Lowest Net Growth In US Net Capital Stock In 60 Years

Net capital stock growth is positive when investments are greater than depreciation.  The capacity of an economy, and its productivity, are dependent upon growth in the capital stock.  For the first time in 60 years growth in capital stock has fallen to the rate of depreciation.  This has not happened in 60 years of history, so we don't know how to interpret it.  It can't be a good sign for the future of the economy if that persists.

Bush Tax Cuts Are The Major Source Of Government Debt

This article contains a graph that shows the growth in US debt up to 2016.  It breaks the sources of the debt down so that we can see what has influenced its growth.  The Bush tax cuts are responsible for most of the debt growth.  Two wars in the Mid-East, and the cost of recession are the next largest contributors to the debt.  Recessions contribute in two ways: they reduce tax revenue and mandatory transfer payments rise.  The focus of the Romney/Ryan campaign has been to blame the debt on Obama's policies.

Ryan And Obama Propose The Same Amount On Medicare

Paul Ryan and Obama propose to spend equal amounts on Medicare.  Obama's plan keeps spending growth down by $761 million in payment reductions to healthcare providers.  Ryan's plan relies upon competition between insurance companies to reduce costs.  If that doesn't work, the cost of healthcare inflation will be shifted from government to seniors.  Of course, competition between insurance companies has done little to reduce price inflation in the private market.  Its hard to see how that would change.  Furthermore,  Medicare has been more effective at controlling price inflation and administration costs than insurance companies.

China Is Not Funding US Deficits

Rob Portman was given the podium at the GOP convention to argue that Obama has not been tough on China because he needs China to fund his budget deficits.  What he didn't say is that China has stopped purchasing dollars, and other currencies, for its reserve account.  It has not done so for over a year.  The US has not depended on deficit funding from China.  I don't know how Romney can improve upon what has already been accomplished.  Moreover, Romney has not been in a position to argue against US trade deficits with China.  Bain Capital was in the business of outsourcing manufacturing to China.

Urbanization Will Drive Growth In China

Steve Roach argues that China's export based economy has experienced problems due to slowdowns in in its two largest export markets.  That is to be expected in export based economies.  He claims that China's economy will continue to be driven by the greatest urbanization movement in history.  Only 20% of China's population resided in urban areas in 1980.  Over 50% of the population lives in urban areas today and 300 million more will live in urban areas by 2030.  That is almost equal to the entire US population. The per capita consumption in cities is about twice the rate of consumption in rural areas.  Moreover, China is in a much better financial position than most western countries that are struggling to restore economic growth.  It has a large pool of savings, and its budget deficits are only 2% of GDP.

David Brooks Faults The Hyperindividualism In GOP Platform

David Brooks believes that the GOP is the party of dynamism and change and it deserves our vote, but he wishes that it had more respect for social institutions.  Usually he starts his op-eds with warm up material, and he ends with the conclusion that he wants readers to remember.  The salient paragraph in his op-ed comes earlier in the article and is quoted below:

"On the one hand, you see the Republicans taking the initiative, offering rejuvenating reform. On the other hand, you see an exhausted Democratic Party, which says: We don’t have an agenda, but we really don’t like theirs. Given these options, the choice is pretty clear."

The rejuvenating reforms proposed by the GOP are not new.  There are the same ideas that they have been selling since Ronald Reagan.  President Obama passed a healthcare bill that does a better job of curtailing healthcare price inflation than anything offered by Romney/Ryan.  It has also shown more respect for social institutions, and their contribution to individual and national success than the GOP.  Moreover, they spent more time criticizing the President's policies than they did on providing the details behind their "rejuvenating reforms" which are primarily empty slogans from the past.

Romney's 5 Points For Restoring Growth Offer Nothing New

This article lists Romney's 5 points for creating 12 million jobs.  It then compares his points with those stressed by Bush in 2004 and by McCain in 2008.  Romney has nothing new to add to the traditional GOP bag of tricks.  Moreover, the 12 million jobs that HE will create is identical to the number of new jobs that Moody's forecasts for the US in the same time period.  Moody's forecast, of course was not based upon the assumption that Romney would become the president.  Its also rather strange to hear the guy who claims that government does not create jobs argue that HE can create jobs as President.

Lies, Damn Lies, And GOP Doctoring Of Obama Video

Bill Keller, a former editor of the NYT, thinks that GOP ads that doctor Obama's video comments, are damn lies.  They go beyond normal campaign tactics by totally changing the meaning of Obama's comments.  This is from the political party that was bragging about its courage to tell the truth to Americans to delegates at the Romney coronation.

Republican's Are Tough Enough To Lead Democrat's Are Too Weak To Lead

This editorial in the Washington Post criticizes Paul Ryan's speech for being long on false criticisms of Obama, but short on details about how the GOP will lead the nation.  It concludes by challenging Romney to provide the missing details.  Romney, of course, has been worse than Ryan in providing details for good reason.  He wants to be portrayed as a tough leader who willing to make tough choices that he is unwilling to reveal.  He has been set up for his acceptance speech by Christie's keynote speech, and by Paul Ryan's speech.  They both argued that Republican's are capable of telling the truth about our fiscal problems and making the tough choices that are necessary.  They have framed the choice that American's must make in November as choice between a strong leader and a weak leader.  They prefer to run against Obama's failure to lead than about the details of fiscal policy.  We can expect Romney to put on his Captain America outfit for his acceptance speech.  His speech will be short on details and long on his experience as a leader.

Paul Ryan's Lies Are Worse Than Christie's Lies

Paul Ryan's speech was full of lies and this article in the Washington Post provides an excellent analysis of Ryan's disregard for truth.  He blames Obama for rejecting the Simpson-Bowles plan for reducing federal budget deficits.  What he doesn't say is that Obama never received a plan to reject.  That is because Ryan voted against the plan, and he convinced other GOP members of the commission to do so because it contained tax increases as well as cuts to federal spending.  Paul Ryan gets away with this because the public is poorly informed by the media. For every article like this one in the Washington Post there are many more reports that tell Ryan's version of the story.

Chris Christie Arouses The Crowd At GOP Convention

This article in the Washington Post correctly reports that Chris Christie delivered an emotional speech that brought the crowd to its feet.  It then turns to the most critical question that was raised by the New Jersey Governor's speech.  Is the governor considering a run for the GOP nomination in 2016?  The governor answered that question smartly when he was asked the same question by a TV reporter who asked him that most important question.  The governor showed his political skill by his answer.  He assumed that Romney would be elected in 2012 and that he would be renominated in 2016.  We learned nothing from that critical question that American's must be wondering about.  That is, did his speech project him into a leadership position within his party?

Some Reporters Respond Well To Lies

The Keynote Speech at the GOP convention was delivered with passion and little respect for the truth by the GOP Governor of New Jersey.  This reporter from the Washington Post was aroused by the passion, and had little concern about the truth or falsehood of the Governor's claims.  The speech aroused the crowd as well.  Governor Christie accomplished what he set out to do. The Washington Post reporter gave his speech an 11 on a scale of 1-10.  He certainly knows how to inflame a crowd.

The Washington Post had other reporters at the GOP convention.  Several were more objective.  They pointed out some of the false claims made by Governor Christie.  The Washington Post strives hard to be bipartisan.  The editors are obliged to report both sides of political stories, even when one side is based upon lies. The NYT editorial that follows this post was less willing to grade the Governor's speech on the passion that it aroused.  

A Campaign Based On Lies Upsets The NYT Editors

American's expect that politicians will shade the truth during a campaign.  Newspapers, like the NYT, usually refrain from calling the half truths lies.  Last nights GOP nomination program was so full of big lies that the NYT was compelled to call them out.  This editorial describes the most egregious lies.  They won't seem like lies to many Republicans because they believe what they want to believe.  The big question is whether independents will vote for a political party that is dependent on lying to the public.  The other question is whether the media will have the courage to better inform the public.

