Friday, November 30, 2012

Americans Pay Less In Taxes As Share Of Income Than They Did In 1980 But They Don't Know It

The article provides a good lead into the post below which provides a thorough analysis of the data.  Nobody likes to pay taxes, but they are conflicted about what cuts they would make in government provided services.  People also have different opinions about how tax policy affects economic growth.  There is little evidence to support the common belief that tax policy in the US is correlated with economic growth, but it is widely believed anyway.  In any case, taxes paid as a share of income are less that they were in 1980.  The tax system is also less progressive.  State and local taxes are bigger share of total tax revenue than they were in the past and they are regressive.  The payroll tax is also a larger share of total tax revenue, and it is also a regressive tax, because the tax rate declines for incomes beyond the $108,000 ceiling.  The federal income tax is a progressive tax, but it has been made much less progressive since 1980.  Unfortunately, most of the public does not know the difference between a progressive and regressive tax.  They are told that those with high incomes pay a higher share of the income taxes collected by government.  That is true, but it is because they are receiving a larger share of total income.  Since their tax rates have been reduced, the income tax has been made less progressive. 

How The Tax Burden Has Shifted In US

This article ought to be required reading for every adult in America.  A large share of our income is taxed away by government, but most American's know very little about who pays the taxes, and how that has changed over time.  In fact, the situation is even worse, because many American's are misinformed about taxes.  Its hard to imagine a more important issue in any society, and it is not part of what we teach in our civic classes.  Even college graduates no little about such an important subject.  In any case, most of what everyone needs to know is contained in the graphs provided in this article.

Thursday, November 29, 2012

Why Not Just Let The Bush Tax Cuts Expire?

Robert Reich asks a sensible question.  The Bush tax cuts went primarily to the wealthy, but they also provided some benefit the middle class.  Obama would like to eliminate the tax cuts for the wealthy but he wants to retain the middle class tax cuts.  If Obama were let the Bush tax cuts expire according to current law, he could simply propose new tax cuts for the middle class, and put the GOP in the position of voting against them.  Whats wrong with that strategy?

The Problem With The Payroll Tax

A commission was formed in the early 1980's, headed up by Alan Greenspan, to make Social Security stronger so that there would be funds available to provide for the baby boomers when they retired (right about now).  The solution was to raise the payroll tax.  The government has been collecting more money from the payroll tax than it pays out in benefits since that time.  That enabled Ronald Reagan to cut taxes, that primarily benefits those in high tax brackets.  The Treasury does not segregate income from the payroll tax from other taxes that it collects.  It "borrows" the surplus and puts an IOU into a Social Security trust fund, and spends the "borrowed" money just as it spends money collected from other taxes.  The problem is that we are getting to the point where the payroll tax will not provide a surplus that government  can use for other purposes.  Even worse, the Treasury will have to pay back the money that it owes to the Social Security trust fund.  That means that other taxes will have to rise, or benefits to future beneficiaries may have to be reduced. 

In a real sense, the payroll tax has been a fiction. It is very regressive tax because it taxes every dollar of wage income up to $110,000. It does not tax income over $110,000, or unearned income from capital gains or dividends.  In other words, it is a tax that takes a much greater share of income from low wage earners  than it does from the wealthy.  It has served the wealthy very well since the payroll tax, which provides about as much income to government as the income tax, is a better alternative for them than a progressive income tax.  Perhaps we would be better off to eliminate the payroll tax and fund all government spending with the more progressive income tax.

The View From The Top

This is an interesting interview about the outcome of the presidential election.  Many of Romney's staff, and most of his big contributors were certain that he would win the election.  Many of Romney's contributors had supported Obama in the 2008 election and they switched to Romney.  This raises questions about why the Romney people ignored the data which suggested that Obama would win the election.  It also raises questions about why the super-rich abandoned Obama in 2012.

In a sense, Obama is like one of the super rich.  He is very smart and has an Ivy League education.  They chose to go into business and make money.  Obama chose to be a community organizer and to go into politics to make the world a better place.  The super rich do not want to believe that they sold out and the Obama took the high road.  They believe that what is good for them is good for everyone else.  The CEO of Goldman Sachs said that Wall Street did God's work.  He meant that allocating capital, which is what Wall Street does, shapes the global economy.  He, and others like him, were disappointed by Obama when he called them "fat cats".  They want to believe that it is better to be a business person than to be a do-gooder like Obama.  The fact that they got rich in the process proves that they are correct.  The system should reward those who provide the greatest good to society and it is the.  They are Ayn Rand's character in Atlas Shrugged.  They are John Galt.

The super rich and Obama also share a common view of the global economy.  It is providing huge rewards to those who benefit from globalization and it is punishing the middle class in rich countries as wages, and standards of living converge across nations.  The super rich are not concerned about this dynamic.  They worry that Obama will try to remedy the problem by redistributing income from them to the middle class.  They know that this will increase their taxes, and they have come to enjoy living in a society without a progressive tax system.  The government should not punish the job creators by raising their taxes.

Wednesday, November 28, 2012

An Interview With An Economist That Sold 50 Million Textbooks

This interview (via Noah Smith) covers a wide range of topics in economics.  In Part One of the interview (there is a link in the article to Part Two), Paul Samuelson gives his views on the profession with a particular focus on the business cycle.  His textbook introduced Keynes to millions of students who took introductory economics courses.  He was also a friend and colleague of Milton Friedman who he respected, but with whom he seldom agreed.  Friedman, and many of his colleagues at the University of Chicago, were opposed to the use of fiscal policy to stimulate economies in recession.  Friedman advocated a version of monetary theory that has never worked as he had argued, and others from Chicago have developed macroeconomic theories that Samuelson criticizes.  The theories developed at the University of Chicago have one thing in common: The assume that government can do little to moderate a recession, and that government intervention in the economy will only make things worse.  Samuelson discusses the Great Depression and he argues that fiscal policy made things better.

Many of the topics covered in this interview are relevant to our current economic problems.  Samuelson's perspective, which is informed by a many years of historical experience within the profession, and with the sweep of economic history.

Tax Avoidance Is A Global Problem

Many multinational corporations in Britain paid no corporate taxes to Britain last year.  The same thing occurs in the US and other countries.  Multinational corporations have found ways to place their profits in tax havens.  Some countries, like Ireland, actually produce things.  Many companies produce products in Ireland which has a 12.5% tax rate and they can sell them to subsidiaries in Europe and high prices for resale.  The profits are taken in Ireland.  That practice inflated Ireland's economy, and contributed to its real estate boom and bust.  Other countries produce nothing, but somehow multinational corporates find legal means to take their profits in designated tax havens.

This is not an easy problem to solve as long countries compete with each other by using lower tax rates as an incentive.  It creates a real burden on ordinary people, however, who do not have the option of taking their income in tax havens.  It shifts the tax burden to them, and it creates a strong odor of unfairness. 

Ten Charts That Explain Slow Recovery

This article provides ten charts with a brief description of their impact on the economy.  A good chart is worth one hundred word.  We get one thousand words worth from this article.

European Commission Announces Bailout For Spanish Banks

The EC released $48 billion from its European Stability Mechanism (ESM) for four Spanish banks.  The funds are contingent upon restructuring by the banks.  That will included layoffs, and office closings.  The money is part of a 100 billion euro request that was made earlier.  The government is looking at the possibility of creating a "bad bank" that would receive the non-performing loans from Spanish banks. 

The three largest banks in Spain were given a clean bill of health, but the real estate loans made during the real estate boom in Spain has contributed to its weak recovery from recession.  Credit has become scarce as banks attempt to shore up their balance sheets.

Tuesday, November 27, 2012

The Battle Over The Budget Shapes Up

Negotiations between Republicans and the administration are narrowing down to a fundamental trade off.  The trade off is between cuts in entitlement spending and increases in taxes.  As one might imagine, the GOP favors cuts to entitlements over tax increases.  The president had been more willing to cut entitlements in negotiations prior to the election. He is getting lots of resistance from within his party about entitlement cuts.  He correctly, separates Social Security from healthcare entitlements.  Social Security is primarily an issue for the GOP because it would like to privatize Social Security.  The president realizes that containing growth in healthcare costs is the real fiscal challenge that we face.  He favors programs that would reduce payments to service providers.  The GOP favors programs that reduce benefits or shift more of the cost burden to beneficiaries. 

