Sunday, September 30, 2012

The Paul Ryan Selection May Have Been Worse Than McCain's Selection Of Sarah Palin

After I read Paul Ryan's Roadmap for balancing the US budget, over a year ago, I had two thoughts.  I was surprised that he would release a plan that was specific about balancing the budget. I also believed that the GOP would not be foolish enough to promote the Ryan plan.  It provided too good of a target for the Democrats to attack.  I was wrong.  Mitt Romney selected Paul Ryan as his running mate because he and his "brain trust" believed that they could sell the Ryan plan to a public that had been sold on the need for austerity.  I was wrong because they had misread the public.  They misread their success in the 2010 elections, which was inspired by Tea Party fever, as an accurate depiction of public sentiment.  The polls described in this article indicate that the public is not ready for Paul Ryan's transformation of Medicare and Social Security.  Perhaps if the GOP loses the election to an incumbent President, when unemployment exceeds 8%, they will get the message.  On the other hand, when fanatics are unsuccessful they tend to double down.  That defines fanaticism, and it may describe the ideologues in the GOP.  They may still believe that they can sell a bad product by spending millions on propaganda.

Mitt Romney's Foreign Policy Plays Well In South Carolina But Falls Flat In The Rest Of The Country

Tom Friedman describes Mitt Romney's attack on Obama's foreign policy. His basic theme is that he is tougher than Obama and those wimpy Democrats.  Its a theme that has always played well for the GOP in the red states.  Friedman argues that it reflects a vision of a world that no longer exists.  We live in an increasingly interdependent world in which the misuse of American military power can do more harm than it can do good. Apparently, Romney does not appreciate the changes that have occurred in the real world.  He has wasted too much of his energy trying to win votes, that he has already won, from those who overdose on testosterone.  Tom Friedman describes the interdependent world that requires a more nuanced version of foreign policy.

Saturday, September 29, 2012

Redistribution Is As American As Apple Pie

Politicians who claim that they oppose income redistribution don't really mean what they say.  Redistribution in the US, and in the rest of the world, is necessary and very common.  No politician could win an election by opposing the multiple forms in which redistribution occurs.  The real question is not whether there should be redistribution it is a question of degree.  This article reminds us of the many ways in which income is redistributed. 

Some of the forms of income redistribution work in reverse.  Income is transferred from the less well off to those with higher incomes.  This article does not attempt to discuss reverse redistribution but governments regularly provide subsidies and tax preferences to individuals and businesses by making the same argument that is made to support redistribution from the wealthy to the poor.  That is, they claim that it is in the public interest to so.

Friday, September 28, 2012

The Future Of Economic Growth In The US and Other Industrialized Countries

Solow's theory of economic growth gives a lot of weight to growth in productivity. Industrialized economies may have extracted as much productivity as possible out of the major innovations that enabled rapid growth in per capita income.  If we also subtract other variables that affect economic growth out of the equation, the US and other industrialized countries may experience much lower rates of growth in per capita income.  The other variables include demographics, income inequality, education, globalization, energy and debt reversal   that will reduce income growth for the bottom 99% in the US, and other industrialized countries.  Of course, emerging economies, that are just beginning to benefit from innovations that contribute to productivity and economic growth, will experience greater increases in per capita income.

There is a lot of conjecture in this analysis but it raises many interesting questions about the limitations to growth in countries that have gained the most from innovations and rising productivity.  Other innovations that might contribute to productivity and growth might alter the equation but they remain unknown.

Thursday, September 27, 2012

Romney Reverses Course By Claiming Credit For Romneycare In Massachusetts

Romney joined in with the GOP criticism of "Obamacare", which was modeled after "Romneycare".  It was the only way that he could win the GOP nomination.  In an interview with NBC he referred to his passage of Romneycare in Massachusetts as evidence of his empathy and concern for the 47% that depend upon government programs.  That won't help him with the GOP base, but they are not going to vote for Obama.  He has decided to remodel himself again to attract independents who were repelled by his comments about moochers who depend upon government.

Its probably too late for Romney to undergo another personality change.  He has fallen so far behind in the polls that even conservative pundits are being critical of his campaign.  We will see more criticism of his campaign from conservatives as the election nears.  They want to blame the loss of the election on Romney's campaign, rather than his advocacy of policies that they support.  Cutting taxes and government spending, along with deregulation and privatization are what conservatism is all about.  Conservatives do not want a lost election to reflect upon their policies.  It is essential to blame the messenger who did a poor job of selling them to the public.

Spain's Hopeless Situation

Spain is in a deep recession with high unemployment and a weak banking sector that needs a bailout.  Its struggling regional governments also need help from the central government.  In the face of these problems it must reduce its debt to GDP ratio dramatically over the next few years to meet the austerity conditions imposed on the government in order to obtain support from the ECB and other eurozone funding sources. 

Its fiscal problems are creating social unrest that will only get worse as the fiscal situation in Spain worsens.  With negative growth in GDP,  Spain must cut its budget deficits even further to reduce its debt/GDP ratio.  Unfortunately, cutting government expenditures at the same time that consumers and businesses are reducing their spending,  accelerates the decline in GDP.  This is recipe for disaster. 

Federal Reserve Bank Of Chicago President Supports Monetary Easing

This speech provides an excellent overview of the US economy as well as the global economy.  It also provides the rationale that led to the near unanimous vote of the FOMC to renew its purchase of longer duration treasuries, and mortgage backed securities.  It argues that the risks of passivity in our current situation, outweigh the risks of an  accommodative monetary policy .

Wednesday, September 26, 2012

Global Export Growth Has Collapsed

This graph illustrates the sudden decline in global economic growth.  There was a huge collapse at the onset of the financial crisis.  It recovered rather rapidly but it has be declining since its prior peak.  It is approaching negative territory today.  The decline in global export growth shows the interdependence of the the global economy.  Weakness in one major area quickly translates into global weakness.

The Consequences Of Economics Without A Moral Compass

INET is an organization with a mission to reform economics.  It was founded during the financial crisis which exposed some of the problems within the profession.  On the one hand economists pretend that it is an objective science.  Efficiency, which depends upon the allocation of resources to their most productive uses, is its guiding principle.  The current financial crisis, and many economic crises before it, has shown that economies do not do a good job of allocating resources to their most productive uses.  The dominant economic institutions have allocated resources to serve the economic interests of those who own and manage the institutions.  This failure has not had much of an influence on the teaching of economics.  Undergraduate textbooks have not been changed much by the financial crisis.  Moreover, graduate students are still being taught to develop mathematical models of the economy that, like all models, depends upon the use of simplifying assumptions.  It appears that many of the simplifying assumptions are faulty, and that important factors that have been excluded from the models, have eroded the practical value of the models.  Their claim to fame depends upon the mathematical elegance of the models rather than their practical or expanatory value.

In addition to the inability of the prevailing economic models to accurately reflect economic reality, and the inability of economic institutions to attain the minimal goal of economic efficiency,  there are also questions about the adequacy of efficiency as the goal of economic inquiry.  For example, many assume that economic efficiency depends upon income inequality.  That is true up to a point,  but it is difficult for the profession to determine the optimal level of inequality.  That would require moral and ethical judgements that the profession cannot answer.  Some research has also shown that beyond certain levels, the marginal utility of additional income declines.  The profession deals with this problem by not attempting to define the concept of utility.  Efforts to incorporate moral values and the concept of social well being are strongly resisted by the profession. Yet the worship of efficiency and undefined utility, obscures the implicit values of economics as it is practiced. Many economists claim that cutting taxes for the rich would increase the efficiency of the economy.  INET is seeking a way to incorporate moral considerations into the study of economics.  Perhaps there are some moral values that everyone might agree upon.  Making our planet inhabitable by future generations might be at the top of the list.

India As A Poor Rich Country

There are more cell phones in India than there are toilets.  India is on its way to becoming the third largest economy in the world by 2030, yet it still receives financial aid from a struggling British economy.  On the other hand, it helps to fund the IMF in its efforts to deal with the eurozone crisis.  In other words, India is a study in contrasts.  It will benefit from the movement of rural populations to urban centers, and its future looks better than its present.  Sanity in India requires that one looks at the long run while making efforts to deal with the short run problems.  For example, the central government has funded sanitation programs that are intended to provide toilets in poor rural areas.  The problem appears to be corruption at the local level.  The funds intended to provide toilets end up in the hands of local politicians. 

