What The Far Right Does When It Has No Good Arguments

This article describes the campaign developed by George Bush's minister of propaganda, Karl Rove, to counter the powerful effect of Obama's Buffet Rule. Its the kind of response that one might find among children arguing in the school playground. They are taking out ads suggesting that if Buffet and Obama believe that taxes on the wealthy are not high enough, they are free to write a check to the IRS. They probably picked up on this idea by observing some of the comments on the Internet by their supporters, who went back to their childhood experiences on the school playground, making the same argument. This indicates that the propaganda campaign will be successful with the cognitively challenged who have never left their childhood playgrounds.

Homespun Advice On Investing From Warren Buffet

Words of wisdom from Warren Buffet. You should copy this or print it and read it whenever you have some cash to invest. The only caveat that I would make is that equities are volatile. The longer you can wait before you may need to sell them, the safer they are.

Are Macro Models Of The Economy Useful Or Even Good Theories?

This post is primarily for economists who are debating whether the macro economy requires a foundation in micro assumptions about human decision making. The post, and the comments that follow, illustrate some of the issues regarding the value of macro economic models based upon rational expectation assumptions. Frankly, I am skeptical of these models for another reason. Even though they have little practical value in predicting what might happen in the real economy, they are used to argue that government cannot affect business cycles because expectations will change when folks understand what government may do, and that will counter the actions taken by government.

Greg Mankiw Stoops To A New Low As A Member Of Team Republican

Greg Mankiw was hired by George Bush and now by Mitt Romney for a good reason. He is a very smart guy who is willing to use his brains and his position at Harvard to play on the republican team. Most of the time he is more subtle. This post shows that he has lost his touch. He commits one of the most common abuses of statistics. He chose the dates on a graph to show how the employment to population ratio decreased in the Obama administration. If he had started the graph earlier, when Bush was in charge of the economy, it would have shown that the ratio dropped more under Bush than it did under Obama. Frankly, I did not expect that Mankiw, whose textbooks are among the highest selling economics texts in the US, would jeopardize his reputation by stooping so low. The war over the control of the US government has produced another casualty. Who will believe economists when their politics are place above the requirement for professional ethics and respect for truth telling?

Krugman Wonders Why We Have To Keep Explaining The Real Facts About Social Security

Paul Krugman picks up on the Samuelson article on Social Security and wonders why we have to wage a constant war with the folks like Samuelson. The answer is really simple. Samuelson and David Brooks, whose latest nonsense is posted below, are simply doing their job. Somebody has to get paid to tell the story about the virtues of Social Darwinism. The reporters on the Washington Post and the NYT who do this are at the heads of their class. They can make things up better than the average reporter.

David Brooks Makes Up A New Political Economy With Help From The Koch Brothers

David Brooks teams up with Tyler Cowen, who is the Director of the Mercatur Center funded by the Koch family, to describe the new political economy in America. This is a perfect match of conservative opinion makers. Tyler Cowen provides a version of two sectors in the US economy, and then Brooks plays Mr. Center and describes the interplay between the two sectors as republican and democratic sectors. He takes no position on which sector will win the political battle, but as usual his last paragraph telegraphs his real position. He works in the democratic sector that is facing a transition to what must be the superior republican sector.

Tyler Cowen correctly indicates that some sectors of the economy do not face global competition and that other sectors do compete in global markets. Competition in global markets has made the tradable sector brutally efficient. It will become even more efficient over time as it substitutes capital for labor. It will become an export leader in the global market selling high value added products to the expanding middle classes in the emerging markets. The US will even become an exporter of energy by exploiting fracking technologies to extract natural gas. The efficient global sector will be highly profitable, but it will not create a lot of jobs.

The sectors of the economy that do not face international competition are less efficient, but that is where most of the jobs are being created. This sector is favored by democrats and the more efficient global sector is favored by republicans. The democrats protect the less efficient sector from privatization which would make it more efficient and they want to redistribute income from the more efficient global sector to subsidize it.

According the this analysis we have an efficient sector and an inefficient sector in our economy. Competition is what is making the global sector more efficient and that is what is needed to make the other sector more efficient. Republicans naturally favor competition and efficiency, while democrats natural favor less competition and inefficiency, which must be subsidized by the republican sector. That, of course is what politics in the US is all about. One party favors capitalism with its brutal efficiency and the other party wants the strong to protect the weak. Over time the strong must prevail over the weak. This is another version of Social Darwinism.

There are a lot of problems with this analysis. In the first place, it has always been easier to introduce productivity enhancing capital into manufacturing. We were doing that well before manufacturing was subject to the brutal forces of global competition. The efficiency gains in manufacturing today have come primarily from replacing expensive US labor with less expensive foreign labor. This is the brutal efficiency that concerns many Americans. Moreover, the consumers of these products have often been Americans. A large share of US imports are from US corporations that produce them offshore and import them into the US. Consumers get lower prices and corporations get higher profits at the expense of higher paying US jobs.

The non-tradeable services sector has always been less efficient than the manufacturing sector because it is more difficult to make many services more efficient with the use of capital. This has little to do with lack of competition in many of the service sectors. There is little evidence that privatization and competition has made the services sector more efficient as Brooks implies.

In summary, the political economy described by Brooks, with a little help from his friend, is largely a fiction. The difference between democrats and republicans is not a dispute over efficiency. Democrats like efficiency and exports as much as republicans. They also like manufacturing as much as they like the services sector. David Brooks is just doing his job when he produces his works of fiction. His job is to justify the current trends in the economy which have primarily benefited a small fraction of the population.

A Good Start On Attacking Some Myths About Public Corporations

This article makes a good contribution towards increasing discussion about three of the myths about public corporations. The first myth is that corporations are private enterprises. When the founder of a business sells shares of the corporation to the public it is no longer a private business. it is regulated as a publicly held enterprise. The operation of the business is turned over to managers who are employees of a business that is owned by a multiple number of shareholders who play little role in operating the business.

The second myth is that the primary purpose of the corporation is to maximize shareholder value. Prior to the development of that myth in academia, corporations were managed to provide benefits to a larger number of stakeholders. These stakeholders have invested their time and money in the corporation and they cannot easily exit by selling their shares when the management makes bad decisions.

The last myth is that executive compensation is based upon the limited supply of talented managers and the strong demand for the services of these rare individuals. Corporate boards, that have been selected by management, make the compensation decisions. The get a lot of help from compensation consultants who have selected for their expertise in justifying compensation policies. This book by a Harvard professor does an excellent job of destroying that myth by reporting on how corporate boards select CEO's.

Each of these myths would be worthy of a book. This is good start on the topics for those who are interested. There are lots of good reasons for holding publicly held corporations more accountable to their other stakeholders. Together, the decisions made by a relatively small number of corporations determine the bulk of economic activity in the global economy. They are not accountable to the public for the broad impact of their decisions.