Fin/Inv

Robert Waldmann

Kevin Drum stresses the very sound point that even if part of current unemployment is structural, we should stimulate to get rid of the part which is cyclical. I don't have a serious disagreement and choose to debate his guess as to the level of structural unemployment for the sake of debating.

"The "normal" unemployment level is about five points less than it is today. I wouldn't be surprised if perhaps three of those points are cyclical and two are structural."

He agrees with Annie Lowrey who presents the following analysis

The unemployment is cyclical and structural. Most sectors have suffered from the turndown, but job losses are concentrated in some industries: In residential construction, they are down 38 percent since 2006. (Between Aug. 2007 and Dec. 2009, unemployment in construction quintupled from about 5 percent to about 25 percent.) In health care and education, however, jobs are up.

This analysis is accidental theory. Between the first sentence and the second, there is a theoretical argument that the cycle has the same effect on log employment in each sector. This argument makes no sense. More after the jump.






I know it is not wise to argue with an "I wouldn't be surprised" but their approach to measuring cyclical unemployment is completely incorrect. Lowrey identifies the cyclical component by assuming that around the cycle percent changes are equal. Therefore a much much larger percent change in construction than in health is not cyclical.

In fact, the amplitude of the cycle in log employment is not the same in each sector. Some sectors are very cyclical (always go down a lot in recessions) others are almost acyclical. A correct estimate of how much unemployment can be eliminated with fiscal and monetary policy requires an estimate of the effect of fiscal and monetary policy on log-employment by sector. The assumption that this is necessarily equal is an accidental theory -- a very strong and plainly false assumption which is made by people who think they can just look at the data without theory.

This is the topic of one of my very rare contributions to the actual economics literature

The practical relevance of the decomposition is due to the fact that it is argued, that, if unemployment is due to miss-match, then a general stimulus will lead to labor shortages in some sectors. This would lead to inflation. As Drum notes this is not a problem at the moment. However, let's imagine a stimulus powerful enough to drive unemployment down to 7%. Does anyone really think this would create (much more of) a shortage of workers in health care ?

Why would demand for health care increase much (as a percent of current demand for health care). 85% of people are insured. Much of the effect of the recession is people moving from private insurance to Medicaid. There isn't a big cycle in the number of uninsured and there is little reason for demand for care by the insured to shift with aggregate demand. Even the uninsured demand health care in ERs, then go bankrupt. Recall the HCR debate.

Now how about residential construction. Does anyone really think that no construction workers can shift from residential to commercial construction ? Is there any reason to think that an increase in employment which were to drive the unemployment rate down to 6% would cause labor shortages anywhere ?

by reader Ilsm

American Empire and “exert upon the world the full impact of our influence for such purposes as we see fit and by such means as we see fit” (Henry R. Luce); why the generals push back on Gates’ minimal 3% increase in their war machine, disguised as cuts. Generals push back on GAT

Andrew Bacevich on the New American Century: Empire
“Global Leadership: Empire:

“Henry R. Luce made the case for this specious conception of global leadership. Writing in Life magazine in early 1941, the influential publisher exhorted his fellow citizens to “accept wholeheartedly our duty to exert upon the world the full impact of our influence for such purposes as we see fit and by such means as we see fit.” Luce thereby captured what remains even today the credo’s essence.”
...
“Along with respectful allusions to God and “the troops,” adherence to Luce’s credo has become a de facto prerequisite for high office.”
...
“Note, however, that the duty Luce ascribed to Americans has two components. It is not only up to Americans, he wrote, to choose the purposes for which they would bring their influence to bear, but to choose the means as well.”

Militarism to provide the means for empire:

“With regard to means, that tradition has emphasized activism over example, hard power over soft, and coercion (often styled “negotiating from a position of strength”) over suasion. Above all, the exercise of global leadership as prescribed by the credo obliges the United States to maintain military capabilities staggeringly in excess of those required for self-defense.”

The philosophy that sustains the Military Industrial Complex, top cover for war profits:

“By the midpoint of the twentieth century, “the Pentagon” had ceased to be merely a gigantic five-sided building. Like “Wall Street” at the end of the nineteenth century, it had become Leviathan, its actions veiled in secrecy, its reach extending around the world. Yet while the concentration of power in Wall Street had once evoked deep fear and suspicion, Americans by and large saw the concentration of power in the Pentagon as benign. Most found it reassuring.”

