with the odd definitions of socialism that are taking hold on the right. It’s no longer about state ownership of the means of production. Now the acknowledgement of the existence of public goods or any form of social insurance is declared socialism.

Who Benefits From Bubbles?

in several years during the last decade the top 400 accounted for more than 10 percent of all capital gains income in America. Just 400 people!

Conservatives often try to sell the notion that reducing the capital gains tax is about helping small business people. But you really want to think of the fact that a significant chunk of that tax break is going to just 400 people.


From Who Benefits From Bubbles?

Interesting factoid. Turns out that hypothetical question has an answer.

The Economics of Death Star Planet Destruction

What's the economic calculus behind the Empire's tactic of A) building a Death Star, B) intimidating planets into submission with the threat of destruction, and C) actually carrying through with said destruction if the planet doesn't comply?

Doesn't the Empire take a huge economic loss from the lost productivity of an entire planet? They were presumably paying taxes and providing resources to the rest of the Empire. Presumably the loss of that planet's output would have to be made up by increased output from other planets that were either slacking in productivity due to rebellion or threatening to rebel and withdraw from the Empire altogether.


From The Economics of Death Star Planet Destruction


I’m convinced.

This Generation's Low-Hanging Fruit

Timothy B Lee challenges Tyler Cowen’s thesis. Lee argues that we are not in the middle of an economic stagnation but that we’ve gotten worse at measuring progress:

Every time the software industry displaces a special purpose device, our standard of living improves but measured GDP falls. If what you care about is government revenue, this point might not matter much-it's hard to tax something if no one's paying for it. But the real lesson here may not be that the American economy is stagnating, but rather that the government is bad at measuring improvements in our standard of living that come from the software industry.

From This Generation's Low-Hanging Fruit

One problem I see with this is that it should free up resources for other goods and services. Maybe I’m missing something, but that should show up in our conventional metrics.

An Insurance Company With An Army

When you talk about federal spending, you're overwhelmingly talking about Social Security, Medicare, Medicaid, and defense. And the bulk of the insurance - all of Social Security and Medicare, about 2/3 of Medicaid - is for the elderly and disabled.

Put it this way: Whenever someone talks about making government smaller, he should be asked which of these big four he proposes cutting, and how. If he responds with generalities, he's faking it.


From An Insurance Company With An Army


Calling it as it is.

European and US Employment

Lots of people have an image of Europe as an economic pit of doom, with millions of prime-age workers sitting idle thanks to the welfare state. And there was some truth to that image 15 years ago. But things got better over there even as they got worse here: Even before the Great Recession struck, people in the prime of life were equally likely to be employed on either side of the Atlantic, and at this point Europe has a better prime-age employment situation than we do.


From European and US Employment - NYTimes.com

Reducing Health Costs With Voluntary Death Panels

If you're 77 years old and receive a medical diagnosis that implies you have eighteen months to live without treatment, the government will spend large sums of money on trying to extent your life twelve months further. The government won't pay for you to take a trip to visit the Church of the Nativity in the West Bank or to see Michelangelo's David in Florence. But would it be so crazy for a fatally ill 77 year-old art lover who's never been to Italy to prefer the chance to see her favorite artists' iconic works in person over the chance of receiving extra medical care? I don't think so. The point of our retirement programs should be to deliver high quality of life to senior citizens, and that militates at the margin for more Social Security rather than more Medicare. But the way our programs are set up, per retiree Medicare spending will grow much more rapidly than per retiree Social Security spending. That's not the most cost-effective way to deliver high-quality retirement to people.


From Yglesias


A point often lost in the argument about health care spending.

Productivity Only Causes Persistent Unemployment If Policymakers Fail To Provide Adequate Demand

the point is that when you take the long view it's not as if steadily increasing productivity leads to steadily declining employment-what it leads to is higher average output and rising living standards. But it only accomplishes that if the policymakers charged with macroeconomic stabilization use fiscal and monetary policy to ensure that there's a level of aggregate demand that's commensurate with our productive capacity. The fact that we have over 9 percent of the workforce unemployed indicates that they're failing. But this is the fault of the US Congress and the Federal Reserve Open Market Committee (and the European Central Bank, and Angela Merkel, and the Bank of Japan, etc.) not Steve Jobs.


From Yglesias


Yglesias explains Eco-101

Ikea's Third World outsourcing adventure -- in the U.S. - How the World Works - salon.com

Ikea seems to be treating its American workers at a furniture plant in Danville, Virginia a good deal worse than it does its Swedish workers back at home. The workers are trying to unionize; in response Ikea has hired the famous union-busting-specializing law firm Jackson-Lewis. Nothing particularly out of the ordinary for American labor relations in the 21st century, but in Sweden, eyebrows are being raised.

From How the World Works - salon.com

This is what the GOP wants. To turn America into a 3rd world nation that competes not on value-add but on low wages and low taxes. Expect to see more of this.

So, When Do the Confidence Fairies Arrive? << Rortybo mb

Image giving an economics undergraduate the following question: "Unemployment is high. Inflation is low. Borrowing costs are cheap. What should the government do?" and they responded "cut the short-term deficit immediately to show strength!" You'd have to give them a bad grade, right? But that's what our government, Democrats and Republicans, are doing.

But there's a theory that by cutting $39 billion from the government over the weekend and by Obama's signaling that he is transitioning to tackling the long-term debt he will unleash the confidence of the private market.


From So, When Do the Confidence Fairies Arrive? << Rortybomb


Good explanation on why short term cuts are not going to help much.

A very large share of the public has no income that hasn't already been reported to the IRS by the payer and doesn't itemize deductions. Under the circumstances, the sensible thing would be for the IRS to send everyone a sheet of paper that says "based on the income that's been reported to us and your family status from last year, your taxes owed (or refund owed to you) is $X with standard deductions. If something's changed, or if that income number is wrong, or if you want to itemize deductions, you should fill out forms blah blah blah. Otherwise, just send a check." A lot of us would still need to wrestle with the forms and nobody likes to give up money, but this would be much more convenient for millions of people. We don't do it because H&R Block and TurboTax don't want to lose customers and, crucially, because the conservative movement wants taxes for ordinary people to be as annoying as possible. Rich people don't care about this kind of simplification because they itemize their deductions and hire accountants. But they benefit from middle class people resenting the tax process because it helps them build the case for low tax rates.

A very large share of the public has no income that hasn't already been reported to the IRS by the payer and doesn't itemize deductions. Under the circumstances, the sensible thing would be for the IRS to send everyone a sheet of paper that says "based on the income that's been reported to us and your family status from last year, your taxes owed (or refund owed to you) is $X with standard deductions. If something's changed, or if that income number is wrong, or if you want to itemize deductions, you should fill out forms blah blah blah. Otherwise, just send a check." A lot of us would still need to wrestle with the forms and nobody likes to give up money, but this would be much more convenient for millions of people. We don't do it because H&R Block and TurboTax don't want to lose customers and, crucially, because the conservative movement wants taxes for ordinary people to be as annoying as possible. Rich people don't care about this kind of simplification because they itemize their deductions and hire accountants. But they benefit from middle class people resenting the tax process because it helps them build the case for low tax rates.
Yglesias >> Why Taxes Are Annoying

Barber Licensing Rules Harm Prisoner Re-entry

Nobody comes out and says "I want to establish an occupational licensing regime for my profession in order to create an arbitrary barrier to entry" but the system works, in practice, to create arbitrary barriers to entry. Consequently, there's a need to find barriers that don't seem totally arbitrary,

From Barber Licensing Rules Harm Prisoner Re-entry

Why is the talk of deregulation always about banks and mineral extraction and never about main street?

Ryan and Taxes

The Ryan plan calls for cutting the top marginal rate to 25 percent - lower than it has been at any time in the past 80 years. That in itself should tell you that this is a deeply unserious proposal: anyone who tells you that we have to face hard truths, that everyone must sacrifice, and by the way, rich people will pay lower taxes than they have at any time since the 1930s, is just engaged in a power grab.

From Ryan and Taxes

The Ryan plan should not be viewed as a budget. It should be looked at as a statement of ideological principals. If it were really serious about the budget, it would trim the military budget and corporate subsidies.

Why is Paul Ryan's Budget Trying to Dismantle Financial Reform?

The budget Paul Ryan released yesterday has huge cuts that are likely to fall on the poorest Americans while offering all kinds of bonuses to the top 1%. Others will be talking about how it eliminates Medicare and Medicaid. I want to talk about how it dismantles one of the few regulations put on Wall Street post-crisis.


From Why is Paul Ryan's Budget Trying to Dismantle Financial Reform? << Rortybomb


A must read article

Empty Chinese Houses

According to Hong Kong-based real estate analyst Gillem Tulloch, who is interviewed in the piece, the housing units are priced well above what an average Chinese person can afford. The result, he says, is a housing bubble that is terrifying in size, "a property bubble like which I don't think we've ever seen," he says. "It will make the United States pale in comparison. It's said that there's around 64 million empty apartments.... It's essentially the modern equivalent of building pyramids. It doesn't add to the betterment of people's lives, all it does is it promotes GDP."


From Empty Chinese Houses


Uh-no. Not again.

18 Percent of Homes in Florida are Vacant

On Thursday, the Census Bureau revealed that 18% — or 1.6 million — of the Sunshine State’s homes are sitting vacant. That’s a rise of more than 63% over the past 10 years.

The vacancy problem is more dire in Florida than in any other bubble market: In California, only 8% of units were vacant, while Nevada, the state with the nation’s highest foreclosure rate, had about 14% sitting empty. Arizona had a vacancy rate of about 16%.

From Florida: 18 Percent of Homes are Vacant

Amazing.

The economic beatings will continue until economic morale improves

The GOP prescription for higher employment is actually quite spectacular - it's a thing of many levels, an ignorance wrapped in a fallacy.

The idea is this: we'll lay off government workers; this will raise unemployment, putting downward pressure on wages; and lower wages will lead to higher employment.

So, for this to work you first have to have a downward-sloping demand for labor as a function of the nominal wage rate. There's no reason to believe that's the case: in a liquidity trap, falling wages probably reduce the demand for labor, because they worsen the burden of debt.

And even if you somehow bypass this objection, the argument is still nonsense: it says that by reducing demand, you cut the price, which increases demand, which means that you end up selling more than before. Um, no - that's the kind of answer that, in Econ 101, has you suggesting that the student get special tutoring.


From Worse Is Better


The economic beatings will continue until economic morale improves.

Donald Trump: Let's Tax the Rich to Pay the National Debt | Crooks and Liars

Trump, a prospective candidate for the Reform Party presidential nomination, is proposing a onetime net worth tax on individuals and trusts worth 10 million or more. By Trumps calculations, his proposed 14.25 percent levy on such net worth would raise 5.7 trillion and wipe out the debt in one full swoop.

"No one has put forward a plan to make this country entirely debt free as we enter the next millenium," Trump said in a written statement.

"The plan I am proposing today does not involve smoke and mirrors, phony numbers, financial gimmicks, or the usual economic chicanery you usually find in DisneylandonthePotomac," Trump said.