Harvard Business Review On American Business

HBR did a survey on US competitiveness that got a good response from their alumni.  I posted their survey results a while ago.  This issue contains several good articles by faculty in response to the issue of US competitiveness.  I was particularly interested in the article on manufacturing, and another that focused on the problems of shareholder capitalism.

David Brooks Makes Fun Of Romney

Mitt Romney must have done something to irritate David Brooks.  This is actually a funny satire on the real Mitt Romney.  That is, everyone of his multiple personalities.

The Other Part Of Paul Ryan

Many in the media like to portray Paul Ryan as a fiscal conservative.  This editorial describes Ryan's social conservatism.  He is further to the right on social issues than the president who he would serve under if elected.  His credentials as a fiscal conservative are not as solid as his positions on social issues.    He wants to cut taxes and cut government spending but his plan does not reduce budget deficits according to the Congressional Budget Office that scored his budget plan.  It actually increases future budget deficits.

David Brooks On Paul Ryan's Mistake

David Brooks argues that Paul Ryan should not have voted against the Simpson-Bowles plan to reduce budget deficits.  He accuses Ryan of giving up the good for the sake of the ultimate.  His major point is obvious.  Governing in a two party system requires compromise.  The GOP proved this by an unprecedented misuse of the filibuster after the Democrats won the presidency and both houses of Congress.  I do not agree with him, however, that Paul Ryan's plan for Medicare is the ultimate solution for Medicare.  His plan does nothing to control the rising cost of healthcare.  His plan shifts the cost of healthcare price inflation to senior citizens.  Moreover, Ryan's plan does not reduce budget deficits according to the CBO.  His tax cuts, that go primarily to the super-rich, create a burden that his plan does not overcome with cuts to government spending.  Paul Ryan is a fraud.  He is not an idealist who resists compromise because of his fiscal concerns.  He voted for the Bush tax cuts, and for Bush's expensive addition of the drug benefit to Medicare.

GOP Platform And Theocracy

I got back to Holland where I can get Internet services in time to get a review of the platform proposed by the GOP platform committee.  It was long on social values and short on anything that matters to most Americans.  In essence, the GOP would like to impose its social vision on America.  It is a vision of a world that no longer exists, if it ever did.  It is so far to the right that the Romney campaign has tried to distance itself from the platform.  The Romney campaign was not critical of the platform, however;  they need the votes from the the Cretans that will respond to the vision.  We should not ignore the platform, however, because it reflects the values of the new GOP.  It is now a political party with with two ideologies.  The utopian idea of free markets has been combined with a rejection of rationality and multiculturism.

Romney's Medicare Reform Eliminates Cost Savings And Gives Them To Insurers And Providers

Mitt Romney claims that Obamacare takes $716 billion away from Medicare and gives it to the "wrong kind of people" on Medicaid.  The $716 billion consists of costs savings that are in Obamacare.  The costs savings come from eliminating subsidies to private insurers who provide Medicare Advantage coverage, and from lower payments to healthcare providers.  By repealing Obamacare and eliminating the costs savings, Romney is not protecting benefits for senior senior citizens.  His plan provides additional funds for insurers and healthcare providers.  The Medicare trust fund will run out money much earlier than it would under Obamacare and senior citizens will see rising copayments and rising premiums in return.  This is another example of the GOP's preference for redistributing wealth upwards instead of downward.

The GOP Convention Platform Includes Far Right Social Wedge Issues

This editorial provides a preview of the GOP platform that has been developed for the coronation of Ryan/Romney.  It is loaded with socially conservative wedge issues that will excite their cognitively challenged base in the South and in rural America.  The question for the nation is whether we want a political party with a 16th century view of society to run America.  The GOP establishment may believe that it can appease the social conservatives and focus on more important things like tax cuts for their billionaire benefactors.  They may be have bitten off more than they bargained for.

The Tea Party Is Winning GOP Primaries For Bad Candidates

The Tea Party helped a social conservative to win the GOP nomination for the Senate race in Missouri. The candidate made comments about rape and abortion that went beyond what GOP leadership is willing to tolerate.  They asked their nominee to withdraw from the election but he has refused.  He defended himself by saying that he used the wrong words, but that his heart was in the right place.  He does not want to punished for what he said as long as his heart is pure.  Comments like that make him look even more foolish to the electorate.

The GOP establishment has welcomed the Tea Party into its ranks.  They help to bring out voters who are concerned about the social wedge issues that the GOP uses to their advantage.  This has been a problem in the GOP primaries.  The Tea Party candidates have defeated candidates with a better chance to win in the general election.  The GOP may regret its embrace of the Tea Party.  They made the GOP presidential candidates look foolish as they all tried to win Tea Party support.  This made the party look foolish to the general public.  America is really better than what the Tea Party represents.

Is God Punishing The GOP?

Dana Milbank reviews some of the recent events that have been bad for the GOP, and uses satire in an effort to describe what has happened to one of America's two political parties.  They have always believed that God was on their side, but perhaps she is trying to punish them.  President Obama may be the first president to be reelected in history with unemployment at 7.4%.  The only way to explain this is that God is making the GOP look foolish.  Even worse, God may be sending a hurricane to hit Tampa during the GOP meeting when the nominate Romney/Ryan.  The GOP must have done something to offend the God that they believe to be in the business of punishing sinners.

Why Madonna Is A Threat To Putin

Putin is willing to condone dissent in Russia as long as it is confined to a small elite audience.  The government may have made a mistake when it went after a rock group that it accused of hooliganism.  The government get Madonna made because she believes in free speech for entertainers.  Madonna has supported the rock group and she has been critical of Putin's government.  The threat to Putin, and to others who try to contain dissent, is that Madonna and other entertainers reach a mass audience. It is harder for governments to control the entertainment media.  Celebrities, like Madonna, are a potential threat to those who want to keep the masses in the dark.

Niall Ferguson Is Even Worse Than I Thought

Noah Smith read Niall Ferguson's Newsweek article in which he argued that we should elect Paul Ryan and get rid of Obama.  Noah found several instances in which Ferguson actually contradicted himself in the same article.  Ferguson not only misquoted the CBO in making the case against Obamacare, he was logically inconsistent.  It seems as if Ferguson started out with an intention to make a case against Obama, and for Ryan (note that Ryan takes precedence over Romney), he then threw a bunch of things together to support his conclusion with little regard for the facts or logical consistency.  He gets on the cover of Newsweek, and is invited to be a guest on one of our Sunday TV news shows by writing garbage.  His garbage is given credibility by his pedigree.  He was at Oxford and is now a tenured professor at Harvard.  There is something wrong with this picture.  The market for ideas is not self correcting.  Ferguson must have written some history that stood up to peer review and earned him tenure at Harvard.  Apparently, this gives him a license to say whatever he pleases about US politics and the economy, and it will be reported by the media.  One of the reasons for the attention that he gets is that his ideas are provocative, and they help to sell magazines and build TV viewership.  After all, these are businesses, and they make money by attracting an audience, and the advertising revenues that are based upon the size of the audience.  Another reason is that Ferguson's conclusions are welcomed by powerful people who are eager to give him a platform to advance their goals.  Unfortunately, Ferguson's poor reasoning, and misrepresentation of data,  may not affect his reputation within Harvard.     After all, Ferguson is not being criticized for writing a bad article for a peer reviewed journal.

Dana Milbank Reports On Romney/Ryan In New Hampshire

Dana Milbank is covering the GOP campaign for the Washington Post.  He reports that Romney and Ryan are long on generalities and short on facts.  For example, Romney said that he wants to repeal Obamacare and replace it with something that will create jobs. He said nothing that would help the audience to understand what he meant by something.  He knows that his audience has been taught to dislike Obamacare, and he knows that jobs are important, but he feels no need to provide specifics on any of the bromides that he and Ryan fed to their partisans.