Social Unrest In Greece And Spain

The strike in Greece, and social unrest in Spain,  were reflected in a sharp contraction in the stock market and the Spanish bond market.  High unemployment, and the inability of governments to deal with their respective recessions,  has raised concerns among investors.

Tuesday, September 25, 2012

Both Political Parties Propose Supply Side Solutions For Economic Recovery

This article (via Harry Dolan) argues that both parties are advocating supply-side solutions for an economy that is suffering from a huge drop in aggregate demand.  The GOP takes the position that there is a shortage of capital for investment.  Therefore, they want to cut taxes, primarily for the rich, in order to stimulate investment.  The Obama administration attempted a demand side stimulus but it was not enough to compensate for the drop in demand.  They found enough money to bail out the banks, but they have done little to fix the household debt problem.  Overleveraged consumers are paying down debt instead of consuming.   In the face of political opposition from Republicans, the Obama administration has been pushing progressive supply-side solutions.  Educational reform and tax credits to businesses that invest in innovation are supply-side approaches that do little to stimulate short term demand.

This analysis is mostly correct.  Republicans, however, always promote tax cuts for the rich.  They also cut taxes for the less well off, in order to make the tax cuts appear to be fair.  That is a demand side solution for an economy in recession. Tax cuts give everyone more money to spend.  They also lead to budget deficits.  The Bush administration used demand side arguments to justify the Bush tax cuts in the 2001 recession.  The GOP congress was not concerned about budget deficits with a Republican holding the presidency.  When Obama took office they became deficit hawks.  They, and their friends in the media, shifted attention from solving the problem of high unemployment, to the problem of short and long term deficit reduction.  Unfortunately, this was a successful strategy.  The Obama administration was forced to address the deficit problem at the same time that it was attempting to fix the short term decline in aggregate demand.  It has tried to cut back on federal spending in order to appease the deficit hawks.

Since the GOP always advocates tax cuts for the rich, that is not their favorite supply side argument today.  They argue instead that businesses are not investing because they do not have confidence in the policies of the Obama administration.  Romney claims that business confidence would return if he were elected to office.  He would cut corporate taxes, and he would continue with the GOP policy of government deregulation.  They accuse the Obama administration of over-regulating the economy.  That has been a successful argument despite the fact that it is not true.  Many believe that Obama has failed to provide the regulations that are needed to prevent another banking crisis.  He has also cut back on his efforts to promote environmental policies that he advocated when he ran his campaign.

Both parties favor education reform as a supply side solution to our economic problems. Its hard to be against improving education.  Unfortunately, educational reform will do little to fix the short term problem of insufficient aggregate demand.  It is much harder to change the economic system, and some of our unemployment problems are related to changes in the economy that have led to job loss and falling wages.  Neither party will address those problems.  Moreover, both parties support educational reforms that promote the interests of those who would like to privatize the public education system.  The GOP has promoted the use of school vouchers as well as charter schools.  The Obama administration has also supported charter schools, and it does little to deal with the emergence of fraudulent for-profit colleges that have been enabled by access to government supported student loans.  A large percent of the students that they admit fail to graduate and many who do graduate are unable to find the high-paying jobs that they are promised by recruiters.  They end up with debts that they cannot service and the government is stuck with the problem of debt collection.  The privately operated colleges, on the other hand, are highly profitable and their executives are earning million dollar incomes.  Our real problem in higher education is that it is becoming unaffordable to many Americans.  Government supported colleges and universities have had to increase tuition and fees as funding from government has substantially declined over the last decade.  Students and families have resorted to student loans to finance their education.  The debate between the GOP and the Obama administration has not been about the decline in government funding.  It has been about the level of federal subsidies for student loans.

This article makes the point that both parties are doing less than what is needed to deal with high unemployment.  The GOP is a big part of the problem, but the Democratic party is also part of the problem.  The decline in union membership in the US has limited the influence of labor in politics.  The Democratic party has been forced to compete with the GOP for corporate campaign contributions.  It has also had to deal with changes in the media that has favored conservatives.  The development of cable networks has provided the GOP with its own news network.  Talk radio is dominated by conservatives as well, and most newspapers are conservative.  Forty years ago most Americans identified themselves as liberals.  Today most call themselves conservative.  The Democratic party cannot create public opinion.  It has to run elections with the odds stacked against them.

Monday, September 24, 2012

Is Macroeconomics Science Or Engineering?

This article is primarily for academics and students of economics.  It provides a good history and analysis of the battles for academic supremacy within macroeconomics.  One of the schools claims to be more scientific than the other, which may more like engineering and better for policy making.  Noah Smith, who just got his PhD in economics, explains why the distinction between science and engineering is not really valid. Rational expectation theory, and the DSGE models that were derived from it, are not really scientific in an important sense.  They are used by most of the central in the world to forecast economic outcomes, but they do a poor job of doing that.  Theories that fail to predict what happens in nature are usually disbanded in the sciences.  DSGE models are still being used by central banks, and graduate students in economics spend a lot of time learning how to build models that are not very useful.  Politicians who seek out economists to argue against government intervention in the economy will continue to use them to their advantage. Implicit in rational expectation theory is the idea that once people know what actions are being taken by government, they will modify their behavior, and negate the intended effects of the policies.  Scientism is not the same thing as science, but it wins Nobel prizes for economists who are successful at developing economic theories that more closely resemble the real sciences by developing internally consistent models that can be expressed in equations.

Romney/Ryan Announce A Housing Policy Plan

President Obama has been criticized by many for doing everything possible to rescue the "too big the fail" banks and not doing enough the help homeowners who were sold mortgages that they cannot afford to service.  That is a real policy gap that his challengers might close, and win over some voters.  The plan released by the Romney/Ryan campaign is not really a plan.  It is a joke.  They do not describe what they will do to help distressed homeowners, and they argue that they will solve the "too big to fail" problem by reforming Fannie Mae and Fannie Mac.  They have nothing to say about the "too big to fail" Wall Street banks that everyone else is concerned about.  They are still exposed to the moral hazard risk that contributed to the financial crisis.  They are able to make high risk bets with the assurance that they will be bailed out by government when they get into trouble.  The remaining Wall Street banks, that have survived, are bigger than they were before the financial crisis, and they are still too big to fail.  The Romney/Ryan plan is a signal to the Wall Street banks that they will not attempt to break them up, and it appeases the GOP faithful who put all of the blame for the financial crisis on Fannie Mae and Fannie Mac.

Romney's Plan For Economic Recovery In A Nutshell

Romney claims that he is the confidence fairy that the austerity advocates have been seeking.  If he is elected, business optimism will rise and the recovery will begin.  Apparently, businesses will increase capacity in the face of low demand for their products and services.  The confidence fairy may be disastrous for profits.

The second part of Romney's message is that he is not President Obama. Although that claim is one of the few truthful claims that he has made in his campaign, it may not be enough to win enough votes outside of the bright red states.  They will vote for the confidence fairy, and against the devil, but it may not work in states that don't believe in fairy's, and do not believe that the president is a devil.

Sunday, September 23, 2012

Wind Turbine Business In US At Turning Point

A number of market factors are forcing US turbine manufacturers to cut back on production and employment.  The industry is also faced with the loss of government subsidies.  Some actions are being taken to keep turbines, sold below production cost, from competing with US manufacturers but Republicans in Congress, allied with the oil industry, want to end the government subsidies. The turbine industry does not need this kind of uncertainty.

Saturday, September 22, 2012

Who Benefits From Entitlements And Tax Expenditures In US?

This graph (via Jared Bernstein) shows that there is some income redistribution in the US through entitlement programs.  The middle 60% of the population receives about an equal share of the benefits.  The bottom 20% gets 12% more of than an equal share, and the top 20% gets only 10% of the benefits.  There is some redistribution from entitlements, but it does not suggest that that 47% of US population consists of moochers.

Jared Bernstein also published this graph that shows which income groups benefit from tax expenditures.  Tax expenditures represent tax dollars lost by government by a variety of deductions, exemptions and tax credits that reduce taxes.  The top 20% gets 66% of the tax expenditures while the bottom 80% only receives 34%.  The top 1% gets 24% of the tax expenditures or only 10% less than the amount that goes to the bottom 80% of income earners.  This goes a long way towards reducing the progressiveness of the income tax system.  That is why the effective tax rates of many billionaires is lower than the effective tax rates of most citizens.