Monday, November 26, 2012

GOP Senator's Believe Romney Won The Election

Two GOP Senators were on the Sunday TV talk shows opposing an increase in tax rates, but claiming that they would support broadening the tax base by cutting back on unspecified deductions and exemptions.  That was Mitt Romney's tax proposal, which was derided by tax experts because it did not add up.  Its hard to understand why our illustrious senators are advocating Romney's tax proposal.  Apparently, they don't believe that the public rejected Romney's policies when they voted for Obama.  John McCain, in particular, still can't believe that he lost the 2008 election to Obama. Somethings are just hard to accept.

Investing In The Future Is No Longer Part Of The American Dream

This article describes how America is falling behind the rest of the world in infrastructure.  Politicians are unlikely to budget enough money just to maintain our infrastructure.  We will continue to fall behind the rest of the world in important areas such as electricity, transportation and communications while we continue to invest in a military to defend us from "enemies" that depend upon guerrilla  warfare.

If America were operated as a business, the stockholders would get angry and fire the management.  Instead we have two groups competing for the management of the country, and the stockholders don't seem to pay much attention to their performance on things that matter.

Warren Buffet Proposes A Minumum Tax On The Super Rich

Tax policy has taken the center stage as politicians maneuver to avoid the fiscal cliff.  One of America's wealthiest individuals has advice for the politicians.  He tells them not to worry about the mythical problem of the lost investment incentive from higher taxes on the wealthy.  Taxes were a lot higher in the past and and investors did very well.  So did the economy.  He also advocates the radical idea of a progressive tax system.  The wealthy, whose incomes have grown enormously in recent years, should pay a higher effective tax rate than ordinary Americans.  Some of them paid no income tax last year.  The wealthy use a variety of methods to avoid paying taxes.  The only way to keep the wealthy from using tax shelters to avoid taxes is to impose a minimum tax.  He is probably correct, but it is highly unlikely that politicians, in their employ, would actually invoke a simple rule that shut down the the lucrative tax avoidance scams that they use.

Even though Buffet's advice will be ignored by our politicians, his article serves an useful purpose.  The more that the public knows about these issues, the harder it will be for politicians to work exclusively for the super rich.  Its also important that this message comes from one of America's wealthiest individuals.  He puts many of them to shame, and he can't be accused of being motivated by envy.  At worse, he will be criticized as an old fashioned American who is unaware of how the new America has evolved into a plutocracy.  He is so 1950's.

Pravda's View Of Obama's Reelection

We have a lot to learn about Putin's Russia, and they have a lot to learn about US politics.  This article in Pravda conveys a false view of the problems in US politics, and it says a lot about the new Russia under Putin.  Fox News could not have done a better job in its criticism of Obama.  They call him a socialist.  Pravda calls him a communist.  They also accuse him of being against religion.  Apparently, Putin is pushing a religious revival, and he has become an advocate of free market capitalism.  Obama is accused of making the mistakes that the communists made, and Putin is working hard to correct those mistakes.

There is no mention of Romney, or the GOP in this article.  Its not clear whether Pravda views the GOP as the true representative of capitalism in America or not.  They blame Obama for the bank bailout, and for spending too much on the military.  They ignore the fact that the GOP initiated the bank bailout, and that Romney proposed a bigger military budget than Obama.  They also imply that Obama won the election because of voter fraud, and because the American electorate is ignorant.  Pravda argues that they have been mesmerized by Obama's charisma.

I had no idea how bad things were in the Russian press. Pravda still reflects the official voice of the political elite. The more things change, the more they stay the same.  I was also unaware of how Putin is positioning himself as a free market capitalist and as a defender of religion.  I'm sure that most Americans would also be surprised.  There is very little believable coverage of Russia, or Putin, in the American media.  Romney appealed to the old view that American's have about Russia.  He stated that Russia was the biggest threat to American interests.  Putin's support for free market capitalism and religion would be very popular in the red states that voted for Romney.

Sunday, November 25, 2012

Why Do Companies Fail?

The business press has a cosy relationship with managements.  They need that relationship in order to get access to them for stories.  The older journalists are also biased towards management, and they tend to see unions as a problem.  Consequently, the standard message that we get from the business press is that firms fail because their market changed.  We are seldom told that a business failed because its management was incompetent.  Of course, it is the job of management to navigate a business in a changing world.  We don't pay them huge salaries to run a business that has no challenges.

This article (via Mark Thoma) documents the failure of Hostess, the firm that gave us Twinkies and Wonder Bread.  Management had a pretty good handle on its problems.  It failed because it did not execute against its plan.  Its relationship with private equity investors and hedge funds did not help either.  It went through CEO's almost as fast as it assumed debt that added to its costs.  Labor union give backs to management saved the firm $110 million per year but management did not use that money to take the actions that were needed to save the firm.

Saturday, November 24, 2012

Is Gun Control On The Presidential Agenda?

 Around 30,000 Americans are killed each year from gunshots.  The president indicated that he might support legislation that would restrict the sale of assault weapons.  That should not be a threat to hunters, but it worries those who love guns.  There are probably more important things on the presidents agenda, but he could speed up the secessionist movement by trying to get congress to do anything about gun control.

Progress In Artificial Intelligence

This article describes the rapid improvement in the ability of computers to recognize speech and images.  Many of the systems that are being developed have the ability to improve with experience.  That is, they have an ability to learn. 

It is pretty clear that more powerful computers will be developed, and that machine performance on many tasks will be superior to human performance.  It is possible to imagine a future in which we will not need as many people to perform a large number of tasks that provide employment today. We have no experience with an economy that is able to provide a much larger portion of its output without human labor. 

White House Required To Respond To Secession Petitions

One way to respond to a lost elections is to leave the union.  Texas has sent a petition to secede to the White House with enough signatures to require a response from the administration.  The petition suggests that the cultural differences between Texas and the blue states is so severe that it does not make sense for Texas to be in the same union with them.  Other red states have been circulating similar petitions.  Its not clear how this process would work, and its not obvious that statewide referenda would receive enough popular support in any of the states.

Frankly, I have often thought that government would function a lot better without the cultural and political divide that separates many of red states from the rest of the country.  Several of them are more like third world countries in many respects.  It would certainly be a death knoll for the modern Republican party.  It might be a good thing to restore the old Republican party in the blue states.

It is highly unlikely that the secession effort will succeed.  I don't even believe that it would be supported by a majority in Texas.  It does, however, accentuate the cultural gap that has been growing between different regions of the country.

Friday, November 23, 2012

It Would Be Nice If Economists Were Regarded As Well As Dentists Are Regarded

Economists failed to predict the financial crisis, and the global economic crises that followed in its wake. Many are also working hard to make the recovery even worse than it might be.  Keynes once said that economist's should strive to as competent as dentists.  If they did that, they might be more highly regarded.  It seems that many economists prefer to apply theory to economic problems that they don't understand.  Most of the theories aren't very good, and economists do a poor job of using them to predict the future.  Perhaps we would be better off if economists tried to be more like dentists.  They should avoid forecasting, and they should not try to set economic policies.  The public must wonder about what goes on in the profession when economists disagree so vehemently over public policy, and they cannot even get their facts right.  Many economists seem to be in the business of interpreting facts so that they are consistent with their political philosophies. Many are even paid by think tanks that employ them for that purpose.  This article displays some the silliness of well known economists who can't even report what the Fed is saying about policy with any accuracy.

The Hangover From The Fall In Housing Prices

We had two big problems as a result of the housing boom and bust.  All but one or two of our investment banks would fail without a government rescue plan.  Homeowners were also stuck with mortgage payments that they could not afford.  The Bush and Obama administrations pulled out all of the stops to rescue the Wall Street banks that played a major role in creating the problem.  Very little was done to deal with the collapse of home prices.  This article reviews some the discussions within the Obama administration that shaped the administrations response.  I will refer to Sheila Bair's description of the policy discussions from her recent book Bull By The Horn.

Bair and her organization (FDIC) had a lot of experience working with banks that needed to resolve bad loans.  They understood that banks were often faced with the problem of either renegotiating non-performing mortgages or going into foreclosure.  Most of the time it was less costly to the bank to modify a mortgage than it was to foreclose.  Bair was also concerned about the effect of widespread mortgage foreclosures on housing prices.  She believed that foreclosures would cause home prices to fall, and that would create more problem loans for the banks to resolve. She had also witnessed the effect that foreclosures had on homeowners who were trying hard to maintain payments and how their credit was effected by foreclosure.  The FDIC proposed a program that would help banks to modify mortgages and cut down on foreclosures.

The economists in the Treasury department, most of whom were free market types left over from the Bush administration, shot down her proposal.  They argued that home prices would not be effected by increases in the number of foreclosures. They argued that markets are self correcting. Tim Geithner, who was appointed to head up Treasury by Obama, decided to go with a plan that was proposed during the Bush administration.  He was supported by Larry Summers, who was a key economic adviser to the president.  The president announced the Home Affordable Mortgage Program (HAMP) and claimed that it would help 3-4 million borrowers to avoid foreclosure.