Where Are The Conservative Intellectuals?

This article reviews a debate between Niall Ferguson, who published an article in Newsweek making false claims about the Obama healthcare plan, and Paul Krugman who corrected his mistakes.  There were a lot of good issues that could have been raised about the budget implications of Obama's healthcare plan.  Those issues were ignored.  Instead Ferguson misquoted a report by the non-partisan Congressional Budget Office to support his criticism of Obama's healthcare plan.  His misrepresentations of the CBO report have been widely criticized in the media.  He has been made to look like a fool.  That caused John Cassidy, who wrote this article, to question the intellectual quality of prominent conservatives.  The current crew does not compare well with its predecessors.  They have no new ideas.  They rely upon worn out ideas about free markets, and they depend upon misrepresenting facts. Our political debates would be more useful if they were between more capable, and intellectually honest conservatives who had their facts right, and their opponents on the left.

China's Stock Market Is At Post Crisis Low

China's stock market has been performing poorly compared with the S&P.  If the stock market reflects what might happen in China's economy it is not good news for the global economy.

Loan To Income Value Is The Best Way To Regulate Mortgage Industry

The San Francisco Federal Reserve argues that reliance on loan to home value in evaluating mortgage risk was a mistake because home prices are part of the equation and the were rising in the bubble.  It  makes the case for using income to loan value as the better metric for regulators to use.  That is better metric, but the major reason for the housing bubble is that mortgage originators were selling the mortgages to investment banks who bundled them into securities for resale.  The mortgage originators had no skin in the game, and the Chairman of the Fed refused to believe that investment banks would sell toxic securities to its customers.  He believed that markets are self regulating, and that the banks would do nothing to harm their reputation with their customers.

Paul Ryan Is No Winston Churchill

Paul Ryan compared himself with Winston Churchill.  He claims that his ideas are much like Churchill's.  This article describes some of Churchill's ideas and contrasts them with the ideology of Paul Ryan who likes to believe that he and Churchill are soul mates.

Why The Free Market Fairy Can't Reduce Healthcare Costs

Peter Orzag is the former Director of the Office Of Management And Budget in the Obama Administration.  He is currently a Vice Chairman at Citi Group.  He has a good understanding of the federal budget, and he was deeply involved in the analysis of the budgetary implications of Obama's healthcare plan.  In other words he is an expert in this field, and he relies on the non-partisan Congressional Budget Office (CBO) to evaluate the effect of legislation on the federal budget.

In this article he explains why Paul Ryan's Medicare plans (he has made some changes to his original plan) will not reduce the cost of Medicare.  He tells us the results of the CBO analysis, and he explains why the magic of the market, which is the ideology behind the Ryan plan, will not reduce the cost of healthcare.

The post below is about an op-ed by David Brooks, who is not a budget analyst and has no training, or experience in healthcare economics.  Brooks is not even aware of the CBO analysis of Ryan's Medicare plan, but he argues that the magic of the market will make Medicare affordable and save our country from bankruptcy and ruin.  More importantly, Brooks argues that Ryan's Medicare reform plan is the reason why his readers should vote for Romney/Ryan.  Its the only way to save our country.

Peter Orzag is not alone in pointing out the fallacy in David Brooks' op-ed. Kevin Drum has a shorter rebuttal.  Since Medicare is a central issue in the 2012 election other conservative op-ed writers have jumped on the bandwagon to explain why Ryan's plan fixes Medicare.  Dean Baker provides a critique of Samuelson's article which is in today's Washington Post.

David Brooks Tells Readers Why They Should Vote For Romney/Ryan

David Brooks tells his readers that the most important issue in the campaign is Medicare reform.  He gives Obama credit for making minor changes in Medicare, but he describes the Ryan plan as a bold plan that will keep our country from going to ruin.  He put on his hat as a healthcare budget analyst and discovered what nobody else has discovered in the Ryan plan.  The magic of the market will drive the cost of Medicare reimbursements down.  Senior citizens will get all of the benefits from the current system, and it will cost them and government less money than the modest Obama plan.  Paul Ryan is certainly the kind of bold leader that we need to save our country from ruin.  The only problem with Brooks' analysis is that the CBO and other policy analysis groups do not believe that the Ryan plan will accomplish what David Brooks claims for it.  In fact, the Romney campaign is telling seniors that Obama wants to cut Medicare benefits, and they intend to preserve the Medicare that they know and love.  They are not telling the electorate that they are going to change the benefits or make radical changes in Medicare.

I would just like to make another comment about this article.  David Brooks makes the claim that entitlements, especially Medicare, are our major social and economic problem.  He argues that they are driving the government to bankruptcy.  The rising cost of healthcare is certainly one of the major factors  affecting affecting the federal budget and the budgets of US households.  We certainly need to take steps to contain healthcare price inflation.  The problems that we have in the US, however, are much more serious than the cost of entitlements.  One of our most serious problems is that major news organizations give pundits like David Brooks, who has no training or credentials in healthcare economics, to say whatever he wants to say about the topic.  In turn, he gets many of his ideas from conservative think tanks that are funded by wealthy conservatives.  David Brooks is just a vehicle for polishing them up, and making them readable for a mass audience.  Some people would call this propaganda. I would agree with them.

Paul Ryan Is Making The Economist Crazy

The Economist published this article on Paul Ryan.  It is consistent with the efforts of the Wall Street Journal, and many beltway pundits, to portray Ryan as a serious thinker who has a plan to promote fiscal responsibility in the US.  But when it analyzes the Ryan plan if finds all kinds of faults with the plan.  The analysis raises serious questions about whether it is a plan at all. It is pretty clear that Paul Ryan must be held in high regard even though his plan is riddled with serious problems. The plan does not need to be serious, but The Economist must accept the idea that Ryan is a serious person if it wants to be consistent with conservative opinion in the US.

Larry Summers Has Bad News For Obama and Romney

The GOP's campaign is based upon its plans to shrink government.  Obama's budget projection calls for government's share of spending to be about the same as those projected by Romney/Ryan.  Larry Summers' analysis of government spending relative to GDP tells a different story.  He gives four reasons why government spending as a percent of GDP will increase substantially over what it was prior to the financial crisis.

The demographics of an aging population will have a huge impact on government spending.  Prior to the financial crisis, government spending on the elderly was 7.7% of GDP.  The elderly's share the population ( those with 15 years of life expectancy) will increase by 34% by 2020.  If we maintain current programs for the elderly,  the demographics show that government spending for the elderly will rise by 5.6% of GDP.

Federal debt as a percent of GDP was 36.3% prior to the crisis, and debt service as a percent of GDP was 1.7%.  If government implemented the tax increases, and spending cuts, suggested by Simpson and Bowles, which is highly unlikely, government debt to GDP would rise to 65%.  Interest rates will also return to more normal levels during this period. The combination of rising debt to GDP, and higher interest rates will cause debt service as a percent of GDP to rise to 3.2%

Government costs will also rise faster than inflation for many reasons.  Inflation will increase government spending as a percent of GDP to rise by 3.0%

Government will also have more expenses as a result of several structural issues.  Rising inequality will place a greater burden on government. We have also made unsustainable cuts in budgets that have limited the ability of the IRS to monitor tax compliance, and the ability of the SEC and other agencies to regulate commerce.  Moreover, we can't continue to defer maintenance as we have during our current budget crunch.  Increasing globalization of the economy will also expand the role of government.  Defense spending a significant share of GDP.  It is unlikely, however, that significant cuts in defense spending can be made in an era of rising international tensions.