Voter Harrasment In The US

The Washington Post published an article that was critical of the Russian government's actions against a US agency that was working to promote fair elections in Russia.  When I read the article, I wondered why there were not international agencies working in the US to promote fairer elections.  This article describes the behavior of Tea Party inspired groups, funded by the billionaire Koch brothers, that are using a variety of tactics to keep likely democratic voters from casting their votes.  They claim to be concerned about voter fraud, which is non-existent in the US, when their real purpose is to make it easier for Republicans to win elections.  These groups are active in 30 states, and little is being done to prevent them from harassing voters.  Perhaps the US agency that has been active in Russia should worry more about democratic elections in the US.

Who Is Buying US Treasuries?

China has been reducing its holdings of US debt, but Japan has been increasing its purchases.  They both hold over $1 trillion of US debt because of their trade surpluses with the US.  Overall 53% of US debt is held by international investors.  The Fed has not been a big purchaser of US debt in recent months.  It has stopped buying short-term debt, and it has invested in longer term debt at very low rates. That has the effect of keeping mortgage interest rates low. In total, the Fed holds around 20% of US debt.  Domestic investors hold around 30% of the $10 trillion that is owed by the US Treasury.  The $16 trillion amount that is frequently discussed in the media includes debt owed to government agencies.  Most of that was borrowed from the Social Security trust fund which has been collecting more money in taxes than it pays out to retirees.

Friday, September 21, 2012

Another View Of Mitt Romney's Gaffes

This article (via Manan Shukla) comes from a foreign policy analyst who can't understand why Mitt Romney continues to get himself into trouble by displaying his ignorance of the issues.  He argues that Mitt Romney has spent the last five years running for the presidency, and that he should have spent more of that time preparing himself to be the kind of statesperson that we expect to see in a presidential candidate.  He hopes that the loss of the election may encourage the GOP to shed itself from the dominance of the Tea Party so that he can vote for Republicans again. 

My view is that Mitt Romney spent the last few years trying to turn himself into a candidate that could win the GOP nomination.  His economic policies are no different from those that have been dominant in the party since Reagan.  Elections are won by selling tax cuts and deregulation to the electorate.  The rest of the menu is a mixture of conservative social issues, and the demonization of liberals.  They have a propaganda machine at their disposal that is comfortable with the current system.  Unfortunately, Romney was the best candidate that was available to the party.  The other candidates were even worse than Romney.  He was their best hope in a general election.  Unfortunately, for Romney and the GOP,  he has not made the transition from the Tea Party persona that he adopted.  He won the governorship of Massachusetts, but he is running well behind Obama in the polls despite the poor economy.  Scott Brown, who filled the Senate seat held by Ted Kennedy, has been struggling to disassociate himself from Romney.  Voters in Massachusetts don't recognize the new Romney. 

The End Of The World As We Know It?

This is an interesting article (via Manan Shukla).  It argues that the age of modernity is coming to an end, and with it the end of the American Dream. The dream is based upon an ideology that John Steinbeck described as a view by the poor that they are "temporarily embarrassed millionaires". It is very clear that our planet cannot support a world in which every nation consumes resources at the level that resources are consumed in America today.  We are entering a period of increasing competition over access to dwindling resources.  Conservatives may be correct in their opposition to environmentalism.  They view it as a threat to the current system of free market capitalism.  They have no problem with greater use of energy saving devises.  Some may even accept current carbon trading systems. Their concern is that environmentalism will inevitably lead to greater government intervention into the economy. They view it as creeping socialism that will lead to a global redistribution of wealth.  They cannot imagine a form of capitalism with limited growth.  They may be correct.  Critics view current approaches to limiting the damages from climate change as "diet cheesecake".  They believe that the changes that will be needed to address climate change cannot occur without an implosion of the current system.  We are entering a transitory period in which a new system will gradually emerge,  but it will not be a graceful entry into a new age. 

Who Pays Taxes In America?

Mitt Romney and his fellow conservatives claim that 47% of Americans don't pay taxes.  The graph below tells another story.  It shows the total taxes paid as a percent of income.  The tax system is slightly progressive.  The highest income group pays 1% more of their income in taxes than the national average.  That is because the income tax system is progressive and they earn more of the income.  They pay a smaller share of social security taxes because no taxes are collected on income over $108,000, and only wage income is taxed.  There is no Social Security tax on capital gains, interest income or dividends.  Social Security revenues are around the same as those collected through the income tax.  All wage earners pay the 15.6% social security tax.

The GOP gets away with their claims about taxes because most Americans no very little about the tax system.  You can have a interesting conversation with your conservative friends by showing them the breakdown on taxes provided in this link.

Who Are The Real Moochers In America?

This article describes the government subsidies that have enabled a handful of Bankers to be rewarded enormously by government guarantees.  They took risks that sank the banking system, and the global economy, with full knowledge that the government would come to their rescue. 

Who Are The Non-Mioochers To The GOP Elite?

Mitt Romney told an audience of the party faithful that 47% of Americans receive some kind of government benefit.  They are the "moochers" who vote for Democrats. This brought cheers from his audience of non-moochers.  Mitt Romney, and the House Majority Leader seem to believe that only "job creators" and investors,  a grouping that does not include Democrats in their way of thinking,  are the real heroes in America that we should worship.  Romney, read his audience well when he made his plea for contributions to his campaign.  Unfortunately, there are many Republican voters who qualify as moochers in Romney's speech.  Most are collecting Social Security after working for their entire lives, while paying into the Social Security insurance system.  They may not like being called moochers.  Some of them may even get the idea that the Republican Party does not really represent their interests.  That would be a disaster for Romney and the GOP.  The post that follows ridicules some the disaster control that is flowing from the GOP propaganda machine.  They are doing what they can to discredit the messenger.  Don't pay attention to what Romney said because you would not have seen the video if it had not been released by the liberal media.  That may not work for the many of moochers who have been duped by the GOP and Fox News.  Some of them may believe their eyes.

The Daily Show Responds To Fox News Attempts To Defend Romney Video

The video of Romney's speech to a $50,000 per plate audience of donors to his campaign has been a disaster.  Fox News, and other conservative pundits have been working hard to tell their faithful that Romney did not really mean what he said.  Jon Stewart had a lot of fun with this on The Daily Show.  This link to the video will let you share in the laughter, if you missed the Daily Show.

Austerity In Britian Not Working, So Blame It On The Welfare State

The political economy in Britain is much like that in the US.  The US economy is not growing fast enough to reach full-employment, but the British economy has negative growth.  Conservatives in both countries are preaching the virtues of austerity, and screaming about the welfare state which redistributes income in the wrong direction.  One of their tactics is to create a wedge between the younger generation and the elderly who are the primary beneficiaries of of the social welfare system.  This article, for example, leans heavily on data and analyses provided by a foundation in Britain called the Intergenerational Foundation.  The article focuses primarily on the retirement benefits of a doctor who retired from the NHS.  Doctors in Britain receive an above average income, which is small relative to the income of doctors in the US, but they get a good pension when they retire. The pension system compensates them for the opportunity cost of choosing a medical career instead of a higher paying job, for example, as an investment banker.  The Intergenerational Foundation points out that working doctors will have to pay higher taxes to support retired doctors, and that they many not get as good of a deal when they retire.  This has the effect of weakening support for the retirement system among younger workers. The foundation focused on the generous pension system for doctors, however to create a more general concern for the entire social welfare system in Britain.

Conservatives in the US use the same strategy to build a wedge between younger workers and the elderly.  Many younger workers have been led to believe that Social Security will be bankrupt by time they retire.  They ought to be concerned more about the rising cost of the healthcare system in the US, which does affect the Medicare and Medicaid programs, but efforts to deal with healthcare price inflation usually run into political opposition in the US.  Conservative reform proposals in the US focus primarily on passing the cost of healthcare price inflation onto retirees.

Its good that some seem to be worried about intergenerational justice in Britain and in the US.  It would be better, however, if the focus were on the health of the planet that we will leave to our descendents.  Many do what they can to accumulate wealth to leave to their children and grandchildren.  They seem less concerned about the habitability of the environmental legacy that they pass on to future generations.

Thursday, September 20, 2012

Public Funds For Government Supported Higher Education Decline By 19.6%

This report by the NY Fed shows that the total revenue share provided by state and local governments for public higher education was 70.7% in 2000.  The total government share, which includes federal funds provided by ARRA, fell to 51.7% in 2011. School administrators have been forced to increase tuition, and to seek other sources of income, to deal with the decline in the public share of funding. 