Numbed population forgets its roots:

“A people who had long seen standing armies as a threat to liberty now came to believe that the preservation of liberty required them to lavish resources on the armed forces.”

Noble Lie: Perpetual Mobilization and Militarism, Why have forces to deploy and sustain in remote areas of the world with no threats to the “common defense”:

“Yet an examination of the past 60 years of U.S. military policy and practice does reveal important elements of continuity. Call them the sacred trinity: an abiding conviction that the minimum essentials of international peace and order require the United States to maintain a global military presence, to configure its forces for global power projection, and to counter existing or anticipated threats by relying on a policy of global interventionism.”
...
“Together, credo and trinity -- the one defining purpose, the other practice -- constitute the essence of the way that Washington has attempted to govern and police the American Century.”

Full read here

The US has a sacred duty to squander its treasure and institutions on the Military Industrial Complex for American Empire. What steps make re-directing this energy and treasure to productive economy possible?

by Dan Crawford (Rdan)
(H/t Ken Houghton)

Eric Leeper's paper Monetary Science, Fiscal Alchemy∗, also found ungated in the Financial Times: Jackson Hole papers finally available, mentioned Angry Bear in a footnote page 12 in the section on reactions to the lastest CBO report.

Here is the fiscal alchemy of Bruce's post on the CBO report. I read it several times and the comments but for the life of me can't find any part that suggests fiscal restraint is less severe in the science of monetary, nor ignored the limits of CBO reporting, or suggested the upper and lower bounds were accurate, but did address the public, political statements of impending doom of an election year when insolvency was months away according to the bond vigilantes and several politicos.

Mainly, as Ken suggests in a tweet, "He believes monetary policy is science, but makes fun of AB?"

On the other hand it helps to advertise.

Update: Try here for the science part, and some of Robert's posts on Kocherlakota (Mr. Leeper refers to Kocherlakota in his paper)

Daily Kos: Simpson to disabled vets: You cost too much Joan McCarter: Fresh off of being forgiven by the White House, Simpson has a new target.

:RALEIGH, N.C.—The system that automatically awards disability benefits to some veterans because of concerns about Agent Orange seems contrary to efforts to control federal spending, the Republican co-chairman of President Barack Obama's deficit commission said Tuesday.

Former Wyoming Sen. Alan Simpson's comments came a day after The Associated Press reported that diabetes has become the most frequently compensated ailment among Vietnam veterans, even though decades of research has failed to find more than a possible link between the defoliant Agent Orange and diabetes.

"The irony (is) that the veterans who saved this country are now, in a way, not helping us to save the country in this fiscal mess," said Simpson, an Army veteran who was once chairman of the Senate Veterans' Affairs Committee....

"It's the kind of thing that's just driving us to this $1 trillion, $400 billion deficit this year," Simpson said. "It's not that I'm an uncaring person, but common sense is the most uncommon thing in Washington."

Dan (Rdan) here: We could do the numbers for the whole VA cost, but putting the deficit on the shoulders of diabetic veterans is simply out of it...when someone becomes old, their real thinking is blurted out without the normal screening public figures often take...what a tool.

Dan here: Lifted from comments, this wry thought comes to mind regarding Mr. Simpson's inner world of lesser people:

How would you feel if after forty years of faithful service at five hundred a month and alternate Tuesdays off, your butler or cleaning lady said, "I've saved up enough to retire, so screw you." ?

Edmoney is tracking the allocation and spending of education-related stimulus grants. The map is here. Some states have gotten the funds into circulation better than others. Selected states below (GA was highlighted by them):

1. California, 78%
   
2. New Jersey, 63%
   
3. Georgia, 62%
   
4. Indiana, 60%
   
5. Oklahoma, 50%
   
6. Mississippi, 42%
   
7. Massachusetts, 41%
   
8. Michigan, 41%
   
9. Kentucky, 39%
   
10. Pennsylvania, 35%
    
11. Ohio, 29%
    
12. New York, 25% (but NYC 60%)
    
13. Texas, 25%
    

by Linda Beale
crossposted with Ataxingmatter

Dealing with the Sunset of the Bush Tax Cuts (Part V in a series)--dividends at capital gains rate

IN this series, i've been discussing the merits of enacting a new series of tax cuts that mimic, at least in part, the Bush temporary tax cut legislation that expires at the end of this year.