"By my calculations, 1 percent of Americans, who control 90 percent of the wealth in this country, would be affected by my plan,” Trump said.

"The other 99 percent of the people would get deep reductions in their federal income taxes," he said.

From Crooks and Liars

I liked this idea at the time but I’m sure it wouldn’t work as well as one might hope. Taking 5.7 trillion in debt off the market would be chaotic to say the least.

The Austerity Delusion

Portugal's government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.

What do these events have in common? They're all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.


From The Austerity Delusion


This would be a case against austerity measures if those advocating austerity were interested in fact based policy arguments.

The FED has a blog

The New York Fed’s Liberty Street Economics blog provides commentary on current economic topics relating to monetary policy, macroeconomic developments, financial stability issues, and regional trends in the Second Federal Reserve District.

From Liberty Street Economics

The FED has a blog. I’m giving it a week before the place is overrun by angry gold-bugs and the tinfoil hat club.

Economics as a Science: A Bad Example

Yes, the old Keynesian Phillips curve was abandoned in the face of evidence. But while real business cycle theory has indeed been "invalidated by reality", as far as I can tell it's still going strong in freshwater departments.

The point is that while economics certainly did have some of the characteristics of a science three decades ago, you can make a good case that significant parts of the field have lost those characteristics since then.


From Economics as a Science: A Bad Example - NYTimes.com


That’s the problem with faith based science. When invalidated by reality, they simply declare reality broken or the methodology used to invalidate tainted by socialists.

The complaint alleges that a Georgia-Pacific paper mill on the Coffee Creek in Arkansas - owned by the billionaire Koch Brothers -emits 45 million gallons of paper mill waste including hazardous materials like ammonia, chloride, and mercury each day. Coffee Creek then flows into Louisiana's Ouachita River where the pollutants have left the formerly pristine water speckled with odorous foam, slime and black pockets of water, said Jerry Johnson, who has been visiting the Ouachita River for 35 years. "People used to swim in it," said Johnson, who now lives along the river. "In the summertime, it was the place to go."

The complaint alleges that a Georgia-Pacific paper mill on the Coffee Creek in Arkansas - owned by the billionaire Koch Brothers -emits 45 million gallons of paper mill waste including hazardous materials like ammonia, chloride, and mercury each day.

Coffee Creek then flows into Louisiana's Ouachita River where the pollutants have left the formerly pristine water speckled with odorous foam, slime and black pockets of water, said Jerry Johnson, who has been visiting the Ouachita River for 35 years.

"People used to swim in it," said Johnson, who now lives along the river. "In the summertime, it was the place to go."

Property Rights And the Kochs

The Rationing Switcheroo

reformers argue that Medicare needs to make choices about what it will pay for; people like Huckabee then scream that the government is going to tell people that they can't get medical care it disapproves of.

But nobody is proposing that the government deny you the right to have whatever medical care you want at your own expense. We're only talking about what medical care will be paid for by the government. And right-wingers, of all people, shouldn't believe that everyone has the right to have whatever they want, at taxpayers' expense.

From NYTimes.com

Krugman on the cynical death panel arguments.

A great paradox of our age is that despite the declining cost of connecting across space, more people are clustering together in cities. The explanation of that strange fact is that globalization and technological change have increased the returns on being smart, and humans get smart by being around other smart people. Dense, smart cities like Seattle succeed by attracting smart people who educate and employ one another.

A great paradox of our age is that despite the declining cost of connecting across space, more people are clustering together in cities. The explanation of that strange fact is that globalization and technological change have increased the returns on being smart, and humans get smart by being around other smart people. Dense, smart cities like Seattle succeed by attracting smart people who educate and employ one another.
The Seattle Model

I RECEIVED an email from The Economist's editor in London referring to Tyler Cowen's book yesterday afternoon. I went to Amazon, downloaded the book to my iPad, and read it...all in the space of an hour and a half. I then composed this note and sent it to London-19 hours after receiving the first email. I have every reason to believe that this note will appear on economist.com a few hours after it is received. None of this would have been possible 30 years ago. It is therefore particularly ironic that a major theme of the book is about how technological progress has stalled in the last 30 years.

I RECEIVED an email from The Economist’s editor in London referring to Tyler Cowen’s book yesterday afternoon. I went to Amazon, downloaded the book to my iPad, and read it…all in the space of an hour and a half. I then composed this note and sent it to London-19 hours after receiving the first email. I have every reason to believe that this note will appear on economist.com a few hours after it is received. None of this would have been possible 30 years ago. It is therefore particularly ironic that a major theme of the book is about how technological progress has stalled in the last 30 years.
A “Great Stagnation”?—NOT!!

Collective bargaining for me, but not for thee

This brings to mind the phenomenon that's sort of the obverse of union decline-the extraordinary level of solidarity manifested by the corporate executive class in the United States of America. There are plenty of individual firms that benefit from this or that public sector spending stream, but essentially all business organizations are solidly united in opposition to essentially all possible ways to enhance government revenue. On financial reform, it's not merely that the big banks opposed the Dodd-Frank bill, but there was absolutely no counter-lobbying from firms in the non-financial economy in favor of it. And that's not to say that Dodd-Frank was the greatest thing since sliced brad, but there were no proposals coming out of corporate America for any financial regulatory overhaul of any kind. Yet clearly something went badly awry in 2007-2008. But the business class united behind TARP, then united to oppose any regulatory reforms, and is now united against any return to pre-Bush levels of taxation on rich people.


From Collective bargaining for me, but not for thee


Collective bargaining works, that’s why they want to stop it.

the signature initiatives of Republican presidents - the Reagan tax cut, the Bush tax cut, the Medicare drug benefit - have all been unfunded deficit-raisers; the signature initiatives of Democratic presidents - the Clinton tax hike, Obamacare - have all been deficit-reducing. (Yes, the stimulus - but that was intended to be temporary, and has in fact proved too temporary; and Bush I's tax increase was an exception, but the GOP has made it clear that nothing like that will ever happen again.)

the signature initiatives of Republican presidents - the Reagan tax cut, the Bush tax cut, the Medicare drug benefit - have all been unfunded deficit-raisers; the signature initiatives of Democratic presidents - the Clinton tax hike, Obamacare - have all been deficit-reducing. (Yes, the stimulus - but that was intended to be temporary, and has in fact proved too temporary; and Bush I's tax increase was an exception, but the GOP has made it clear that nothing like that will ever happen again.)
Turning a Blind Eye to the Obvious - NYTimes.com

The Kochs and the Commons

Suppose I had a business where what I do is find people who live in flood prone areas and threaten to wreck their houses unless they pay me money. That would be called an extortion racket, not capitalism. I don't own those people's houses. Real capitalism requires the government to restrain me from knocking the houses down. Similarly, I can't just stand in the middle of a busy intersection, cause a traffic jam, and then shout "free market" when the cops try to take me away. After all, I don't own the intersection any more than I own your house. So what about Koch Industries and its substantial fossil fuel interests. Do they own the air? Do they own the homes of people in flood-prone areas? To the best of my knowledge, that's not the case. Charles Koch no more owns the air than I own his house or the interstate highway system. So why is "Koch Industries is allowed to spew whatever it wants into the air" considered a free market position? In part, it's a misunderstanding. But to a much larger extent it's a branding triumph. The basic point about pollution and regulation was understood by classical economists and political theorists, was understood by Hayek, is understood by right-of-center politicians in Europe, etc. But in America, things are different, and that's in large part a triumph of some very self-interested philanthropy.

From The Kochs and the Commons

Listening to the Kochs complain about crony capitalism is like listening to someone eating a free lunch complain about the food being awful and the portions too small.

The Kochs will happily put their money behind candidates who agree with their economic agenda but disagree with their social agenda. They will never put their money behind candidates of whom the reverse is true.

The Kochs will happily put their money behind candidates who agree with their economic agenda but disagree with their social agenda. They will never put their money behind candidates of whom the reverse is true.
The Rest Of The Libertarian Agenda

There's a difference, after all, between how generous a program is and how expensive it is. One program might hand out money to poor people. Another program might hand out money to poor people if and only if they pass regular drug tests and criminal background checks. The latter will likely be more expensive, since it's harder to administer, but the former seems more generous by any reasonable standard. Unions have reasons to lobby for generous, efficient programs Unions and Social Welfare Spending

We're actually purchasing shockingly little in the way of improved health for all that money

Americans are getting richer, agriculture is becoming more efficient, apparel is increasingly made by Bangladeshis or robots, etc. At the same time, computers and other electronic gadgets are getting cheaper in real terms. And if some things shrink as a share of our income, other things need to grow. The biggest of those things has been health care. And that makes perfect sense. Richer people should be spending our money trying to be healthier. The problem we have isn't so much that the volume of health related spending is "too high" as it is that we're actually purchasing shockingly little in the way of improved health for all that money.


From Something's Got to Go Up


Looking at the numbers, it makes sense that where our money goes should shift as markets mature.

Making Things

As we're able to produce more material goods with fewer people, that ought to lead not only to more chefs and yoga instructors and private security guards but also more preschool teachers and cops and home health aides. There's an argument out there that "we can't afford" the larger public sector that's currently projected for the future. But we can afford it, and the fact that in the future we won't need as many manufacturing workers to have all the manufactured goods we need is a big part of the reason.

From Making Things


The problem is that there a gap between what we can afford and what people will pay for. We’ve had 30 years of government on credit. Asking people to now pay for the services they use is a shock now. How else can you explain the contrast between people voting for people who promise to cut government and people being aghast when those same people want to cut services.

Monopoly, Milton Friedman's Way

Mr. Zelenty owned the greatest of treasures any of us could imagine because it combined those two passions. He had asked Mr. Friedman to sign his Monopoly board at one of those sherry hours. The Nobel laureate did so, writing, "Down with" above the game's name. We didn't play on that board. No one ever played on that board.


From Monopoly, Milton Friedman's Way - NYTimes.com


Simulated housing bubble in a game of Monopoly.

Progressives don't need to indulge the premises of this "welfare state for me but not for thee" brand of conservatism that's taken over the country.

I don't think we should cut Social Security benefits. But if we are going to cut Social Security benefits, I think it doesn't make sense to do what the Obama administration has done and make "No current beneficiaries should see their basic benefits reduced" one of the bargaining points.

In essence, by first separating the domestic budget into "discretionary" and "entitlement" portions and then dividing the entitlement programs up into "what today's old people get" versus "what tomorrow's old people will get" the political class has created a large and vociferously right-wing class of people who are completely immune from the impact of their own calls for fiscal austerity. In my view, that reality is the biggest driver of our current political dysfunction.

Progressives don't need to indulge the premises of this "welfare state for me but not for thee" brand of conservatism that's taken over the country.

Yglesias >> Lucky Duckies

Structural Unemployment Myths: Construction, Moving, Mancessions

My other favorite pernicious myth of this recession is the story of the Mancession. This hit the high moment with Hannah Rosin's article The End of Men in The Atlantic. This is the idea is that male employment has suffered in this recession, and the workforce has been overtaken by women because of the possibility that "postindustrial society is simply better suited to women."