Only 522,000 successful mortgage modifications were made with HAMP.  Banks, working outside of HAMP made four times the number of modifications.  Bair was at the announcement and she winced at the claim made the president. She knew that the plan would not work, and she did not believe that Geithner or Summers were really committed to preventing foreclosures.  They were primarily focused on saving the Wall Street banks.

There were many problems with HAMP according to Bair.  Borrowers were required to submit documents to support the modification that were the same as if they were applying for new loan.  The problem was to modify the existing mortgage and not to get a new mortgage.  The mortgage servicing organizations were not staffed to deal with a complex and costly program to underwrite new mortgages.  They were staffed and funded to collect payments on existing mortgages. It would cost the servicing organizations more money than they could afford to implement HAMP.

The other major problem with HAMP was that most of the mortgages had been securitized and the securities were owned by investors.  The securities had also been packaged and sold as tranches.  The investors who owned each of the tranches had conflicting financial incentives.  Some investors were better off with a foreclosure and some were better off with a mortgage modification.  Bair's proposal, had provided a way to resolve the investor conflict, and it also included a streamlined process for modifying the mortgages that could be implemented by the servicing organizations.

The HAMP program served the purpose of providing a good public relations opportunity for the administration, but it has been widely regarded as a failure,  and the administration will have to live with the consequences of that failure for the next few years.  Tim Geithner and Larry Summers are gone, and they can pursue new opportunities. 

What Kind Of Reforms Are Needed In Europe?

The prevailing wisdom in Europe is that struggling countries need to become more competitive.  They can become more competitive by cutting labor costs and by giving corporations more incentives to invest.  The assumption is that they can export their way out of financial difficulty.  That might be true for single country, but it can't be true for Europe as whole.  Exports and imports must net out to zero.

The alternative to export led growth is to build up demand in the domestic sector.  The problem with that strategy is that growing income inequality has a negative effect on domestic demand. This article, written by the chief economist for an organization promoting reform in Europe, argues for stimulating domestic demand by invoking more progressive tax policies. 

Conservative Politics And Authoritarian Personalties

Paul Krugman doubles down on his criticism of Mark Rubio's answer to a question on the age of the earth.  He connects Rubio's response to a more general position that Republicans seem to have about the use of data and scientific reasoning to understand reality.  He referenced a study that found a correlation between conservatives and the authoritarian personality

The authoritarian personality is a well known phenomenon in the field of psychology.  There really are people who fit that description.  That does not mean that Republican politicians have authoritarian personalities.  It really means that they understand how to appeal to voters with that personality.  They exist in every country, and many countries have political parties that appeal to that personality type.  I also believe that ignorance and misinformation feeds into the development of strongly held positions on many issues.  When people don't have good information to guide their decisions it is easy for them to fall back upon popular views that dominate in their culture.  That is what I have found by living a red state for the last month.  Its hard to believe that authoritarian personalities are unequally distributed by geography.  On the other hand, the information that is available to most of the public, and the bulk of popular opinion, creates a cultural cocoon into which most people easily adapt. People have a strong tendency to adapt to the particular culture in which they find themselves.  We call that process socialization.  People who live in red states have gone through a different socialization process than most of those who live in blue states.  That is because the major socializing institutions are different in the red states.  I also think that the major socializing institutions are different for a good reason.  They tend to support the positions of the social elite in those states.

A Conservative's Defense Of Marco Rubio's Comments On Age of Earth

The NY Times has two conservative op-ed writers to counter Paul Krugman's liberal op-eds. Ross Douthat and David Brooks fill that role. They are both well educated and articulate.  Their job is to do what Rush Limbaugh, Glenn Beck, Fox News etc. etc. do for the less well educated public.  They sell conservative ideology to the better educated readers of the NY Times.  They hold their noses while pretending that the Republican party reflects their ideology.  This is Douthat's op-ed, which was written to counter Paul Krugman's op-ed posted above.  Judging by the comments below, Douthat's op-ed, he was not as successful as he would have liked.  It would, however, go over well in other parts of the country.

Thursday, November 22, 2012

Fed Chairman Ben Bernanke's Speech On The Economic Outlook And Fed Policy

The Fed Chairman's recent speech in New York provides a good summary of our slow recovery from the financial crisis, and some of the headwinds that we continue to face.  He described the Fed's policies during the recovery and he argued that they have accomplished what was intended.  His major concern was about fiscal policy.  Congress has to deal appropriately with the fiscal cliff in order to keep the economy out of recession, and it has to deal with longer term issues of fiscal balance.  The Fed expects to keep interest rates lower than normal through mid 2015.

Why Has The Demand For Private Borrowing Declined?

Corporations and households have decreased their demand for loans.  Demand for loans rose dramatically during the real estate bubble.  Central banks kept interest rates low, and households used their homes for collateral that enabled them to keep spending even as their income growth was  stagnant.  Rising household consumption caused businesses to invest in order to satisfy consumer demand.  Today that dynamic is no longer working.  Interest rates are low but banks are concerned about the value of the assets on their balance sheets.  Households also have a balance sheet problem.  Their homes have lost much of their value, and many are not as creditworthy as they were.  Businesses have responded to weaker demand by cutting back on investment. 

In the short term, governments might stimulate the economy by borrowing the savings that the private sector does not want to borrow.  If the money were invested wisely, the future might look brighter for the economy.  Unfortunately, that does not solve the problem that most countries are facing.  The problem is rising income inequality.  Households can't continue to fund their spending with debt.  Faced with the problem of rising inequality, capitalism has managed to survive by redistributing income.  Unless we stop redistributing income upwards to the privileged, and reverse the flow on income redistribution, it will be more difficult to deal with the tension between capitalism and democracy.

The Battle Over The European Union Budget

Every seven years the EU puts together a seven year budget plan.  It is usually a contentious process since some countries contribute more to the budget than they get back.  This year it is more difficult than usual.  The economic crisis in Europe is taking its toll.  Britain has objected most strongly to increases in the budget.  Things are tough in Britain and only 27% of the public feels attached to the EU.  Attachment to the EU has also declined outside of Britain.  52% of the public does not feel attached to the EU. It appears that the most ambitious effort at political integration in history is threatened by the economic issues that are working against integration.

Wednesday, November 21, 2012

More Dire Warnings About Global Warming

Our goal was to keep the planet from warming by 2 degrees centigrade.  We have already warmed by .8 degrees, and the amount of carbon that we have put in the atmosphere since will increase temperatures by another .8 degrees.  In other words, we are already at 1.6 degrees of warming. It looks as if the 2 degree increase goal is no longer possible.  One study suggests that we would have to reduce carbon emissions by 5.1% for 40 years in order to prevent temperatures rising above 2%.  We have not been able to reduce emissions by 5% in any year since WW ll.

What The GOP Can Learn From a Fellow GOP Governor

The Republican governor of New Jersey worked with the Democratic administration to respond the Hurricane Sandy.  He also praised President Obama for his helpful support during the crisis.  He received lots of hate mail from Republicans for praising the president in the heat of a political campaign.  He also saw his voter favorability ratings increase by a whopping 19%.   The public is tired of politicians that place their political party above that of the country.  They are looking for public officials who can work together to solve the nation's problems.  There are certainly enough of them to go around for all of them.  Chris Christie will not have to worry about the next election.  He did his job.

Android Versus Apple In Smartphone Market

Apple owns the premium segment of the smartphone market,  but Android has 75% of the unit sales in the market.  Unless Apple comes out with a lower priced smartphone to compete with Android it will be reduced to a niche player in the market.  Software and hardware vendors tend to build products for the dominant market share holder in a market.  The value they add to the smartphone owner drives sales.  Apple will have to decide between lower margins and more unit sales or retaining ownership of the premium market.

By the way, the unit sales growth in this market in China and India is unbelievable.  Unit sales in China have grown from 50 million units to 500 million over two years.  Most of the growth has come from lower priced Android smartphones.  Android is also getting most of the sales in India.

The Taj Mahal And Crony Capitalism

John Kay visited the Taj Mahal on his visit to India.  He admired its beauty like most people, but he also saw it as enormous drain on the economy.  He estimated that building the Taj Mahal absorbed 40% of India's GDP.  It was also an example of crony capitalism which led to the overthrow of the regime.  It also reminds him of the crony capitalism that he sees in India today and in the rest of the world.  With the exception of the information technology industry, most of our industries are afflicted with crony capitalism and rent seeking.  Governments and corporations work together to protect the existing firms from competition and the pace of innovation declines.  The banking industry is perhaps the worst among them.  It devotes most of its resources towards the trading of existing securities, and less of its energy is spent on allocating capital to its most productive uses.  This is a perversion to a vision of capitalism that fosters innovation by enabling the new to replace the old.  Crony capitalism may take us to the same place that it took the builder of the Taj Mahal.