The primary arguments for the original Bush temporary tax cuts were either bogus to start with or proven weak over the period of the tax cuts.

1.The Republicans who pushed the cuts claimed first that they were intended to return to taxpayers the surplus. Of course, that argument was laughable from the beginning: Bush deficits started in the first year of the Bush regime and got worse for the long term as the costs of a military budget pumped up by preemptive war and other augmenting of government spending at the same time that tax revenues were cut again and again throughout the regime.

2.Various Republicans also admitted that their goal was to cut the size of government--though they didn't mean the military and they did mean any programs that protect average Americans (such as Social Security, unemployment compensation, environmental programs, OSHA, etc.). But the size of government grew in spite of the reductions in revenue, resulting in expanding deficits.

3.The various expensing provisions; repatriation with almost no taxation (in the 2004 "American Jobs Creation Act"); tax breaks for oil and other natural resource companies; international tax breaks; and other corporate-favorable provisions were supposed to stimulate entrepreneurial activity and job creation. Instead, businesses used the low-tax repatriated income to pay managers more and workers less, and laid off workers at the same time. The expensing provisions allowed corporations tax breaks for equipment they would have bought anyway, but didn't create new jobs--the Bush regime's jobs record was terrible, barely keeping up with inflation and certainly not spurring new job growth. The tax breaks for natural resource companies fed their complacency about everything from jobs to safety to environmental protection--giving companies more for less doesn't create better citizens and doesn't get us cheaper energy either. The record from the tax cuts as far as entrepreneurialism and job creation was dismal--the mainstream neoconservative and neoliberal theories of market fundamentalism didn't work out as claimed.

4.The lowering of capital gains taxation and the taxation of dividend as a net capital gain at the lower rate were also heralded as ways to spur investment in new businesses (entrepreneurialism) and job creation. Bullshit. Most of the result was just more money in the pocket of the richest Americans who own most of the financial assets, and that money in the pocket was as likely to be invested in offshore bank accounts as put to work supporting a new business here in the US. The dividend tax cut didn't even lead to much in the way of dividend payouts--except perhaps for firms whose managers and directors saw a chance to benefit themselves. Even if those expiring tax cuts are not renewed with new tax legislation, it is not likely to have much of an effect on companies' dividend policies. See Higher Taxes May Not Push Firms to Cut Dividends, Wall St. J., Aug. 30, 2010.

5.The cuts in individual rates were supposed to provide more money as an economic stimulus. But the Republicans who passed those rate cuts knew that the AMT would act as a clawback to the cuts over time, except for those at the very top who were always subject to the AMT and those in the bottom who are hardly ever subject to the AMT. And they knew that amending the AMT to conform to the temporary tax cuts would be tremendously expensive--at least a trillion in revenue lost for the decade of the tax cuts, where the "temporary" nature of the bill had been necessary to claim that the cost was "just" 1.3 trillion over a decade. In other words, the tax cut bills passed during the Bush regime with the 2010 sunsetting gimmick were a sham from the beginning--they cost much more than those who passed them wanted to admit, and they carried with them a clawback mechanism that would undo the cuts in rates for many individuals. The various annual "patches" to the AMT are extraordinarily costly in terms of lost tax revenues since they are essentially an extension of the tax cuts to an even broader base, and the corporate changes to the AMT have reduced its effectiveness in cutting back on corporate preferences while costing the fisc billions.

6.The estate tax scaleback and one-year repeal was the most gimmicking of all. Cutting the budget by $30 billion a year in order to fund a giveaway to the wealthiest and most privileged Americans is hard to justify in any budgetary climate. So Republicans pushing estate tax repeal and the various "coalitions" funded by wealthy families like the Walton heirs have painted a facade of "helping little guy farmers and businesses" on their efforts--a facade that many Americans may have bought hook, line, and sinker since they do not tell the truth, much less the whole story. Very few family farms and very few small businesses are threatened at all by the estate tax.