From Structural Unemployment Myths: Construction, Moving, Mancessions


Rortybomb on Structural Unemployment Myths. Wonky, but an easier read than you might think.

Imagine people's height being proportional to their income, so that someone with an average income is of average height. Now imagine that the entire adult population of America is walking past you in a single hour, in ascending order of income. The first passers-by, the owners of loss-making businesses, are invisible: their heads are below ground. Then come the jobless and the working poor, who are midgets. After half an hour the strollers are still only waist-high, since America's median income is only half the mean. It takes nearly 45 minutes before normal-sized people appear. But then, in the final minutes, giants thunder by. With six minutes to go they are 12 feet tall. When the 400 highest earners walk by, right at the end, each is more than two miles tall.

Imagine people’s height being proportional to their income, so that someone with an average income is of average height. Now imagine that the entire adult population of America is walking past you in a single hour, in ascending order of income.

The first passers-by, the owners of loss-making businesses, are invisible: their heads are below ground. Then come the jobless and the working poor, who are midgets. After half an hour the strollers are still only waist-high, since America’s median income is only half the mean. It takes nearly 45 minutes before normal-sized people appear. But then, in the final minutes, giants thunder by. With six minutes to go they are 12 feet tall. When the 400 highest earners walk by, right at the end, each is more than two miles tall.

Picturing economic inequality

The Great British Austerity Experiment

The takeaway lesson should be “austerity does not work; don’t go there.” Unfortunately, in the land of faith-based economics, evidence does not count for much. The UK may pursue a disastrous austerity path and those of us in the United States may still have to follow the same road anyhow. But we opponents of that course all appreciate the willingness of the UK to demonstrate the foolishness of this action.

Dean Baker by way of Brad DeLong. The Great British Austerity Experiment

The thing that keeps coming to mind is that the people calling for reduced spending in a host of programs would likely be calling for those same cuts no mater what the economy looked like. So why is anyone listening to them?

Krugman on Bloomberg on the Icelandic Miracle

Today, Iceland is recovering. The three new banks had combined profit of $309 million in the first nine months of 2010. GDP grew for the first time in two years in the third quarter, by 1.2 percent, inflation is down to 1.8 percent and the cost of insuring government debt has tumbled 80 percent. Stores in Reykjavik were filled with Christmas shoppers in early December, and bank branches were crowded with customers.

To be fair, real GDP is still about 14 percent down from its 2007 peak, so Iceland hardly got off unscathed. But the human and social damage appears to have been much lighter than many expected.

From Bloomberg on the Icelandic Miracle - NYTimes.com

But I thought austerity works? So why are the austerity economies stagnant?

Obama's Bid to End Oil Subsidy Revives Debate

When he releases his new budget in two weeks, President Obama will propose doing away with roughly $4 billion a year in subsidies and tax breaks for oil companies, in his third effort to eliminate federal support for an industry that remains hugely profitable.

From Obama's Bid to End Oil Subsidy Revives Debate - NYTimes.com

So, who is going to come out in favor of giving oil companies taxpayer money? Anyone want to bet if this gets an anonymous hold?

Krugman proposes interstellar free trade zone

It's true that we'd have more jobs if we exported more and imported less. But the same is true of Europe and Japan, which also have depressed economies. And we can't all export more while importing less, unless we can find another planet to sell to.

From The Competition Myth - NYTimes.com

What makes this funny is that Krugman wrote a paper on interstellar trade. http://en.wikipedia.org/wiki/The_Theory_of_Interstellar_Trade http://improbable.com/ig/winners/

The difference between big and small government is 4%

Until recently, our great, wrenching, economic debate has been focused on whether a whopping 4.6% increase in tax rates on incomes over $250,000 would undermine the American work ethic, shred the nation’s the moral fiber, and constitute the “Second Coming of Socialism”.

Now, with the passage of the tax cut extension, providing us a harrowing, last-minute, reprieve from such a fate, we face another monumental debate about the proper size of government — with the difference, again, being a whopping 4%. Conservatives think government should spend no more than 18-19% of GDP. Liberals about 22-23%.

From Paul Abrams: Beware the Big vs. Small Govt Trap: It’s Only About 4%. Yes, 4%

At this point, right-wing economic policy is becoming farce.

The reality is that people who advocated for small government really want government big enough to help me, too small to help you. Just as they view socialism as when government helps someone else.

Alan Greenspan's housing bubble coffee break

There is a lack of consensus as to how the relaxation of credit standards will impact safety and soundness. To date, loan delinquencies have remained modest, both within and outside of the banking industry. However, the undiminished appetite, particularly for the nonconforming mortgage product, has allowed for the flexibility to continue. And there is no slowing in sight, despite all the warnings that we have heard and indications in some markets that there has been a leveling, and even a decline, in some property values …


From Alan Greenspan’s housing bubble coffee break


The sad part about this is that it will be used to attack the Fed system, and not the Let the Market regulate itself philosophy of Mr. Greenspan.

The Robot Economy

Assume robots are the same as humans. Robots can do all the work that humans can do. Robots need the same amount of energy/food to stay functioning as humans do, but robots themselves can produce that energy/food just like humans can. Robots will need maintenance and training as humans do, but robots themselves can produce that maintenance and training just like humans can. Robots can produce other robots, just as humans can produce other humans.

The only difference between robots and humans is that robots are owned by humans. Robots are just like human slaves. Robots will earn the same wages as humans, but those wages, minus the costs of the robots’ subsistence, will go to the robots’ owners. Just like slaves.

From The Robot Economy - The Daily Dish | By Andrew Sullivan

We’re going to need those Asimov rules.

The Texas Omen

Texas is where the modern conservative theory of budgeting - the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending - has been implemented most completely. If the theory can't make it there, it can't make it anywhere.

The point, however, is that just the other day Texas was being touted as a role model (and still is by commentators who haven't been keeping up with the news). It was the state the recession supposedly passed by, thanks to its low taxes and business-friendly policies. Its governor boasted that its budget was in good shape thanks to his "tough conservative decisions."

From The Texas Omen - NYTimes.com

The basic approach clearly doesn’t work.

The Eternal Return of Robert Rubin

The thing about the Clinton administration is that Jimmy Carter's administration ended in 1980. So if you're going to create an economic policy team for Barack Obama your main choices are (1) "folks who worked on economic policy in the Clinton administration," (2) "folks who worked on economic policy in the Bush administration," and (3) "folks with little economic policy experience." Now forced to choose between (1) and (2), I think (1) is clearly the better choice. Option (3) isn't the worst thing in the world, lots of intelligent knowledgeable right-thinking people don't happen to have experience in government. But it seems to me that it's extremely prudent for a president to desire that the majority of his economic policy team be composed of people with previous executive branch economic policy experience. That means basically a lot of "Rubinites" plus various exceptions around the margin.


From Yglesias >> The Eternal Return of Robert Rubin


Worth a read.

The Texas Omen

Texas is where the modern conservative theory of budgeting - the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending - has been implemented most completely. If the theory can't make it there, it can't make it anywhere.

The point, however, is that just the other day Texas was being touted as a role model (and still is by commentators who haven't been keeping up with the news). It was the state the recession supposedly passed by, thanks to its low taxes and business-friendly policies. Its governor boasted that its budget was in good shape thanks to his "tough conservative decisions."

From The Texas Omen - NYTimes.com

The basic approach clearly doesn’t work.

The Eternal Return of Robert Rubin

The thing about the Clinton administration is that Jimmy Carter's administration ended in 1980. So if you're going to create an economic policy team for Barack Obama your main choices are (1) "folks who worked on economic policy in the Clinton administration," (2) "folks who worked on economic policy in the Bush administration," and (3) "folks with little economic policy experience." Now forced to choose between (1) and (2), I think (1) is clearly the better choice. Option (3) isn't the worst thing in the world, lots of intelligent knowledgeable right-thinking people don't happen to have experience in government. But it seems to me that it's extremely prudent for a president to desire that the majority of his economic policy team be composed of people with previous executive branch economic policy experience. That means basically a lot of "Rubinites" plus various exceptions around the margin.


From Yglesias >> The Eternal Return of Robert Rubin


Worth a read.

When Zombies Win

It's also worth pointing out that everything the right said about why Obamanomics would fail was wrong. For two years we've been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we've been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation - which excludes volatile food and energy prices - now at a half-century low.

From NYTimes.com

Sadly, being wrong doesn’t effect the career of a right of center pundit.

When Zombies Win

It's also worth pointing out that everything the right said about why Obamanomics would fail was wrong. For two years we've been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we've been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation - which excludes volatile food and energy prices - now at a half-century low.

From NYTimes.com

Sadly, being wrong doesn’t effect the career of a right of center pundit.

Free Markets and Safety Nets

Guaranteeing people a decent retirement and decent health care does more than smooth out the rough edges of capitalism. Those guarantees give people the freedom to take risks. If you know that professional failure won't leave you penniless and won't prevent your child from receiving needed medical care, you can leave the comfort of a large corporation and take a chance on your own idea. You can take a shot at becoming the next great American entrepreneur.

From Free Markets and Safety Nets

The progressive argument for social insurance in a nutshell.

Thomas Jefferson on Wealth Inequality

I am conscious that an equal division of property is impracticable, but the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree, is a politic measure and a practicable one. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions or property in geometrical progression as they rise.


From Thomas Jefferson on Wealth Inequality


Thomas Jefferson was a pinko commie socialist redistributionalist.

Tyler Cowen on The Inequality That Matters

Does growing wealth and income inequality in the United States presage the downfall of the American republic? Will we evolve into a new Gilded Age plutocracy, irrevocably split between the competing interests of rich and poor? Or is growing inequality a mere bump in the road, a statistical blip along the path to greater wealth for virtually every American? Or is income inequality partially desirable, reflecting the greater productivity of society's stars?


From The Inequality That Matters - Tyler Cowen - The American Interest Magazine


Cowen on Wealth inequality, interesting article.

The SPECTRE of Inequality

there's a scene early in the movie when the minions of SPECTRE, the evil conspiracy, are shown reporting on their profits from dastardly activities. And the numbers are ... ludicrously small. I know that's a running gag in Austin Powers, But it's true, it's true!

Even the big one - demanding a ransom for two stolen nuclear warheads - is 100 million pounds, $280 million. Adjusted for inflation, that's about $2 billion - or one-eighth of the Goldman Sachs bonus pool.

It's just an indicator of how huge top incomes have become that what were once viewed as impressive numbers, the kind of thing only arch-villains might demand, now look trivial. Or maybe the other way to look at it is that we have a lot more arch-villains around than we used to.


From The SPECTRE of Inequality - NYTimes.com


But do that have sharks with freaking laser beams?

The SPECTRE of Inequality

there's a scene early in the movie when the minions of SPECTRE, the evil conspiracy, are shown reporting on their profits from dastardly activities. And the numbers are ... ludicrously small. I know that's a running gag in Austin Powers, But it's true, it's true!

Even the big one - demanding a ransom for two stolen nuclear warheads - is 100 million pounds, $280 million. Adjusted for inflation, that's about $2 billion - or one-eighth of the Goldman Sachs bonus pool.

