Thursday, October 31, 2013

How Money Can Buy Happiness

This article (via Manan Shukla),  describes some the ways that money does not buy happiness and suggests that there is one way that money can buy happiness.  Even though blind wine tasting tests indicate that most people are not very good at grading the quality of wine, it is possible to make yourself happier by sharing a good bottle of wine with a friend or two.  The key is to spend a little more that you would usually spend for a bottle of wine that you have learned something about.  The price that you pay, and the knowledge that you have acquired, provide valuable information that will increase your enjoyment and make you happier.  Moreover, unlike some things that make you happy for a brief period of time.  It is likely that you will continue to enjoy the experience of sharing a good bottle of wine and it will not give you a hangover.

This article reminds me of story about Jack Welch the former CEO of General Electric who retired with a lavish pension and lots of perks.  When he was asked what he would do to benefit from his pension and perks he said that he would never drink a bottle of wine that cost less than $100.  Its also possible that he would enjoy one of the perks that he received.  He has access to GE's private jets for his air travel.  Commercial air travel, with all of the security measures that have been introduced, has made access to a private jet much more valuable.  Warren Buffet has a reputation for being a frugal billionaire who does not spend his enormous wealth on luxuries that are consumed by others who can afford to buy them.  There is one exception, however, Warren Buffet uses a private jet for his air travel.  I think that most of us would agree with Warren Buffet that air travel with a private jet has lots of advantages over commercial air travel.

The Myth of Exploding Federal Spending On Safety Net Programs

The other myth that is widely believed by a part of the public is that spending on social safety net programs for those with low incomes has exploded.  This graph shows that low income expenditures, excluding healthcare as a share of GDP, grew at the onset of the Great Recession, but they have been falling and will continue to fall over the next decade.  They are projected to be below the long term average at the end of the decade.  The popular myth that the federal government has created a society of "moochers"and that federal spending on the "moochers" will bankrupt the country is not supported by the data and by CBO projections of future spending.

The Myth Of The Exploding Federal Government

One of the most common myths that we hear from tea partiers, and their teachers at Fox News etc., is that the federal government is growing out of control.  The blue line shows non-interest spending by the federal government, excluding Medicare and Social Security,  in relation to the size of the economy.  It was at a peak of 15% of GDP in 1962 and it fell steadily to a low of 10% during the Clinton Administration.  It grew back to around 15% of GDP as a result of two recessions.  During recessions the economy shrinks and mandatory spending on unemployment programs etc. rise.  The peak occurred in 2009 at the onset of the Great Recession.  It has fallen steadily since the peak and it is projected to fall well below the long term average for federal spending as a share of GDP.

Social Security spending has increased steadily over this period. Its share of federal spending in relation to GDP doubled from 2.5% in 1962 to 5% at present and it will continue to grow slowly due to an aging population.

We introduced Medicare in the Johnson Administration and it has grown to about 2.5% of federal spending and it will continue to grow as our population ages and as the prices that we pay for healthcare services continue to rise. 

In conclusion, we are not faced with a problem of out of control spending by the federal government.  The growth in federal spending has been driven primarily by Medicare spending.

Wednesday, October 30, 2013

The Culture War In A Different Era

This article (via Manan Shukla) provides a fascinating description of the CIA' s exploitation of modern art during the cold war with the Soviet Union.  The intent was to draw a clear contrast between the rigidity and orthodoxy of the Soviet Union and the openness of the US and the West to freedom of expression and intellectual achievement.  According to a leader of that program in the US it played an enormous role in the Cold War.  Nelson Rockefeller, whose mother's art museum was used in the program, called the modern art that was promoted by the CIA "free enterprise painting".  In addition to the use of the CIA's Congress For Cultural Freedom in the cold war with the Soviet Union,  it was part of a longer term effort in the US to move the center for artistic expression from Paris to the US. 

The CIA did a masterful job of keeping the program secret and covert.  The funding of the expensive program was provided by the CIA, but it was funneled through charitable foundations.  The CIA would contact a wealthy individual and set up a foundation in that person's name.  The foundation would then be used to sponsor domestic and international art tours that promoted contemporary art.

The artists, whose art was promoted by the CIA, were unaware of the CIA's sponsorship of their work.  Most of the artists were non-conformists and may not have cooperated if they had known that the CIA was responsible for the program.  It was also important to keep the program secret from Congress.  Americans had a dim view of avant-garde art and members of Congress are not typically very far removed from popular opinion.  The program also occurred during the McCarthy era when avant-garde art and intellectuals were attacked for being sympathetic towards socialism.  The CIA at that time was led by graduates from Ivy League colleges who understood the importance of taking the cultural high ground as well as the low ground that was occupied by McCarthy.

This story reminded me of a couple of things that happened in my childhood that may also have been part of the Cold War in the US.  A Freedom Train toured the US which displayed the Constitution, The Bill of Rights and other examples of our commitment to freedom and democracy.  A new course was also made a requirement in High Schools in my state.  It used a text with a title something like "Our Economic World".  It extolled the virtues of a free market economy.  The CIA may not have been behind the Freedom Train or the requirement for a public school course in economics, but there was a concerted effort by our government during the Cold War to draw a bright line between the US and the Soviet Union.

The cultural war that we are having today in the US is more like the McCarthyism of the Cold War than the war conducted by the CIA.  Popular culture is glorified, along with a host of things that might fit under the label of "family values".  One is not a "true American" if one does not share the values that are more commonly held by those who responded positively to McCarthyism.  On the other hand, this article demonstrates the ability of government to covertly promote whatever it chooses to promote.  Its easier to do so when we have a common enemy against whom we can conduct a popular war.  We seem to be struggling to find a replacement for communism after the collapse of the Soviet Union and the conversion of China to a form of  state capitalism.  I hope that we find one so that we can stop the internal war of Americans against Americans.

Tuesday, October 29, 2013

Are Growthism And Capitalism Really Different?

This article on the Harvard Business Review blog looks at many of the bad things that are happening in our economy and in our society and it argues that capitalism has morphed into "growthism".  It is a rather strange argument, since there is no capitalism without growth, but the comments that follow the article are much better than the article.  It has succeeded in raising an interesting discussion about growth itself by a well informed readership.  We have a finite planet that cannot sustain infinite growth so we may have to deal with limits on growth.  But limits on growth may imply limits on prosperity.  That raises questions about our definition of prosperity.  We seem to have identified prosperity with mindless consumerism which is one of his criticisms of "growthism".  He seems to hold two contradictory arguments at the same time.  Clearly, prosperity would be more widely shared in a good society, and he agrees that this is one of the problems of "growthism". We have been experiencing rising inequality and less social mobility than we have had in the past.  On the other hand, one of the problems of rising inequality is that consumption by the poor is also very limited.  That includes the consumption of necessities as well as the consumption of the "trinkets" that he identifies with consumerism.  It is not clear that "growthism" is responsible for rising inequality and poverty or whether changes in our system of capitalism have been responsible for rising inequality.

At a deeper level we get back to the distinction that is made between "growthism", which is bad, and capitalism which he does not define.  One implication is that a more pure form of capitalism would be better than "growthism" but he does not bother to define the pure capitalism that has somehow morphed into "growthism".  Some have argued that capitalism had been transformed into corporatism, and others believe that capitalism, within a well functioning democracy, could provide for shared prosperity without many of the bad things that are associated with rampant consumerism.  Its quite possible that we have a failure in our democratic system that has either abetted its transformation into corporatism or has failed to align capitalism more effectively with social welfare.  Frankly, it is impossible to discuss any abstract economic system in the absence of a system of governance.

In any case, the questions raised in this article would provide good material for discussion in MBA programs as well as in economics courses.  A stronger form of informed citizenship may be the medicine that we require.