During this same period, full-time student enrollments increased 37%.  Enrollments grew from 8.6 million in 2000 to 11.8 million in 2011 despite the increased cost burden that was shifted to students and their families.  Growth in median household income has been flat during this period.  Much of the additional cost burden has been funded with student loans.

The increase in student enrollments, during a period of rising costs, shows that students and their families are aware of the relationship between higher education and the opportunity for well paying jobs.  Politicians and pundits recognize the relationship between higher education and national competitiveness in an increasingly technical economy as well.  They have done their share, however, to respond to the shift in the cost of higher education to households with little growth in income.  This has the effect of reducing social mobility, and it has also decreased new household formation, which is a source of economic growth. 

Wednesday, September 19, 2012

Fed Policy To Stimulate Housing Market Faces Some Hurdles

The Fed has taken steps to lower the cost of borrowing.  This article describes several factors which may cause a delayed response.  The basic problem is that Fed has made it possible for banks to borrow at lower rates but there are reasons why they may not quickly provide lower cost mortgages.  They are already processing mortgage refinancing applications at their capacity.  They will have to create more capacity in order to process more loans.  In the meantime they will keep interest rates at their current low level.  The other big problem is that many potential borrowers do not meet new credit standards due to a of a variety of reasons.   In the meantime, banks will see profits rise as the spread between their cost of money and the interest rate increases.

Why The Press Should Take It Easy On Romney Gaffes

In case you need a laugh, this is good satire.  Dana Milbank explains why Romney's gaffes are good for reporters.  Four years of a Romney presidency would provide a plethora of gaffe stories for reporters.  They would be followed by Romney explaining why what he said wasn't what he really meant when he said it.

Chicago Fed President Explains Why Fed Moved To Stimulate Economy

The President of the Chicago Fed defended the Fed's decision to purchase more longer term securities in this report.  His description of the global economic outlook, and a benign outlook for inflation, provided the rationale for the his vote at the FOMC meeting.  US corporations are experiencing slower growth in the rest of the world, particularly in Europe.  Moreover, the US consumer is no longer in a position to compensate for weak demand in Europe and the rest of the world.  These forces interact with each other.  Slow growth in one region affects growth in the other region.

The recession in Europe is bad for the global economy, and the crisis in the eurozone is not easy to resolve.  The normal path for countries, such as Spain and Italy, to deal with slow growth would be to deflate its currency.  That would increase exports and decrease imports from the rest of the eurozone.  The common currency makes that impossible.  The only available solution is price and wage deflation, which takes longer to accomplish, and which can lead to social unrest.  Any solution in Europe will require economic growth someplace in Europe.

The economic problems in the US are also complicated by the political stalemate that has resulted in the pending fiscal cliff.  That problem cannot be solved prior to the election, and it may not be solvable after the election.  Current law will cause income taxes to rise and government spending to fall.  That could easily lead to a US recession.  Political dysfunction in the US exacerbates our economic problems.

Romney Rejects His Nautural Supporters

Mitt Romney's speech to wealthy donors in Florida was just right for the traditional GOP base of wealthy business people.  Ironically, his popular support in the electorate is strongest in the states that are most dependent upon government support.  They are also the states which display more of the bad behaviors that he attributes to the 47% of the population that he and his Florida donors detest.  He is lucky that they don't see themselves as among the 47%.  They form the heart of the Tea Party, and they feel superior to the "undeserving" beneath them which consists primarily of minorities.

Tuesday, September 18, 2012

What Does Poverty Mean?

This article describes what will happen to the one million children who are born into poverty through their life cycle.  It is not a pretty story.  Those who have been lucky enough to have the right parents should know this story.  Few of our politicians want to deal with it. 

Falling Wages In US Are Not China's Fault

Both political parties are engaged in China bashing as the election heads into the home stretch.  They blame currency manipulation by China as the explanation for our trade imbalance and for falling wages in the US.  Wage inflation in China, and the cost of over extended supply chains, has been reducing much of the cost advantage that China has enjoyed.  Wages in the US are falling, in large part, because of the financial crisis.  Banks are holding huge reserves, instead of lending, because they are still holding assets that they have not written down.  Money is available for large corporations who do not need funding, but credit for small businesses who need cash, is more difficult to obtain.  In any case, wage deflation in the US, is not entirely due to the wage differential between the US and China. 

Mitt Romney's Plan For The Economy Is Vague For A Good Reason

GOP pundits like David Brooks (posted below) tell us that Mitt Romney has gotten in trouble by saying foolish things that he does not really believe.  They want him to sell his economic plan for the economy.  That, however, is his real problem.  His five point plan is really written in code.  His base is able to break the code, but it remains unclear to the rest of the public, and to many in the media.  Consequently, it is not a winning story.  This article, decodes Romney's plan, and it explains why it is written in code.  If Romney was more explicit about his plan it would cost him the election.  David Brooks might vote for him, along with other conservatives who know what he really intends, but there are not enough of them to win a general election.

Being President Obama By Michael Lewis

Michael Lewis was given an opportunity to spend some time in the White House and on Air Force One with President Obama.  This article (via Alex Lamb) tells his story about the President and the job of being the President.  Michael Lewis was given a rare opportunity and he did not waste it. Paints an interesting picture of the person and the impossible job that he holds.

David Brooks Likes Romney's Policies But Tells Him To Run A Better Campaign

As usual the last paragraph in a David Brooks op-ed tells the real story.  He is highly critical of Romney's blunders.  In this case, he criticizes him for the things that he said in the video that was just released.  He told an audience of rich donors that his election would be difficult because 47% of American's don't pay income taxes.  Consequently, they are unresponsive to the GOP's basic strategy of winning elections by promising tax cuts.  They will vote Democratic because they are moochers who depend upon government handouts.  Therefore, only 5-10% of the electorate, that is not Republican is in play. 

Brooks explains that this is the kind of thing that one might say to millionaires but it is not an accurate description of those who benefit from government, and it is not a good way to win an election.  He concluded by telling us the Romney is really a good guy who makes campaign mistakes.  He wants him to run a better campaign so that he can implement the changes to the US entitlement system that he proposes.  He is not really as foolish as he appears when he speaks.

Monday, September 17, 2012

The Democratic Civil War In Chicago

Rahm Emmanuel who was Obama's Chief of Staff,  prior to becoming the Mayor of Chicago, has taken a hard line in his battle with the Chicago Teacher's Union.  It does not auger well for education policy in the US, and it runs the risk of alienating unions that have historically been part of the Democratic Party's base.  If the Democratic party becomes a version of Republican Light, politics in the US will become a battle between the radical right and an increasingly conservative center.  Both parties are reliant on corporate interests to fund their campaigns.  The loss of union power in the US has labor with no advocate in government.

Robert Samuelson Joins George Will In Criticizing Fed Policy

Predictably, two of the Washington Post opinion writers have found fault with the Fed's efforts to with persistent unemployment.  I posted George Will's critique last week.  This week Robert Samuelson makes his case against the Fed.  The FOMC debated the issues that Samuelson discusses and it voted to take the actions that it announced.  Its members include the presidents of regional Fed banks that have access to detailed economic information in their regions.  Only one of the 12 regional presidents voted against the Fed's decision to take further actions to address the economic weaknesses that they see in the economy.   Conservative op-ed writers like George Will and Robert Samuelson do not have the same information, or the same mission as Samuelson and Will.  The Fed is responsible for doing what it thinks is in the public interest.  They may make mistakes, but they are not driven primarily by ideology and the election cycle.  One cannot say the same thing about Samuelson and Will.

How Much Did The Financial Crisis Cost The US?

The St. Louis Federal Reserve estimates that the US lost $7.6 trillion of GDP growth because of the financial crisis.  Another group suggests that another $5.2 trillion would have been lost without government programs that prevented further GDP loss.  That brings the total cost of the financial crisis to $12.8 trillion.

It is difficult to determine the cost of the financial crisis but it was very costly.  The crisis in Europe was also affected by the US financial crisis.  Many of the banks were left holding toxic assets that were peddled by Wall Street banks that were taking short positions on the securities.  European exports to the US also declined because of falling demand in the US.  It is also hard to estimate the cost of lost future growth in the US, and the global economy.  Long term unemployment has eroded the value of human capital in the US, and private capital investment, as well as public investment in infrastructure, has been much less than it would have been without the financial crisis.