We Need To Do A Lot More To Prevent Future Runs On The Shadow Banking System

Gary Gorton was a consultant at AIG in London when it was crushed by a run on the shadow banking system.  Investment banks had securitized mortgages and they were selling them to investors.  They were also using the securities as collateral for short term loans from money market funds.  That was the essence of the shadow banking system which reached $62 trillion by 2007.  The investment banks depended upon turning over short term debt to maintain liquidity.  When the securities that they used for collateral lost their AAA rating, they were unable to roll over their short term loans from money market funds.  That was just like what happens in a run on the depository banking system when depositors withdraw their funds.  The investment banks were unable to borrow money using mortgage securities as collateral and hedge funds withdrew their funds as well.  The financial crisis was really precipitated by a run on the shadow banking system.

The securitization system that provided $62 trillion in 2007 is moribund today.  The question is how we restore that system and make it less susceptible to bank runs.  One of the problems is that our measurement systems, which were based upon outmoded models of banking and money, did not even detect the $62 trillion giant that had been created.  This raises questions about our measurements systems and our ability to prevent future runs on the shadow banking system.

The GOP Needs To Replace Its Starve The Beast Theory

This article traces the origin of the "starve the beast" theory back to Alan Greenspan, and to the proposition 13 law in California.  The GOP came to believe that the best way to reduce the role of government in the economy was to cut taxes.  It was also a good way to win elections, since few object to a cut in taxes.  Unfortunately, the theory has been disproved.  Ronald Reagan and George Bush embraced the theory but they did not reduce government spending.  As Dick Cheney remarked, Ronald Reagan proved that the public does not worry about  budget deficits that result from tax cuts without a reduction in spending.  The GOP can win elections by cutting taxes without the need to cut spending on popular programs that people like.  As we have learned, they can let Democrats worry about deficits. The GOP can focus on deficits when Democrats are in office.  Let them try to win elections by raising taxes and by cutting popular programs.

We are in a situation today where tax revenues are well below their historical average.  The focus should be on raising the income that we need to run the country.  The following post picks up on that theme.

What Does Government Need To Spend Versus How Much It Can Afford

Budget deficits and increasing debt has put the focus on how and where to cut government spending.  This article suggests that the question should be the other way around.  We should be asking how much we need to be spending.  If we need to spend more there is an easy answer.  We need to raise taxes.  The US is the richest nation in the world, and it has one of the lowest tax burdens among rich nations.  Globalization has changed the nature of the US economy in dramatic ways.  Incomes are falling in the middle class, while wealth and income has become more concentrated in the top 1%.  This is a trend that will be with us as long as we continue to move toward a global economy.  It is not good for small businesses, which depend upon domestic demand, and it is not good for democracy.  Government investments in infrastructure, education, healthcare and the social safety net may come at the expense of personal consumption, but that may be better that building an economy around personal consumption funded by debt.

Tuesday, November 20, 2012

NY Attorney General Files Lawsuit Against Credit Suisse

Credit Suisse is Switzerland's second largest bank.  It sold securities based upon mortgage loans to investors that led to $11.2 billion in losses.  The lawsuit accuses the bank of misleading investors regarding the quality of the loans that were used to create the securities.  Investors were led to believe that the bank had done due diligence on the loans in the portfolio.

All of the securitizers were doing what Credit Suisse is accused of doing.   I don't know why Credit Suisse has been singled out by the NY Attorney General.  Maybe this is the first of others that will follow.

Homebuilder Confidence Is On The Upswing, GDP Growth May Follow

Homebuilder confidence has been a good leading indicator of residential investment.  This graph shows confidence on the rise and new home construction should follow.  That suggests a pretty good upward swing in GDP.

Morgan Stanley Reduces Estimate Of Global Growth in 2013

Morgan Stanley reduced its global growth forecast for 2013 from 3.3% to 3.1%.  Growth in the US is flat and European growth goes negative. China and India are the only countries whose growth rate has been revised upwards.

The GOP's Star Of The Future Sounds Just Like Romney and The Rest

Marco Rubio has been identified as one the bright young leaders who will lead the GOP out of the wilderness.  Anyone who reads his response to a question about the age of the earth should give up the idea that Rubio is any different from the rest of the pack.  Rubio understands what 30% of the GOP wants to believe.  If he had been in the GOP primary race along with Romney and the dregs, he would have sounded just like the rest.  The GOP is totally dependent upon getting 100% of the votes from folks who don't want to leave the wilderness.  That makes it difficult for them to lead a country that is dependent upon the contributions of people who don't expect to find the answer to scientific questions in the Bible.  Leadership in the GOP is equivalent to taking us backwards in time.  It is a time when the Sun revolved around the earth and in which the earth was the center of the universe.  Their economics is also stuck in the 18th century.

Monday, November 19, 2012

The Politics Of Preventing Future Bank Bailouts

This is the first of several posts that I will make that were informed by Sheila Bair's new book Bull By The Horns.  The Dodd-Frank reform bill proposed a new resolution trust that would be established to deal with problem banks.  The question was about how the resolution trust would be funded.  Bair wanted the banks and hedge funds to pay a risk weighted premium to fund the trust.  That is how the FDIC funded deposit insurance for state chartered banks.  The banks paid premiums to fund the insurance.  The alternatives were to have the trust funded by the Fed with the use of taxpayer funds.  Another alternative was proposed by the Treasury.  It would provide a line of credit to banks that had a liquidity problem.  That also would require taxpayer funding.

The Treasury, under Tim Geithner, did not want to prefund the trust by assessing the large banks and hedge funds with an insurance premium weighted by risk.  They were in the business of using leverage to increase potential payouts, and they also funded their operations with short term debt.  That made them riskier, and subject to higher premiums.  President Obama's Chief of Staff told Bair that the administration favored her proposal for a prefunded trust.

Senator Shelby, a GOP member of the financial services committee wrote a letter to Geithner claiming that the trust would be a "slush fund" that could be used to bailout the banks.  Bair was surprised that Shelby wrote the letter to Geithner instead of to Dodd who was the Chairman of the Senate Finance Committee.  She suspected that he did that because Geithner and Larry Summers, who had ties to hedge funds, had made the same criticism of the trust.  Mitch McConnell, the GOP's Senate minority leader was also critical of the trust for the same reason.  He was asked by a reporter on a Sunday TV show why he believed that an industry trust, funded by the industry, could be called a bailout fund.  He told the reporter that Obama should talk to his Treasury Secretary who also objected to the trust for the same reason.  In other words, Tim Geithner was working behind the scenes to undermine the administration's position on the resolution trust.  Moreover, calling an industry funded trust a bailout was right out George Orwell. 

Regulators Warn Mortgage Originators About Misleading Ads

The FTC and the new consumer agency that was created by Dodd-Frank, has sent warnings to a number of mortgage originators about potentially misleading ads.  The warning was intended to get them to modify their ads.  Frankly, the ads are either misleading or they are not misleading.  I feel that it would have been better to haul a few of them into court for producing misleading ads that are in violation of a 2011 bill.  This looks like another attempt to let the scam artists police themselves.  We will have to see what happens with the firms who received the warning letters.  My guess is that they will make minor changes in the ads but that the new ads will continue to be misleading.  That is the nature of the business that they are in.  Predators will be predators.

The World Bank Warns About The Implications Of Global Warming

The World Bank has raised concerns about global warming.  It believes that we are on a path to a 3 to 3.5 C degree  increase in temperature.  It warns that we may not be able to recover from a 4 C degree increase in temperature.  That would seriously threaten the global food supply and sea levels would rise by 4 feet.  The bank is already meeting with leaders from Asia and Africa on how they might prepare from the potential damages.  Unfortunately, political leaders in the US and China are more concerned with more pressing short term matters.  They are responsible for the majority of carbon emissions that are responsible for global warming.  It is up to the public to raise their level of concern about matters that do not impact the next election cycle.  It is also up to the public to reduce the impact that fossil fuel providers have on the political debate.  They have difficulty thinking beyond  the next quarter's profits.