Monday, October 28, 2013

Robert Samuelson Tells Us That The Great Moderation Caused The Great Recession

There is a relationship between periods of prosperity and the willingness of investors and businesses to take risk.  During periods of prosperity we overshoot on the way up, and during bad economies we overshoot on the way down.  Robert Samuelson claims that Alan Greenspan's monetary policies produced a period of prosperity that was called "The Great Moderation".  The Fed succeeded in attenuating the business cycle.  He argues that we might have been better off if we had normal business cycles because Greenspan's policies led to over-confidence and excessive risk taking that caused the Great Recession.  In other words, Greenspan was too good at his job.

Some of Greenspan's critics accuse him of creating the conditions for the Great Recession by leading our effort to deregulate the financial system.  Samuelson dismisses these criticisms by arguing that the banks that were responsible for the financial were regulated and that deregulation could not have been one of the causes of the financial crisis.  It was Greenspan's successes and not his failures that led to the financial crisis and the Great Recession.

Greenspan was certainly a cheerleader for deregulation and he had a lot of help.  Robert Rubin and Larry Summers were important members of the team that made it easier for banks to develop and sell derivative contracts that escaped regulation.  Bank regulators, which included the Fed, also failed to do their job.  For example, the Fed was informed about problems in the origination of mortgages but it chose not to do anything about  it.  The SEC also played an enabling role by deciding that our large banks were more able to regulate themselves than was the SEC.  It is very clear that an ethic of deregulation contributed to the financial crisis but it was much more systematic than banking deregulation. I think that it makes more sense to look at the entire system that had been corrupted to enable the financial crisis and the Great Recession.

The problems begin at mortgage origination.  Banks and mortgage originators initiated mortgages but they sold them to Fannie Mae, Freddie Mac and Wall Street banks that packaged them into securities that they sold to investors.  This was a big change from the good old days when banks originated mortgages that were kept on their books.  Now they could pass the "Bad Queen" on to the next link in the chain.  They mortgage originators also had help from appraisers.  They were able to encourage appraisers to over estimate the value of the homes that they appraised for mortgages.  This enabled the originators to grant mortgages in excess of the value of the homes.  This was a big departure from past practices.  Many of the originators also provided false information about the income of those who were seeking loans.  They also sold variable rate mortgages that had low interest rates for the first few years and were reset at higher rates in later years.  This enabled many with low incomes to make the early year payments even though they were unaffordable after they were reset.

The mortgage securitizers were making a lot of money from fees that they derived from packaging and selling mortgage backed securities.  Over time the demand for the securities that they were selling became greater  than the supply of mortgages that were needed to create the securities.  In order to satisfy the demand for mortgage backed securities, they ignored the underwriting standards that they had established for the mortgages that went into the securities that they sold.  This encouraged the mortgage originators to violate those standards.  The banks also made the mortgage backed securities more attractive by getting AIG to insure the mortgages against default by issuing credit default swaps. The rating agencies were glad to provide AAA ratings for the banks that hired them. AIG did not have the reserves that were required to insure the securities but they were able to escape the regulation of insurance regulators by registering as a bank in London.

I could go on and on about the system and how it was corrupted but that would take a book.  My point is that the Great Moderation did not cause the financial crisis and the Great Recession as it is argued by Samuelson.  We had enabled a system of corruption that began with mortgage origination and extended to the process by which toxic mortgage backed securities received AAA ratings and were sold to investors who were misinformed about their quality. 

Sunday, October 27, 2013

Robert Shiller Comments On Winning Nobel Prize Along With Eugene Fama

There has been a lot of discussion about the award of Noble Prizes this year to two economists who have very different theories about the efficiency of markets.  Robert Shiller won the award for his approach to asset prizes which assumes that markets are often irrational.  Eugen Fama assumes that asset prices are always correct and markets are always efficient.  For Fama there is no such thing as an asset price bubble.  Shiller, on the other hand, predicted that housing prices were inflated and that the bubble was bound to burst. 

Shiller does not see any problem in the awarding of Nobel prizes to each of them.  He believes that one of the good things that can be derived from Fama's theory is that it is foolish for the average person to time the market or to make an effort at stock picking .  Few professional investors are able to consistently perform better than market indexes.  The average investor is better off purchasing stock indexes.  They will make fewer mistakes and they will avoid the high fees charged by wealth managers.  On the other hand, Fama's theory assumes that markets are efficient and that any effort to regulate markets would lead to less efficiency.  Alan Greenspan, and many other economists with faith in Fama's theory,  decided to deregulate the financial markets at great cost to the global economy.  Shiller believes that market are irrational and that it was a mistake to deregulate them.

New EPA Rules Do Little To Reduce Carbon Emissions From Old Coal Plants

President Obama established rules which will require new electricity generating plants to emit less carbon.  He promised to deal with emissions from older coal plants in the future.  One solution, proposed in this article, is to require coal burning plants to reduce mercury emissions.  The older coal burning plants, which are not equipped with modern scrubbing technology, would not be able to satisfy that requirement.  They would be forced to switch to gas which is cleaner and becoming less costly.  The National Academy of Science estimated that the cost to society from burning coal in 2005 was $62 billion.  We could provide pensions to the coal miners who lost their jobs for a fraction of that cost to society.  Unfortunately, our accounting systems do not account for the cost of externalities. 

One approach for dealing with carbon emissions from older coal plants is to capture and store the carbon underground.  That technology has not been tested on a large enough scale to determine its effectiveness. 

Saturday, October 26, 2013

Fiscal Multipliers In A Liquidity Trap

Mark Thoma is attending a NBER session in which several interesting papers have been presented.  This paper is very timely, although a bit wonkish, because it provides an answer to an important question that has been debated by economists.  Some economists have argued against the use of fiscal stimulus in a recession by suggesting that government deficits will not stimulate the economy since a dollar of additional government spending will produce less than a dollar of aggregate demand.  This assumes that the fiscal multiplier is less than one.  Others have argued that the fiscal multiplier is greater than one when monetary policy is limited by the zero lower bound.  At the zero lower bound nominal interest rates cannot fall below zero.  On the other hand, real interest rates can be negative because of inflation.  The higher the rate of inflation, the lower the rate of real interest rates,  which will raise the rate of aggregate demand.

The conclusion reached in this study suggests that the fiscal multiplier is greater than unity and that government deficits will increase aggregate demand in a country with its it own currency at the zero lower bound.  The multiplier will also be greater than unity in a currency union but the mechanism will be different than it is for a country with its own currency.  In a currency union it is not possible to increase demand via currency depreciation and rising exports.  Transfer payments, however, within the currency union will have a value greater than one.  

Tea Party Debt Reduction Tactics And Unintended Consequences

Conservative Republicans, led by those affiliated with the Tea Party, claim that their goal is to reduce the long term debt obligations of the federal government.  Simon Johnson argues that the tactics that they are using to achieve that goal are counterproductive.  They are increasing the risk to investors in US treasuries.  That may cause central banks and other large purchasers of US debt to look for an alternative to the dollar as the global reserve currency.  That will raise the interest rate that the government pays to service its debt.  Along with the rising cost of healthcare, the cost of future debt service is one of the leading expenditures of the federal government.  The tactics used by conservative Republicans may backfire.  Government spending in the long term will greater than it is projected when we assume that the  dollar will continue to be the global reserve currency.  They are playing a dangerous game that they do not fully understand.

Friday, October 25, 2013

If Hurricane Sandy Was Good For GDP Something Must Be Wrong With GDP

This article (via Lily Scott) uses the Hurricane Sandy example to remind us that GDP measures to dollar value of goods and services produced in a given period of time.  Some of things that are included in the measure are bad things like the cost of repairing the damages from the hurricane.  Similarly, the cost of responding to the damages from the faulty nuclear plant in Japan increased its GDP. 