It's just an indicator of how huge top incomes have become that what were once viewed as impressive numbers, the kind of thing only arch-villains might demand, now look trivial. Or maybe the other way to look at it is that we have a lot more arch-villains around than we used to.


From The SPECTRE of Inequality - NYTimes.com


But do that have sharks with freaking laser beams?

Tyler Cowen on The Inequality That Matters

Does growing wealth and income inequality in the United States presage the downfall of the American republic? Will we evolve into a new Gilded Age plutocracy, irrevocably split between the competing interests of rich and poor? Or is growing inequality a mere bump in the road, a statistical blip along the path to greater wealth for virtually every American? Or is income inequality partially desirable, reflecting the greater productivity of society's stars?


From The Inequality That Matters - Tyler Cowen - The American Interest Magazine


Cowen on Wealth inequality, interesting article.

How starving the beast makes us fat

tax cuts that are not matched by spending cuts actually result in increased government spending — for the citizenry as a whole, the pain of payment for products received has been eliminated. When we receive government services without paying their full cost, we consume more such services. If every spending initiative had to be matched by a tax hike or cut elsewhere in the budget, we would end up behaving much more frugally. But starving the beast just makes us more profligate.


From How starving the beast makes us fat


Worth a read. We have moved from impulse buying at the supermarket to impulse government in Washington.

A European-Style Fiscal Crisis Is Impossible in the United States of America

The government of Ireland can run out of Euros-they make Euros in Frankfurt. And the government of Peru can run out of dollars-they make dollars in Washington. But the government of the United States can't run out of dollars. The problem we could find ourselves with is the problem of inflation. Problematic inflation is a genuinely problematic thing, but it's a strange thing to worry about at the moment when inflation's been running unusually low for years. Our current problem is that the total volume of nominal spending is way too low, which means that as a country we're producing much less than we could be.


From Yglesias

If Democrats are the big spenders, why do Republican states get the money?

states with the highest anti-spending sentiment appear to be the largest beneficiaries of government spending. Not only do red states swallow the lion’s share of government spending, but Richardson found a linear relationship between the extent of GOP support in a state-and, by implication, the fervor of its anti-government sentiment-and the amount of federal largesse the state receives.

Alaska, home to Sarah Palin, and where two fiscally conservative Republican candidates for Senate recently mopped up 75 percent of the vote between them, received $1.64 in federal benefits for every $1 the state contributed to the national kitty. Massachusetts, Richardson found last year, received 82 cents for every dollar it paid into the national pool. No doubt as compensation, liberals in Massachusetts and other “blue” states also received lots of vitriol for being such out-of-control spenders.

The 28 states where George W. Bush won more than 50 percent of the vote in 2004 received an average of $1.32 for every dollar contributed. The 19 states where Bush received less than 50 percent of the vote collected 93 cents on the dollar.

"Voting Republican paid large dividends," Richardson wrote in a piece published in the Economist’s Voice. “For each 1 percent of the population voting in favor of the Republican presidential candidate, the state received an additional 1.7 cents in benefits for each dollar in taxes.”


From Slate

None of this is surprising. If you hide the true cost of government, people will demand services more while expecting to pay less for them.

People who are serious about the size of government and subscribe to fact based rather than faith based economics are asking that the cost of government (taxes) match the goods provided by government (spending). Raise taxes, and keep raising them until the laws of supply and demand return to normal.

Our Fiscal Security

The following report puts forth a blueprint that invests in America and creates jobs now, while putting the federal budget on a long-term sustainable path. We document the hard choices that need to be made and suggest specific policies that will yield lower deficits and a sustainable debt while preserving essential initiatives and investments.


From Our Fiscal Security - Fiscal Blueprint


Having had time to finish reading it yet. First look is promising.

Learned Helplessness

It's true that if you bought completely into rational-expectations macroeconomics, the crisis in the economy should be causing a crisis in your faith - although as far as I can tell, the freshwater types remain smugly convinced of their rightness. But those of us who hadn't forgotten Keynes, who paid attention to things like Japan's lost decade and developing-country financial crises, aren't feeling all that at sea.

More specifically, we knew all about liquidity traps, and had at least thought about balance-sheet crises, a decade ago. Remember, I wrote the first edition of The Return of Depression Economics in 1999. The world we're now in isn't that different from the world I suspected, back then, we'd find ourselves in.


From Learned Helplessness - NYTimes.com


So at what point will the gold bug, inflationistas and other econo-cranks be subject to tough questions on why they are wrong? My guess never.

10 Epic Failures of the Bush Tax Cuts

In a rare moment of candor last week, the third-ranking Republican in the House admitted the failure of the Bush tax cuts. “You know, I think it’s fair to say, if the current tax rates were enough to create jobs and generate economic growth we’d have a growing economy,” Mike Pence acknowledged, adding, “It’s not working now.” Given that the Bush years produced the worst economic growth in the past 50 years, Pence is sadly correct. But sadder still is the dismal performance of the Bush economy across almost every indicator that counts. From moribund job creation and sinking household incomes to skyrocketing deficits and record income inequality, Republican economic stewardship over the past decade has been a disaster.

From 10 Epic Failures of the Bush Tax Cuts | Crooks and Liars

So the argument becomes “They haven’t done what we claimed they would do, but that’s no reason to undo the policy. “

A Mechanical Manifesto

it's conservative economists who insist that people are always rational and utility-maximizing; liberal economists are the ones willing to invoke bounded rationality, animal spirits, etc.. The whole salt-water fresh-water split was about which you were going to believe: the assumption of perfect maximization, or your own lying eyes. And the Keynesians were the ones who preferred to believe their eyes.


From A Mechanical Manifesto - NYTimes.com


Take away quote of the day.

The Politics of Erskine-Bowles

I think that this is a blueprint that conservatives should regard favorably, all things considered. But let's be clear: The cuts it proposes don't even remotely "slash the size of government"; they merely slow its future growth. By my back-of-the-envelope calculations, federal revenue has hovered around 18.3 percent of G.D.P. since 1980, breaking 20 percent only during the halcyon days of the dot-com boom. Under Simpson-Bowles, it would stick at 21 percent, a solid 10-15 percent boost over how the American government taxed its citizens in the Reagan and Clinton eras.

From The Politics of Erskine-Bowles - NYTimes.com

I finally found someone else sort-of-happy with the Erskine-Bowels report.

The sad fact is that for all the high-minded blathering about the size of government and its overreach, the right has demonstrated that people want big government most when they can effectively get other people to pay for it.

Frankly, you are not going to cut spending without raising taxes. Unless there is some connection between the cost of government and the services it provides, you are not going to have any consensus to decrease the demand for government services. This is just basic behavioral economics.

The Triumph Of Reagan Over Friedman

this is a point I think conservatives who believe they can remain reasonable about macro fail to grasp - this is about philosophy of government. If your bedrock faith is that government is always the problem, never the solution, then you're not, ultimately, going to be willing to draw a line around the central bank and say that it's OK for that semi-autonomous part of the government to engage in active problem-solving.

From The Triumph Of Reagan Over Friedman

There used to be a time when the right was pro-markets rather than nihilistically anti-government and anti-policy. The only acceptable policy is deregulation and tax cuts, irregardless of the problem.

The Hijacked Commission

The goals of reform, as Mr. Bowles and Mr. Simpson see them, are presented in the form of seven bullet points. "Lower Rates" is the first point; "Reduce the Deficit" is the seventh.

So how, exactly, did a deficit-cutting commission become a commission whose first priority is cutting tax rates, with deficit reduction literally at the bottom of the list?


From The Hijacked Commission


A must read.

Goat standard, not gold standard

in remote Korawan, … have come up with a novel bank which exclusively deals with goats - accepting the animal as savings and lending it out as loans.

"Prema and her friends hailing from Afrozi village have establish a bank which deals exclusively in goats," development block coordinator Subedar Singh told PTI.

”We provide goats to women having interest in taking up breeding as a full-time activity as loan. When a goat gives birth to kids, generally two to three in numbers, one of them is deposited with the bank again,” Prema explained.

The link is here, the point is from Paul Hsieh and Jeffrey Williams should be happy. The locale is in India.


From Allahabad embraces goat standard.

Town decides to stop using fiat currency and embrace the goat standard. Livestock has been used for trade in free societies for years. Glade to see them go back to sound money: The Goat Standard. And unlike gold, goats generate new goats.

Can liberalism save capitalism from conservatism?

Conservatives have long succeeded in persuading business that they are its friends and liberals are its enemies. In reality, the reverse is true. Liberalism saved American capitalism during the depression, and if American capitalism is to be saved from the Great Recession, liberals will have to rescue it.

Modern conservatives claim to be pro-business. But economic conservatism is not based on any empirical study of the actual economic requirements of successful modern industrial and service corporations in a modern mixed economy. The economic right combines an anachronistic tradition with a crackpot ideology.

The anachronistic tradition is Jeffersonian small-producer populism. Defending the rights of small farmers and small businesses was progressive in the 18th and early 19th centuries, when the enemies of freedom were aristocratic landlords who owned slaves and serfs and monopolies with royal charters. Although the industrial revolution rendered small-government Jeffersonianism obsolete by the mid-19th century, American conservatives continue successfully to appeal to Jeffersonian sentiments a century and a half later.

The crackpot ideology of the economic right is libertarianism. Libertarianism and communism are equally crazy in opposite ways. Libertarians believe that it is possible to privatize everything without anarchy, while communists believe that it is possible to socialize everything without tyranny.

Neither Jeffersonian populists nor libertarian ideologues have the slightest clue about how to run a complex technological society in the 21st century. Why should they? Jeffersonianism is a program for a primitive society of small farmers of a kind that no longer exists anywhere. At least, once upon a time, there were genuine Jeffersonian agrarian societies in the real world. There has never been a libertarian country and there never will be, because the maximum of government authority allowed by libertarian theory is well below the minimum required by a functioning community.


From Can liberalism save capitalism from conservatism?


Worth a read.

US Trade Deficit is Half Oil

A government official emphasized to me today what should be clear to anyone who follows Calculated Risk's charts, namely that a huge element of our trade deficit has nothing to do with China or manufacturing but is instead driven by oil:

Now it's not unusual that the US is a net oil importer. Most countries are. But America is a much more oil-dependent country than other places are.

From US Trade Deficit is Half Oil

The ongoing bailouts of the Oil Industry are the cause of half of us debt.

Friedman On Japan

…staring in 2000, the BOJ nearly doubled monetary base over a period of 3 years. And the money just sat there. Banks did not, in fact, expand loans. In fact, Japan's experience is a key element of the case against monetarism. Just printing notes does not work when you're in a liquidity trap.


From Friedman On Japan - NYTimes.com

And it also doesn’t create the type of hyperinflation some worry about.

Yglesias >> FA Hayek, Statist

in The Road to Serfdom Hayek ends up committing himself to a view of environmental regulations that's well tot he left of where today's center-left politicians are:

Nor can certain harmful effects of deforestation, or of some methods of farming, or of the smoke and noise of factories, be confined to the owner of the property in question or to those who are willing to submit to the damage for an agreed compensation. In such instances we must find some substitute for the regulation by the price mechanism. But the fact that we have to resort to the substitution of direct regulation by authority where the conditions for the proper working of competition cannot be created, does not prove that we should suppress competition where it can be made to function.