In summary, both political parties have a plan to shrink government's share of GDP, this may be great for running political campaigns, but the realities of the situation suggest otherwise.  Government's share of spending, relative to GDP will have to increase by 2020.

Why Do Pundits Take Ryan Seriously As A Deficit Hawk?

Paul Ryan is regarded by pundits as the budget policy guru of the GOP.  He may be the best that they have, and that may be the reason why he gets so much attention.  After all, the pundits are in the business of handicapping the electoral horse race, and they need to pretend that there are two equally matched horses in the race in order to make the race interesting.  A detailed analysis of the Ryan budget, however, shows that it is not a deficit reduction plan.  The reasons are fairly simple to explain.

Budget deficits are pretty easy to understand.  We have deficits when government spending exceeds tax revenues.  Paul Ryan's plan is pretty clear about tax cuts.  His cuts to the tax rates reduced income by $4.3 trillion.  That is a big hurdle to overcome in order to reduce deficits.  He assumes that eliminating exemptions in the tax code will make his plan revenue neutral.  He does not specify the exemptions that he will eliminate.  Most of them are very popular and would be strongly resisted.  Few believe that he could find $4.3 trillion by broadening the tax base with the elimination of deductions.

Ryan's plan also includes spending cuts.  Cuts to Medicaid and other social welfare programs might reduce spending by $1 trillion.  On the other hand, he wants to increase defense spending and he does not specify other spending cuts that would overcome the $4.3 revenue loss from tax cuts.  He also assumes the $716 billion in Medicare savings that are in the Obama healthcare bill as part of his plan.  This is rather strange since his bill repeals the ACA.

If any business submitted a plan to cut its business loses that did not specify how it would overcome a $4.3 trillion loss in revenue with specific cuts in spending, and/or other sources of revenue,  it would not be taken seriously by Wall Street investors.  In fact, they would be wondering how the creator of the plan got his job. Political pundits don't have that option.  They have to assume that there is a good horse in the race. Moreover, they have also framed the race as a battle between big government and those who favor small government.  It is also a battle over eliminating the dangers of federal budget deficits.  This framing of the race is false.  The only concrete issue in the campaign is the status of the Bush tax cuts.  Obama wants to increase taxes for the super rich and Romney/Ryan want to cut them.  Deficits, don't really matter to the super rich.  Tax cuts do matter.

Global Business Executives Prefer Obama

A Financial Times poll of global business executives shows that they prefer Obama to Romney by a wide margin.  42.7% believe that Obama would be better for the global economy.  Only 20.5% preferred Romney.  Around 37% voted for neither of them.  They must believe that things will be the same no matter who is President of the US.  Most of the Romney votes may be a special case of American exceptionalism.  Romney had a slight advantage over Obama among American executives.  They know who will cut their taxes.

The Big Lie About Medicare

The Romney campaign has released new ads which claim that Obama will cut Medicare by $716 billion that will be used to enroll more "undeserving" Americans into Medicaid.  Romney and Ryan represent themselves as the saviors of Medicare.  The $716 billion represents the savings that the Affordable Care Act expects to realize from cuts to insurance companies and healthcare providers that are built into the law.  The Ryan plan, passed by the GOP House, repeals the ACA. There is nothing in Ryan's Medicare plan that will cut payments to insurance companies or healthcare providers.  His plan transfers the risk of healthcare price inflation to senior citizens.  He wants to save Medicare by radically changing the nature of the program.

This editorial does a good job of debunking the false advertising about ACA and Medicare that is paid for by anonymous contributors to GOP PAC's.  I can't understand why Democrats have not done a better job of explaining its major political achievement to the public.  They have defaulted the job to the GOP and its political allies.  The Medicare wrecking crew has been transformed into its savior.  That was an effective strategy in the 2010 election campaign, you can't blame them from giving it another attempt.

Don't Pick On Putin Or The Orthodox Church In Russia

This article describes the trial and sentencing of a rock group which was critical of Putin and the powerful Orthodox church.  They were convicted of hooliganism which is a loosly defined crime in Russia.  Many of the rock groups in the US would be convicted of the same crime if we decided to prosecute them for hooliganism. 

According To The CBO Review Of Ryan's Budget It Does Not Reduce Budget Deficits

Paul Krugman cuts through a lot of detail in the Ryan budget and uses the CBO projections to comment on the Ryan plan.  Its important to look at the Ryan plan in two parts.  In the first 10 years no changes are made to Medicare.  That is for political reasons.  Those who are currently on Medicare will not be affected by the plan.  A lot of pundits are reporting that the Ryan plan does not alter Medicare based upon what happens in the first 10 years.  After the first 10 years Medicare changes to a voucher plan.  Senior citizens will receive vouchers that they  can use to purchase insurance from private companies.  The very efficient government payment system is replaced by a large number of insurance companies.  The GOP argues that competition between insurance companies will drive costs down.  That is what we have today, and competition between insurance companies has not reduced costs.  Private insurance company premiums have risen faster than the CPI.  Moreover, since the value of the government provided vouchers increases with the CPI, senior citizens will have to pay, out of pocket, for premium increases that are greater than the general rate of inflation (CPI).  Ryan argues that his plan is like the plan that members of Congress have today.  They receive vouchers that can be used to purchase private insurance.  Their vouchers increase in value at the rate of healthcare price inflation and not the CPI.

The Ryan plan also repeals Obama's healthcare plan.  The ACA has several features in it that are designed to reduce healthcare price inflation.  The Ryan plan has no specific features in it that will affect price inflation. The cost of healthcare price inflation is shifted away from government to senior citizens.  Insurance companies love the Ryan plan because it expands their market enormously and healthcare providers have no incentives beyond what they have today to reduce provider price increases.

The Ryan plan changed Medicaid dramatically.  The government will give block grants to the states and they can do as they wish with Medicaid.  Many states will cut back on Medicaid.

The bottom line on the Ryan budget, however, is that it does not reduce budget deficits.  It cuts taxes for the wealthy, and for corporations, but the CBO concluded that the plan does not specify actions that will compensate for the tax reductions.  The Ryan plan cuts discretionary spending to 3.5% of GDP  in the out years.  Discretionary spending today around 8% of GDP, and the defense budget is at 4% of GDP.  The CBO concluded that there is no path specified in the plan that  can achieve those results.

Mitt Romney's Defense of His Taxes Shows How The Tax System Has Become Less Progressive

Mitt Romney claims that he paid at least 13% on his income for the last ten years.  That is a lower rate than most households in the US.  In addition to income taxes, most households contribute to the payroll tax.  Most households pay more in payroll taxes than they pay in income taxes.  Most of Romney's income came from capital gains and dividends which are taxed at a lower rate than wage income.  They are also not subject to the payroll tax.  Moreover, there is no payroll tax on wage income over $108,000.  Romney probably obeyed the tax laws when he filed his taxes.  The problem is with the changes in tax policy pushed by the GOP which has made the tax system far less progressive than most people realize.

Mitt Romney Introduces Ryan To His $100 Million Sponsor

Mitt Romney wasted no time in getting Paul Ryan to meet his billionaire sponsor that he took on a fund raising trip to Israel.  The Las Vegas casino mogul has promised to spend $100 million to defeat Obama.  Romney does not seem to be bothered about the propriety of his relationship with the head of a company that is being investigated for violating the US law against bribing foreign officials.

Cisco CEO Believes That The UK Provides A Model For Growth

This video of John Chambers' interview on MSNBC is interesting.  Chambers reflects the views of many CEO's.  They want a pro-business administration in the White House, and many believe that Mitt Romney is the better choice.  Chambers offered the conservative government in the UK as an example of the kind of leader that the US needs.  He suggested that Cameron's government has increased business confidence,  and it encouraged growth.  He probably used the UK as a model because it does not tax corporate earnings outside of the UK.  The US does tax foreign earnings if they are repatriated to the US.  He could have used a better example, however, of a model for growth.  The UK is experiencing a double dip recession.