In addition to including our spending on bad things in our measure of GDP,  we fail to measure a number of things that are important indicators of social welfare.  This article surveys some of the efforts that are underway to add measures of social welfare to GDP.  The measures of social welfare described in this article should appeal to a wide variety of constituents including environmentalists and conservatives who place a high value on intact families.

Thursday, October 24, 2013

Political Dysfunction In The UK And The US May Have Similar Causes

The conservative UK government has agreed to a referendum on the UK's membership in the European Union. The conservative government, which is typically aligned with big business, hopes that the referendum loses because big business stands to lose big time if the UK leaves the EU.  The government has pushed the referendum because of the growing strength of Independence Party which has been gaining public support by opposing immigration.  This article suggests that are similarities to what is happening in the UK and in the US.  The Independence Party in the UK is similar to the Tea Party in the US, and both movements are being supported by the right wing media.  Rupert Murdoch is one of the media leaders in both countries who is pushing anti-immigration sentiment and other populist issues.  Simon Wren-Lewis attempts to explain this strange series of events in this article.

Rising income inequality is common in the UK and the US as well as it is in many Western economies.  Anti-immigration sentiment is always strengthened by rising inequality.  The more difficult thing to explain is the actions being taken by the conservative parties in the US and the UK which have taken positions on many issues which are against the interests of big business.  Lewis suggests that the right wing media are simply doing what they usually do.  They know their target market and they are feeding them the "red meat" that they enjoy eating.  This is simply good business.  Unfortunately, what is good for the right wing media in not good for the traditional conservative parties in both countries.  They are struggling to manage their relationships with big business and with the populist movements which have been fueled by the right wing media.

It is possible that the right wing media are simply acting to satisfy their own business interests,  and that their actions have had unintended consequences.  Its also reasonable to suggest that businesses in the UK and in the US may not have similar interests and motivations.  Small businesses are more important than big businesses in many localities.  Their business interests and perspectives may not coincide with those of multinational corporations.  They have traditionally supported the conservative parties in both countries and they are more important to them in local elections.  Some big businesses may also be more reactionary than others.  For example, the extraction industries in the US, who oppose government  to protect the environment,  have helped to fund and organize the Tea Party movement in the US.  Tea partiers have been taught that global warming is not real and that our founders did not intend to create a large federal government that might be used to regulate business and to dictate policies to state governments. 

The GOP Has A New Strategy To Better Serve The Public

Reporters were present at a meeting that House Republicans had to discuss their new strategy for serving the public.  One might have thought that the GOP would address the major concern of the American people that has been revealed in the polls.  Their top concern is government dysfunction.  The House Speaker, however, proposed a new strategy.  It is the same strategy that has made the public concerned about government dysfunction.  Their new strategy is to attack the Affordable Care Act by investigating the problems with the implementation of ACA.  The GOP leaders expressed deep concern for the problems that people are having when they attempt to enroll in the program that they attempted to defund.  In other words, their new strategy is simply a different tactic to abolish the ACA which they portray as the greatest threat to our economy,  and perhaps to existence of the universe.  They are "shocked" that technical problems have made it difficult for citizens to enroll in the plan that want to abolish.  Does anyone believe that their investigations into the implementation of the ACA will make it more available to the public?

The most obvious conclusion from this meeting of House Republicans is that they have nothing new to offer to the public.  It is a party that is devoid of ideas.  They have convinced a segment of their base that President Obama is a socialist devil who was born in Kenya and that the ACA will destroy the nation that was created by our founders.  Apparently, that is the message that House Republicans plan to use to animate their base in the 2014 election campaign. Frankly, its hard believe that we have gotten to this point in our democracy.  One of our major political parties is being led by the most backward segment of our society that it has been cultivated primarily for the purpose of winning elections with a message of hatred and fear.

Germans Are Not Pleased By NSA Survellance Of Its Chancellor's Cell Phone

Edward Snowden released new information regarding the targets of NSA surveillance.  One of the targets was Germany's Chancellor Angela Markel.  It is apparent that many of our allies have been the targets of NSA snooping.  Ostensibly, the US targets terrorists who might harm us.  It appears, however, that NSA spies on our friends as well.  We are in a situation is which we have the technology to spy on our friends, and our officials place no limits on the use of the technology. President Obama phoned Chancellor Markel and told her that she is not a target of our surveillance.  He was forced to convey the same message to French leaders.  He did not claim that they were not targets in the past.

We tell parents that that they should not let their children play with matches.  The reasoning is obvious.  Apparently, it is not obvious to our public officials that we should not use the spying technology that is available to them for any purpose that we choose.  The danger is not obvious to them.  Its not even clear to me that our politicians are fully aware of what is done by our spies.  They have their own purposes which may or may not coincide with those of our elected officials.  The spy agencies are manned by long term employees who are loyal to their organizations.  Our politicians are temporary employees who come and go with the election cycles.

Most American's believe that Edward Snowden has been harmful to our national interest.  That is true as long as we believe that should let our spy agencies play with matches.  Some might argue that it is in our national interest to be more aware of the capabilities and dangers that might be harmful to our national interest when they are misused.

Your Grandfather's Republican Party Speaks Up

The Taft family was once regarded as the pillar of Republicanism.  One of its members was called "Mr. Republican".  This article was written by member of the Taft family who is proud of his genetic heritage of Republicanism.  He is very critical of the behavior of his party in recent years.  He would like the party to return to the philosophy that had guided it over most of its history. It was and should be the party of fiscal responsibility.  It has ceded that distinction to the Democratic Party.  Ironically, many members of the GOP would argue that establishment Republicans like Taft are Republicans in name only.  They believe that the populist philosophy espoused by its fringe members in the Tea Party is the true philosophy of the party.  It is a philosophy that places the interests of its politicians, and those who fund its political campaigns, above the interests of the nation it is supposed to serve.

Tuesday, October 22, 2013

Fox News Uses Trolls To Neutralize Critical Websites

A recent book on Rupert Murdoch's media empire discloses how the PR Department of Fox News employed trolls to comment on sites that reported on Fox News.  It seems like a poor waste of resources since most people have an opinion about Fox News that is not easily modified by comments on websites.  People either love it or hate it.

Paul Krugman has had to battle with trolls on his site.  He argues that many of the stupid comments on his site do not come from stupid people.  The trolls may be very smart people who are just doing their job. That is somewhat encouraging.  I would rather believe that we have not lost our minds.

A Tribute To An Early Advocate Of Sustainable Agriculture

The Roosevelt Institute awarded its Four Freedoms Award to Wendall Berry who is a poet and writer that understood the relationship between humans and the planet that nourishes us.  He was one of the earliest critics of mining practices that laid waste to many areas in his home state of Kentucky.  He was also one of the earliest advocates of small scale local farming and farm to table restaurants.  This article explains why the Four Freedoms Award was granted to Wendall Berry.  Hopefully, it will encourage more of us to follow his example.

Abenomics Is Used To Show That The US Is Not Greece

Some members of the US "debt fix committee" argue that the US must reduce it debt or it will be in the position that Greece is in now.  Greece has to pay high interest rates on its sovereign debt.  China has been a major purchaser of US debt, and the very serious members of the "debt fix committee" argue that China will stop funding US debt if the government does not reduce its debt burden.

Paul Krugman uses Abenomics in Japan to make the point that the US should not be concerned with a reduction in Chinese purchases of US debt.  Japan is also a high debt country but it was concerned about the increase in Japanese debt purchases by China.  They were driving up the value of the yen which had a negative effect on Japanese exports.  Abenomics was designed to make investors concerned about the potential for inflation in Japan.  The intent was to increase the risk to investors who held the yen.  It seems to be working.  The yen has fallen in value and Japanese exports have become more competitive.  Monetary policy in the US has been designed to produce a similar result.  We would benefit from a bit more concern about US inflation and the dollar would fall in value and make US exports more competitive.  That might enable the US to grow its way out of its debt problems.  That option is not available to Greece which does not have its own currency.