Of course the correct free market riposte to this proposal is that we can create a price mechanism. So instead of having the guys in the EPA building try to tinker with everyone's factories, we could establish a legislative ceiling on the quantity of greenhouse gas emissions we're willing to tolerate and then allocate permits to do it. That way the price mechanism-a la "the use of knowledge in society"-will be able to uncover the most economically efficient way of undertaking the reductions. But I guess Big Government Hayek doesn't think that will work.


From Yglesias >> FA Hayek, Statist


I’ve been saying this for a while now. Cap and trade is the pro-market solution. Those who are opposed to cap and trade are anti-government not pro-market. And in some cases, to do nothing is to embrace Carbon Socialism and put the costs of carbon onto the state rather than the users.

A Far Away Country Of Which We Know Nothing

I've been getting a lot of correspondence lately that runs something like this:

You're an idiot. Give me one example in all of history of a country that spent its way out of a depressed economy

Ahem. There's this country - people may not have heard of it - called the United States of America:

DESCRIPTION

The blue line is total debt, public plus private, in billions of dollars; the red line debt as a percentage of GDP


From A Far Away Country Of Which We Know Nothing - NYTimes.com

But the axioms say it isn’t possible! How could this ugly facts be true when my beautiful theory says it is false?

It Is Not Just John Maynard Keynes, It Is Milton Friedman Who Is Being Thrown Over the Side

Any time that the views of Milton Friedman are denounced as those of a left-wing semi-socialist kook, something has gone very, very wrong.


From It Is Not Just John Maynard Keynes, It Is Milton Friedman Who Is Being Thrown Over the Side - Grasping Reality with Both Hands

Quote of the day.

I used to joke about starting a Progressives for Milton Friedman organization. We would meet across the street from Jews for Jesus.

Plan to Ban Food Stamps for Sodas Faces Obstacles

Experts question the legality of Mayor Michael R. Bloomberg's proposal to bar New York City's food-stamp recipients from using them to buy sugared drinks.


From Plan to Ban Food Stamps for Sodas Faces Obstacles - NYTimes.com


Why doesn’t the debate over taxing junk food ever include discussion about ending the broken farm subsidies system that makes junk food cheap in the first place?

How Much Does the Market Organization of Economic Life Matter?

In 1989, the Iron Curtain came down, and we could see what a difference it made as we could examine levels of material well-being on both sides of the Curtain. This is as close to a perfect natural experiment as anyone could wish: the Iron Curtain’s location was determined by where Stalin’s and Mao’s and Giap’s armies marched—which is as exogenous to other determinants of economic well-being as anyone could wish.

From How Much Does the Market Organization of Economic Life Matter? - Grasping Reality with Both Hands

Not a perfect match but it does make the case that 50 years of non-market economics leads to 80% to 90% less in economic productivity.

Railing Against Rail

people like me probably have a slight affinity for rail because it's a kind of socially provided good. But I don't think it's comparably irrational: rail just makes a lot of sense for densely populated regions, especially but not only the Northeast Corridor. New York could not function at all without commuter rail, and Amtrak even as it is is crucial to intercity traffic - it's not just a question of expanding airport capacity, we just don't have the airspace.

From Railing Against Rail

One thing I’ve never understood is why the GOP loves ear-mark driven national highways but insists that rail be a profit making venture. Other than historic accidents, why do we have socialist roads and capitalist trains?

Krugman : How The Other Half Thinks

While the other side was making these predictions, people like me were saying that classical economics was all wrong in a liquidity trap. Government borrowing did not confront a fixed supply of funds: we were in a paradox of thrift world, where desired savings (at full employment) exceeded desired investment, and hence savings would expand to meet the demand, and interest rates need not rise. As for inflation, increases in the monetary base would have no effect in a liquidity trap; deflation, not inflation, was the risk.

So, how has it turned out? The 10-year bond rate is about 2.5 percent, lower than it was when Ferguson made that prediction. Inflation keeps falling. The attacks on Keynesianism now come down to "but unemployment has stayed high!" which proves nothing - especially because if you took a Keynesian view seriously, it suggested even given what we knew in early 2009 that the stimulus was much too small to restore full employment.

The point is that recent events have actually amounted to a fairly clear test of Keynesian versus classical economics - and Keynesian economics won, hands down.

From How The Other Half Thinks - NYTimes.com

Krugman called it. Not only being among the first to identify the liquidity trap but the first to properly identify how the other side would respond, what errors they were making and what would be needed to restore the economy.

The development presents something of a chicken-and-egg situation: Corporations keep saving, waiting for the economy to perk up - but the economy is unlikely to perk up if corporations keep saving.

From Companies Borrow at Low Rates, but Don't Spend - NYTimes.com

So how much evidence of a liquidity trap is needed to get the other side to re-think their flawed premises?

Hayek's Friends Should Apologize for, Not Endorse, His Road to Serfdom

Hayek's Friends Should Apologize for, Not Endorse, His Road to Serfdom

Hayek wanted to make the much stronger claim that the attempt to implement Labor's policies would necessarily lead to a loss of personal and political freedom.

This makes perfect sense because when you look at the most repressive regimes in world what makes them stand out is the generous social insurance provided by the state and not military or police spending.

Who You Gonna Believe?

Suppose you had spent the last five years actually believing what you read from the usual suspects the WSJ opinion pages, National Review, right-wing economists, etc.. Here s what would have happened:

In 2006 you would have believed that there was no housing bubble.

In 2007 you would have believed that the troubles of subprime couldn t possibly spread to the financial system as a whole.

In 2008 you would have believed that we weren t in a recession and that the failure of Lehman was unlikely to have bad consequences for the real economy.

In 2009 you would have believed that high inflation was just around the corner.

At the beginning of 2010 you would have believed that sky-high interest rates were just around the corner.

Now, we all make mistakes and get things wrong although it s striking how often the trolls on this blog feel the need to accuse yours truly of saying things I didn t. But after this string of errors, wouldn t you at least begin to suspect that the people you find congenial have a fundamentally wrong-headed view of how the world works?


From Who You Gonna Believe? - NYTimes.com

I’m amazed that Krugman has been right about almost everything almost all of the time and hasn’t gotten the respect he deserves. The forward to 2008’s The Return of Depression Economics is amazingly prescient.

America Goes Dark

Meanwhile, a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel.

In effect, a large part of our political class is showing its priorities: given the choice between asking the richest 2 percent or so of Americans to go back to paying the tax rates they paid during the Clinton-era boom, or allowing the nation s foundations to crumble literally in the case of roads, figuratively in the case of education they re choosing the latter.


From Op-Ed Columnist - America Goes Dark - NYTimes.com

Sad but true. This is what happens when the right-wing is allowed to undo the 20th century.

The political genius of supply-side economics | Martin Wolf's Exchange | FT.com

To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: supply-side economics . Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.

The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?


From The political genius of supply-side economics | Martin Wolf’s Exchange | FT.com

The belief that you can have a free lunch, that markets will magically make everyone rich, that there are no hard choices and no problems that need to be addressed by means other than tax cuts and deregulation is the modern GOP view of economics. The fact that it doesn’t result in the promises they’ve made seems inconsequential.

The political genius of supply-side economics | Martin Wolf's Exchange | FT.com

To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: supply-side economics . Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.

The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?


From The political genius of supply-side economics | Martin Wolf’s Exchange | FT.com

The belief that you can have a free lunch, that markets will magically make everyone rich, that there are no hard choices and no problems that need to be addressed by means other than tax cuts and deregulation is the modern GOP view of economics. The fact that it doesn’t result in the promises they’ve made seems inconsequential.

Myths of Austerity

This conventional wisdom isn t based on either evidence or careful analysis. Instead, it rests on what we might charitably call sheer speculation, and less charitably call figments of the policy elite s imagination specifically, on belief in what I ve come to think of as the invisible bond vigilante and the confidence fairy.

Bond vigilantes are investors who pull the plug on governments they perceive as unable or unwilling to pay their debts. Now there s no question that countries can suffer crises of confidence (see Greece, debt of). But what the advocates of austerity claim is that (a) the bond vigilantes are about to attack America, and (b) spending anything more on stimulus will set them off.

What reason do we have to believe that any of this is true? Yes, America has long-run budget problems, but what we do on stimulus over the next couple of years has almost no bearing on our ability to deal with these long-run problems. As Douglas Elmendorf, the director of the Congressional Budget Office, recently put it, There is no intrinsic contradiction between providing additional fiscal stimulus today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential.


From Myths of Austerity

If Krugman is right about the invisible bond vigilantes, then rates should be going down. And they are. If he is right about the confidence fairy, then there should be no (or week) correlation between economies in Austerity and growth. Right again.

I can’t help but think that the advocates of austerity would be in favor of all the same policies under a different name if the austerity argument wasn’t available. Notice how they focused on social spending and not corporate subsidies. Are any of the austerity advocates calling for an end to oil or farm subsidies? An end to the Bush tax cuts? Any tax increases at all?

GOPers Vote For TARP Bailout Continuation, Against Bank Bailout Fund

in a scramble to save the bill in the wake of Sen. Scott Brown’s (R-MA) objections to the conference report, Democrats worked with moderate Republicans to figure out a new way to pay for Wall Street reform. What they came up with was pretty simple: end the TARP legislation (i.e., the much-maligned bank bailout) early. Every Republican negotiator on the conference committee objected, some vociferously.

Sen. Judd Gregg (R-NH) called it “fraud on the American people.

Not to be outdone, Sen. Mike Crapo (R-ID) called it “smoke and mirrors.”


From GOPers Voted For TARP Bailout Continuation

The bank tax actually would have had negligible customer impact. Lost in today's hurried debate was the absence of any empirical backing for the critics? argument. Indeed, two factors would have likely combined to render the impact on customer pricing trivial.

- First, only large banks would have been subject to the tax, so efforts to raise large-bank customer pricing, in many product markets, would have simply caused a market share shift to the smaller banks not subject to the levy. Ironically, the Massachusetts retail deposit business is a clear example of such a market.
- Second, even in those product markets dominated by large banks, the bank tax was so small that, even if its burden could have been shifted completely to customers, the impact would have been, in practical terms, undetectable .


From The short life of the Bank Tax << Rortybomb

The GOP is the party of free taxpayer money and no corporate responsibility. This is a vote against Banks paying for future bailouts and for taxpayers continuing to pay for the current bailout. The message here is that personal responsibility is for suckers.

The Renminbi Runaround

There have been all sorts of calculations purporting to show that the renminbi isn t really undervalued, or at least not by much. But if the renminbi isn t deeply undervalued, why has China had to buy around $1 billion a day of foreign currency to keep it from rising?

The effect of this currency undervaluation is twofold: it makes Chinese goods artificially cheap to foreigners, while making foreign goods artificially expensive to the Chinese. That is, it s as if China were simultaneously subsidizing its exports and placing a protective tariff on its imports.