So what should this list of bogus and failed reasoning tell us about what the Congress should do on taxes for 2011 and thereafter?

1.I say let the Bush cuts expire according to the way they were written. But enact a new set of tax cuts that are better targeted to jumpstart the economy and to put money where it is needed.

2.Let the corporate giveaways expire as slated.

3.Let the estate tax mess expire as slated. Enact a new estate tax law that (i) increases the exemption amount to a reasonable level (say, $2 million) and indexes it for inflation and (ii) enacts a progressive rate structure (ranging from 55% on the estate that exceeds the exemption amount, up to some higher rate of 65% or 70% on multi-billion-dollar estates.

4.Let the capital gains changes die as slated, and do not enact any further capital gains preferences (so dividends would go back to being treated as ordinary income).

5.Let the individual rate changes die as slated, and enact a new tax cut for individuals making $100,000 or less, with a temporary tax cut for individuals making up to $200,000 for a three year period to aid us in getting out of this recession.

6.Enact genuine AMT reform--in which capital gains are treated as a preference and which provides a significant exemption amount based on gross income. See the earlier articles (2005-2006) in ataxingmatter on AMT reform for more specifics about the kinds of reforms to the AMT that make sense.

7.In conntection with the rate cut and AMT legislation, enact measures to pay for the tax cut, including
(i) a carried interest provision taxing all profits interests as ordinary income
(ii) a corporate tax provision limiting the benefits of tax-free reorganizations and consolidations, and
(iii) a charitable contribution provision eliminating the deduction of value in excess of basis.

This is the title of a post of a diary at another site, one of no particular interest on its own because it just puts people on the wrong road.

A straight out analysis of the economic numbers underlying Social Security 'crisis' shows pretty clearly that there is no 'there' there. To the extent that there is a gap between future projected income and cost it is small, distant, based on pessimistic assumptions, and totally fixable even if we waited years to take the first step. You can show this on paper or in pixels and I have spent much of the last six years doing that here and there and mostly without numeric push-back, the counter-arguments tending to be thematic and not number based at all.

So why do they push this? Well simple, the Right cannot afford to have a Social Security system that is perceived to be working going forward. They can survive people liking Social Security as is, after all they can spin that as people just enjoying a Free Lunch via that ol' Backwards Transfer pushed by the nice folk at AEI, that just helps their overall 'mushy headed liberal' narrative, a modern day Grasshopper and the Ant. What kills them is to find out that the Grasshopper actually has an actuarial sound insurance policy in his back pocket, and one guaranteed by the Federal government, such a realization might lead the rest of the ants to doubt the 'Big Government is not the Solution, Big Government is the Problem' message being spread by the Ant Queen and her Drones.

In 1993 the anti-Social Security narrative revolved around Trust Fund Depletion, which was a real event which would have real consequences, if not as significant as people would have them (see 'Rosser's Equation' at a Google near you), but by the late 90's Trust Fund Depletion had been pushed so far out in time even as the cost to address it steadily dropped that there grew the need for a new crisis narrative. And so 'Phony IOU' was born. But otherwise nothing much had changed, the definition of 'crisis' was malleable but the solution was always the same: we needed to Destroy Social Security in Order to Save It.

Typically people on the Left tend to assign three motives for the desire of the Right to 'reform' Social Security. One is to get their hands on the assets in the Trust Funds. This is a total category mistake, those assets though real as real are not tappable in the way this narrative would require. A second is to get their hands on surpluses going forwards. Well this is the same mistake with a slightly different twist, cash surpluses which were as real as real could be in 1999 are existentially different today. And a third motive advanced was the fees that would be generated on private accounts. Well I don't think this pencils out as well as people would think at least for the accounts of people in the lower 50% of income, if it were a pure scheme for extracting account fees they wouldn't be pushing for universality, but instead for opt-out for higher-income workers.