Monday, October 21, 2013

How Radical Is Obamacare?

Conservative Republicans have been claiming that the ACA will revolutionize healthcare in the US.  Some even refer to it as socialism.  Some even claim that it will destroy the US economy.  In fact, it is far from a radical change in in our healthcare system.  The majority of Americans are covered by employer healthcare plans.  Therefore, there will be no change for most Americans.  Actually, more dependents will be covered by employer plans because their coverage has been extended from age 22 to age 26.

The big change from the ACA will occur for those who are currently uninsured.  The plan originally increased the number of insured by 30 million.  That number has been reduced to 23 million by the decision of some states to defer an increase in Medicaid that would be primarily funded by the federal government.

The ACA is expected to cost around $1 billion to extend insurance coverage to millions of Americans.  That is a relatively small number compared to $2.7 trillion that we currently spend on healthcare in the US.  There are several parts of the plan that will help to cover the cost.  Healthcare providers expect to see a large increase in revenues as more Americans will be covered by insurance.  They have agreed to price reductions in order to expand their revenue base.  Some providers will also pay higher fees and some will pay taxes.  For example, medical devise firms will be subject to a 2.7% tax.  The Medicare tax will also be made more progressive.  High income households will pay a slightly higher tax and and non-wage income will also be taxed.

The ACA is also very far from socialism.  Private insurance companies will provide the coverage for those who are currently uninsured and healthcare services will continue to be provided by private firms.  The healthcare exchanges will also make it easier for consumers to compare the plans that are offered by insurers.  That should increase price competition in the insurance market.

In conclusion, the ACA is far from a revolutionary change to healthcare in the US.  The basic model of the ACA was designed by the conservative Heritage Foundation.  The intention was to retain the major features of the US healthcare industry in contrast to the single payer plan that is used in Canada.  Provincial and National governments in Canada play a much larger role than they do in the US.  Private insurers play a very small role and the government is much more active in regulating the capacity and cost of healthcare delivery.  Many Americans would have preferred something more like the Canadian system which has universal coverage and a much lower cost per enrollee than the US system.

There are bound to be lots of issues with ACA as it is implemented.  There were lots of problems with Social Security when it was first implemented.  Over time time Social Security was improved and we can anticipate improvements with ACA as we gain experience.  Hopefully, GOP opposition to an essentially conservative plan that happened to legislated by the wrong party will not interfere with the implementation.

How The JP Morgan Settlement With The Government Was Negotiated

The tentative $13 billion settlement between JP Morgan and the government was initiated by a meeting between the JP Morgan CEO and the US Attorney General.  This article provides some of the details about the civil lawsuit.  JP Morgan is also subject to a criminal lawsuit in California.  The criminal lawsuit charges JP Morgan with the sale of mortgage securities to investors which it knew to be at risk.  JP Morgan requested that the California lawsuit be dismissed as part of the settlement.  The government declined the request.  JP Morgan has decided to let the criminal lawsuit go forward.  It is very hard to win a fraud suit.  The government must prove that JP Morgan intended to defraud the investors who purchased the toxic mortgage securities.  It is not easy to determine what went on in the minds of those who sold the toxic securities. 

Free Market Morality And The Morality Of Common Sense

The ideology of free market morality has been on the ascendency in the US.  That is because the socially dominant groups in society prefer an ideology that justifies their position in society.  This article presents two ways of thinking about social morality.  One view makes the moral case for the social welfare state.  That ideology is contrasted with the ideology of free market morality.  It then presents four questions for those who support the ideology of free market morality.  In order to be consistent with the ideology one must answer yes to each question.  One quickly finds that answering yes to each question is not easy.  That is because free market morality runs counter to our common sense intuitions about morality and social justice.  Ask your libertarian friends to answer the four questions.  It will encourage a lively discussion.

Sunday, October 20, 2013

How Washington's Fiasco Looks To The Rest Of The World

After the loss of the 2012 presidential election the Republican Governor of Louisiana complained that his party was earning a reputation as "the party of the stupid".  World reaction to the ability of the the stupid minority in the GOP to shut down the government it was sworn to serve moved from smugness to worry about the damage that might be done to the global economy by the party of the stupid.  They should be worried.  A stupid minority that has the power to keep the government from attending to its real problems is a concern to a world that has looked to America for leadership in the past.  The Republican Party has built a Frankenstein Monster that may destroy the party and America along with it.  A great political party cannot depend upon the ignorance of its voters for electoral success, and a nation cannot be led by its least informed citizens.

How Factions In The House Voted On Compromise Bill To End Shutdown

This article provides an interactive graph of the factions in the House and how each faction voted on the compromise bill.  You can see how each faction voted by clicking on the faction and viewing the map which shows where they came from and how the votes were distributed.

Fox News Is Even Worse Than We May Have Thought

Sean Hannity interviewed two people on his Fox show to demonstrate how the pubic is being damaged by Obamacare.  A small businessman claimed that he would have to lay workers off because of Obamacare.  This supports one of the conservative claims about Obamacare.  Another person claimed that she had to pay higher premiums at the exchanges made available by Obamacare.  That also supports the conservative claim that Obamacare will cause insurance premiums to rise.

It turns out, however, that the small businessman employed only four workers.  Obamacare only requires businesses with 50 or more workers to provide healthcare insurance.  The poor businessman who claimed damages from Obamacare lied and Fox News broadcasted the lie.  Similarly, the woman who claimed that her insurance premiums were higher under Obamacare lied and Fox News broadcasted the lie.  This is what Fox News means by its claim that it provides fair and balanced news.  It is fair and balanced if that is what its audience wants to hear.  After all, this is what a business should be aiming to achieve.  Its important to provide the consumer with what the consumer demands.  Economists call this consumer sovereignty.  The consumer is the king.  Rupert Murdoch, who owns Fox along with other media outlets, understands that very well.  He was asked to explain the popularity of conservative talk radio and the unpopularity of liberal talk radio.  He answered by arguing that the free market was providing the answer.  Apparently, reporting is fair and balanced when the public is told what it wants to hear.  On the other hand,  the mainstream media have a liberal bias because they strive to provide more than one side of the issues on which they report.  What a boring idea.  Why bother to offer the consumer a news product that fails to confirm their biases?

JP Morgan Approaches $13 Billion Deal With Government To Settle Civil Suits

This article describes numerous lawsuits that JP Morgan is facing in relation to the financial crisis.  Some of the suits originated from its purchase of Bear Sterns and Washington Mutual which were also involved in the securitization and sale of mortgage products.  The deal with the government would result in fines amounting to $13 billion.  JP Morgan has also allocated $9.2 billion to pay for legal fees that have been mounting steadily.  The law firms that handle these kinds of deals are as expensive as the investment banks that they are defending.  Whats bad for JP Morgan is a boom for the law firms that provide legal services to the Wall Street banks.

Saturday, October 19, 2013

Who Are The Most Influential Conservatives?

A conservative website provided its list of the 25 most influential conservatives.  Most of them are in the media and are well known.  Some of you may be curious about the list but I posted it for another reason.  Can you name the 25 most influential progressives?  I'll bet that you will find it difficult to come up with 25 names, and that you could add others to the top 25 conservative list.  That may explain why the GOP has moved so far to the right.  The Tea Party has not been an accident.

Is The Heritage Foundation Any Worse Than It Was?

The senior GOP senator from Utah was unhappy with the role played by Heritage in the campaign to defund the Affordable Care Act.  He reminisced about the good old days when the GOP could rely upon Heritage to provide intellectual support for the ideas that GOP politicians took to the electoral market.  Paul Krugman argues the Heritage has been intellectually challenged since 1980.  It may have reached the point in which journalists will no longer request input from Heritage on economic issues.  They have been embarrassed a lot in recent years by reporting on Heritage research that has been seriously flawed.  There seems to be a race to the bottom among conservative think tanks.  They have been challenged to provide intellectual cover for very bad ideas.