From The Renminbi Runaround


Krugman explains it in four sentences. And this is why we need to lead the G8 into undoing any artificial Chinese advantage by imposing tariffs linked to the undervaluation of the Renminbi.

Oy, Canada - Paul Krugman Blog

I do feel a sense of despair here. Ever since the crisis began, some of us have been trying to get across the point that you have to be very careful with your historical precedents, that things work very differently when you have a synchronized severe financial crisis, with interest rates near zero everywhere. And here we are, two years in, and it s as if we ve been talking to a wall.
From Oy, Canada - Paul Krugman Blog - NYTimes.com

Krugman is right here. Concerns about inflation and debt need to take a back seat to concerns about unemployment and aggregate demand.

Down The Memory Hole

Basically, US postwar economic history falls into two parts: an era of high taxes on the rich and extensive regulation, during which living standards experienced extraordinary growth; and an era of low taxes on the rich and deregulation, during which living standards for most Americans rose fitfully at best.
From Down The Memory Hole - Paul Krugman Blog - NYTimes.com

While this doesn’t show causation; it does show that the claims on the right about the New Deal causing economic stagnation and Reaganomics creating a boom are unsupported.

Soros on Gold

everyone at the lunch wanted to know what bubbles the billionaire might be investing in at the moment, given his theory. Soros dodged the question when I asked him but subsequently noted, “The ultimate asset bubble is gold.” I’m not sure if he meant that gold has been a bubble since the beginning of recorded history or just a bubble over the past couple of years. He never shows too much of his hand.
From Soros on Gold

Two things came to mind reading this. Soros is usually right. And this is scary. I can assume that when he says something like this; he then disappears leaving only a creepy smile floating in the air.

Worthwhile Canadian Example

Those who blame the Fed for keeping interest rates too low too long have to explain why Canada, which basically had the same interest rate experience we did, didn t have anything like the same problems. So what s Canada s secret? Regulation, regulation, regulation. Much stricter limits on leverage, much stricter limits on unconventional mortgages, and an independent consumer protection agency for borrowers.
From Worthwhile Canadian Example - Paul Krugman Blog - NYTimes.com

Someone should explain The Austrian Business cycle to the Canadians. Clearly their stability is impossible and is likely a commie plot.

Tie CO2 Tax to Temperature

John Tierney relays today what seems like a very sensible idea from economist Ross McKitrick, tie a carbon tax to the temperature. If the temperature rises the tax goes up, if the temperature does not rise (as McKitrick, a climate change skeptic thinks) the tax will stay at a low level. Temperature of the troposphere would be measured by satellite at the equator and averaged over a period of time…In theory, both climate change proponents and skeptics ought to agree to this proposal, but I predict the proponents will object.
From Tie CO2 Tax to Temperature

Brilliant.

Henry Blodget explains how to make a billion dollars

So here’s how to make the world’s easiest $1 billion:
STEP 1: Form a bank.
STEP 2: Round up a bunch of unemployed friends to be “bankers.”
STEP 3: Raise $1 billion of equity. (This is the only tricky step. And it’s not that tricky. See below.*)
STEP 4: Borrow $9 billion from the Fed at an annual cost of 0.25%.
STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45%
STEP 6: Sit back and watch the cash flow in.
From Clusterstock

In a nutshell, it’s time for legal differentiation between banks and bank-like-things.

An Affordable Truth

Why should you believe that cutting emissions is affordable? First, because financial incentives work.

Action on climate, if it happens, will take the form of cap and trade : businesses won t be told what to produce or how, but they will have to buy permits to cover their emissions of carbon dioxide and other greenhouse gases. So they ll be able to increase their profits if they can burn less carbon and there s every reason to believe that they ll be clever and creative about finding ways to do just that.

From Op-Ed Columnist - An Affordable Truth - NYTimes.com

I love it when Krugman schools free-marketers on basic free market principals. A while back I stated using the term Carbon-Socialism to describe the objection to the creation of markets for carbon emissions. I still think the term holds.

Treasury Invites Bloggers to Round Table

Mr. Geithner, the Treasury secretary, was among the senior officials who talked with bloggers at an outreach session on Nov. 2. The two-hour round table was held on background, meaning that the bloggers could describe the sessions, but not attribute quotes to specific officials. Lengthy posts about financial system reforms - and the bloggers' disagreements with the Treasury's strategies - ensued.
From Treasury Invites Bloggers to Round Table - NYTimes.com

Geithner deserves credit for opening up the normally cloistered FED. Even if this is just a tiny step toward openness, it is totally unprecedented.

Healthcare Reform

There’s nothing “sure or quick” about changing medical liability laws that will improve healthcare or its costs. Defensive medicine adds very little to healthcare’s price tag, and rising malpractice premiums have had very little impact on access to care.
From Healthcare Reform - salon.com

Of course it won’t. And it hasn’t. So far, there have been a number of states that have passed this kind of reform. Notice how you never hear about how much money these reforms have saved consumers in Texas? Because it hasn’t. It has made money for Blue Cross. You don’t hear about that either.

Taxes vs Voucher Socialism

Instead of being paid to deliver planes, missiles and tanks, defense contractors would receive “weapon supply tax credits” (WSTC). The defense contractors would be able to reduce the taxes they owed the federal government by the prices of the weapons they delivered. Because the tax credit would be refundable, if the prices exceeded a firm’s annual tax liability, the IRS would send a check to the firm in the amount of the difference. In this way, the federal government could finance a massive military buildup — and because tax credits aren’t counted as part of the federal budget, for official purposes the cost of the buildup would be zero!
I had you going there for a minute, didn’t I? The “weapons supply tax credit” is a joke. It was proposed some years ago by the late David Bradford, a Princeton economist who worked in the Ford and George H.W. Bush administrations. Bradford’s purpose was to ridicule the growing reliance of Congresses and presidents on tax credits and other so-called tax expenditures as an alternative to ordinary spending programs funded by ordinary taxes.
From Taxes - salon.com

Excellent article on the misuse of Tax Credits as a substitution for taxes as a way to fund public goods.

TARP could have cost taxpayers $700 billion. Now it looks like it might break even

As we approach the one-year anniversary of the Panic of 2008, it’s clear that the actual cost of the TARP will be a fraction of the original $700 billion estimate and that taxpayers are even turning a profit from the central component of the package.
From Slate: TARP could have cost taxpayers $700 billion

I can’t wait until the GOP arguments that TARP’s successes are due to W start. And I fully expect to hear spin that it would have failed if Obama got his way. I’m also looking forward to the random libertarian spit-balls on how TARP actually made things worse.

Mass. bashers take note: Health reform is working

PUNDITS and politicians who oppose universal healthcare for the nation have a new straw man to kick around - the Massachusetts reform plan that covers more than 97 percent of the states residents. In the myth that these critics have manufactured, this state’s plan is bleeding taxpayers dry, creating nothing less than a medical Big Dig.
The facts - according to the Massachusetts Taxpayers Foundation - are quite different. Its report this spring put the cost to the state taxpayer at about $88 million a year, less than four-tenths of 1 percent of the state budget of $27 billion. Yes, the state recently had to cut benefits for legal immigrants, and safety-net hospital Boston Medical Center has sued for higher state aid. But that is because the recession has cut state revenues, not because universal healthcare is a boondoggle. The main reason costs to the state have been well within expectations? More than half of all the previously uninsured got coverage by buying into their employers plans, not by opting for one of the state-subsidized plans.
URL: TheBostonGlobe - Mass. bashers take note: Health reform is working

The real test will be on how this plan work over the next five years or so. If Massachusetts manages to cover virtually everyone, control costs and maintain quality health care, it will be all the more difficult for right to protest it. And it will make it all the more easy to convert whatever passes as Obama-care into the Massachusetts plan.

Is the threat of speculation a reason to shun cap and trade?

Any time you have a market, there's some opportunity for speculation. Even if the good being traded isn't storable, there may be a futures market, so you can bet on the future price.

For example, the fact that wheat is traded means that there's also a wheat futures market; and because wheat can be stored, futures prices affect spot prices.
So, should fear of speculation lead us to ban trading in wheat?

Now substitute "emission permits" for wheat. It's exactly the same story.
From: http://krugman.blogs.nytimes.com/2009/07/21/is-the-threat-of-speculation-a-reason-to-shun-cap-and-trade/

The best defense of the use of market forces to control pollution comes from who else but Paul Krugman.

Brad DeLong: Robert Reich Writes About the Debt Scare

Back in 1992 the real interest rate on a ten-year U.S. Treasury bond was 5% per year. Right now the real interest rate on a ten-year U.S. Treasury bond is more or less zero. Borrow back in 1992 thinking that the government is going to repay its borrowings ten years down the road and ten years down the road you find yourself paying back $1.65 in real purchasing power for each dollar you borrowed in 1992. Today you find yourself paying back just $1 in real purchasing power ten years from now for each dollar you borrow today. As Commander Whorf would say if he were an economist rather than a Klingon professional practitioner of coercive violence: “Today is a good day to borrow,” for the government at least.
Robert Reich Writes About the Debt Scare

Brad DeLong summarizes Robert Reich. Today’s must read economic blog post.

Anti-green economics

Opponents of a policy change generally believe that market economies are wonderful things, able to adapt to just about anything - anything, that is, except a government policy that puts a price on greenhouse gas emissions. Limits on the world supply of oil, land, water - no problem. Limits on the amount of CO2 we can emit - total disaster.
From Anti-green economics - Paul Krugman Blog - NYTimes.com

Krugman sums most of the anti-regulation arguments succinctly.

A Short Citizen's Guide to Kooks, Demagogues, and Right-Wingers On Tax Day

No one likes to pay taxes, so tax day typically attracts a range of right-wing Republicans, kooks, and demagogues, all of whom tell us how awful we have it. Herewith a short citizen’s guide (that is, a citizen’s guide that’s short rather than a guide for short citizens) responding to the predictable charges:
From A Short Citizen’s Guide to Kooks, Demagogues, and Right-Wingers On Tax Day | Robert Reich’s Blog

Well written fact check from Robert Reich. I cringe whenever I hear people conflate taxes, income taxes and payroll taxes. When I look at images of the tinfoil hat conservatism on display at the Tea bagging, I doubt many of those people could explain the Obama tax increase in any coherent way.

Banking on the Brink

Lately the Federal Deposit Insurance Corporation has been seizing banks it deems insolvent at the rate of about two a week. When the F.D.I.C. seizes a bank, it takes over the bank's bad assets, pays off some of its debt, and resells the cleaned-up institution to private investors. And that's exactly what advocates of temporary nationalization want to see happen, not just to the small banks the F.D.I.C. has been seizing, but to major banks that are similarly insolvent.
From Op-Ed Columnist - Banking on the Brink - NYTimes.com

Krugman explains temporary Bank Nationalization as a business transaction. You may want to take notice of the fact that the plan does include the word temporary and doesn’t include the words gulag, re-education camp, or annexation of Sudetenland. This should comfort the people on the right but not the people on the far right.

Who's Running TARP? You Might Not Wanna Know

Last week, Congress’s oversight panel for the TARP funds confirmed in a report that the Treasury Department essentially has no idea what banks have done with the astronomical sums they’ve been handed.
From TPMMuckraker | Talking Points Memo | Who’s Running TARP? You Might Not Wanna Know

Nice jumping off point for discussions on what exactly is being done with all that money.