The Shadow Banking System May Benefit From New Regulations on Real Banks

Shadow banking is about the size of the regulated banking system.  It includes investment banks, hedge funds, money market funds, and private equity funds.  New regulations will require that banks hold more capital in reserve as a cushion against potential losses.  Essentially, this means that they will not be able to use the high levels of leverage that they have used in the past to increase potential profits and losses.  Investors willing to take higher risks in order to achieve higher rates of return may take their business to the shadow banking system that has been growing fast, particularly in Europe.

The shadow banking system played a large role during the financial crisis.  Unless  regulations are imposed on the shadow banks, they will grow relative to regulated banks and we can look forward to future financial crises. The failure of the world's largest hedge fund in the US almost triggered a crisis prior to the Great Recession.  The Fed organized a group of investment banks to intervene and restore order to the markets.  That may not be possible the next time that this happens.

Fiscal Policy Madness

Tim Duy follows the actions of the Federal Reserve very closely.  In this post he raises concerns about statements from Richard Fisher, who is the President of the Federal Reserve Bank of Dallas, and from Alan Greenspan, the discredited former chairman of the Federal Reserve.  He is concerned because the US recovery has been much stronger than it has been in European countries that have responded to the crisis by invoking contractionary fiscal policy.  Fisher and Greenspan would like the US to do what Europe has been doing.  That is exactly what investors are worried about.  The stock market is reacting to negotiations about fiscal cliff that the US faces in December.  Investors are concerned that it will lead to large cuts in short term federal spending that will derail the struggling economy. 

Review Of Sheila Bair's Book On Government's Role In Financial Crisis

James Galbraith's short review of Bull By The Horn, written by Sheila Bair, focuses on the role that Timothy Geithner played during the rescue of the Wall Street banks,  and in the aftermath when reforms were being crafted.  Geithner's mission was to restore Wall Street to what it was before it self destructed.  He was also fixated on doing whatever he could for Citigroup, and his mentor Robert Rubin, who had been Vice Chairman of Citigroup, and led its efforts to become the bank most badly damaged by poor management.   

I strongly recommend Blair's book to anyone who is interested in the politics of the rescue and the politics that shaped Dodd-Frank and other reforms.  I had read many of the books that have been published on these topics, and I learned more from Blair's book than from any of the others.  She provides details on what took place, that could only have come from someone who was in involved in most of the battles.  I plan to describe some of the details in future posts. 

Sunday, November 18, 2012

A Discussion About Climate Change And How To Deal With Roadblocks To Solutions

This link is to a video of Bill Moyer and Naomi Klein on climate change.  Klein argues that there is a lot of resistance to climate change because the response requires communities and governments to intervene in the market.  This threatens the ideology of free markets which holds, among other things, that government is the problem and not the solution to our problems.  She uses examples from Germany and Denmark to show that community actions are superior to highly centralized approaches to developing extensive wind farms. 

The fossil fuel industry has a vested interest in denying climate change and it has been successful in changing public opinion.  In 2007 around 71% of the public believed that climate change is real and that it is due to human consumption.  Today that number has been reduced to 44%. Klein describes plans to get university endowments to disinvest in oil company stocks.  This is modeled after the successful plan against apartheid in South Africa which took a similar approach.

What Do We Learn From Michael Moore?

Noah Smith tells us why he likes Michael Moore's films.  In general, he likes them because they make people see the real life implications of economic and political policy.  A lot of people don't like them for a similar reason.  He particularly liked Sicko because a lot of the criticisms that it makes about the US healthcare system were made apparent, and people are trying to deal with some its flaws, e.g., the fee for service payment system. 

Of course a lot of people don't like to be exposed to ideas that make them question their carefully groomed belief systems.  There are several Internet sites devoted to trashing him.  I found the comments following Noah's post interesting.  He has a rather thoughtful audience for his blog.

Friday, November 16, 2012

First Meeting On Budget Issues Ends On Positive Note

The president's first meeting with congressional leaders did not produce any results, but each of the parties agreed that some solution to the impasse will be found prior to the looming fiscal cliff at the end of December.  They all agree that some comprises will be necessary, and the republicans said that some form of revenue increases will be necessary.  They tend to favor spending cuts over tax increases but the administration has taken a firm position against extending the Bush tax cuts for those earning above $250,000.  The president's position is much stronger after the recent elections than it was after the poor showing in the 2010 elections.  He will be more aggressive in these negotiations, but it is not clear that the House majority leader will be able to deal with the tea party representatives in his own party.  Many have taken pledges against any increases in taxes.

Is Google The Biggest Competitor Of Universities?

This article explores the revenue crunch that many universities have to deal with.  Some believe that the higher education model is like print newspapers versus digital media.  Some of the ideas about how these changes might occur are discussed in this article.

The Economics Of a Carbon Tax

This short article by the Brookings Institute describes the carbon tax system in British Columbia.  The other provinces in Canada have not followed the leadership of British Columbia, but there are good economic reasons for doing so.  Many economists believe that it is better to tax bad things like carbon emissions than good things.  It also may be a good way to raise revenue in many countries that are suffering from a decline in tax revenues.

Romney's Explanation For His Loss Fails To Convince Fact Checker

Mitt Romney claims that Obama bought the election by handing out benefits to certain interest groups that he calls "moochers".  The Washington Post fact checker looks at the data and concludes that Romney needs to find another excuse.  Many politicians seem to have an aversion to facts.  They are more comfortable living with a belief system that is fortified against disconfirming information.

Shareholder Democracy Needs To Work Better

One of the rationales for justifying the Supreme Court's Citizens United decision, which held that corporation have a free speech right to fund political campaigns, was that shareholders will monitor corporate spending on political campaigns.  Apparently, the Supreme Court did not realize that information on corporate campaign contributions is not available to shareholder.  This article describes a petition to the SEC that calls for campaign contribution information to be made available to shareholders.  Of course, many of the "advocates" for shareholder democracy are opposed to having the SEC collect and provide that information.  They love democracy as long as it does not restrict their behavior.

Thursday, November 15, 2012

BP Pleads Guilty to 14 Criminal Charges Related To Gulf Oil Spill

BP will pay $4.5 billion in fines for the criminal charges and for misleading statements to the SEC.  This is on top of billions that have already been paid to claimants.  BP has set aside reserves of over $40 billion to cover any future penalties and damage claims. 

Why Developed Countries Can't Retain Manufacturing Jobs

John Kay, explains why higher wage earners in developed countries can't compete with low wage workers in emerging markets.  Apple computer provides a good example of his point.  The manufacturing value added to its iPhone is small relative to its selling price.  Apple's value added is in the design and marketing of the product.  That is how they make their profits.

Kay is correct in his analysis Apple's business model.  The 10% of its workforce, which is in the US, is responsible for the value added that has made Apple successful.  Apple's profits have made its US employees and its stockholders very happy.  Apple is in the business of exporting its intellectual value added to the rest of the world along with its sales into the domestic market.  On the other hand the majority of jobs created by the success of the iPhone have gone elsewhere.  Not all of those jobs are low skill manufacturing jobs.  Many of the jobs are high skilled jobs that are essential in the operation of most high tech plants, and in the management of the supply chain, as well as the distribution of the product.  The skills that have been learned in this process have also been exported by Apple.  They are no longer available in the US.

It would be nice if the US jobs that are lost in this process could be replaced by service jobs that do not face competition from lower cost international labor.  Apple employs 700,000 international workers.  Where are the unfilled service jobs that would provide the wages that would be otherwise earned by inventory managers, production managers, purchasing managers, quality managers, manufacturing engineers etc. in the US? 

UK Per Capita GDP Growth Versus US

Per capita GDP growth in the US has been much better in the US compared to the UK.  This graph illustrates the major contributing factors to the difference.  US fiscal policy has been a major factor even after the end of fiscal stimulus in the US in 2010.  Austerity policies in the UK may explain the different effect of fiscal policy.   The other major factor is exports.  The UK has been hurt by the recession in Europe.  They are more dependent upon exports to Europe than the US which has been particularly helped by exports to South America.

Negative Economic Growth In Europe

Economic growth in Europe was negative for the second consecutive quarter.  Technically, that is the definition for a recession.  Some expect negative growth in the next quarter as well.  The report includes some specifics on national level growth.  Eastern countries like Latvia and Lithuania reported positive growth and so did Germany.  Other countries like the Netherlands and Austria, which had been growing, have experienced declines.

Wednesday, November 14, 2012

The Confederacy Of Takers From Red States

Several groups from red states, who were upset with the presidential election, have requested permission to secede from the union.  This article is a humorous attempt to take them seriously.  Most of the red states are net takers from the blue states.  They receive more in government largess than they payout in taxes.  If we were to use Romney's language they are the "moocher" states that are supported by taxpayers from the blue states.  Those who live in the blue states would be better off financially if they were allowed to secede.  The groups that want to secede are also sore losers.  They lost the game so they want to take their ball and go home. If they did secede, we would get a mass migration to the blue states from those who want their Medicare and Social Security even though it comes from the federal government. 