Texas Loves Ted Cruz Even More Than Before He Led The GOP Into A Trap

Gail Collins provides us with a very funny description of politics in Texas.  Its hard for politicians to be outlandish enough to get attention.  Texas has set a very high bar on the craziness scale.  The comments that follow are also informative and funny.  We can all laugh about Texas but it may be setting the standard for the lovers of liberty, and freedom from knowledge in the rest of the country.

Friday, October 18, 2013

American Exceptionalism

This graph, via Credit Suisse,  (click to enlarge) illustrates something that America is really good at.  There are many more individuals in the US with a net worth exceeding $50 million than there are in any other country by a wide margin.

The Crisis Is Over In The US But The Enemy Has Not Been Eliminated

Like most of us, Paul Krugman is pleased that the government has been reopened and that we escaped the disaster of a US default on its debt.  He reminds us, however, that a lot of damage has already been done to the economy as a result of the Tea Party takeover of the House in 2010.  Macroeconomic Advisers calculated the cost at $700 billion of lost output and a 1.4% increase in the unemployment rate.  Furthermore, the restoration of government is only temporary.  We will have to go through a similar process in the near future when the debt ceiling will have to be raised again.  The GOP is still intent upon engaging in class warfare by shifting the tax burden from the wealthy to the middle class and by cutting spending on social welfare programs.

Thursday, October 17, 2013

What Did The Tea Party Learn From Its Effort To Defund Obamacare?

One definition of a fanatic is that a fanatic does not learn from mistakes.  When they fail at something they keep repeating the same thing.  After Obama won the 2012 election against Romney they complained that Romney was not conservative enough.  If he had been more conservative, and tougher against Obama, he would have won the election.  Their response to the surrender to the GOP surrender in Washington yesterday sounds very familiar.  Tea Party supporters argue that the GOP was too weak in their battle with Obama.  They argue that most of the country was behind them and that they would have won if they had been tougher. They intend to place Tea Party candidates against Republican's who voted for the surrender in the 2014 GOP primaries.  They also make a claim that is similar to that made by Southern states that seceded from the Union prior to Civil War.  Supporters of secession, and present day Tea Partiers,  claim that they are defenders of the US Constitution. Supporters of secession  believed that the Constitution guaranteed the freedom of sovereign states to operate without undue interference from Washington.  Tea Partiers are convinced that the Affordable Care Act violates the Constitution and that the federal government interferes too much with the functions of sovereign states.  They are supported in their beliefs by a communications echo chamber that confirms their biases.

The Medical Devise Industry And High Healthcare Costs In The US

The Affordable Care Act includes a small tax on medical devises.  The tax, along with other taxes and cost savings, helps to fund the ACA without requiring additional support from taxpayers (This is not well known.  Most Tea Partier's think that ACA will raise their taxes.)  In any case, the medical devise industry lobbied Congress to remove the tax from ACA.  The GOP, which pretends that it is concerned about deficits, supported the industry, along with  handful of Democrats, during the recent negotiations about the debt ceiling.  This article, describes the unusual way in which the medical devise industry prices its products.  They do not have a list price on their products.  Each hospital negotiates a price and agrees to keep the price that they paid a secret.  Free marketers who believe that price competition is at the heart of any market ignore this practice.  That is one of the reasons why medical devises cost 50% more in the US than they do in the rest of the world.  They have been able to guarantee high profits by successfully lobbying in Congress.  This is one example of how capitalism works in the US.  The lobbying industry is one of the fastest growing industries in America.  It is an essential arm of most large corporations.  Each corporation seeks competitive advantage by winning favors from the government.  They compete against each other in Congress to win concessions that give them an advantage in their markets.  In turn, our politicians compete for the funds that the lobbyists provide.  This is a highly competitive market.  It would be nice if the medical devise industry were as competitive. 

Fortunately, the lobbying effort to remove the medical devise tax from ACA was unsuccessful.  It remains in the ACA.  We will have to see how this plays out in the future.  John Boehner, who is the Speaker of the House, represents an area in Ohio which contains a number of medical devise firms.  He has been one of the most active in Congress in support of the industry's efforts to avoid the tax.

The Tea Party Surrender

This editorial in the NYT summarizes the outcome of the effort by a fringe group in the House to defund the Affordable Care Act.  They held the government hostage to a threat that they would allow a default on US debt unless the government acceded to their demands.  The administration called their bluff and they were forced to return the hostage unharmed.  They are fanatics, however, and they are supported by like minded fanatics in the more backward parts of the nation.  They are also an industry with financial support from wealthy individuals and corporations that use them for their own purposes.  They are also supported by a vast propaganda network that keeps them misinformed and angry.  The Republican Party can't live with them and it can't live without them.  We will have to wait and see how this plays out. 

Wednesday, October 16, 2013

David Brooks Makes The Case For Shale Gas

David Brooks tells us that shale gas is an economic necessity that will satisfy our demand for natural gas for 100 years.  This is a blessing that we should take advantage of but environmentalists are doing what they can to prevent us from realizing the blessing that we have been given.  In his usual, way he demonstrates his "fair and balanced" approach by reminding us that there are some issues with fracking when it is done by small operators.  His op-ed was welcomed by EXXON which provided a link to it on its website.  EXXON appreciates the fair and balanced reporting provided by David Brooks.

Why Its Important For Republicans To Shut Down The Government

Forbes Magazine provides a platform for one of its writers to justify the GOP shutdown of the government.  The case could not have been made any stronger.  The shutdown of the government is the ultimate purpose of the GOP.  It exists to fight against the encroachment of the federal government into our lives.  He paints a picture of the federal government as a leviathan that disrupts the operation of our market system which would make everyone better off it were left to operate without government intervention.  In his view, the market economy should become a market society.  There is no role for the government to provide public goods in a market society.  Obamacare is an abomination because it encroaches on the ability of market forces to more efficiently provide healthcare services.

Most of us associate the idea the idea of shutting down the operation of the government as a violation of a democratic norm that has served us well in the past.  Republicans and Democrats have differing ideas about how to best serve our country but we expect them to put the national interest ahead of their political interests.  Forbes Magazine, however, has provided a platform for one of its employees to make a case for a one party system that vigorously defends the idea of a market society consistent with the philosophy of market liberalism.  Apparently, we should no longer regard political dysfunction as a governance problem that we should worry about.  Forbes Magazine has elevated the secession of the GOP from our system of multiparty governance as a noble step in the right direction. The Democratic Party is an obstacle in the establishment of the market society.

Monday, October 14, 2013

China Calls For De-Americanized World

China holds over $1 trillion in US debt.  It stands to lose a lot of its value if the US defaults.  The two countries are tightly linked and Chinese leaders are concerned about the political dysfunction in the US.  It may be too risky to use the dollar as the world's reserve currency if politics in the US prevent the government from functioning, according to this government publication

The GOP Is The Party Of New Ideas???

Peggy Noonan, asserted that the turmoil within the GOP demonstrates that it is the party of new ideas.  If one looks at the new ideas proposed by the GOP they are the same ideas that it has always advocated. They want to cut spending on social welfare, privatize government programs, deregulate the economy and cut taxes for the rich. These are the ideas proposed by Newt Gingrich the last time that the GOP closed down the government in order to extract policy changes from a Democratic Administration.  The turmoil within the GOP is over tactics.  They have nothing new to offer in the way of policy.

Paul Ryan's Compromise Plan Is No Compromise

Paul Krugman describes Ryan's offer, which does not please Tea Partiers because it does not defund Obamacare, as not really a compromise.  He offers a temporary lift to the debt ceiling in order to get things that he wants from the administration.  The GOP can then return to the debt ceiling to get more of what it wants in the near future.  It plans to keep the economy hostage perpetually by using the debt ceiling to extract reductions in entitlements.