A Modest Proposal for Ending Socialized Capitalism

Socialized capitalism of the sort the Fed and the Treasury are now practicing, consisting of private gains and public losses, is untenable. On the other hand, it’s also true that giant Wall Street investments banks as well as Fannie Mae and Freddie Mac are too big to fail.
From Robert Reich’s Blog: A Modest Proposal for Ending Socialized Capitalism

Great post from one of my favorite economists. Reich’s description of bailouts as Socialized Capitalism is spot on.

The Burger King and The Tomato Serfs

In 2005, Florida tomato pickers gained their first significant pay raise since the late 1970s when Taco Bell ended a consumer boycott by agreeing to pay an extra penny per pound for its tomatoes, with the extra cent going directly to the farm workers. Last April, McDonald's agreed to a similar arrangement, increasing the wages of its tomato pickers to about 77 cents per bucket. But Burger King, whose headquarters are in Florida, has adamantly refused to pay the extra penny - and its refusal has encouraged tomato growers to cancel the deals already struck with Taco Bell and McDonald's.
From NYT

When I read this some things popped out at me. Why fight this much for the extra penny, especially if all your major competitors would also pay that penny? And why would Burger King object to its competitors paying more for the same commodity they purchase? The one answer that I kept coming back to was that to pay that extra penny is to legitimize the consumer boycott that forced the buyers to pay that extra penny.

It is interesting to note that the workers didn’t strike. They didn’t sue. They didn’t form a union. They didn’t go begging for public money. They instead went to the market and used market forces to persuade the companies. And it worked. Perhaps too well.

To stretch the metaphor, the Burger King is not going to accept the terms of an economic Magna Carta from the Tomato Serfs without a fight.

Carbon Socialists

Yeah, OK, OK. Well, I think — I mean, I think Gore would have been a disaster as president. We’d have been living in the Dark Ages. I think he’s fundamentally hostile to human civilization. And a phony.
From Media Matters - Carlson: If Al Gore were president, “[w]e’d … be living in yurts in the dark”

This in a nutshell is what drives me crazy about the Climate Crisis debate. People like Tucker Carlson are allowed to keep this silly dichotomy between industry and ecology; between no regulations and living in yuts. This is simply not the case. It is as dishonest as it is logically flawed.

Our atmosphere is a commons in the traditional, ECON-101 sense of the word. The position that Mr. Gore and many others are advocating is that of using market forces to limit C02 release. Requiring that industry purchase the right to dispose of C02 is a market based, capitalist solution. It rewards those who through hard work, efficiency and smart investments; limit their use of the C02 and punishes those who over-produce waste C02 by requiring that they pay for their waste. It is no different than requiring businesses to pay to have trash hauled away. Those that become more efficient produce less trash, pay less and therefore become more profitable. Those that figure out how to turn other peoples trash into their treasure also profit.

So how on earth can anyone imply that those who want to use market forces to promote more efficient and cleaner technologies are anti-industrial? That whole line of thinking is self-contradictory. No one is suggesting that we dismantle power plants and return to an agrarian economy. Let alone Mr. Gore. No one is suggesting that the government take over power production. In fact, the opposite is true. Those of us that accept the truth on global warming see that the economic boom that could be created in the post-fossil-fuel era will likely create the worlds first trillionaires as well as creating millions of new jobs in the private sector.

People like Tucker Carlson are Carbon Socialists. They defend a system where tax money is collected by scary Big-Government and is used to fund Big Government Bureaucracies to subsidize favored politically connected 18th century technology. And they rail against anything that would force those favored 18th century technologies to compete on a level playing field with modern technologies. They cling to the silly dichotomy of “Market Forces” versus “Carbon Regulation” and refuse to see that this is about “Carbon Regulation via Market Forces”.

We are the ones that are pro-industry. They are the ones that are anti-industry. We favor carbon markets. They favor carbon socialism.

The tax cut ratchet

notice that everything that happens is good for tax cuts.
If the economy is growing, and tax receipts are rising, then it shows that past tax cuts achieved wonders, plus the Laffer curve is right so let’ s cut taxes some more!
If the economy is shrinking, well, it needs a boost and what better boost than another round of tax cuts!
See, cutting taxes is always good. It makes you wonder why we ever had taxes in the first place.
From The tax cut ratchet - Paul Krugman - Op-Ed Columnist - New York Times Blog

Krugman does a bang up job exposing the tax-cut ratchet. Or tax cut racket if you prefer.

Alternative Tax Showdown

Under current tax law, 23 million taxpayers will owe the alternative tax for 2007, up from 4 million last year. The tax was originally intended to apply to multimillionaires. But most of this year's alternative taxpayers make between $100,000 and $500,000 and about a third make less than $100,000. They all have good cause to feel rooked and to expect help from Congress.
Alternative Tax Showdown - New York Times

I’m not a big fan of the AMT. I think it does more harm than good. If there is a legitimate problem with too many wealthy people taking too many tax write-offs, the right solution would be to raise the top tax bracket or to close the exploited tax loop holes. Inventing a parallel tax system might be great for tax accountants but as a tax policy solution, it is a terrible waste of time and resources. If those tax exemptions are legitimate; then so be it. A person who is entitle to write something off deserves to do so even if they are filthy rich.

I fear that the solution to the AMT crisis will be to create a SAMT (secondary AMT) for people that find that the AMT unfairly applies to them.

Nearly half think U.S. in recession

Nearly half of Americans feel the U.S. economy is in a recession, marked by a significant decline in economic activity, according to a survey released Thursday.
From CNN.com - CNN Political Ticker Poll: Nearly half think U.S. in recession <<

File this under WTF. We are not in a recession. While I think it is inevitable that we will have a recession at some point; we aren’t in one now. This is a clear indication that a large and growing segment of the population have not recovered from the last recession; five+ years ago.

Republicans Grow Skeptical On Free Trade

By a nearly two-to-one margin, Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president.
From Republicans Grow Skeptical On Free Trade - WSJ.com

File this under WTF. Three things come to mind:

  • Opinions on the economy are largely based on their personal financial situation. For a large and growing segment of the population, confidence is low.
  • People have been convinced that Free Trade means that American workers have to accept lower salaries. The idea that we can compete on greater productivity has been ignored.
  • People realize that the GOP is in favor of Free Trade except in cases where they aren’t. Like re-importation of drugs from Canada or subsidies to agri-business.
One would assume that our Free Trade agreements are actually Free Trade agreements. Mostly, they aren’t. There is a reason why the agreements are thousands of pages long. They include special exemptions for protected industries on both sides.

A real free trade agreement would look something like this:

We agree to drop tarrifs on everything we import from you and we expect you to do the same.

When the Fed says X, they really mean Y

The Fed typically convenes every month to discuss interest rates. It is not only the action (whether rates are raised, lowered, or held constant), but also the accompanying "statement" which is of interest to investors and analysts. In its statement, the Fed may signal both its motivation for the current policy decision as well as offering clues towards the future direction of rates. Unfortunately, the Fed often couches its commentary in vague language and specialized terminology, which may be difficult for amateur traders and investors to understand. The following is designed as a handy translation guide for people who wish to read and understand the Fed Statement but don't want to train for a PhD in economics.
From When the Fed says X, they really mean Y (A Handy Translation Book) | Currency Trading.net

Great post on what exactly that Federal Reserve Bank gobbeldygook means. One thing missed in the article is the phrase profit taking. When you hear anyone talking about profit taking; they are talking out of their ass.

Off-Peak Discounts May Be Part of M.T.A. Fare Increase

Under this proposal, a person who buys a pay-per-ride MetroCard would be charged $2 to ride the subway or bus during the morning and evening peak periods. Travel during off-peak periods, including midday, would cost $1.50.
Off-Peak Discounts May Be Part of M.T.A. Fare Increase - City Room - Metro - New York Times Blog

I think that the MTA has figured out how to sell peak-pricing to the masses. Rather than start off by raising the peak-price; lower the non-peak price. Market forces will work to shift some peak use to non-peak use as well as increase non-peak use. I like this. And I’d like to see the MTA try this on the bridges. Or see NJ try this on the Turnpike and Garden State Parkway.

Fed Chief Calls for New Mortgage Rules

In testimony this morning to the House Financial Services Committee, Mr. Bernanke said a full review of consumer protection regulations was under way under existing regulatory authority.
"The recent problems in subprime lending have underscored the need not only for better disclosure and new rules but also for more-uniform enforcement in the fragmented market structure of brokers and lenders," he said.
From Fed Chief Calls for New Mortgage Rules - New York Times

If you read only one article about mortgages, this should be that article.

Bernanke's `Rookie Mistake' Forces Fed to Shift Focus

“It was a rookie mistake,” said Kenneth Thomas, a lecturer in finance at the University of Pennsylvania’s Wharton School in Philadelphia. The Fed “underestimated liquidity needs” of investors and the fallout from the housing recession, he said, adding, “This demonstrates the difference between book-smart and street-smart.”
From Bloomberg News

The meeting signals Congress is looking at ways to minimize the fallout from the collapse of the subprime mortgage market, including rising numbers of foreclosures among borrowers with poor credit or high debt. Dodd has been critical of the Federal Reserve and other U.S. regulators for not taking aggressive action to rein in lending abuses sooner.
From Bloomberg News

Rookie mistake my ass. There is probably a really good reason why the Fed doesn’t seem to be attacking the problems caused by the sub-prime collapse. And I suspect it is because they have another goal in mind. Consider that this may be a shrewd effort to push back the start of the next recession at the expense of a short term crisis. While I do think Bernanke is the rare competent appointee of this administration; I think his competence is coincidental. I have no reason to doubt that he, like so many others, have their position because they demonstrated that they will be loyal Bushies. While I freely admit to being about as cynical as one can get, I suspect the following:

  • There is an effort to insure that the coming recession not start while Bush is still in office. I suspect that the Fed will do anything and everything it can to achieve that objective.
  • When the coming recession does start, the same right wing pundits who blamed the last recession on Bill Clinton will be blaming which ever Democrat is in the Whitehouse. And if you dare to point out the disjointed logic, they’ll say something about 9/11.

Then again, I could be wrong. This could just be a weird miscalculation from the Fed.

Bill to Let Medicare Negotiate Drug Prices Is Blocked

A pillar of the Democratic political program tumbled today when Republicans in the Senate blocked a proposal to allow Medicare to negotiate lower drug prices for millions of older Americans, a practice now forbidden by law.
From Bill to Let Medicare Negotiate Drug Prices Is Blocked

Can someone please explain why forbidding the Government from negotiating the best deal for the tax payers makes sense to anyone? Even in the era of no-bid contracts and crony-capitalism this is just silly.

Income inequality grew significantly in 2005

Income inequality grew significantly in 2005, with the top 1 percent of Americans - those with incomes that year of more than $348,000 - receiving their largest share of national income since 1928, analysis of newly released tax data shows.
The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.
While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.
From NYT

Another story that isn’t getting covered. This was part the last weekend’s news dump, designed to prevent anyone from hearing the story.