The economy has not been the only casualty of the financial crisis.  The financialization of the US economy during the debt driven boom also contributed to rising income inequality, and the erosion of democracy in the US.  The concentration of wealth usually leads to a concentration of political power.

The GOP Attacks Fed Policies To Reduce Unemployment

The Fed announced another round of asset purchases to deal with the continuing high level of unemployment.  The Fed will purchase mortgage securities in order to keep mortgage interest rates low.  It recognizes that the overhang of debt from the housing bubble is one of the biggest drags on the economy.  Low interest rates will stimulate demand for housing and it will enable households with existing mortgages to refinance at lower rates. 

The Romney campaign, and its allies in the media, opposes any actions by government to stimulate the economy.  They have prevented Congress from using fiscal policy to deal with unemployment, so the only tool left to government is monetary policy.  Their rationale is similar to that used by conservatives to block government attempts to stimulate growth in the Great Depression.  They were wrong then and they are wrong today.  Ironically, since the Great Depression, Republican administrations have been the strongest users of policies to stimulate economic growth.  Both Reagan and Bush cut taxes and increased government spending to stimulate economic growth.  The Fed also assisted the Bush administration by cutting interest rates.  The GOP has the uncanny ability to sing different tunes depending upon which party is in office.  It is able to get away with this because its political base is tone deaf.

Britian Risks A Lost Decade

Economic policy in the UK is essentially the liquidationist policy advocated by conservatives during the Great Depression.  Fiscal contraction will only worsen an economy that suffers from a lack of demand. The UK needs economic growth to improve its short term, and medium term prospects.  Austerity is not working.  Sensible individuals change their positions when the facts suggest that they have been wrong.  The UK government is doubling down on its austerity strategy instead.  It is a strategy that will lead to a lost decade.

Friday, September 14, 2012

The Fed Announces New Program To Keep Long Term Interest Rates Low

The Fed announced the decision of the FOMC to purchase mortgage securities and other assets to deal with the slow economic recovery in the US.  Only one of the 12 FOMC members voted against decision. The Fed remains concerned about high unemployment and a decline in median household income.  The Fed remains unconcerned about inflation; it is below its target rate of 2%

The response to the Fed decision has been mixed.  Republicans oppose any measures that might improve the economy before the election and some question the impact that the announcement might have on job growth.  The Fed believes that its policies have contributed to job growth.  The Fed has more information about the state of the economy than any other entity.  If it is concerned enough about the state of the economy to take actions which are unpopular with many on the right, we should also be concerned.

Does It Pay To Be A Teacher?

Teachers in most countries earn considerably less than other college educated workers.  The difference between teacher pay and that of other college educated workers is much greater in the US than it is in most of the industrial world.  The data from OECD in this article confirms that point.  On the other hand, almost all of the reports that I have read about the Chicago teacher strike make the point that teachers in Chicago earn more than the average worker. The post below of the David Brooks article is typical.  The assumption is that teachers should not get an education related pay premium.  They should work for psychic pay. 

David Brooks Claims That Teachers Are Overpaid

David Brooks entered into the debate about the Chicago teacher strike.  He followed his usual technique of embedding one issue with other issues that are important to him.  The quote below is specific to the issue in Chicago:

" The Chicago teachers’ strike is a test of this proposition. The Chicago school system is a classic case of a bloated, inefficient Economy II organization. The average Chicago teacher makes $76,000 a year in a city where the average worker makes $47,000 a year. Rising school costs have helped push the system deep into the red. Meanwhile, the outcomes are not good. Forty percent of students drop out and 8 percent of 11th graders meet college readiness standards".
Brooks also included comments on the best way to cut costs in education and healthcare.  To the surprise of nobody, he argues that consumer directed healthcare, which uses the price system to ration healthcare, is the solution for cutting healthcare costs.  Similarly, he argues that the use of vouchers and charter schools to privatize the education system is the best way to deal with the high cost of public education.  Somehow, he believes that private industry can attract quality teachers at lower pay, and turn out a better product while still making a profit.  I don't know what world he lives in. Charter schools have not turned out a better product and they have not lowered the cost of education.  They also have selective admission policies.  They don't want to incur the cost of dealing with special need students that consume 25% of most public school budgets.

Fossil Fuel Ad Spending Rises Against Obama

The fossil fuel industry has spent $153 million on ads this year which promote energy policies that are consistent with Romney's campaign, and critical of the Obama administrations policies. The clean energy industry has not been enthusiastic about Obama's policies either.  They have not increased spending to combat the fossil industry ads. This is a big change since the 2008 campaign when both McCain and Obama were promoting green energy.  The fossil fuel industry spending on ads opposing Obama policies is second only to ads about the president's failure to produce jobs.  The industry has also been a major contributor to PAC's that run ads opposing Obama.  The fossil fuel industry fears Obama but the green energy industry no longer loves him.

Thursday, September 13, 2012

Inequality In US Rises During Recovery

The top 5% saw an increase in their incomes in 2011, while middle class income fell and income in the bottom of the distribution continued to stagnate.  Median household income fell to around $50,000.  That is 7% below what it was in 2007.  Of course, there is no problem of income inequality in the US, and the middle class is doing fine.  The real inequality problem, according conservatives, is the gap between the middle class and the bottom tier.  That can be fixed by improving the education system and by changing the culture of those in the bottom tier.  They will be fine if they were willing and able to work harder.

George Will Invokes The Confidence Fairy And The Threat Of Inflation Against Fed Policy

Its time to post another of George Will's syndicated columns.  In this article he tells us that business is not hiring or spending its retained earnings because of uncertainty created by Fed policy and by the Obama administration.  Apparently, they would not even invest in capacity if they were unable to satisfy demand for their products and services.  Most economists believe that business confidence would be restored quickly if more orders were in their pipeline.

Most of the article was devoted to a critique of the Federal Reserve.  The Fed has a dual mandate to achieve price stability and employment stability.  George Will is true believer in the myth of free markets.  He does not want the government to interfere with the operation of oligopolistic capitalism, which he recognizes as the free market.  In particular, he does not want the Fed to do another round of quantitative easing which might increase employment.  There is division within the Fed about the effectiveness of another round of quantitative easing which keeps long term interest rates and mortgage rates at low levels.  Will, predictably quotes FOMC members who oppose another round of quantitative easing in this article.  He does not quote FOMC members who are very concerned about unemployment and who advocate another round of quantitative easing.  He argues the Tea Party's favorite enemy, besides Obama, i,e., Wall Street is behind the push for more easing.

Will concludes by arguing that the Fed will create inflation by keeping interest rates low.  Inflation is risk when the demand for goods and services is greater than the capacity available to satisfy the demand.  He argued, however, that lower interest rates are having no effect on demand.  He can't have it both ways.  There is no risk of inflation without a rapid rise in demand that low interest rates does not produce according to Will.  We should worry about inflation rather than deal with the problem of inflation.  Wills problem is ideological.  He wants the world to adhere to his believe system.  He is in the business of selling that ideology to his public.

Romney Criticized For Politicizing Attacks In Libya

One of the standard criticisms of President Obama by the GOP is that he is not a real American and that he apologizes to foreigners for America's international behavior.  Mitt Romney used that line to attack the president following the attack on the US embassy that resulted in the death of the US Ambassador.  Of course, it was not true.  Romney continues to feed red meat to the Tea Party as if he were running his primary campaign.  The Tea Party feeds on these kinds of lies.  They tweet them to each other and they are incorporated  into the chain emails that they forward to each other.  He will win their votes by feeding their fantasies.  His problem, however, is that he already has their votes.  He is losing the respect of the media, and he is forced to apologize in press interviews each time he provides a feeding frenzy for the Tea Party.

Carbon Disclosure Project Report

The CDP did a study of the efforts by 250 of the largest corporations in the world on their efforts to better manage scarce natural resources and contain carbon emissions.  Price Waterhouse Coopers (PWC) was an advisor to the project and wrote the report on their findings.  The problem has attracted the attention of many corporations.  Unfortunately, most are driven by short term financial goals.  The emission containment targets are well below what is needed to arrest the progress of climate change.

