The New Amercan Capitalism

We are all familiar with publically held firms which are called "C" corporations.  They raise funds by issuing shares to shareholders whose rights are overseen by boards of directors.  They are also extensively regulated by government and their profits are subject to taxation.  A share of their earnings are distributed to shareholders by dividend payouts, but a large share of their earnings are retained for future investments.  Consequently,  they are not dependent upon the financial markets for investment capital.  This article describes a rapidly rising form of business organization that have several advantages.  They have the advantage of limited liability that "C" corporations possess, but they are also less regulated by government and they do not pay corporate taxes.  The profits from these firms are distributed to investors in the form of dividends,  and the master partners are compensated like hedge fund managers.  They receive a fee and a share of the profits in addition to the dividends on shares that they might own.  Since they do not retain their earnings they must be able to consistently raise capital from investors.  Therefore, they must provide high yields in order to raise capital on an annual basis.

There has not been a lot of publicity about this new form of capitalism despite the rapid rise in the use of the various styles of limited partnerships that have been created.  For example, the number of "C" corporations that Vanguard has available for its index fund of publically held corporations has been almost halved over the last few years.  Since these new organizations are not available to mutual funds, and many pension funds, they attract a different type of investor who is willing to take the risk associated with them.  Consequently, to the extent that they remain as profitable as they have been in recent years, and produce high yields to investors,  income inequality will be even greater than it has been in the past.  Furthermore, corporate taxes will continue decrease as a share of government revenues and income taxes will also fall because dividends are taxed at a lower rate than ordinary income.

US Spending On Infrastructure Has Collapsed Since 2002

Infrastructure in the US is primarily done by the states with funding from the federal government.  Despite the ability of the government to fund infrastructure investment at very low interest rates, spending has fallen sharply.  The decline in infrastructure spending has harmed the recovery and it does not auger well for the future.  The deferred spending on infrastructure will have to done in the future at a much higher cost.  If the US were a business the collapse in investment would be a signal to the market that the firm was in trouble.

Der Spiegel Is Critical Of Efforts to Punish And Reform Large Global Banks

The arrest of a top UBS banker in Italy inspired Der Spiegel publish this article which describes some of the government efforts to take a stronger position against the large banks which have been deemed "too big to fail".  The large financial penalties that have been recently levied against several of the large banks are criticized as being small relative to bank assets and profits.  It is also critical of the effort by the G20 countries to agree upon global reforms which might prevent the next bank crisis.  They have devolved into country specific reforms which are heavily influenced by bank lobbying efforts.

Germany Reacts To US Treasury Report Which Is Critical Of Its Export Based Economy

The US Treasury report, which has generally been critical of China in the past, has shifted its focus to Germany.  Germany's export surplus is greater than China's and internal spending on consumption has been stagnant.  The critical Treasury report came at a bad time because German's are still seething over the revelations of NSA surveillance.  On the other hand, growth has been slow in the eurozone and some believe that Germany could do more to stimulate consumer demand.

The problems in the eurozone create a real dilemma for Germany.  They have been able to manufacture high quality products which they are able to sell successfully on global markets.  It does not make much sense to criticize Germany for its success in an area where the US and the UK have been less successful.  It is also hard to blame Germany for the lack of success by countries on the periphery of the eurozone who have numerous structural problems which make them less competitive within the eurozone.  On the other hand, it is important for all of the countries in the eurozone to maintain the common currency.  Germany may have to do more to insure the success of the eurozone.

Why The War Against The Poor Is Central To GOP Campaign Strategy

The war against the poor, which also has racial implications, is a very important part of Republican ideology.  The Tea Party concern about federal budget deficits is really a smokescreen for a deeper issue.  They want to cut federal safety net programs, including Obamacare, which disproportionally benefit minorities and immigrants who tend to vote for Democrats. 

The GOP base consists of a relatively small number of well off voters who do care about fiscal policy.  They worry that their taxes may have to be raised in order to fund entitlement programs that absorb a rising share of federal spending.  They also support immigration reform which is anathema to Tea Partiers.  The GOP cannot win elections, however, by appealing to their traditional base.  They must also attract less well off voters to their cause.  They like Social Security and Medicare, which establishment Republicans worry about, but they don't like immigrants and they don't like to see their tax dollars going to the "wrong kind of people".  They also place a high value on fundamental Christian and economic ideas which the Republican establishment gives lip service to as long as it differentiates them from liberal democrats who are portrayed as godless socialists.

This difficult marriage between establishment republicans and the Tea Party has helped the GOP to win the House, but it has harmed them in national elections and it has cost them some seats in the Senate where the Tea Party succeeded in nominating candidates who were unelectable.  The real question going forward is whether the marriage can be saved as it is or whether it will fail.  A republican leader like Ted Cruz, who is admired by the Tea Party, might be able to engineer a takeover of the GOP or he might successfully create a third party. 

NSA Spying Is Threat To US Technology Firms

Google, Yahoo, Microsoft, Twitter and Facebook have built global businesses that depend upon the security of the information that flows through their networks.  They are very concerned that the revelations about NSA surveillance will undermine their global business.  The recent leaks about NSA surveillance also caused them to distrust the government because they learned things about the surveillance that NSA did not tell them.  Moreover, NSA's attempts to respond to their concerns by telling them that they are not spying on Americans does not help them to sustain a global business.

This article describes some of the things that they are doing to make their networks more secure and their efforts to lobby Congress which enabled NSA surveillance when it passed the Patriot Act in response to 9/11.  Their business models, however, are based upon providing specific information to advertisers so that they can target potential customers.  That makes their data more vulnerable to attack.

Alabama Primary Is Test Case For GOP Effort To Stop Tea Party Takeover Of Party

"Mr. Young’s voters are drawn by his declaration that homosexuality “always has been, always will be” wrong, his full backing of using a government shutdown “to stop Obamacare,” and his insistence that people “have the right to acknowledge God in schools and in the public square.”

Supporters of moderate Republican candidates worry about whose voters will turn out.

“We can have all the money in the world, but if we can’t get the center-right Republicans to the polls on Primary Day then it does not matter,” said Steve LaTourette, a former Ohio congressman who is now trying to build an $8 million “super PAC” to help support more mainstream Republicans in 2014 primaries."

The quote above from a NYT article summarizes the messages that attract Tea Party supporters in Alabama to the polls and the basic problem that establishment Republicans face.  Tea Partiers are more active in primaries than mainstream Republicans.