Jeff Sachs Does Not Like The Ryan Budget Or The Obama Budget

Jeff Sach's writes in The Financial Times about the battle over fiscal policy in the US election.  He has nothing good to say about the Ryan budget, but it is not that different from the Obama budget.  Politics is essentially about how much government raises in taxes, and who they take it from.  It is also about how government spends it tax income.  Obama favors a more progressive tax system than Ryan, but he also cuts discretionary spending.  They both favor a smaller government.

FDR Fought The Political War We Are Having Today In 1938

"The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group, or by any other controlling private power."

I found this quote from an FDR speech to Congress April 29, 1938 that was posted as a comment on an op-ed by Paul Krugman.  The Republican Party has been taken over by right wing groups that detest democracy.  Their goal is to capture government so that it serves their purposes.  When they lose elections they block any efforts by government to limit their power.  When they win elections they attempt to make radical changes that enhance their power.  FDR was in a similar situation in 1938.  The New Deal turned government into an advocate for the public, and made it the enemy of groups that were dominant in "The Gilded Age"  The underlying political struggle that we are having today is the preservation of a democratic state that serves the public interest.  The radical right has undermined the electoral process by turning it into a contest for campaign dollars that are primarily provided by private interest groups.  It also has its own television and radio networks that misinform the public, and influence the programming of main stream media outlets which  bend over backwards to avoid being accused of  liberalism. 

Is Russia Rejecting Neoliberal Economics?

The Washington Post is running a series of articles on Russia.  This article is about the appointment of Sergei Galzev as an economic adviser to Putin.  He wants to move the Russian economy into the technology areas that will dominate the global economy.  The current economic slowdown has exposed the dependence of the Russian economy on selling its natural resources to the developed world.  Russia has a system of Oligarchic Capitalism that resulted from its effort to move rapidly into a free market economy.  Galzev views this as the failure of neoliberal  economic ideology that is sometimes called the Washington Consensus.  He looks to Japan, China and S.Korea as examples of states that have used industrial policy to grow their economies.

What Are The Real Differences Between The Parties On Medicare

Mitt Romney is campaigning in Florida by telling senior citizens that Obama plans to cut Medicare by $700 billion.  What he doesn't tell them is that his plan, and Paul Ryan's plan, also cut Medicare by $700 billion.  The difference is in how they cut the cost.  Obama's plan cuts payments to healthcare providers in his healthcare plan.  Romney and Ryan transfer some of the costs of the program to senior citizens.  The GOP gets away with its lies about Medicare because we do a poor job of informing the public about public policy.  It is not a very entertaining topic of discussion to go into the details of budget plans.  Television news is really about entertainment.

American's Are Better Off Than The Chinese But Not The Dutch

Dani Rodik shows that the income distributions for the US and China do not overlap much.  The difference in per capita GDP between the US and China provides an accurate picture of the relative standards of living in the two countries.  The income distributions between the US and The Netherlands overlaps a lot.  The bottom 50% of the Dutch are better off than the bottom 50% in the US.  That pattern is reversed for the top 50%.  The top 50% in the US does better than the top 50% in The Netherlands.  Therefore, we cannot really tell which country is better off by looking at per Capita GDP which is higher in the US.

David Stockman Explains Why Romney/Ryan Have No Plan To Restore Fiscal Balance Or Growth

The GOP has taught its base, and a few others, to sing out of a hymn book.  Romney and Ryan are singing the same songs.  The songs should be put to bed.  Ronald Reagan's Budget Director argues that they are not real conservatives.  They are advocates for the crony capitalism that is destroying the economy and our democracy.

Paul Ryan Is Well Connected To Billioinaire Donors

There has been a lot of speculation about Romney's choice of Paul Ryan for his running mate.  One of the reasons must be his relationship with the Koch brothers and other conservative billionaires.  He speaks their language.  Cut taxes for the rich and continue the subsidies that government provides to the energy industries. Pay for the benefits to the rich by cutting social welfare programs.  He also attends Koch sponsored meetings on global warming denial.  Ryan has the full package.

Paul Ryan Bombs At The Iowa State Fair

Dana Milbank is not one of the beltway pundits that admires Paul Ryan's "seriousness".  He was at the Iowa State Fair to report on Ryan's first effort on his own to stir up the crowd.  He was met by hecklers as well as by Romney supporters.  Its hard to stack the crowd with supporters at an event like the state fair.  Ryan's efforts to convince the crowd that folks like him from Wisconsin, are just like folks from Iowa,  was not a big hit.  The simple folk in Iowa seem to have a pretty good idea about Ryan's economic policies.

They pulled Ryan out of an event in Florida to send him to a more friendly atmosphere in Iowa.  They dislike what Ryan wants to do with Social Security and Medicare as much in Iowa as they do in Florida. 

Don't Fight Paul Ryan Inc. With Loser Liberalism

It makes sense to bring out some ideas from Dean Baker now that Paul Ryan has teamed up with Mitt Romney to redistribute money from the bottom 99% to the top 1%.  Romney and Ryan have put their stake in the ground.  We need to cut taxes for the rich, and deregulate our deregulated economy, in order to restore business confidence.  Its hard to imagine that corporations have lost their confidence during a period of record corporate profits;  its much easier to imagine that slack consumer demand is the major reason why they are not increasing capacity.  But that is another matter.  Some people like to believe in the confidence fairy.

In order to pay for the tax cuts for the super rich, government spending must be cut.  Paul Ryan's plan takes the hatchet to Social Security, Medicaid and Medicare in order to pay for the tax cuts.  Its easy to frame the debate as a battle between liberals, who want to take care of the losers in society, and conservatives who want to encourage the winners to grow the economy.  Its easy for liberals to lose this battle when many American's have been convinced that government redistribution of income, from the winners to the losers, will sink the economy by increasing the national debt.  Dean Baker suggests that liberals focus on the system that distributes income to the rich by setting the rules of the game.  The super rich have hired the best Congress that money can buy to rig the rules in their favor.  They extract economic rent from the system, and they don't want to pay taxes on the rents that they have received.  Its time for liberals to focus attention on the rent extracting rules of the game that lead to the maldistribution of income.  Part of the debate should be about leveling the playing field by altering the rules that enable rent extraction.

The 2012 Election Will Be A Test For Social Democracy

Romney's choice of Mitt Romney as his VP candidate makes the issues clear in the 2012 campaign.  Paul Ryan will be the poster child for putting an end to "out of control" government spending.  This article details some of the features that are included in his budget plan that was passed by the GOP House.  Robert Reich calls it social Darwinism.  We will have to wait and see how most Americans react to Paul Ryan when the details of his plan are made apparent.  The Tea Partiers may love the idea of cutting Medicaid, but they won't like his cuts in Medicare.  Its also hard to understand why they like the idea of cutting taxes for the super-rich.  But many of them have been blinded by the misinformation that they are fed on a regular basis by Fox News and talk radio junk.

Romney Picks Ryan As VP Candidate

The presidential campaign has shifted from a candidate with no economic plan to a VP candidate that has been floating a real plan for the last year.  Romney's selection of Paul Ryan as his VP candidate will increase the focus of his campaign on deficit reduction.  Ryan's plan includes tax cuts for the rich, which make deficit reduction impossible without draconian cuts in social welfare programs.  This is a risky bet, and it may suggest that Romney was playing a losing hand.  It will be difficult for him to hide from the details in the Ryan plan if that replaces his plan with few details.