Bad Policy Choices Are Responsible For Low Growth In Eurozone

Wolfgang Munchau argues that countries tend to operate on their long term trend lines.  They are sometimes above or below the trend line but they move back to the trend line unless bad policy decisions are made.  Japan is a good example.  It made terrible policy decisions that kept it below its long term trend line for 18 years.  The same thing seems to be happening in the eurozone (EZ) today.  If the EZ had fixed its banking system in 2008 as the US did, and if it had not pushed fiscal contraction, it would have returned to its trend line.  Instead the policies that it adopted produced a 12% GDP gap between where it would have been today without those policies and where it is today. 

Some argue that the EZ trend line prior to 2008 was a bubble and that its current trend line is where it should be.  High unemployment and slow growth is the new normal in the EZ.  Munchau disagrees.  He argues that there were bubbles in countries like Latvia and Spain but not in the EZ as a whole.  The EZ growth rate of 2.3% between 1999 and 2007 was 2.3%.  That is identical to the growth rate in the previous decade.  Bad policy decisions are to blame for the weakness today in the EZ.

How Corporate Boards Determine CEO Pay

We all know that CEO pay has been skyrocketing and we have been trying some things to contain the growth.  This article explains why the things we have tried have only made things worse, and it describes the process that corporate boards use to set CEO pay.  The process is the problem.  It guarantees rapid increases in CEO pay.  We could tinker with the process but corporate boards and CEO's would probably figure out ways to keep the game alive.  Most members of corporate boards do not view CEO pay as a big problem and most institutional investors don't care what they get paid as long as they make their numbers.  The basic problem is that we tend to exaggerate the impact that CEO's have on the long term viability of the firm.  A bad CEO can help to sink the ship but there are not many CEO's who can right a firm in a rough business environment.

Sunday, October 13, 2013

The Non-State World

The non-state world is one of the scenarios provided to the CIA which describes trends in China, India, Africa and the Mid-East.  Regional and local economic and cultural zones co-exist within nation states that have less relevance than they have had in the past.  It would also seem that the development of multinational corporations,  which have distributed their functions and markets across multiple nation states, are becoming more loosely connected to the states in which they are headquartered.

Friday, October 11, 2013

Meet The Young Radical Who Heads The Heritage Action Organization

Shortly after the Supreme Court made it possible for unlimited donations to political groups that do not have to identify the contributors, the conservative Heritage Foundation created Heritage Action to support conservative political objectives.  It named a 28 year old ideologue who graduated from Williams College and Stanford Business School to head up the organization.  Three years later he is dictating policy for conservative members of the House.  He insists that defunding Obamacare should be the primary objective of House conservatives.  Heritage Action and similar groups like The Club For Growth share his perspective.  They have the funds to back Tea Party challengers to GOP incumbents in primary campaigns, and several long term conservative incumbents have lost primaries to Tea Party candidates.

This article provides more background on the young firebrand who heads up Heritage Action and it describes some of the tensions between conservative action groups who believe that defunding Obamacare is a losing strategy. 

Do Refereed Academic Journals Serve The Public Better Than Economic Blogs?

Dean Baker responds to a blogpost by a Princeton economist who argued that criticisms of economic research posted by bloggers is a bad thing.  We should leave that job to the academic journals according to the Princeton economist.  Baker reminds us that errors in the Rogoff and Reinhardt paper were first exposed in a blogpost.  That led other economists to investigate the R&R paper and confirm the errors, and more importantly, question the conclusions of the paper which led policy makers across the globe to make disastrous public policy decisions.  In this case the blogpost caused policy makers to question the decisions that were made, and it informed the public about the potential misuse of economic research, particularly when it justifies policies consistent with a particular economic ideology. It is very clear that the data in the R&R paper were manipulated to reach the desired conclusion which was also consistent with their own political affiliations.

The Princeton economist may have chosen the wrong economic paper to defend but I believe that economic blogs serve a purpose that is not served by refereed academic journals.  The public does not read those journals, and even if they did read them they would not understand the jargon that academics use to communicate with other academics.  In other words, the refereed journals serve a very narrow purpose.  They allow academics to further their careers by producing what the referees of those journals tend to publish. Most of the research that is published would not be of interest to the general public and that is unfortunate.  The public needs to be better informed about the economic concepts that influence public policy decisions. Furthermore, the referees, if they had done their job properly, would have discovered the errors in the R&R paper before they decided to publish it.  We would have never known about those errors if it were not for a blogpost by the graduate student who took the time to examine the data.

Thursday, October 10, 2013

Business Lobby's Are Finding It Difficult To Influence Tea Party Republicans

This article describes some of the problems that the Tea Party radicals in the House are creating with their traditional supporters in the business community.  They favor the Republican Party but they are worried about the direction in which the radical wing of the party is moving. 

Wednesday, October 9, 2013

The One Month Treasury Bill Yield Responds To Default Risk

Investors holding the one month T Bill may not receive an interest payment on time at the end of October.  Therefore, investors have priced the risk into what they are willing to pay for the T Bill.  When the price drops the yield goes up.

Why Worry About A US Debt Default?

Many GOP politicians, and many in the media who feed red meat to the GOP base, do not believe that a US default would have much of an impact on the global economy.  Some even argue that it would be good thing.  Nobody really knows how a default might play out but it could be much worse than what happened after Lehman went into bankruptcy.  This article describes some of the events that would be triggered by a default.  Much of the analysis comes from Wall Street investors who have a better understanding about the role of US treasuries in financial markets than members of the US House and the financial wizards on Fox News.  They may overstate the case but it might even be worse than they imagine. Some members of the House seem willing to trade the risk from a default against the risk of Obamacare.  They are also prominent deniers of the risk from global warming.  Its hard to imagine what the rest of the world thinks about the US when as they learn more about the politicians that make our laws and the people who elect them to office. 

Why The War On The Poor?

We have been engaged in a war on the poor for decades.  Most of our politicians direct their political rhetoric towards improving the living standards of the middle class for a good reason: They turn out to vote.  I must admit that I have devoted a lot of effort towards understanding the dynamics that are hollowing out the middle class.  The poor are largely invisible to most of us but they have suffered more than any other group during the last 40 years.  In fact, much of the anger that we find in the GOP is directed against government efforts to mitigate some of the effects of poverty.  That may be why Obamacare, and the President who created it, is so vigorously hated by the GOP base.  It is part of war against the poor that has been going on for a long time and has been accelerated in recent years.  The post that follows provides some details about the GOP base and its anger that is directed towards a government which has turned the poor into dependents in order to get their votes.

Anger Unites Much Of The GOP Base

Anger is a powerful motivation.  This article summarizes extensive studies of the GOP base.  It describes how the base is segmented and some of the differences between each segment.  The base is angry about the direction in which the country is headed and it believes that Obama and the Democratic Party have been leading the effort to destroy their country.  Obama won the election by fooling the public and moderate Republicans are too weak to keep him from destroying the country.  There has been a lot theorizing about what is going on in the GOP controlled House.  The data in this article pull it all together. 

The article does not describe how the anger and concerns within the GOP base has been stoked by the media, but Fox News and talk radio have helped to create and direct the depth of anger that unites the various segments of the GOP base.  Many members of the GOP either share the anger that exists in the GOP base or they are using it for political advantage.  They are not willing to compromise with their devil and Obamacare is viewed as a testament to the devil's handiwork.

Tuesday, October 8, 2013

How Has The Great Recession Affected Our Children's Future?

The depth and duration of the Great Recession has had a powerful impact on families and their ability to prepare their children for the future.  We could have done more to deal with these issues but our focus quickly turned from doing what was needed to speed up the recovery to other matters.  Rather than dealing with the reality of a deep recession, our attention shifted to limiting the role of the government in the economy.  We were told that budget deficits would be harmful to future generations.  We ignored the harm to future generations that was happening all around us.