Wednesday, September 12, 2012

Why Carried Interest Should Not Be Taxed As Capital Gain

Much of Mitt Romney's income at Bain Capital was taxed at the 15% capital gains rate, rather than the 35% rate that is paid on wage income.  It also escaped the 15.6% social security tax and the Medicare tax.  Those taxes only apply to wage income.  Obviously, it is better to earn one's income through capital gains than by wages that are taxed as ordinary income.  This article suggests that it would be more practical to tax the carried interest earned by hedge fund managers and private equity managers as ordinary income than to attempt an increase in the capital gains tax rate.

Hedge fund managers and Private equity managers charge their investors a 2% fee which is taxed as ordinary income and they earn 20% on the profits that are earned.  The profits are taxed as capital gains even though the hedge funds managers, and private equity managers, have not put up the capital that it is at risk.  On the other hand, someone who earns a living managing a portfolio for mutual fund earns a salary that is taxed at ordinary income.  There is little difference between what the mutual fund manager does and his counterparts who manage hedge funds and private equity funds.  They are both managing other people's money.  It does not make sense to tax carried interest as a capital gain. It should be easier to change this tax benefit than it would be to increase the capital gains tax which has a much wider base of support.  Capital gains also include gains from inflation, which are difficult to compute and which should not be subject to taxation.

Paul Krugman Calls Romney's Tax Plan A Fraud

Romney's tax plan does not add up.  Krugman reflects the dominant view that has surfaced about Romney's tax plan.  He can't cut tax rates and achieve revenue neutrality without raising taxes on the middle class.  Krugman claims that Romney must of have believed that he could get away with a plan that does not add up because Paul Ryan has been successful by doing the same thing.  Perhaps the rules of the game have changed.

I posted an article below by Washington Post Editorial Board that reaches a similar conclusion.  It describes the problems with Romney's plan have been the source of widespread criticism, and it exposes the weaknesses in the plan that have been supported by prominent conservative economists.  Apparently, it is no longer sufficient to win a debate by finding a conservative economist with the capability of twisting data around to support nonsense.  There is a large supply of economists with those skills, but there is also a good supply of economists, as well as the non-partisan Congressional Budget Office,  that do not support the "new math" that requires 2+2 = 5.

Washington Post Editor's Skeptical About Romney's Tax Plan

Mitt Romney's has proposed a 20% cut in taxes to stimulate the economy.  He claims that the tax cut would be "revenue neutral".  That is, cutting the tax rates will not result in a loss of tax revenue to the government.  This editorial raises questions about the mechanisms in his plan that will compensate for the revenue lost by cutting the tax rates.  The editors, and many economists do not believe that it will be revenue neutral.  It raises questions about the two mechanisms that are assumed to compensate for the rate cuts.

One mechanism in Romney's plan is the broadening of the tax base.  He broadens the tax base by eliminating deductions from gross income that shrink taxable income.  He is not specific, however, about which deductions that he will eliminate.  Many of the deductions, such as deducting the interest paid on mortgages, are very popular.  In a sense, Romney wins by telling the public that he wants to cut the tax rates, and he also wins by not telling the public which popular deductions that he will eliminate. The editors are properly skeptical about the willingness of Congress to eliminate popular tax breaks.

Another problem with broadening the tax base is that the deductions under consideration would shift the tax burden from wealthy tax payers to the middle class.  That is because the gain from eliminating deductions for the wealthy not compensate for the loss of income by cutting their tax rates.  Romney points to a study by a conservative economist, Martin Feldstein, who did an analysis which argues that it does not shift the tax burden.  Feldstein is a prominent economist from Harvard who has been a reliable source of disinformation in support of conservative policies.  His analysis has been rebutted by numerous economists who claim that his math is faulty.  The Post editors are similarly skeptical about Feldstein's supportive analysis.

The other mechanism that Romney's plan uses to support his claim for revenue neutrality, is that the tax cuts will stimulate the economy.  His plan assumes that growth in the economy will provide a second source of tax revenue to pay for his tax cuts.  Romney found another economist from an ivy league college (Princeton),  who proclaimed that economic growth from the tax cuts would overcome the revenue lost from cutting tax rates.  That argument was used to justify tax cuts by Reagan and by Bush that turned out to be wrong.  The Congressional Budget Office is also skeptical of the use of "dynamic scoring" which makes questionable assumptions about future growth in the economy.

The Post concludes that Romney plan does not pass its "smell test".  They will not give him a good grade on his tax plan unless he is more clear about the specific deductions that he will eliminate, and they are rightly skeptical about his use of dynamic scoring to pay for tax rate cuts.  Most economists agree with the Post editorial.  It is unfortunate, however, that Republican's have a ready of source of prominent economists from ivy league colleges that can be relied upon to justify conservative policy proposals.  Martin Feldstein is chief among them.  He recruited conservative economists to Harvard and he headed the National Bureau Of Economic Research.  He is highly skilled at his job.  He knows how to manipulate data to reach any conclusion that he wants to make.  He has been doing this successfully for his entire career.

German Court Supports Parliament Bill To Fund ESM

The eurozone created the European Support Mechanism (ESM) which operates much like the International Monetary Fund (IMF).  It collects funds from its member states, and it has been using those funds to recapitalize the banks in peripheral countries that are at risk of failure.  The German Parliament passed a bill that authorizes Germany to contribute to the ESM.  Euroskeptics, on the left and the right, oppose the bill.  They requested Germany's highest court to rule on it.  The court determined that the  democratically elected Parliament had the right to determine Germany's contribution to the ESM.

 German support for the ESM was essential.  It could not function without support from Europe's largest economy. The European Central Bank (ECB) will also help out the stressed countries in the eurozone.  It will purchase bonds from the stressed countries in order to keep the cost of servicing the debt manageable.  Private investors in those bonds have demanded a risk premium that is unaffordable.

Markets across the world reacted positively to the decision by the German court. The euro also rose in value relative to the dollar.  A negative decision by the German court would have been a serious blow the the euro and to the general movement toward European integration.

Tuesday, September 11, 2012

Republicans And Democrats Are The Unemployment Problem

Economists have academic debates about whether US unemployment is a structural problem or due to a lack of demand.  Ezra Klein does a nice job of describing each of these explanations for unemployment.  Neither Romney or Obama are talking much about the unemployment problem.  They prefer to talk about things that voters seem to want them to talk about.  Obama knows that Republicans will not let him do anything about the problem, so he talks about fixing education.  Romney would rather talk about making job creators happier, than government policies that might help the unemployed.  In other words, the politicians, and perhaps naive voters, are the problem.

The Implications Of Romney's Deficit Reduction Plan

This article provides a good analysis of what can be derived from the incomplete budget plan that has been proposed by Mitt Romney.  His plan may not even reduce budget deficits because it makes assumptions about increases in economic growth that will come from his proposed tax cuts.  Even if we grant him the assumptions that he makes, it is still a bad plan.  It shifts more of  the tax burden to the middle class which increases income inequality, and it limits investments in the future that are needed to close the job gap that resulted from the recession.

Wind Power Can Produce 50% Of Global Energy Needs

The article, (via Mark Thoma) reports on a study at Stanford and the University of Delaware on the use of wind power.  The study found that the upper limit on the use of wind power was much higher than had been previously believed.  The limit was based upon the problem that develops when the number of turbines in use rises.  The use of more turbines, at that limit produces, no more usable energy.  The investigators suggested that half of the turbines should be located in the sea, and that the other half should be located in identified high wind land areas across the globe. This looks like a promising development.

The CIA Was Unable To Convince The Bush Administration About The Threat From Bin Laden

This article, based upon classified information that has been released, and from interviews, suggests that the neoconservatives in the Pentagon wanted to attack Iraq.  They advised President Bush to ignore warnings from the CIA and to keep his attention on Iraq.  It turned out that the Pentagon was wrong but the neoconservatives got what they wanted anyway.  They used the Bin Laden attack to justify the invasion of Iraq.