Nope in my opinion the fundamental motive for opposing Social Security is not driven by greed as such but instead an ideology that depends crucially on the perception that Big Government is always and everywhere a failure, and that the bigger the counter-example the higher the risk to that overall paradigm. If Social Security was just headed for the cliff, its enemies would just stand back and watch it go, arguably this is where they were at in 1993. It is only when they see the coach driver beginning to get the team under control and steer it away from the cliff that they have to jump in and try to spook the horses again.

Which is why people asking why the actions of Social Security opponents don't seem to be particularly helpful in guiding the stage coach away from the cliff are asking the wrong question, looked at in that way their actions don't make sense at all. On the other hand if you flip it around a lot of things become clear, there being more than one definition of 'fixing'.

I though a little different perspective on the impact of trade on the real GDP accounts might be interesting.

The first chart is of imports market share, or imports as a share of what we purchase in the US. In the second quarter of this year imports market share rebounded to about where it was at the pre-recession peak, or about 16% of consumption. Since the early 1980's when the US started borrowing abroad to finance its two structural deficits -- federal and foreign--
trades share of consumption has risen from about 6% to some 16%. Normally this has a small negative impact on the US economy, but sometimes you get quarters like the last quarter. Last quarter real domestic consumption rose at a 4.9% annual rate. That was an increase of $162.6 billion( 2005 $). But real imports also increased $142.2 billion (2005 $).
That mean that the increase in imports was 87.5% of the increase in domestic demand.
To apply a little old fashion Keynesian analysis or terminology, the leakage abroad of the demand growth was 87.5%. It does not take some great new "freshwater" theory to explain why the stimulus is not working as expected, simple old fashioned Keynesian models explain it adequately.



So compare this with exports. Import were 16% of domestic demand, but in sharp contrast
exports were only equal to 3.2% of final sales of domestic production. The peak share for exports was 5.9% in the 4th quarter of 2004. The great recession generated the severe world wide downturn in trade, but US imports are obviously rebounding much more than US exports. If you break down the difference between the US economy and the German economy, that so many people are trying to make so much of, this is the difference -- Germany exported and the US imported. The difference has little or nothing to do with the difference in US and German economic policy in the Great Recession. Rather it reflects the structural changes that have stemmed from the structural twin deficits in the US since 1980.
It is just another example of how the "starve the beast" strategy does not hurt government.
Rather, it does massive damage to the private economy. The advocates of starve the beast expect a major crises to lead to a reduction in the role of government. But what they do not say, is that the crises they are so eagerly looking forward to is a collapse of the private economy. They consider this a good trade-off.

Robert Waldmann

Paul Krugman asks a rhetorical question which I dare to answer. He is still considering Kocherlakota's argument that low interest rates imposed by the monetary authority must cause deflation.

"First of all, if inflation isn’t sticky, how is it that the Fed can set short-term interest rates at all?"

Second of all, there is a short-term nominal interest rate which the Fed can set no matter what -- the discount rate. If the Fed loans at some interest rate, then the Fed loans at that interest rate. Second, I think the Federal funds rate has to be no higher than the discount rate*. Why pay a bank more when you can get a loan for less straight from the Fed.

So what happens if there is high inflation and the the central bankkeeps the discount rate low ? Banks borrow lots and lots of money from the central banks so the money supply increases. This can't be prevented by open market operations. Even if the central bank's only asset were loans to banks, the money supply can still be huge and rapidly growing.

This is not a hypothetical. From 1918 through 1923 the Reichbank's discount rate was low (3.5% IIRC). The result was not deflation.

* update: My thought that the Federal funds rate had to be no higher than the discount rate was incorrect (thanks Ken Houghton). The federal funds rate used to be higher than the discount rate. I don't understand exactly why except that borrowing from the Fed was a sign that a bank was in trouble. My main argument stands, although the Fed might have to both keep the discount rate low and change some aspects of its discount window policy which I don't understand to achieve a hyperinflation.

by Bruce Webb

Dean asks:

1) How much higher are real wages projected to be in 2040 than today? In other words, how much richer do we expect the average worker to be 30 years from now?

2) How did the 2010 Trustees Report change the projections for 2040 wages compared with the 2009 report?

3) If we solve the projected shortfall in Social Security entirely by raising the payroll tax, what percent of the gain in real wages over the next 30 years would have to go to pay the tax?