Do Government Deficits Harm Future Generations?

John McCain tried to run his campaign by arguing that government deficits are like stealing from future generations.  That did not enable him to win the election but the GOP has been sticking with that message in the hope that it will eventually convince the public to vote for them in general elections.  The argument hinges on selling the public on a fallacy.  At an individual level the money that we borrow and spend today does affect our ability to spend in the future.  At the population level, however, that is not true.  Government borrowing creates assets for those who purchase government debt and liabilities for a different group of people.  This is difficult for most people to understand so this article is posted to explain how government debt differs from individual debt.

If we assume a closed economy, in which the government sells bonds in order to fund a deficit, the government can run surpluses in order to redeem the bonds as they mature.  Those who purchased the bonds have new cash that can be used to purchase something else.  The money came from the government surplus that was provided by taxpayers who did not purchase the bonds.  They have no liabilities for future interest payments.  That happens rarely in the US.  Most of the time the government issues new debt in order to redeem bonds as they mature.  The current generation pays the interest on this debt immediately; it is not passed on the future generations.  This assumes that the government is creditworthy and able to issue new bonds at reasonable interest rates.  This is pretty much what is happening today in the US.  Some countries are not able to turn over their debt as it matures.  That could happen in the US if the government were less fiscally responsible than it has been in the past.  Actually, the government debt to GDP ratio has been declining for several years.  The GOP's focus on deficit reduction in a period of declining deficits seems to be misplaced.

In an open economy, the government does borrow from international investors.  The level of borrowing from foreign investors, however, is not closely related to the size of US budget deficits.  It is more closely related to our current account and our capital account.  We borrow from international investors to fund our current account deficits which occur when we import more than we export.

One of the problems that we have with our focus on deficit reduction is that we may refrain from making investments that would have a positive effect on future generations.  Our grandchildren may face a future will less education than they require and with a deteriorating infrastructure that leads to slow growth in productivity.  Some forms of government spending are investments in the future.  It would be foolhardy to cut back on important investments as we are doing today with our focus on deficit reduction.  What kind of environment and economy do we want to leave to our grandchildren?

Monday, October 7, 2013

Robert Samuelson Offers His Explanation For Political Dysfunction In The US

It has become more difficult to find intelligent things to post on this blog.  I spend too much of my time reading articles in which intelligent people have been put in the position of responding to disinformation.  I sometimes feel like a movie critic that has the job of reviewing B rated films.  The latest B rated material under review in this post comes from a prolific producer of B rated opinion articles in the Washington Post.  Robert Samuelson tells us why politics in the US has become so dysfunctional. 

Samuelson argues that politics is driven by self interest and by ideology.  We are accustomed to dealing with interest groups who lobby in the halls of government for policies from which they might benefit.  There are also competing political and philosophical ideologies that must be resolved via the political process.  Our current political problem is that we are being overwhelmed by ideological  polarization.  For example, the GOP is being damaged by its efforts to shut down the government, but it is unable to make a correction because they are driven by important principles which must be defended at all costs.   Democrats suffer from a similar problem.  For example, they support policies to reduce carbon emissions, and they passed healthcare reform legislation even though both of these actions are unpopular.  They are also driven by ideology.  In short, ideological polarization is responsible for our political dysfunction.  Moreover, it is difficult to overcome the polarization because adherence to an ideology has its own reward.  It enables the holders of an ideology to earn self-esteem by holding fast to moral principles.  They are seekers of moral superiority.

There are lots of problems with Samuelson's cultural psychoanalysis but I will only mention two of them.  In the first place, both parties are equally to blame for our current level of political dysfunction.  They are both driven by strong ideologies that prevent them from resolving their differences.  This is just another example of journalistic dysfunction that requires journalists to place equal blame on both parties for our political problems.  There is a more serious problem, however, at a deeper level.  We don't live in a world in which the politics of self interest and ideology are separate from each other.  More frequently ideological covers are used to disguise naked self interest.  For example, government efforts to deal with a host of market failures are described as attacks on individual liberty or on the operation of the utopian idea of free markets.  If there has been an increase in ideological polarization in America it has been more frequently invoked to justify the escalation of market failures. Market prices do not accurately reflect the social cost of carbon emissions.  Moreover, the rapid growth in inequality is better explained by inequality in political power than it is by the operation of neutral market forces. 

Sunday, October 6, 2013

A Who's Who Of The Radical Right Wing That Has Shut Down The Government

This article describes many of the organizations, and their leaders who planned the defunding campaign against the Affordable Care Act.  Many of these organizations are supposed to be non-partisan educational institutions.  Their wealthy contributors are allowed to deduct their "charitable" donations on their income tax returns.  Some have a long history of supporting a radical right wing agenda.  For example, Ed Meese was Ronald Reagan's Attorney General who defended him during the Iran-Contra scandal in which funds from the friendly government in Iran were used to support a para military organization in South America that was acting on behalf of the Reagan Administration.  Congress had passed a law which forbade the US government from such operations but it was ignored by the top law enforcement officer in the US.  Meese is on the payroll of the Hoover Institute and the Heritage Foundation which are two of the most prominent tax supported conservative foundations in America.

While the defunding of ACA is on the top of their current agenda, these groups have effectively transformed the Republican Party.  It is very risky to be a moderate Republican under the watchful eyes of these organizations. 

Saturday, October 5, 2013

Why Do Moderate Republicns Do Crazy Things?

The GOP base includes tea party activists who comprise around 24% of its constituency.  Many life-time republicans have a hard time understanding how the tea party has managed to divert their party from its job of governing the country to its new role as the anti-government party.  This article explains why the republican leaders of the House and the Senate have joined forces with the tea party.  They hope to avoid a challenge from a tea party activist in the GOP primary.  Tea party activists have won primary campaigns against long term GOP incumbents across the country.  They are dangerous because voter turnout in primaries is traditionally very low and an active minority group, with financial backing can knock out the incumbent.  There are several well funded organizations that are capable of leading a successful primary campaign against moderate republicans who do not share their radical agenda.  Much of the funding comes from former members of the John Birch Society like the Koch brothers.  They have provided funding and organizational support for local tea party groups.  The John Birch Society lost credibility many years ago when it accused President Eisenhower of being a communist.  It has been reborn as the tea party.

Friday, October 4, 2013

What Do You Prefer: The Affordable Care Act Or Obamare?

As you know Obamacare is the GOP's nickname for the Affordable Care Act (ACA).  In this video a sample of Americans is asked whether they prefer ACA or Obamacare.  Most of them said that they preferred ACA to Obamacare.  Apparently, they have been convinced that Obamacare is a bad thing.  Interestingly when asked whether they liked some of the key features of ACA they said that they liked them.  Of course they did not know that these were part of Obamacare. This is not a scientific study but it shows that public opinion can be easily shaped by propaganda.  Most of the respondents mentioned the some of the things that Fox News etc. have told the public what not to like about ACA.

Thursday, October 3, 2013

Why The War Against The Affordable Care Act?

Paul Krugman argues that the far right is pulling out all of the stops to eliminate the ACA because they fear that it might be success.  He regards it as just another example of class warfare.  Certainly, the far right has been working hard to undo the New Deal since the 1980's.  Bush tried to privatize Social Security and he partially privatized Medicare by giving private insurers the opportunity to sell and service Medicare Advantage  policies.  The ACA is important to the GOP for other reasons as well.  In the first place they campaigned against ACA in all of the recent elections.  In some districts ACA has been made so unpopular that right wing members of the House have demanded 47 opportunities to put a vote against ACA on the record so that they can use it in their next election campaign.  They have been assisted in this effort by a powerful misinformation campaign.  The ACA is far from perfect, many would have preferred a single payer system by extending Medicare to everyone.  It is modeled after the conservative healthcare plan that was implemented by Mitt Romney.  It has been popular in Massachusetts, but increasing benefits to the poor means that a good share of the beneficiaries will be the "wrong kind of people". Some parts of the nation have never forgiven democrats for passing the Civil Rights Act under Lyndon Johnson.  At that time Johnson stated that the democrats would lose most of the Southern states and he was correct.