Draught In US Is Worst In 800 Years And May Be New Normal

This article describes the conditions that are affecting North American weather.  Unless we are able to reduce carbon emissions, they may become the new normal.  The US has been one of the breadbaskets for the world.  Among other things, food prices will increase as a result of continuing drought.

How This Recession Compares With Prior Recessions

This article does a nice job of showing key components of the economy, and how they have performed in this recession versus historical averages.  One key difference is that government spending has decreased in the recession.  That reflects the cutbacks in spending at the state and local level in this recession.  Curiously, corporate profits usually rise in recession along with cuts in the payroll.  They have risen more rapidly in this recession than in previous recessions.  Recessions seem to be good for corporate profits.  Small businesses have not been as lucky.  They supply products and services to corporations and individuals and they are affected by a drop in demand from corporations and consumers.

George W. Bush Has Disappeared And Has Been Recycled As Mitt Romney

George Bush has been conspicuous by his absence on the campaign trail, and he has no standing in the world that he left at the end of his presidency.  Bill Clinton has played a prominent role internationally, and nationally as well on the campaign trail for Democrats.  The Republican's don't want to remind the public about the failures of the Bush administration.  Unfortunately, the policies of the Bush administration have been reincarnated by Mitt Romney.  He wants to cut taxes for the rich, and deregulate the economy just like Bush.  He also wants to partner with the conservative Likud Party in Israel on foreign policy in the Mid-East.  Romney and the Republican Party hope that the American public short memory and that it will not recognize the similarity between Bush and Romney.  After all, what is left of the Republican Party if they can't base a campaign on cutting taxes and getting government off of the backs of business and freedom loving citizens?

The Romney Campaign Represents A Culture Of Fraud

Paul Krugman is finding it difficult to stay away from his blog while he is on vacation.  Its good to have him back for a day.  He does a good job in this article of synthesizing the criticisms that others have been making about the campaign.  His focus in this op-ed is on the economic white paper that was authored by 3 of the most prominent economists in the US, who also are cloaked in the prestige provided by Harvard, Columbia and Stanford that provide them with a small share of their income.  They misrepresented the research of other economists to argue that the slow US recovery has been caused by policies adopted by the Obama administration.  The economists that they cited have made their objections public.  Mankiw, Hubbard and Taylor have been disgraced. Their institutions have also been shamed.  Unfortunately, their performance is not likely to affect them or the reputations of their universities.  Professors will continue to order their best selling textbooks for their classes as if nothing has happened.  Their books are well written and they cover the topics that most of them want to teach.  Ironically, one of the prevailing myths found in most textbooks, is the idea that economics is a positive science, and not a normative science.  The purpose of economics is to stick to the facts, and to provide an objective perspective on the economic behavior of individuals and organizations.  Politics does not intrude upon economic analysis according the textbooks.

Down With Shareholder Value

Tying CEO compensation to the stock price was a bad idea.  Corporate Boards, which are supposed to represent shareholders, primarily represent the CEO's who appointed them to the Board.  The only shareholders who influence corporations are institutional investors.  Most of them are only renters of the shares that they hold.  They buy and sell stocks to achieve short term performance goals that meet the needs of their clients as well.  Corporate management and institutional investors are linked at the hip.  They care primarily about short term financial performance.  A lot of "creative accounting" has been developed to assist in achieving that goal.

Its good to see that some of of our leading business schools recognize the folly in the singular focus on the stock price.  Efforts to change the current arrangement will be resisted by corporate managements and by Wall Street.  On the other hand,  ideas can be powerful.  Most people understand that stock prices have a momentum of their own.  They do not always serve as a good measure of management performance.  More importantly, however, corporations should have broader goals than hitting their quarterly financial targets.  In the US corporations are regarded as individuals whose rights are protected by the Constitution.  They should act more like responsible citizens of the states that have granted them those rights and protections.

Medicare and Medicaid Spending Per Enrollee Is Lower Than Private Insurance

This graph tells an important story.  Government provided insurance costs per enrollee are lower than private insurance costs per enrollee.  Part of the explanation for lower cost in government programs is due to market power.  They have negotiating power with healthcare providers that private insurers do not have.  Healthcare providers and private insurers operate in local markets.  Private insurers compete with each other in these markets.  They often make deals with supplier networks to gain advantages against other insurers.  Some might argue that private insurers provide more benefits and that is why their costs are higher.  We should keep in mind that Medicare and Medicaid provide benefits to high risk pools.  Private insurers can be more selective in choosing their clients.

Romney Is Running Against A Fictional Obama That He Created

Romney's economic plan is not winning many supporters.  His campaign is focused upon creating an image of the president that is basically deceitful.  This article describes some of the lies in his ads.  The most recent is about welfare.  Obama has responded to requests by two Republican governors to allow theme to adapt the welfare law to the needs of their states  Romney, who has been an advocate of state's rights,  attacked Obama for granting them the exemption which modifies the time period that one can remain on welfare.

Robert Samuelson Comes Out Against Romney's Tax Poliicy

Romney is in real trouble.  Even Robert Samuelson opposes his tax policy.  If he can't get Samuelson on board with his plan, it has no chance with most Americans.

More Problems For Romney's Economic Plan

The economists responsible for the Romney plan answered their critics by citing the research of several economists who are not part of their team.  This has not worked out well for them.  The economists that they cited in support of their plan, disagree with the Romney team's interpretation of their research.  Moreover, they believe that the major reason for the slow recovery is the weak housing market.  There is nothing in the Romney plan that deals with the housing market.

Dana Milbank's Daughter Is Learning To Operate Like Romney

Dana Milbank will have difficulty getting inside scoops from Romney insiders if the GOP wins in 2012.  His young daughter plays a business game on her mobile devise that is devoid of ethics.  You win by being ruthless and efficient.  Milbank describes a deal that Bain Capital did in Italy that earned Romney about $100 million.  He did not pay taxes on his profits in Italy.  The profits were somehow arranged to be taken by Bain subsidiaries in Luxembourg.  Some of Romney's other efforts to avoid taxes are described in the article.  Everything he does is within the law.  Folks like Romney have figured out how to arrange the rules so that they can be broken by those who made the rules.   Romney seems like the perfect choice for the presidency.  He does not let ethics get in the way of efficiency or success at any price. The US Chamber of Commerce, which is a Republican PAC, will love him.

Cheif Operating Officer At University Of Virginia Resigns

The COO of UVA resigned from his $450,000 job.  He was hired by the President one year ago but he has been suspected of colluding with members of the UVA Board who attempted to remove the President from office.  I doubt that another president would hire him.  He will have to find a job where a Board wants to bring in a president to do its dirty work.  Loyalty is not his strong suit.

Excellent Snapshot Of US Economic Performance

Tim Duy provides an excellent summary of the relevant statistics on the US economy and the pace of the recovery. 

A Point By Point Critque Of Romney's Claims About Obama And How He Will Restore Growth

Mitt Romney has a high powered economic team that included Mankiw from Harvard, Hubbard from Columbia,  and Taylor from Stanford.  Brad DeLong did a great job of refuting each of their claims about the failures in the Obama administration, and he also exposed the weaknesses in the Romney plan (more specifically the lack of a real plan).  Its discouraging see to economists from prominent universities engaging in this kind of hack work.  They are smart enough to know what they are doing and they chose to sacrifice their integrity for personal gain. 

This is a must read article for those who want to understand overall picture of the Republican attack on Obama's economic policies.  It is also another good expose of Romney's non-plan.  He is going to fix the economy by cutting taxes and deregulating business just as it was done by George Bush.

The WSJ Gives Another Economist An Opportunity To Embarrass Himself

Arthur Laffer is the economist who gave us the Laffer Curve.  His curve shows the relationship between tax rates and government tax income.  At some point on the curve higher tax rates lead to lower tax income.  The problem with the Laffer curve is that one cannot determine the inflection point in which the relationship between the tax rate and tax income becomes negative.  That didn't stop Republicans from using the "Laugher" curve to tell everyone that lowering the tax rate would increase tax revenue by expanding the economy.