4) What percent of real wage gains over the last 30 years was absorbed by the increase in Social Security payroll taxes?

5) What percent of the projected long-term budget shortfall is due to the inefficiencies of the US health care system?

6) How much wealth should we expect near retirees to have to support themselves in retirement?

7) What percent of older workers have jobs in which they can reasonably be expected to work at into their late 60s?

Dean Baker takes Al to school. And then to the woodshed out back.
Senator Simpson's Quick Budget Quiz

by Mike Kimel
Cross posted at the Presimetrics blog

Employment During Recoveries from Recessions - Long Term Trends

The following graph of the employment to population ratio was obtained from the Federal Reserve Economic Database (FRED). The employment to population ratio shows the percentage of American civilians age 16 and over that happen to be employed. Recessions are shaded gray.


Figure 1.

The graph shows that between about 1960 and 2000, the percentage of civilians that were employed tended to rise over time, though those increases were interrupted with big drops in the ratio during recessions. That increase has a number of explanations, among them that women in the workplace is no longer a scandalous thing, that a single paycheck is often no longer enough to sustain the typical household, and that as manual labor's share of the workforce has fallen retiring later has become more and more feasible.

Since 2000, the picture is more nuanced - there has still been an increase in the percentage of American civilians that are employed during non-recessionary periods, but that increase has not been enough for many people who lost their jobs during recessions find new employment. In fact, the recent drop in the employment to population ratio has brought the percentage of civilians with jobs down to levels last seen in 1983.

So what is going on here?

One clue can be seen by looking at how quickly the economy has regenerated lost jobs after each recessions. The following graph shows the employment to population ratio in months following recessions relative to the employment to population ratio in the month that a recession ends. Thus, if the employment to population ratio has risen since the end of a recession, that number should be above 100%, and if it has fallen, that number should be below 100%. Every recession since 1948 - the first year for which employment to population data is available - is shown on the graph. Because, for reasons that will be evident in a moment, I had to label each recession (or rather, post-recession period), the graph is a little busy. Note also that I am assuming that the most recession ended in June of 2009, even if the recovery has been very weak and unpleasant since.


Figure 2.

Now, assuming that the latest recession ended in June of 2009, we're about 14 months out from last recession. The first thing the graph shows us is that for most of the recessions in our sample, the employment to population ratio continued decreasing after the recession ended; that is to say, job losses continued after the recession ended. And for four of the eleven recessions (including the latest one), the employment to population ratio 14 months after the end of the recession is still below where it was when the recession ended.

But look closer, and you see something else, something more disconcerting. It seems that the more recent the recession, the poorer the job recovery. In fact, three worst job recoveries came after the last three recessions, and the 1991 and 2001 recessions were pretty mild. (And, to repeat a point from above... the job market never quite recovered after the 2001 recession.)

Possible reasons for this long term trend in the worsening of job recoveries that come to mind include:

1. simple mathematics - as the employment to population ratio rises, recovering to that high level becomes harder and harder. Of course, the latest recession belies that, though in fairness, it was a much more severe downturn.
2. it has, over time, become easier to fire employees and move the jobs to jurisdictions where the new employees are less likely (i.e., able) to complain. In the 50s and 60s, jobs started migrating from the Midwest to the South (more union to less union), and now they're migrating out of the country altogether. That makes it easier for a company to operate with fewer employers for extended periods of time, and thus expand for a while after the end of a recession without bringing on new workers.

Your thoughts?

by Linda Beale
crossposted with Ataxingmatter

Offshore Banking Secrecy--more on the UBS case

The IRS announced today that the Swiss government has completed its processing of the 4450 UBS accounts of U.S. taxpayers that were the subject of the August 2009 agreement for deferred prosecution of UBS and ending of the John Doe summons request. The IRS has already received about 2000 names and expects to receive the rest of the information very soon.

It will be interesting to see the developments this fall as the IRS begins to use the information it has received to prosecute indviduals for tax fraud and to pursue attorneys, accountants or others that have helped Americans hide their assets overseas.

I don't see mentioned how much money is given to each organization nor how that fits into each organization's overall funding sources, but the big names in think tanks and such are well connected.