Back in the liberal 1960's many democrats were opposed to Vietnam war and establishment democrats were not willing to end the war.  Some democrats considered dropping out of the party and forming a more progressive third party.  That idea was rejected by most democrats and it never happened.  They decided to work within the Democratic Party to make it more progressive.  Its quite possible that some in the Tea Party would like do something similar with the Republican party.  They refer to establishment republicans and RINO's, or republicans in name only.  In other words, their ideology is the real ideology of the Republican Party.  Its quite obvious that senators like Ted Cruz would like to become the leader of the "reformed" GOP.

Tuesday, October 1, 2013

The US Government Was Not Designed To Function Well Under In Today's World

I have only a couple of comments to make about a very strange system of government that has been broken badly in our current political environment.  In 2008 we elected a democratic president with a large majority in the Senate and in the House.  During that period republicans used the filibuster to neutralize the democratic majority in the Senate.  That required the president to persuade all of the Senate democrats, and some republicans, to produce a super majority of 60 votes to pass any legislation proposed by the president. The House majority was also neutralized by the use of the filibuster in the Senate. In the president's second term he retained a majority in the Senate but the filibuster required that  a super majority was still needed to get anything approved by the Senate.  Republicans were able to win the majority in the House in 2010 and it has been able to prevent a president with a majority in the Senate from governing.

We have lived with this system of governance for a long time and it has worked effectively most of that time.  It does not work in our current environment.  The president is less able to influence public opinion with the advent of cable TV.  One of the news networks has targeted an audience that desires its flavor of political reporting successfully.  It is essentially engaged in propaganda, and it is quite good at it.  There has always been some political favoritism in our media, but it has never gone to the extremes that we see today.  Consequently, we have an environment is which the divisions in our country are amplified, and the values that have held us together have been weakened.  It is not surprising that ideological differences have become more apparent in our politics.  Unfortunately, we have been presented with difficult challenges in our economy and in our ability to provide positive leadership in a very troubled world which looks to us for leadership.

Ted Cruz's Father Calls President Obama A Muslim

Its not hard to figure out how where Ted Cruz's values come from.  This article includes several of the comments that have been made by the senior Cruz.  Ted Cruz carried those values to Princeton and Harvard Law School.  His education provided him with credentials but it did little to alter his value system.  Ted Cruz was a Tea Partier before there was a Tea Party.  The apple does not fall far from the tree. It is a marriage made in heaven.

Journalism In The US And The Government Shutdown

This article, in one of America's most prominent newspapers, is an example of whats wrong with the media in this country.  John McCain, who was the republican candidate for the presidency in 2008, described the tactics of his republican colleague in the Senate quite plainly and accurately.  He complained that Ted Cruz's efforts to defund the Affordable Care Act was a violation of democracy.  The president was elected on a platform which included support for a healthcare reform bill that was passed by both houses of Congress.  The headline in the this article suggests a completely different perspective.  It suggest that both parties are to blame for not reaching a compromise.  It will be up to the public to determine which party is to blame for the shutdown of the government.  The reporter tries hard to divide the blame between the two parties even though it would appear that the public is more likely to blame the republicans.  It is not possible for journalists to be as plain as John McCain was in describing the behavior of his fellow republican.  They must pretend that those who believe that the earth is flat are treated as fairly as those who believe otherwise.  After all, their readership includes those who believe in both descriptions of the earth.

The Republican House Shuts Down The Federal Government

The GOP controlled House sent a bill to the Senate which required that the healthcare reform bill passed by the legislature be delayed for one year.  They knew that the bill would be rejected by the Senate and they knew that this would cause the federal government to shut down because one of the anomalies of the US system is that the House controls the purse strings of the government. It must appropriate funding for the operation of the government. 

The House bill was patched together by extremists in the Republican Party who have made opposition to the Affordable Care Act (ACA) into a crusade against the policies of the Obama Administration.  The Speaker of the House has the authority to put a funding bill proposed by the Senate up for a vote.  That bill would be passed because it would be supported by democrats and moderate republicans.  He chose not to so because it would threaten is position as Speaker.

The ACA is a complicated bill which is poorly understood by the public.  It was modeled after a plan developed by the conservative Heritage Foundation and implemented successfully in Massachusetts by a Republican governor.  The administration has done a poor job of explaining the ACA to the public and the propaganda machine of the GOP has done a much better job of spreading misinformation about the ACA.  In particular, the king of yellow journalism in the English speaking world (Rupert Murdoch) has turned its TV news network into an arm of the Tea Party misinformation machine.  It is supported in this effort by talk radio luminaries led by Rush Limbaugh.  The misinformation produced by this propaganda network is then fed via the Internet to its target audience via a network of Tea Party oriented organizations.  Remarkably, it has turned a conservative healthcare reform plan into a "socialist" reform plan that is a threat to individual liberty.

I don't intend to go into all of the bits of misinformation about the ACA, but a very common thread  spread via Facebook is about the subsidies in ACA.  The government helps low income households to purchase insurance from private insurers by providing subsidies which are inversely proportional to income.  Facebook users are told that their taxes will rise in order to pay for the subsidies.  What they are not told is the employer based insurance, which is available to most Americans, is also subsidized.  In fact, it is one of the biggest subsidies provided by the government.  The payments made by one's employer are deductible from their taxes and it is an untaxed form of compensation that is provided to workers.  They are also not told that the ACA was designed to be income neutral.  That is, it was intentionally designed to make healthcare affordable at no cost to the federal government.  For example, there is a tax on medical instrument providers in the bill that helps to defray the cost.  The GOP intends to eliminate that tax from the bill.  The ACA also contains a variety of ways in which the cost of healthcare might be reduced.  The propaganda machine has turned some of the methods for reducing the cost of healthcare into a rationing system in which the government will deny healthcare to the elderly.

There is a lot of dissension within the GOP about the Tea Party, and about those who are using Tea Party opposition to ACA to further their political careers. Many establishment oriented republicans are worried about how Tea Party tactics will affect them in general elections.  That does not concern House republicans that reside in safe districts dominated by Tea Part supporters.  It may also provide an opportunity for leaders within the GOP, like Senator Cruz from Texas, to become the political leader of the Tea Party group within the GOP and perhaps become the leader of a Tea Party dominated GOP.  Falling short of taking over the GOP, it may also be possible to lead the Tea Party into becoming a third political party with an extreme agenda.  It is a political party in name only at

A Tutorial On Economic Policy At Oxford And Financial Reporting

Simon Wren-Lewis describes a short tutorial which he would have delivered to one of his students at Oxford.  The Financial Times  had published an article which argued that the modest economic recovery in the UK justified the austerity policies of the Cameron government.  The recovery is just what macroeconomic theory that is taught at Oxford suggests.  Economies don't stay in recession forever.  In the medium term supply side factors lead to positive growth in output.  In the short term, however, the economy suffers from inadequate demand and a negative growth rate.  The austerity imposed by the Cameron regime decreased aggregate demand and deepened the recession.  It caused a lot of unnecessary unemployment and hardship.  The article published by the FT could have been written by one of the government's speech writers.  It would not have been written by anyone familiar with macroeconomic theory.

His student then asked why he was told that he should make a habit of reading articles about the economy in the financial press.  Wasn't he told to read the Wall Street Journal and the Financial Times?  Lewis gagged after the mention of the WSJ,  but he had to hesitate about the FT.  There are well trained economists who write for the FT but its readers have not been affected by the recession like most of the public in the UK.  Sometimes even reputable papers can be tempted to appeal to the prejudices of its customer base.