The WSJ gave Laffer a chance to produce another Laugher moment in this op-ed.  This time Laugher uses statistics to show us that there is a negative relationship between the amount of fiscal stimulus and economic growth.  His misuse of statistics is made laughable in this critique.  Unfortunately, the war against the use of fiscal stimulus in a recession will continue.  The government should not intervene in a recession to restore employment because market forces are all that is necessary.

Who Really Cares About Small Businesses?

This article is from Elizabeth Warren's election campaign, but she makes a very good point.  Politicians don't pay much attention to small businesses.  The GOP, in particular, claims that it loves them, but they respond to lobbyists and they give subsidies and tax breaks to big business who can afford the lobbyists.  The deck is stacked against small businesses that attempt to compete against big businesses.  Some will do well, but they have to overcome stiff odds.

The Financial Times Sounds A Climate Change Alarm

Politicians are worried about the next election and problems with the economy.  Few are worried about a global food shortage or other problems that could raise havoc.  The Financial Times appreciates the fact that our economy is dependent upon the burning of fossil fuels.  It is concerned that things could get worse fast if we don't constrain fossil fuel consumption.

Robert Samuelson Attempts To Ignite A War Between Generations

Robert Samuelson hates government entitlements.  This article is intended to encourage youthful voters, who supported Obama in 2008, to vote against him in 2012.  They should do because entitlements are bad for them and Obama does not want to reduce Social Security benefits.  The GOP, and pundits like Samuelson, have worked hard to get young people to oppose Social Security for a long time.  Samuelson tells them that the benefits won't be there for them when they retire, and that their taxes will be increased to pay for today's elderly.

Samuelson is a good propagandist, however.  He tells the younger generation two stories.  The first story is largely true.  They will not have it as easy as previous generations.  Circumstances have changed and they will have more hurdles to overcome.  That story is intended to get their attention, and to make the story about the perils of Social Security more credible.  They really should be worried about how their circumstances have been changed.  Some of that is the result of government policies that enabled the financial crisis and a weak global economy.  They are being squeezed as the article suggested.  It is not, however, by Social Security.  They are being squeezed by the policies favored by those who Samuelson tells them to vote for.  He does this by telling them who to vote against.

How Have Tax Increases And Tax Cuts Affected US Deficits?

The GOP argues that Obama's plan to increase taxes will increase budget deficits rather than reducing them.  Recent history in the US contradicts their argument.  Taxes were increased in the Clinton administration and budget deficits were reduced.  We had budget surpluses during the Clinton administration.  They were squandered by the Bush tax cuts which led to large budget deficits.

This does not mean that tax increases will always reduce budget deficits, but it does show that the economy will not always shrink when taxes are raised.  It also shows that tax cuts do not always lead to economic growth, higher tax revenue and lower budget deficits. 

The same economists who wrongly argued that the Clinton tax increases would shrink the economy, and increase deficits, are making the same argument today.  Obama wants to let the temporary Bush tax cuts expire and return to where they were under Clinton. 

We should also remember why the Bush tax cuts were temporary.  The were made temporary because the long term effect of the tax cuts led to large projected budget deficits.

Massachusetts Is Leading The Way On Healthcare Cost Containment

This editorial describes legislation in Massachusetts that is designed to control spending on healthcare while preserving the high quality of care.  The law puts a cap on healthcare spending for the first 5 years.  Cost cannot grow faster than the commonwealth's GDP.  Costs will be caped below growth in GDP afterwards.  It will take a lot of work to implement the plan.  Perhaps other states will follow the lead taken by Massachusetts when it implemented RomneyCare.

Climate Change Is Not Coming; It is Here

The question is not longer whether climate change is coming.  Recent climate events in Russia, the US and Europe can only be explained by the effect of man-made changes in the climate.  We have to live with that changes to the climate that have already occurred, and we have to take steps deal with man-made changes to the climate or the costs will be catastrophic.

Tax Policy Center Analysis Of Romney's Tax Policy

It is mathematically impossible to cut the tax rates, as he proposes, and to pay for them by eliminating tax deductions.  His plan also fails to increase economic growth enough to help pay for the tax cuts provided primarily to the rich.  Drastic reductions in social welfare programs would be required to pay for the tax cuts.  In other words, the conservative Tax Policy Center's analysis shows that Romney does not have a plan at all.  The intent is there to cut taxes for the rich with no way to pay for them without destroying Medicare, Social Security and other social welfare programs.

Socialized Medicine In The UK Is Like Socialized Medicine In US Veteran Hospitals

The recent attention given the National Health Services in the UK has brought attention to this is the US.  This article, by a healthcare economist, asks why socialized medicine for veterans is OK in the US but not good for the rest of society.  His article also provides links to studies on US healthcare which raise questions about the relationship between high cost and below average benefits.

Manufacturing And US Trade Policy

This article compares US trade policy in the 1980's, which encouraged Japanese auto manufacturing in the the US, with the absence of similar policies today.  Policies in Brazil, that encouraged the assembly of Apple products in Brazil, have not been explored in the US.  Larry Summers and Tim Geithner were opponents of aggressive manufacturing trade policy in the Obama administration.

I'm Off To Europe For A Vacation

Posts will be scarce till the end of August.  Our global economic problems and political dysfunction are sure to be there when I return from Europe.  Hopefully, I will also have a better understanding about what is going on in Europe when I return.

Dysfunctional Government Blocks Another Attempt To Grow The Economy

The US economy is struggling to overcome the legacy of its busted housing market.  Millions of homeowners  have mortgage debt that is greater the market value of their homes.  Many of them will not be able to service their debt, and their lenders will suffer huge losses. The US Treasury has proposed a plan to reduce the number of mortgage defaults that are dragging housing prices down.  It is willing to subsidize the loss that will be taken by Fannie Mae and Freddie Mac if they write down the principle on some mortgages that they hold.  That would reduce the number of foreclosures and help to stabilize home prices.  The official who is in charge of Fannie Mae and Freddie Mac has refused the offer from the Treasury.  It would improve the finances of Fannie Mae and Freddie Mac which he oversees, but he argues that it would be bad for the taxpayers.  In other words, he made a public policy decision that blocks the government from implementing a program that it believes to be in the public interest.  It is not in his job description to make public policy decisions.

Unfortunately, the administration cannot remove the official without the approval of Congress.  The official was a temporary appointee  by the Bush administration when his predecessor resigned.  Republican's in Congress apparently support his efforts to block government policy.  They refuse to let the President replace him with a permanent appointee.  This is another example of actions taken by Republicans to block programs that might help the economy.  They prefer to run an election campaign in which they can blame the President for not doing enough to restore growth.

Why Should We Care If Our Politicians Are Poorly Informed

Jared Diamond wrote a seminal book about the factors that enabled some countries to prosper more than other countries.  A favorable geography was one of the factors that contributed to prosperity.  Mitt Romney referred to Diamond's book in a speech that he made in Israel.  His comments showed that he did not fully understand Diamond's book.  Geography was not the only factor that enabled some countries to do better than others.  Diamond makes the point in this article that there is no simple, and singular, explanation for complex phenomena.  Politicians, however, seem to prefer simple explanations that are consistent with their ideology.  Jared Diamond concludes that even prosperous nations, with favorable geographies like the US, will not remain prosperous if they elect politicians to high office who have simple minds.  Dysfunctional governments will make bad decisions that negate their advantages.  We are seeing some of that today in the US.  We are not husbanding our physical and human resources as well as we should.  Nations that are doing a better job of this will pass us by.