Improving Public Education By Crushing Teacher Unions

I did not post this article in order to take sides on the battle between the teacher union and the Mayor of Chicago who was President Obama's Chief of Staff.  I posted it to make some more general points.  Everyone wants to improve the public schools.  Some, like Tom Friedman and even President Obama argue that it is critical to the future of the country.  On the other hand, the battle that is taking place in Chicago is similar to what is happening elsewhere in country. State and local governments are being forced to make cuts in spending because of declining tax revenues.  In many states, and in most localities, spending on education is a major item in their budgets. The positive relationship that used to exist between government and the public schools has deteriorated as government has looked for ways to cut spending.  Teachers in Chicago had a contract that gave them a 4% raise.  The Mayor wants to void the contract, and he wants to have teacher evaluations, and future pay, based upon student performance on standardized tests. This is similar to what a manufacturer might do with production workers.  The factory worker produces a commodity and management would like more and better widgets to be produced per hour. The workers have no control over the definition of quality, and they have no control over the quality of the materials and tools that they use to increase their productivity.  Teachers are being put in a similar position.  They have little control over the tools that they have been given, and the standardized tests that are used to evaluate them are imposed on them as the measure of quality. They are also being asked to produce a commodity with a production process that ignores the differences between the students that they are teaching. Teaching used to be regarded as a profession.  Whats happening in Chicago, and elsewhere, turns teaching into a production process.  Moreover, the teachers are being asked to make financial sacrifices as their working conditions, and respect from the community deteriorate.  The public education is in a doom loop.  The efforts being made to improve the system will make it worse.  Furthermore, the worsening of the system will open the way for entrepreneurs, to skim the cream by only accepting the better students, and leave the most difficult students to be taught by what remains of the public schools.

This is the kind of thing that one might expect from Republicans.  The Democratic Party has only been a little better than the Republicans on education reform.

Monday, September 10, 2012

The Design And Development Process For The iPhone

This article takes advantage of information culled for Apple's patent battle with Samsung to provide insights into the design and development of the iPhone.  The iPod was Apple's most important product, and Steve Jobs took the risk of obsoleting it because he feared that cellphone vendors would eventually kill the iPod by putting music and video on cellphones.  Apple's design and development process for the iPhone is well documented in the article.

Sunday, September 9, 2012

OECD Data On Poverty Rates

This article provides a graph that shows the poverty rates in OECD countries.  Poverty is defined as income below one half of the median household income.  In the US that would put households with incomes below around $28,000 in the poverty category.  The data show poverty levels before and after the use of transfer payments that go to low income households.  The US is close to the OECD average in pre-transfer poverty rates.  It is much below the OECD average in post-transfer poverty rates.  That does not stop Republicans, however, from blaming poverty on the use of transfer payments which reduce the incentive to work.  The Ryan/Romney plan contains large reductions in transfer payments on the premise that we can't afford the cost and/or that it will encourage individuals to work harder.  The GOP premise is an article faith.  It is certain, however, that cuts in transfer payments will increase the post transfer payment poverty rate in the US.  That is what happens when the magic of the labor market determines the poverty rate.

Two Tornadoes Hit New York City

Tornadoes are no longer rare in NYC.  Two touched down on Saturday and tropical rain forced the suspension of playoffs in the National Open tennis tourament.  There have been several tornadoes in the area since in the last few years.  Of course, the increase in extreme weather patterns has nothing to do with global warming.  At least that is what those who also reject evolutionary theory believe.

Business Uncertainty And Slow Job Growth

Dean Baker is highly skilled at using data to answer economic questions.  Many argue that slow job growth is due to uncertainty in the business community.  Those who favor this conclusion can point to a number of factors that might be responsible for business uncertainty.  Republicans like to blame it on the fear of higher taxes and excessive regulation of business. They usually restrict this critique to periods when Democrats are in office.

Businesses always face demand uncertainty.  They can deal with this by increasing or decreasing the number of hours worked, or by hiring and firing workers in response to demand changes.  It is more costly to hire and fire workers than it is to change the number of hours worked.  The data show that the number of hours worked has been dropping.  Businesses faced with declining demand have cut back on the hours needed to satisfy the observed demand.  The slow growth in jobs is the result of slow growth in demand.  It has little to do with other forms of uncertainty.

Tom Friedman Makes A Good Living By Repeating The Same Story

This is another article by a guy who has developed a great way to make a lot of money.  He keeps repeating the same story over and over and over.  He gets paid a lot of money for doing so.  His story is simple.  Hyper-globalization is inevitable.  Other nations are doing a better job of educating their kids.  Instead of having a global arms race, we are engaged in a global education race, and we are losing the race.  The implication is that we could fix our economic problems by fixing our education system.  If he is correct in his analysis, he should be more concerned with the fixing the problems in the education system.  He has nothing to offer but vignettes about education in the last place that he visited in his global travels.  This time he tells us that Estonia teaches computer programming in grade school.  Does that make teaching math, and the ability to analyze a situation, and write a decent story about what was read obsolete?  Our grade schools would be in great shape if we could do that well.  The kids already know how to use twitter and  Facebook;  they can even text while they ride their bikes.  There is nothing special about the NYT reporters who are using the same tools.  He could provide a more valuable service if he had some meaningful suggestions about funding the public schools, community colleges, and our public universities.  The lack of funding makes it difficult to attract and retain quality teachers.  School administrators spend much of the time trying to run the schools with fixed expenses and shrinking budgets.  The high cost of higher education has also created an affordability problem that prevents many from even considering the option of higher education.

We will get a similar story from Friedman after his next visit to a nation that is beating us in the education race.  He spiced this article up by telling us that Bill Clinton's speech reflected values that are outmoded in a period of hyper-globalization.  It is no longer sufficient to work hard and play by the rules to get ahead.  Globalization presents us with "future shock".  The world changes so rapidly that everyone must be prepared to adapt to rapid change by reinventing themselves as technology advances.  Apparently, most people will not be able to earn a good living by repeating the same story over and over again, and by refreshing the story with the latest catchy phrases that Friedman is so good at.

One of the reasons that Friedman gets so much attention is that everyone would like to have better education system.  Few would argue against improving the quality of education.  By focusing on the education system, however, we ignore the economic system, and the problems faced by nation states that are forced to adapt to an economy shaped by multinational corporations that put their interests ahead of the states in which they are domiciled only by choice.  They, and many of their executives are also good at avoiding the taxes that we need to fund our schools.

Student Debt Is A National Disgrace

Unlike much of the industrial world, the US system of higher education places most of the financial burden on the student.  Families without the economic means to pay for higher education have funded it by taking out student loans.  Many of these loans have gone into default.  Around half of the loans that are in default are from students who attended for-profit colleges.  They represent only 11% of those enrolled in higher education.  The for-profit higher education sector is much like the sub-prime mortgage industry in the US.  It preys upon desperate, and poorly informed individuals, by selling them a high cost product that is funded by debt. The sales pitch promises them high paying jobs upon graduation.  Many of their customers fail to graduate, and many who do graduate, fail to find the high paying jobs that were promised.  The Department of Education supports this industry by making the loans available.  Efforts to curtail the predatory operation of these schools has been thwarted by lobbyists who write much of the legislation for Congress.  The student debt problem, however, is not restricted to the for-profit higher education sector.  Students who attend non-profit colleges also fund much of the cost with debt.

This article describes the operation of the private debt collection agencies that are hired by the Department of Education to collect on the defaulted loans.  The story is not pretty.  The government has introduced new programs than might benefit many indebted students but the collection agencies do not inform the debtors about their options and the Department of Education has done a port job of informing them either.  In a sense, the collection agencies have done their job.  The Department of Education receives a greater share of defaulted debt than most lenders.  That is partly due to the legal restrictions on debtors to take advantage of bankruptcy protection.  Most of those in default, are also hit with penalties and fees that substantial increase the amount owed.

The student debt problem is not only devastating for those in default.  Many students are servicing their debt, but they do so at a substantial cost.  They are having more problems starting households and they have less money to spend on other things.  We have created a new generation of young people who start out their lives as debtors.

Saturday, September 8, 2012

Obama Would Win By A Landslide In Europe: Why Is It A Contest In The US?

This survey by Pew (via mainlymacro) shows how European's would vote in the presidential election. It raises many questions about what might contribute to such a wide divergence in opinion between Europe and the US.  Corporate ownership of the media, and the lack of a viable public television network in the US, may be one of the major differences.  Europe has experience with newspapers and yellow journalism, but TV coverage of the news by the BBC, for example, is more critical and rational than what one finds in the US.  Fox News may be an outlier in the US, since it is a form of yellow journalism transformed to TV, but the major TV networks are not critical of most of the lying and irrationality that comes from the far right.  They also run political ads that would run into legal challenges if they were commercials for a product or a service.