Sub-prime Lender Files for Bankruptcy

Once a highflier in the booming market for making risky mortgage loans, the New Century Financial Corporation filed for bankruptcy court protection today.
From NYT

Not sure how I feel about this news from the mortgage industry. Normally, I think home ownership is a net-good for society. But that shouldn’t be an excuse for lenders to make bad loans based on minimal documentation. I propose a pro-active solution: mortgage re-insurance based loosely on an FDIC model. The idea is that if the mortgage you issue fits certain defined criteria for being low-risk, you can purchase low-cost insurance to protect you if the person you issue the policy to defaults. The risker the policies you issue, the more you’d have to pay to insure those policies. It might even be possible to adjust the model to provide special cases for low income and first time buyers when those buyers work to improve their credit. And like FDIC, membership to this re-insurance body would be voluntary.

I’ve always been a big fan of the FDIC. I’d argue that not only is it the most successful government program in US history; it is the most successful government program in the history of governance.

Race, poverty and skin-whitener

the very act of encouraging poor people to consume products that they don’t need may actually make them worse off. Instead of trying to get them to buy more stuff, argues Kulkarni, we should be striving to find ways to help them produce more, so we can buy from them.
From How the World Works - salon.com

A must read article on the economics of poverty and development. A must read for those who haven’t read much about micro-loans and competing development models and just want a taste of the theory and what it looks like in the 3rd world.

There's trouble brewing in Tunisia

If you wanted to support democracy in the Arab world, why did you begin with your enemies instead of your friends? Why Iraq and Iran? Why not us?
From Slate Magazine

A must read. As a progressive and a fan of Karl Popper, I’ve long felt that the right way to spread freedom is by binding US trade policy to economic and social reforms. Any and all free trade agreements with the US should include demands for government openness, human rights and labor rights. Sadly, this has not been the case. From Tunisia to Russia to China, we’ve favored cheap labor, tax dodges and easy access to oil above all foreign policy goals.

It is painful to think of what we could have done to promote democracy if we didn’t go to Iraq.

Robert Reich and earmarks

With all due respect, I think it would be a bad idea to get rid of earmarks. While it would rid us of one source of legal malfeasance, it would shift another power from Congress to the Whitehouse. History has shown this to be a bad idea with military and trade policy. I seen no reason to trust the executive with this new power.

It would be better to make it a requirement that earmarks need to be “signed” by the member of congress, a member of a committee that would oversee the spending and a member from the appropriations sub-committee.

Making this public would mean that good-earmarks will be rewarded. Bad ones punished by a news-cycle shaming. Spreading that shame around will mean that really horrid spending that would only help one district or state will simply be too politically costly for too many members. Second, members will check each other. If some bad ideas are getting sponsors, they can raise a stink and make it public with a well placed email to a local news outlet.
My response to Robert Reich

I’m a big fan of Mr. Reich’s work but I think he is wrong on this issue. Earmarks should not be banned for the exact same reason why the line item veto should never be allowed. Separation of powers. Second, why does anyone think that spending directed by the executive would be any less corruptible than spending directed by the legislature?

number six

(Bloomberg) — The U.S. lost its position as the world’s most competitive economy to Switzerland as budget and trade deficits prompted a slide to sixth in the World Economic Forum’s annual rankings.
From Bloomberg

Sadly, not surprising. This is the result six years of economic policy set by people who think that supply-side economics is capitalism and anything else is godless socialism.

Gain in Income Is Offset by Rise in Property Tax

Nationwide, property taxes grew 28 percent from 2000 to 2004, though income went up only 16 percent.
From New York Times

Anyone still willing to argue that under the Bush administration, the middle class is paying less in taxes? I for one would not be willing to defend that proposition. Likewise, anyone really willing to argue that the Bush tax cuts have stimulated the economy; now that it is clear that median wages haven’t kept up with inflation, the median household savings is negative and local taxes have grown faster than household income? And would anyone willing to defend the current state of the economy still be willing to do so if Gore or Kerry were in office?

Fuel-Efficient Cars Help Toyota to Strong Profits

TOKYO, Aug. 4 - Toyota Motor Company said its income jumped 39.2 percent to $3.2 billion during the second quarter, boosted by strong sales of fuel-efficient vehicles in the United States, where it passed Ford Motor Company in July sales to rank as the second-biggest automaker behind General Motors.
From New York Times

While the knee-jerk reaction might be a snide remark about Detroit only being profitiable when gas is cheep and the demand for giant cars is high, but I see another set of problems here.

First, the fact that Honda and Toyota can make cars in the US better than GM or Ford shows that there is a problem with management and not with the workers. Second, part of this problem is that Honda and Toyota have a much lower legacy cost. A large part of the GM sticker price is the cost of paying pensions and health care benefits for retired workers. By making health care and pensions backed by companies rather than the state, brand new US subsidiaries of foreign companies have an advantage over US firms. Lastly, the lack of a national energy policy that would put pressure on Detroit has lead to complacency. You would think that they might have learned a thing or two from the 1970s and wouldn’t be caught by surprise by the same geo-political surprise again. And you would be wrong.

So what can be done about this? First, a new energy policy targeting an overall improvement in fuel economy. Second, a national health care and pension plan overhaul to eliminate; or at least mitigate, the disadvantages of legacy costs. Lastly, there needs to be a policy of promoting long term planning so managers will be less likely to sabotage a firms future for a few good quarters.

rewards or punishments

Democrats — and I fear many Republicans — think we cut taxes to reward the rich. Democrats would raise taxes to punish the rich and to increase tax revenue for their favorite projects. Perhaps they could find some other way to punish the rich. Their demagoguery impedes economic growth and — as their phrase has it — “revenue enhancement.”
From CNN.com - Tyrrell: The supply-side miracle continues

Mr. Tyrrell has advocated spending cuts in the past. I wonder if he would object to having this categorized as wanting to punish the poor by taking away services they pay taxes for?

The fallacy in play here is called The False Dilemma. Since some people think that the Bush Tax Cuts are designed that reward certain groups, those who oppose those cuts must be looking to punish. This is of course wrong. There are any number of reason why one would object to tax cuts that have nothing at all to do with rewards or punishment.

america's rags-to-riches dream an illusion

(Reuters) - America may still think of itself as the land of opportunity, but the chances of living a rags-to-riches life are a lot lower than elsewhere in the world, according to a new study published on Wednesday.
From Reuters.com

Yet more proof that 20+ years of GOP rule has lead us backwards a hundred years. Welcome to the Trust Fund Economy.

economics

If you get your economic information from Brookings, you’re a Liberal. If you get your economic information from AEI you’re a conservative. If you get your economic information from Heritage you’re an idiot.

I read Brookings, AEI and The Hoover Institution on a regular basis. I like to think of myself as being pretty comfortable with Economic Theory. Or at the very least, comfortable enough that whenever I read anything from Heritage I wince in horror. If you brag about being endorsed by a right-wing Drug Fiend, clearly there is something wrong. AEI has Newt and Bork. People who I regularly disagree with, but respect. Heritage has Rush.

debt and stimulus

Bush supporters credit the President with cutting taxes (and, mumble mumble, boosting spending) in order to stimulate economic growth and dig us out of recession. “Works every time!” they say.
Well, duh. Borrowing $1.9 trillion and injecting it into the economy should certainly provide some stimulus. The real question is: does the extra economic growth justify the debt incurred? How long will it take to pay that debt?
From Midtopia: Debt and stimulus

BTW, while the right seems to be devote followers of the Cult of the GDP, there are two really bad pieces of news that should illustrate the damage of the Bush economic policies.

So yes, the GDP is growing. And yes, the unemployment level is low. But if those two figures are the key to economic growth, then why are so many other indicators so poor? More and more it looks like the GOP is converting this country from an opportunity economy; where wealth can be built through hard work into a trust fund economy where the state secures the wealth of the chosen few.

Iranian Oil Bourse

The Internet is suddenly alive with chatter about an “Iranian Oil Bourse,” supposedly scheduled to open for business in March 2006. Right now, the two leading oil exchanges in the world are the New York Mercantile Exchange and London’s International Petroleum Exchange. In both exchanges, trades for oil are denominated in U.S. dollars. But in the proposed Iranian exchange, oil trading will be denominated in euros.
From Salon

This is yet another problem created by the incompetence of the Bush administration. With a large and growing debt, the only thing keeping the nation from an economic collapse the the strength of the dollar. If the world oil market switches to the Euro, then any purchase of US Debt (the treasury bonds used to prop-up the Bush tax cuts, war in Iraq and the GOP pork fest of the past five years) will turn into a risker direvitive investment. If this should happen, nations that sell Oil for Dollars (OPEC) and nations that Dollar trade surpluses to buy oil (China) will have less incentive to purchase US Bonds. If oil is bought and sold for Euros, surplus Dollars held by China would buy less oil every time the Dollar losses value against the Euro. If this happens, Bond will have to be heavily discounted. The % of the budget that is used to service debt will grow every time the dollar weakens against the Euro.

I’ll end this here since this economic rant is boring, even to myself.

Buffett Sounds Warning On U.S. Trade Deficit--Again

Don’t count on a soft landing for the country’s deficit-addicted economy, Buffett reiterated Tuesday. The U.S. trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to “political turmoil”, the decorated investor warned. Buffett’s bearishness is understandable: Fixing the trade deficit—which soared to a record $665.9 billion in 2004, and is expected to top $700 billion this year—is becoming rather like turning around an ocean liner by dipping a teaspoon in the water.
From Forbes

Now that Uber Investor Buffett has become a bigger critic of the current GOP plan to starve the beast I’m half expecting FOX news to start calling him a socialist in the way they’ve called George Soros a socialist.

cant and recant

“Milton Friedman’s latest research on the Federal Reserve challenges key assumptions of a very prominent economist: Milton Friedman.”
More than any other individual, Milton Friedman was the intellectual inspiration of the conservative counterrevolution against activist government as an engine of economic efficiency and social justice. In his scholarly work contending that government intervention invariably makes things worse, and in his popular polemics equating capitalism with human freedom, Friedman inspired conservative academic economists and movement activists alike. He is the high priest of the ideology that can be reduced to a bumper sticker: Markets work; government doesn't. More narrowly, Friedman is famous for the economic theory known as monetarism and the corollary view that the Federal Reserve System works best when it is essentially passive, contenting itself with maintaining stable prices.
From American Prospect Online - Cant and Recant

So I freely admit that this isn’t on the scale of the Pope converting to Islam, it should be seen as a big deal. This is a reversal of one the key ideological planks of neocon small government, market fundamentalism.

I do agree with Mr Friedman that markets work. The problem being that they only work when the item you are dealing with can be adequately described as a commodity. For things that can not be adequately described as such, ie National Security; or those things where there are moral, social and/or other factors that cause people to reject the commodity model (ie, how much religious tolerance can you buy for a dollar?) markets are impractical in the best of cases and absurd in others.

I have to admit that I’m more of a Karl Popper guy. While Mr Popper isn’t really an economist, his views provide amazing insight on when and why markets will fail.