Nurse Practioner Clinics As A Way To Treat Chronic Illnesses

There are 150,000 nurse practitioners in the US.  All but 1,000 of them serve patients in a medical practice run by MD's.  This article describes a clinic that is run and operated by nurse practitioners in a rural area that has difficulty attracting MD's to serve the population.  The nurses spend twice as much time with their patients per visit than the typical MD because they are on salary.  Most doctors are paid on a fee for service basis.  They have an incentive to serve more patients per hour.  The nurses can prescribe drugs and they refer patients to hospitals and specialists as needed.  They are especially good at treating patients with chronic diseases because they can spend more time with them learning about their lifestyles and diets which are critical in the treatment of many chronic illnesses. 

Studies have shown that patients in these clinics do as well as similar patients in clinics operated by doctors.  Their patients get first class services and they lower costs by reducing the use of expensive hospital emergency rooms.  We would probably have more clinics operated by nurse practitioners if there were fewer regulations that restricted their use in many states.  They also receive lower fees for their services from Medicare.  They receive 85% of what a MD would be paid.  Medicaid will only pay for their services if a bill is submitted by a MD.  The clinics have to retain virtual MD's to submit bills for the services rendered along with information about the patient.

Social Entrepreneurship As Key To Social Change

This article provides an overview of social entrepreneurship and it highlights the ways in which it is helping us to solve problems that have been resistant to change.  A social entrepreneur collects other entrepreneurs to attack problems and they work in communal ways to solve the problems.  Gifford Pinchot, who founded an MBA program to develop social entrepreneurs, is one of those singled out for attention.  He has been successful in establishing a strong community of students, staff and faculty,  and the students are connected to successful social entrepreneurs in the community while they are in residence at the Bainbridge Graduate Institute.  Many of the successful graduates come back and share their experiences with the community that he has developed.  The program has a focus on sustainability but it has broader goals of facilitating social justice and a more democratic society. 

Tax Policy And Income Inequality

This article provides some valuable insights into how OECD countries use tax and spending policies to reduce the effects of wage inequality.  The US has the one of the more progressive income tax policies, but it is near the bottom in the use of transfer payments to reduce inequality.  Transfer payments in the US are 9% of income compared to the OECD average of 22%

While the US income tax is relatively progressive, it would be less progressive if the payroll tax tax were included as a tax on income.  The payroll tax only applies to the first $108,000 of wage income, therefore it is a regressive tax.  The US collects almost as much income from the payroll tax as it does from the income tax.  The government does segregate payroll taxes from income taxes when it spends money, or when it calculates its budget deficits.  The Treasury simply puts an IOU in the Social Security trust fund when the government spends the surplus dollars  that were not used to provide benefits to SS recipients.

Many OECD countries use a value added tax for much of their tax revenue.  When combined with the income tax, they collect more tax revenue than the US, but they spend more of the tax revenue on things like education and healthcare than the US.  Their more extensive use of transfer payments has a bigger effect on reducing inequality than does the more progressive US income tax.

The President Is Holding A Winning Hand In Tax Negotiations With GOP

Bruce Bartlett was in the Reagan administration, but he has become disenchanted with the GOP focus on cutting taxes for the rich.  He explains why the Bush tax cuts were made temporary, and he offers an opinion on why temporary tax cuts don't stimulate the economy.  He does not believe that the GOP will give up on extending the Bush tax cuts, but he argues that they are in weaker position than they were in 2010, when the president agreed to extend the Bush tax cuts in order to preserve the tax cuts for the middle class.  He also believes that higher taxes are a necessary condition for improving our fiscal balance.  They are currently well below their historical average.  If the president plays his hand well, he should be able to avoid the impending fiscal cliff and let the Bush tax cuts expire without increasing taxes for the middle class.

The Mideast Crisis According To Tom Friedman

Friedman reminds us that the Mideast has created problems for every US president since Eisenhower.  He once thought that invading Iraq would be helpful.  That was not a good idea for Iraq or the US.  Now Syria is a mess, and its civil war is spreading to other areas.  He claims that this will create a problem for the US, but he has no good solution to offer.  In his view we are dependent upon Russian intervention as a mediator.

The only good thing to take away from his description of the Mideast, is the the battle between red states and blue states in the US is mild in comparison.

Worker Protests Spread In Southern Europe

This article provides an overview of the social unrest in several European states in response to austerity measures imposed by governments.  There were even protests in France, which recently elected a socialist government.  Many believe that the European social system is under attack by governments.  The governments are caught in a doom loop.  Recessions cause tax revenues to fall and they have to cut spending in order to obtain credit at affordable cost.  That can worsen recessions and require further cuts in spending.  The domestic banks in many of these countries are also in trouble.  They made bad loans during the boom, and the recession only deepens their problems.  Even good loans can go bad during a recession.

Tuesday, November 13, 2012

Robert Reich Tells Obama To Aim High On Fiscal Cliff Negotiations

The fiscal cliff includes spending and tax issues that need to be negotiated.  Robert Reich provides his list of tax increases that would minimize the need for spending cuts on entitlements.  While his list of tax increases is interesting, it would not be a good start to negotiations.  Obama's "grand bargain" that he attempted to strike with the House Majority leader, was criticized for being heavy on spending cuts and short on tax increases.  Hopefully, he will not make that mistake again.  On the other hand, we do need to figure out ways to reduce spending on healthcare.  It largely a matter of reducing provider price inflation.

Saturday, November 10, 2012

Meet Paula Broadwell

The Director of the CIA was forced to resign after it was learned that he was having an extramarital affair.  CIA directors are not supposed to do anything that might give somebody an opportunity to engage in blackmail in exchange for information.  This article describes the woman who tempted him into doing what he knew he should not do.  Its easy to see why he gave in to the temptation.

What's Driving Long Term Federal Budget Deficits?

That answer to this question has been well known for several years. Its all about healthcare.   Healthcare PRICES cannot to continue to rise faster than general inflation and tax revenues. That has not been an easy problem to solve.  The implication is that we have a very inefficient system.  All of the major providers of healthcare would have to become more efficient in order to absorb lower prices.  Congress has stood in the way of the reforms that are required for two reasons: Lobbyists have been effective in protecting their turf, and because the GOP's strategy is to maintain the current system by shifting the burden of price inflation to consumers.  They call that consumer directed healthcare.  In consumer markets, the price system is a form of rationing.  We can only purchase what we can afford to fund with our income.  That doesn't work when we don't want people to die because they cannot afford to pay for necessary medical services.  It also doesn't work when service providers have financial incentives to increase the volume of the products and services that they provide.

In any case, this article contains three simple graphs that show the drivers of cost in the federal budget. We have an aging population which increases the demand for healthcare as prices continue to rise.  We can't do much about the demographics, so the only solution is develop a more efficient system.  There are examples of more efficient systems all over the world.  That's easy because the US spends more per capita on healthcare than any other nation in the world and yet millions are not covered by insurance.  I guess this is another example of American exceptionalism.

Friday, November 9, 2012

What is Future Of Tea Party In GOP?

The Tea Party drove the GOP too far from the center to win the presidential election.  On the other hand, the GOP got almost half of the popular vote.  The GOP may try to reform itself a bit but it has essentially become the Tea Party.  There is really nothing new about the Tea Party.  It was called different things at different times in our history whenever a Democrat was in the White House.  The Koch family was originally a major factor in the John Birch society.  It focused on promoting far right ideas and it fell out of favor when it called Dwight Eisenhower a communist.  The Koch family now calls Obama a socialist, instead of a sitting GOP president, and that seems to work for them.  It has also included a focus on developing an electoral base by organizing the Tea Party.  That has worked well for them in the South and in rural counties.

The Democratic Party can't assume that the Tea Party will go away entirely.  It has to a better job of showing a lot of disaffected Americans that they are a better alternative to the Tea Party.  For example, they have done a poor job of selling American's on Obamacare.  The majority of American's don't really understand it and it is still unpopular.

Karl Rove Claims That Obama Won By Suppresing The Vote

Karl Rove's revenue from managing two large PAC's was around $80 million.  The millions that he spent on ads failed to purchase the election for his donors.  He wrote an op-ed in Murdoch's WSJ and he summarized the article on Murdoch's Fox News.  He claims that Obama suppressed the vote and that won him the election.  This video link shows that even Fox News announcers don't buy his claim.