I agree that the media are a big part of the differences that exist.  The media, however, receive a constant flow of information from "think tanks" that are funded by far right interest groups.  The think tanks are also a source of the talking heads that appear on the news shows.  They also provide a lot of the material that finds its way into the print media. Unfortunately, the far right has had an influence on academics as well.  For example, the Mercatur Center was founded by the Koch brothers and corporations like Enron. Its mission is to provide academic legitimacy to far right ideas such as deregulation, global warming denial, and regressive tax policies.  It also does what it can to raise questions about progressive issues such as rising income inequality.  The far right has also been effective in linking christian fundamentalism to conservative politics.  The growing popularity of far right ideas in the US is not an accident.

Friday, September 7, 2012

Bill Clinton Framed The Political Debate Best

Paul Krugman argues that Bill Clinton framed the campaign debate correctly.  Eight years of GOP policies left the economy in a mess.  Now they want to clean up the mess by going back to the policies that created the mess.  Cutting taxes for the super-rich, deregulating the economy, and cutting back government support for those most damaged by the recession is the medicine proposed by the GOP.  There is no reason to believe that the medicine that created our economic problems is the best perscription for fixing our problems.

He gives Obama some credit for restoring the economy which is on a path to recovery.  He downgrades his grade, however, for failing to do anything about our most critical problem.  He took the advice of Tim Geithner and did little to deal with the debt overhang problem of households that are unable to service their mortgage debt.  Interestingly, he did not mention the Affordable Healthcare Act in his list of accomplishments by the administration.

Thursday, September 6, 2012

The GOP Plan Is For A Return To Supply Side Economics That Does Not Work

Republican's favor as supply side version of economic cycles.  They favor that approach to business cycles over a demand side version which calls for government spending to compensate for declines in consumption and business investment.  Implicit in the supply side argument is that tax cuts, less government regulation and less government spending is the medicine for moderating the business cycle.
There is little evidence that this works, but it provides the rationale for cutting taxes for the wealthy and for limiting the role of government in areas that don't directly benefit the super-rich.

What Is The Message To Take Out Of Bill Clinton's Speech

To beltway reporters the message has little to do with the content of his speech.  Its really about the personal rivalry between Bill Clinton and Obama.  That is what they feed upon in Washington.  After all that is their value added versus the rest of the press.  They live in Washington and they have cultivated insider information and gossip which they love to report.

Where Have The Democratic Bill Clinton's Been?

This is a transcript of Bill Clinton's speech at the Democratic convention.  I don't know why every Democrat running for office is not out giving the same speech.  Its easy to understand why the GOP did what it could to get him out of politics.  He is smarter than most of them and he is a master at making a potentially complex problem understandable to anyone who is willing to listen.

Energy Sources And Uses In The US

The Congressional Budget Office released three nice graphs which provide a good description of energy sources and their use in the US.  Oil is the major source of energy.  It is used primarily for transportation and industrial production.  Coal is the the second major source of energy. It is used primarily to create electricity.  Natural gas is the third source of energy that is used primarily by households for heating.  Nuclear energy is primarily used to provide electricity.  Renewable sources energy are growing but they are still a minor source of energy.

Household consumption of energy has been flat in recent years.  Household appliances have become more efficient but the increasing use of central air conditioning has expanded and wiped out the efficiency gain.  Perhaps faster population growth in the sunbelt explains part of the growth in the use of air conditioning.

Household Balance Sheets Are Getting Better

We are recovering from a balance sheet recession.  The good news is that household debt has been steadily deleveraging during the recovery.  That slows down economic growth but it also paves the way for a return to full employment.  It would have been better if fiscal policy had compensated for the decline in private spending as household and private industry cut back on spending.  The GOP, however, did everything that it could to prevent that from happening.  They understood that their opposition to fiscal policy would slow the recovery and give them a better chance for victory in 2012.

The Better Economic Question

Bill Clinton did a masterful job of framing the 2012 election.  The real question is not whether you are better off after the Great Recession.  Voters should be forward looking.  They should be making a decision about what kind of country they want to have.  Do they want a winner take all economy that continues to favor the super rich like the Koch brothers and Mitt Romney, or do they want an economy that favors billionaires like Warren Buffet and Bill Gates?  Mitt Romney and his billionaire friends want an economy in which they garner all of the benefits, and in which they do not have to pay a fair share of the taxes.  They favor a government which organizes the rules to favor them, and asks little from them in return.  They also favor a government that lets the financial system engage in the practices that created the Great Recession.

The public should also understand that the recovery period for a person who suffered a heart attack is different from the recovery of an individual who had a bad cold.  A recovery from a deep recession is also different from a recovery from a mild recession.  More new private sector jobs have been created under Obama than were created in eight years of the Bush administration.  It takes a longer time to get out the big hole of the Great Recession, and Republicans have made things more difficult by destroying public sector jobs at the state and local level, and by blocking efforts to create jobs.  They have also focused attention on budget deficits instead of job creation, but they have no plan to reduce budget deficits.  That is because they have no realistic way to compensate for the loss of $5 trillion of tax cuts that primarily benefit the super-rich.

Wednesday, September 5, 2012

The International Press Raises Concerns About Reliance On Lying In US Politics

This article in Der Speigel raises questions about the prevalence  of lying by US politicians running for office.  It lays the blame on weak support for editing in the media, which is struggling with falling revenues, and by the ubiquity of the social media in spreading its favorite lies.  It argues that both sides are stretching the truth but that the GOP is winning the lying contest by a wide margin.  It also raises a question about the ability of the media in the US to continue in its role of holding politicians accountable in its  historical role as the fourth estate.

The article raises good questions about politics in the US which has become more partisan.  Politics in the US has become more like war.  The GOP, in particular, has the objective of destroying the Democratic Party.  It is the only thing that stands in the way of its radical agenda to implement a far right political agenda.  The media is caught between a rock and a hard place.  It has usually attempted to give equal weight to the information flowing from both political parties.  It is becoming more difficult to uphold its position of neutrality under current circumstances.  They are more comfortable blaming both parties for shading the truth, and they find it difficult to accuse one party of being more deceptive than the other.  We have also seen the emergence of media outlets that are better described as arms of the Republican Party.  Fox News has been very successful in promoting the conservative agenda, and its popular success has intimidated the main stream media which they have painted with a liberal brush. Talk radio shows in the US are dominated by figures like Rush Limbaugh who spreads the conservative message to his adoring public.  Even great newspapers like the Wall Street Journal, which is now owned by the yellow journalism tycoon, Rupert Murdoch, has become more partisan in its reporting.  Before Murdoch, the WSJ used to confine its politics to its editorial page.  Its reporting is no longer immune from political influence.

A Conservative's Response To Day One At Democratic Convention

Day one in Charlotte was all about Obama, and that suggests that the Democratic Party has no future.  The GOP convention was not all about Romney.  It featured rising stars like Chris Christie, Paul Ryan and Marco Rubio.  They are the future of the GOP.  The Democratic Party does not have rising stars to showcase.  It is stuck with Obama.  Moreover, the Democratic Party's success has been dependent upon providing government programs that are no longer affordable.  America can no longer afford the programs that have enabled it win elections in the past.

I guess Republican's who appeal to the Tea Party crowd in the GOP are the future of the party, and the future of America.  It might also be true that it will marginalize the GOP and its "rising stars" who seem to be dependent upon misinforming the public. There will always be a segment of the electorate that believes in the lies that it wants to be told.  Hopefully, they will remain a minority.

Michelle Obama Offers Her Version Of The American Dream

This article is among many of the responses to the first lady's speech at the Democratic convention. Democrats loved it, and it will be difficult for most Republicans to really hate it.  She articulated her version of the American dream by the paths taken by she and her husband. They both came  from families with limited means, who encouraged, and supported them to do what was necessary to move up the socioeconomic ladder.  Moreover, they have not forgotten those who have been left behind.  It is incumbent upon those who succeed to support the efforts of others to realize their potential.

Mitt Romney has also achieved his dream.  It is also the dream of many American's who would like to achieve great wealth.  The question might be raised in the minds of many Americans, however, is whether Mitt Romney will have the same commitment to providing opportunities for others to realize their potential.  His efforts to avoid taxes, by taking advantage of every loophole available to him, suggests that he is less willing to pay for the programs that make it possible for the less fortunate to succeed.  Some might view him as one who has become successful and has closed the door behind him.

The article has a link to Michelle Obama's speech.  She has done her best to articulate her version of the American dream and that of her husband.  The public will have to decide which hope and dream they want to support.