Capitalism, Not Culture, Drives Economies

This article attacks Romney's arguments that he used to explain the performance of the Israel economy.  Romney claimed that the Israeli culture is superior to Palestinian culture and that is why Israel is richer.  Cultural explanations like this are a common part of the conservative ideology.  In my view it is also difficult to separate culture from capitalism.  Economic systems have a way of creating cultures that are compatible with the economic system.

An Explanation For Capitalist Opposition To A Full Employment Economy

Many have been puzzled by the strong opposition to government efforts to stimulate an economy in recession.  This occurred during the Great Depression and also during the Great Recession.  Most economists believe that government has the tools to encourage full employment, but some economists have aligned with those who oppose government intervention in the economy.  This 1943 article by Michal Kalecki provides an explanation.

Kalecki describes the tools available to government that can establish an economy with permanent full-employment.  He then describes the opposition that capitalists would have to a full employment economy.  They only support full employment during an economic boom and they can accept unemployment during mild and short lived slumps.  The strongly oppose a permanent full employment economy.

Government deficits that are used to maintain full employment are opposed by the doctrine of "sound finance".  Government deficits and borrowing erode business confidence, and it is claimed that business will not invest in the economy when government programs affect business confidence.  Capitalists also don't like the idea that the state might be used to maintain full employment.  They would rather be in control of employment levels themselves.  Apparently, the "confidence fairy" was alive and well in 1943.

Government spending that is used to maintain full-employment creates another problem for capitalists.  They may accept programs that increase their tendency to invest, but they strongly oppose government spending that maintains consumption and the standard of living.  They will not support government investments that encroach upon private enterprise, and they don't like any government spending programs that might affect the work ethic.  The standard of living should be earned by hard work and investment.  That is how they got their living standard and others should be held to the same standard.  They like to be in the position of disciplining the work force by controlling employment and wages.  Efforts by government to weaken their monopoly over worker discipline are not welcome.

In summary, business leaders like the idea of a political business cycle.  They oppose the the idea of permanent full-employment, and they accept the idea that government might lower the interest rate, or do other things to stimulate business investment during a slump.  Unfortunately, this does not work in deep recession.  Low interest rates will not induce business investment when there is slack demand, and interest rates can reach the zero bound which may not be low enough to encourage investment.  This leaves government with the option of stimulating consumption to stimulate the economy, but business would rather cut government programs that maintain the standard of living during a downturn by invoking the doctrine of "sound finance".

Kalecki also offers an explanation for how National Socialism worked in Germany to provide full employment during the Great Depression.  A partnership between big business and the state made this possible. Government spending was directed towards a military build up that stimulated the economy, but did not compete with private enterprise.  The state disciplined the labor force by using political pressure.  It was not necessary for business to discipline the workforce.  There were no elections under National Socialism so business did not have to worry about the replacement of its partner through the electoral process.  Unfortunately, one of the consequences of military build up, and the desire for conquest, is war. The ability of the state to do whatever it wanted in a one party political environment also created problems. The failure of the democratic process to fix the economic situation made this possible.

The Political Economy Of The Republican Party Described And Critiqued

The Financial Times provided a platform for leading Republican's to describe their ideology and policy proposals in a series called Right Thinking.  It has been useful to put their ideas together in a series so that they can be digested and understood.  Stephen Ratner's critique of right wing ideology, and its policy agenda was made much easier.  He went to the cupboard and the cupboard was bare.

Tom Friedman Asks Why Romney Did Not Hold His Fund Raiser In Vegas Instead of Israel

Romney did not go to Israel to learn more about foreign policy in the Mid East.  Tom Friedman calls it for what it was.  It was part of Romney's effort to raise funds from Sheldon Adelson, the Las Vagas billionaire, and his right wing supporters of the Likud government.  For some reason, many US evangelicals are also aligned with the policies of the Likud government. Romney included some of them on his trip. They don't have much money but they get out the vote.

Friedman is not only critical of Romney.  He doesn't like politicians using Israel as wedge in US politics.  The GOP is primarily guilty of that.  They have attempted to portray Obama as an Anti-Israel President.  His policies, like those of several Democratic governments,  have been supportive of Israel,  but they have also been shaped to facilitate the peace process in the Mid-East. Romney and Likud leaders are only interested in a peace that is defined by them.

Why National Health Service Was Proudly Featured In The Olympics Ceremony

Many Americans were puzzled about the attention that was given to Britain's NHS in the opening ceremony. They don't understand why the public, and even conservative politicians in Britain, are proud of the NHS.  The US healthcare system provides excellent healthcare for those who have insurance, but millions are not covered by insurance, and there is political resistance against policies which extend coverage to the uninsured.  The NHS covers everyone at less cost per person than the inefficient US system that relies upon private insurance and a cumbersome payment system that increases the overhead burden for healthcare providers.  The US system also reduces the take home pay of insured workers who have less money to spend on other goods and services as their share of insurance premiums rises faster than inflation.

Defenders of the US system make their appeal primarily to ideologies that have been successfully embedded in the US culture.  There is a powerful anti-government sentiment, and many Americans have been told that government programs will take away the consumer sovereignty that all consumers are supposed to have.  Ironically, there is strong public support for Medicare in the US, but there is not enough popular support for extending Medicare to everyone to influence Congress.  Lobbying by insurance companies, and healthcare providers, has had the dominant impact on healthcare policy in the US.

Independent Analysis Of Romney Tax Plan

This study of the Romney tax plan shows that it shifts the tax burden to the middle class.  Romney proposes huge cuts in tax rates that would be paid for by reducing tax expenditures.  He argues that this would stimulate the economy.  Romney does not specify the tax expenditures that he would cut. Probably because many of them, like the mortgage interest rate tax deduction, are very popular. This study reviewed all of the potential tax expenditure cuts, that might be used to pay for the tax rate cuts, and concluded that they made the tax system less progressive.  They had more of an impact on the middle class than on high wage earners.  It also concluded that potential increases in economic growth from the tax cuts would not pay for the reduction in the tax rates.  The Romney tax plan is just a continuation of GOP tax policies that redistribute the tax burden from the rich to the middle class.  There are good reasons why the super rich tend to vote Republican.  They are better informed about tax policy than the middle class.  It makes perfect sense for Republicans to favor those who contribute to their campaigns as long as many in the middle class will vote against their economic interest because they are poorly informed.

Central Bankers Share Some Of The Blame For Financial Crisis

Andy Haldane offers a response to a question asked by the Queen.  She wanted to know why economists were unable to see the problems in the financial system.  Haldane's answer is that central bank economists were blinded by false confidence in the assumptions that are built into their economic models of the economy.  The assumptions are false, and therefore, the models failed to reflect reality.

This is not discussed in the article, but the period of  "great moderation" in the economy contributed to the false confidence in the models used by central bankers.  They had successfully used these models to contain inflation, and to moderate business cycles for 30 years.  One of the reasons why central bankers allowed the real estate bubble to inflate was that they were confident that could manage any economic problems that might occur.  They were wrong.

Decrease In Government Spending Is Responsible For Slow US Recovery

I was surprised to see this article coming from the WSJ. It totally deflates the campaign rhetoric of the Romney campaign which blames the slow recovery in the US on excessive government spending, and on the federal stimulus.

GDP has grown only 2.2% in the current recovery.  It is the slowest post WW ll recovery in US history. The major difference between this recovery and previous recoveries is that government spending has declined by 1.5%. Government spending increased by an average of 1.9% in our previous recoveries.  Since 2010, state and local spending has decreased by 2.4%.  Federal spending has also declined  by 0.2%.  It is pretty clear that out of control government spending is not the cause of the slow recovery.  Decreases in government spending is a big part of the problem.  Cuts in government spending also have a negative effect on private spending.  Unemployed state and local workers are forced to cut back on their spending as well.