Europe Is Doing What The US Did In 1937

FDR's New Deal got the US out of recession but it also left the government in a large budget deficit.  FDR decided to impose austerity in order to reduce the budget deficit.  The economy slipped back into recession and it was not ended until the US military build up, prior to WW ll, produced even larger budget deficits.  After the war, the private economy revived, and we were able to pay down the debt quickly.  This article uses data from the IMF which suggests that Europe is making fiscal policy decisions that will lead to recession, much like the US did in 1937.

The Politics Of US National Debt

Grover Norquist is famous for his "starve the beast" theory.  He wants to cut taxes in order to force cuts in social spending programs.  The premise is that conservatives can use budget deficits, and growing debt, as an excuse to gut social programs.  They humanely argue that we don't want to leave a legacy of debt to our heirs.  On the other hand, they don't want to do anything about global warming.  They don't really care about inter-generational justice.  They really care about paying for their tax cuts by gutting social programs. Dean Baker argues in this article that inter-generational justice is attainable on both counts.  We don't have to leave our children, and grand children, a debt burden or a less inhabitable planet. 

Obama Should Refuse GOP Blackmail

The looming fiscal cliff is primarily about the GOP insistence that the Bush tax cuts for the wealthy be extended.  If Obama does nothing the Bush tax cuts will expire according to law.  If Obama does that, however, tax cuts for the middle class will also expire.  Consequently, Obama would like the tax cuts for the wealthy to expire while keeping the tax cuts for the middle class.  That means that he has to make a deal with the GOP, which is using tax cuts for the middle class, as blackmail to get tax cuts for the super rich.  This article suggests that Obama should turn down the deal.  He should let the tax cuts expire and let the GOP take the heat.

Greece Government Approves Austerity Budget

The Greek government did what it was told to do in order to get $40 billion aid package that will keep the government from defaulting on its debt.  The medicine prescribed for Greece will cause its economy to shrink further and it will lead to more social unrest.  It has already taken some of the hemlock, and its economy has shrunk, while its debt to GDP ratio has increased.  This dose of the medicine will have similar results.  It will make Greece less able to pay down its debt, and social unrest will grow along with disrespect for government.  The doctors who prescribed the medicine will appease some of its electorate which believes that sinners must be punished for their economic transgressions.

Thursday, November 8, 2012

Video Of Karl Rove On Fox News Telling Them Not To Declare Obama The Winner

The Republican News Network (aka Fox News, or Murdoch News) called the election for Obama after it decided that Obama had won Ohio.  Karl Rove who played a major role in the Romney ad campaign strongly objected.  The Fox News team questioned their analysts and  they defended their call.  It was not a good night for Fox News.  They were forced to face the reality of defeat.  They could not provide a "fair and balanced" response that denied the reality. 

The Blame Game Underway In GOP

Ronald Reagan won an election in landslide when he asked the American people whether they were better off today, after suffering through a recession while a Democrat was in office.  The Romney campaign adopted the same strategy.  They framed the election as a referendum about Obama's handling of the economy.  The Romney campaign is now being blamed for choosing that strategy.

Chris Christie, the New Jersey governor is also being blamed.  His state was hit hard by Sandy and he appreciated the efforts of the federal government to help the state in a time of need.  He was criticized for publicly appreciating the president's efforts to help him respond to a national disaster.  Apparently, they would have preferred him to be critical of government interference or incompetence.

The blame game will going on for a long time.  The GOP would be better off it took a harder look at the product that they are trying to sell.  The market has changed, and they have the wrong product for this market.  Moreover, the public wants both parties to put the national interest ahead of party interests.  Chris Christie will come out ahead for working with FEMA to address the problems created by Sandy.  I also believe that it was not a good idea to have one of Romney's big campaign contributors at this meeting.  That sends a signal to the public that money buys access to our political leaders. 

Merkel's Economic Advisers Oppose Increases in Spending

Angela Merkel has proposed several programs that will increase government spending.  According to this article, she did so to shore up support within her coalition prior the the coming elections.  Her economic advisers were not pleased.  Germany's economy is expected to grow less than 1% over the next couple of years.  They want her to tighten the government's budget in response.  Some economists believe that fiscal contraction across Europe is not the best way to shore up the budget.  Slower growth will also lead to declining tax revenues.

The Big Money Contributors To Romney Leave Boston A Bit Humbled article describes the scene in Boston's Logan Airport as the big spenders left the Romney campaign headquarters after losing the election.  Karl Rove, who managed two of the large PAC's that spent millions of their money on ads, that failed to secure a victory, told them that the ads made the race closer.  I don't think that made them feel any better.  They are the kind of people who expect to get what they want with their money.  On the other hand, Karl Rove made out pretty well.  He collected fees on all of the ads that he placed.  In effect, he ran an advertising agency that does well no matter whether the product sells well or not.  He just happened to selling an Edsel.  Someday, however, Rove's donors may get what they want.  We should take the necessary steps to reform the electoral process.

Wednesday, November 7, 2012

America's Third World Politics

Dani Rodrik is glad that the election is over, but he, and the rest of the developed world, were not impressed by the political campaign.  Both parties took liberty with the truth, but the GOP won that contest hands down.  There were several aspects of the campaign that resembled what we might expect to find in third world countries.  The unfortunate truth is that many parts of the US are more like third world world countries than we want to believe.  The electoral system also encourages the unlimited use of money to misinform the public on critical issues.  Fortunately, most Americans can distinguish advertising from fact.  We should not have to depend upon that.  America must take important steps to reestablish its position as a moral leader of the developed world, and an example to developing countries.

Video Of Obama Victory Speech

This was the Obama that we saw in 2008.  It is will worth viewing for those who went to bed early.  He was on fire, and he did it without a teleprompter.  (For those who believe that he is only capable of reading from a script).

Censorship Also Failed In The Election

This article describes the GOP's effort to censor a research report on tax policy that refuted one their basic myths.  That is the idea that cutting taxes for the rich helps to grow the economy.  They were assisted in this effort by the  propagandists at the Heritage Foundation which is funded by wealthy conservatives who get to deduct their contributions from their tax returns.  The censorship backfired because the article got more attention than it would have otherwise.  The US is not yet ready to become a rich third world state.

Its 2008 All Over Again In Washington

This editorial sums up the election pretty well.  The US is pretty much divided North and South on most issues but the GOP's flirtation with the Tea Party has hurt them badly.  Romney had to twist himself into knots in order to win the GOP primary.  He then had to untwist himself into an electable Romney for the general election.  It did not work.  The Tea Party also cost the GOP some seats in the Senate.  The nominated unelectable candidates in the primaries and they got crushed.  Democratic candidates in states with electable opponents tied them to the Tea Party during their campaigns and that worked too.  The GOP will have to transform itself if it wants to remain a contender in the future.  Their social policies and their economic policies are out of step with the majority of the country.  The public was not fooled by the billions that they spent broadcasting lies either.  They risk becoming the party of the cognitively challenged, and the rich who do not want to pay their fair share of taxes.

Tuesday, November 6, 2012

Local TV Channels Owned By Sinclair Run Fake Election Coverage

This article describes the fake special election programs that replaced the evening news on channels owned by Sinclair.  The specials were more like infomercials against Obama than election coverage.

Sinclair did this during the Kerry v Bush election when they broadcasted the swift boat infomercials funded by right wingers from Texas.  They should lose their license for pretending that infomercials are news coverage.

Another European Perspective On The Election

Europe and America seem to be united on one dimension.  There is a lack of respect for democracy in both places.  People may have some passion about their favorite party, but democracy is more than running elections.  The people don't feel that they share in decision making.

Europe had high hopes for president Obama after 8 years of George Bush, who was their least liked president since Nixon.  He was a disappointment.  He had little interest in developing relationships with European leaders except when he needed them to help out in the Mid-East, which has preoccupied American foreign policy much more than it has in Europe.  In particular, they don't understand America's bond with the conservative Likud party in Israel.  Nothing has been done in the last 12 years to promote peace between Israel and its neighbors. The Likud party seems disinterested in that process.

The Europeans also have a hard time understanding what has happened to Republican party.  There is no party like the GOP in Europe except in a couple of small countries.  Moreover, there is no party in the US that resembles the socialist parties in Europe.  Republicans like to call Obama a socialist, but he is more like centrist politicians in Europe.  There is no left wing in the US to balance the far right ambitions of the Republican party.  The dialogue is between the far right and the center.

A Party For The Worlds Worst Central Banker

Randall Wray attended a conference in Argentina for central bankers, academics and others interested in monetary policy.  The central banker from Argentina had just been voted the worst central banker in the world by the Wall Street Journal.  She was very proud of that honor.  Randall Wray felt the same way.  Anyone who the WSJ dislikes must be doing something right.  Her major sin is that Argentina has a high inflation rate.  Many believe that the single most important goal of the central bank is to contain inflation.  The Argentine central bank worries about more than inflation.  She is also concerned about employment and equity.  Its no wonder that she attracted attention from the WSJ and from the IMF.

Randal Wray's account of the meeting is interesting and humorous.  He also explains the causes of inflation in Argentina and he does not seem to be concerned about its durability.  He would nominate the Argentine central banker for Bernanke's replacement.

An Atypical European View On The US Election

This reporter correctly states that most German's view this election as a battle between good and evil.  They still believe that Obama represents the good that remains in America.  He does not agree with that view.  He argues that America has lost its soul.  The GOP depends a large group of voters who he characterizes as the Western Taliban.  They have little interest in science or logic which have been the hallmarks of western civilization; they are engaged in religious warfare.  Many believe that Obama has the right motives, but that his party has lots of representatives from conservative states. They are also aware of the obstructionism that came from his political opponents who place party interests over those of the country.  He gives several reasons for believing that both Obama and Romney work within a system that has been corrupted.  He argues that progressive leadership is not possible within that system. 

He makes several good observations about what is wrong with America and concludes that its decline is inevitable.  I am more of an idealist.  The system is about us.  We have the power to change the system and we will not get put in prison for doing so.  Despair is not the solution to our problems.

Monday, November 5, 2012

Apple Reports 2012 Earnings

Apple reported net income of $41.7 billion in fiscal 2012.  That was a 61% increase over 2011 earnings.  Foreign earnings made an increasing contribution to Apple's profits.  It uses a well known legal tool to reduce its taxes on foreign income.  Profits are taken in Ireland and the Netherlands and routed to the Caribbean.  It paid less than 2% on its foreign earnings.  Apple reduces its total reported profits by taking a charge for taxes that would be due in the US if the earnings were repatriated.  That amounts to about $10.5 billion of earnings that it has not reported over the last three years.  There have not been many companies, the size of Apple, that have been able to report a 61% increase in earnings over year ago earnings that had also grown substantially.

Why Austerity Is Bad For Economy When Interest Rates Are Zero

Richard Koo tries again to explain what happens to an economy when private savings are high and borrowing does not absorb savings even when real interest rates are zero.  Japan cut government spending by 3% of GDP in 1997 in order to reduce its budget deficit.  This led to a 3% decline in GDP.  Tax revenues fell as well and the deficit increased by 68%.

The public does not understand why government budgets cannot be balanced when the private sector's balance sheets are over burdened with debt. They are forced to pay down their debt (savings) and someone else must be borrowing their savings.  If the government does not borrow the forced savings of the private sector, the economy will shrink.  That is not easy to explain to the public, and politicians don't help when they use budget deficits as a wedge in election campaigns.

Taxes and Moral Values In Congress

This article explains what the GOP House wants to do with the estate tax that is due to expire.  In essence they want to give a tax break that averages over $1 million for every estate subject to the tax.  That will be paid for by cutting tax credits for the poorest Americans.  They might as well say "Let them eat cake."  Their ability to build popular support for their tax policies among ordinary Americans is amazing.  They get a lot of help from their "think tanks", and from opinion makers who share their values, but it is still uncanny.

The Permanent Militarization Of The US

This article, by a professor at the Naval Academy, explains what Dwight Eisenhower really meant by the military industrial complex.  He was concerned about the influence of the military on the national spirit, as well as the opportunity cost of spending on the military.  He gives many examples of how our society has been permeated by the glorification of warfare, and adoration of those in uniform.  He blames this on civilians who have not been in the service.  Those that have served understand it better than civilians.

Sunday, November 4, 2012

This Election Is Not A Battle Between The Left And The Right

I find it hard to argue against the thesis in this article.  Both political parties have been pulled to right.  Its really about how far to the right will be go under both candidates.  Romney put Paul Ryan on his ticket to cut spending on social programs in order to pay for tax cuts for his friends.  Obama decided not the let the Bush tax cuts expire and his healthcare bill was modeled after Romney's plan in Massachusetts that was designed by the conservative Heritage Foundation.  It was better than nothing but the GOP succeeded in convincing many American's that it was a socialist plan.  Many American's were especially unhappy about extending healthcare benefits to the poor ( which is a euphemism for minorities to many in the South). 

Part of the pull to the right is due to the role of money in our political process.  Both political parties have to compete for funds in order run effective campaigns.  Few of the fund providers want a more progressive tax system, or government spending on programs that do end up putting money in their pockets.  If Obama wins the election and does not have to worry about raising money for the next election he might decide to attack our corrupt funding system.  That would be popular with a great majority of Americans.  That might also be the reason why the far right would rather not have a president elected who is not dependent upon raising money for the next election.  In any case, our political system is further to the right than most Americans really want it to be.  It has been pushed there by money and most American's are aware of it. 

Is Family Life Easier In France Or America?

This article was written by an American woman living in France.  She and her husband earn $85,000 per year and she does not believe that she could live as well in America as she does in France on that income.  She pays higher taxes in France but the state provides benefits that more than make up for the higher taxes.  Nursery school is free and so is day care for working mothers. In America she might be forced to live near her parents to get help with day care which is expensive.  Healthcare is mostly paid for by the state, and it is not necessary to save money in order to provide access to higher education for her child.  She is hooked on France.

This article makes a point about taxes.  Europeans pay higher taxes than Americans, but they value what they receive in return.  For most families the security provided by the state provides a good return on their tax contribution to the state.  The American concept of individualism leads politicians like Mitt Romney to call those who require support from the taxpayers "moochers". 

Saturday, November 3, 2012

Hurricane Sandy Exposes Vulnerability Of Costal US

This article claims that we will spend over $50 billion to repair damages from Sandy.  Hopefully, the hurricane, and the drought in the mid-west this summer, will put climate change back on the political agenda.  The public is more responsive to crises than it is to predictions of future damages from climate change.  Budget deficits are not as big a problem as the risks of inaction on climate change.

Washington Post Editorial Describes Romney As An Empty Suit

This editorial lists Romney's positions on numerous issues and shows how he has shifted back and forth on each.  It describes Romney's tax plan and agrees with critics who claim that it does not add up,  and that critical details are not provided.  Romney is the invisible man is who trying to become president by withholding critical information about his plans.  His campaign is actually based upon an attack on Obama for not quickly producing a recovery from our worst recession in 80 years.  If anything, his plan is a repeat of the Bush plan of cutting taxes and deregulating the economy.  He is betting that the public has a short memory for what led to the recession.  He will get most of the votes from those who backed Bush.  The question is whether he can convert voters who voted for Obama to vote for the invisible man.

The Best Explanation Of Mitt Romney's Lies That I Have Read

This essay is well worth the time it takes to read it.  It makes the point that there is a strategic alliance between snake oil vendors and conservative true believers.  The snake oil venders view the conservative true believers as gullible marks.  They are predators who earn a living by scaring them with conspiracies, or offering them a way to get rich, or find a secret cure for a dread disease that doctors don't want them to know about.  In the past they used direct mail.  Today they use the Internet.  They publish right wing conspiracy crap on their websites and they request  a small donation that will be used to make the world safe from liberals.  Anyone who responds is identified as a mark.  The predators can sell the names and they take all of the money that is donated from themselves.

Fox News operates in a similar way.  They frighten conservatives with stories about liberal plots to take their money and give it to minorities, and a wide variety of other scare tactics.  They also teach then not to trust other sources of information.  They all have a liberal bias. Its audience is a great source of marks for the predators who feed on them.

Its important to understand this as a business.  It many have little to do with the ideology of the predators.  They are in the business of taking money from the marks.  For example, Karl Rove has raised lots of money from rich and poor marks who have poured millions into his PAC's.  He gets 10% of the revenue that he raised and gets a fee as a broker for placing all of the ads.  He will get rich from his business  even if the lies that he tells don't enable Romney to win the election.

It took Romney a while to learn this game.  He had to reconstruct his persona to appeal to the gullible marks but he has done it well.  The marks don't really care whether they are now seeing the true Romney.  They are comfortable with those who are good at telling them the the familiar lies with which they are comfortable.

The author of this essay writes for the Washington Post.  It is a well researched essay that violates the unwritten rule in journalism that insists that both political parties tell lies.  We all tell lies at times but this essay describes the business of lying that has linked predators with conservative marks.  Many of the Post's readers would be classified as marks.