By Muckety.com

Busy week, so just a couple of things of note.

1. Via Dr. Black, my old neighborhood gets a chance to build a better future:
   

   "It's a great partnership among a number of researchers from academia, the private sector and national laboratories. It's a great collaboration for a solid project that will help the environment," said Penn State spokeswoman Annemarie Mountz.
   
   Foley said the project "will spur real innovation and job growth for Philadelphia, the region and the nation. We have a world class team of universities, corporations, and economic development entities that made this proposal come to life. There is no better place to do this work than in the Philadelphia Navy Yard."

   
   My mother would have agreed, but she stopped working there (coincidentally) around the time Tom was born. Indeed, the renovation of the Navy Yard has been an American Success Story (driven by a Norwegian shipbuilding firm and a clothing retailer), and we can almost pretend that the area has "recovered."
   
   
2. Similarly, the results of the Race to the Top came in a couple of days ago. You may have heard that our Superstar Governor was cruelly betrayed by Washington bureaucrats and/or the evil NEA.
   
   Well, until the actual video was released, after which point yet another Republican decided to prove that people collecting unemployment are Just Lazy (though he does claim not to have lied to Superstar Governor, leaving the question of where the story from the Governor should be sourced).

So the old area is gaining because of Federal government management, and the current area is suffering because of State government mismanagement. It's almost enough to make me think that there's a difference when people want to accomplish something.

Op-ed by Rdan

The problem with Simpson's statement about 300 million tits was not that it was sexist.
The problem with Simpson's statement was that it was wrong as to the facts and arrogant as to the needs of most people.

The call for his ouster is another example of liberals shooting themselves in the foot by getting all emotional about hurting people's feelings... even when they leave those feelings on the doorstep where they can be tripped over. So instead of challenging Simpson on the facts, and watching him self destruct in public, they go for the vapors and call for the nasty man to shut up or resign, so the real criminals can go back to pretending they are respectable.

Let's call for a televised debate with the man before elections, or even after.

With the downward revision of second quarter real GDP growth from a 2.4% growth rate reported in the advance report to 1.6% reported in the first revision, real GDP in the first year of recovery now appears to be 3%. As was originally reported this is still stronger than the first year of recovery in the two jobless recoveries of 1991 and 2001. But compared to previous recoveries and the depth of the recession this still looks like an extremely weak recovery.




The major revision was in the trade sector that was reported here when the June trade data was released. Real imports rose at a 32.4% annual rate while real exports jumped at a 9.1% annual rate. As a consequence while real gross domestic purchases grew at a 4.9% rate, an improvement from the 3.9% rate in the first quarter, real final sales of domestic product only grew at a 1.0% rate versus a 1.1% in the first quarter.

Probably the main reason real GDP growth was stronger than most expected was the strength of government which grew at a 9.1% rate versus a 1.8% rate in the first quarter.
This surge was driven by defense spending that rose at a 7.3% rate. Defense procurement is always higly volatile and does not imply anything for future growth.

While those forecasting a double dip will see this report to be supporting their forecast,
it looks to me like an argument against a double dip. The main area of weakness was trade, not domestic demand and there is little reason to expect domestic final demand to swing from a 4.9% growth rate to an actual decline, even if it does slow. But import growth is almost certain to slow from the explosive growth in the second quarter so trade is unlikely to be such a significant negative in the second half. While a swing to negative real GDP growth in the second half is unlikely, continued sub-par growth remains the most likely scenario.
But in an environment of sub-par growth, the economy does not have the momentum to absorb a negative shock.

by Bruce Webb

I am not going to harp on the sexism or ageism in Simpson's '310 million tits' comment generally, if you happen to have just gotten back on the Inter-Spatial Shuttle from Alpha Centauri this evening and don't catch the reference a Google search on that turns up 125,000 hits, and I daresay the first 25,000 of them relevant. I want to examine what it, and some other developments inside and outside the Obama Deficit Commission reveal about a new openness in class warfare.

What Simpson's comments revealed more broadly was a profound contempt for the lower 98%, those who might end up reliant in whole or even in part on Social Security. Because '310 million' takes in everybody, in Simpson's world anyone who ever did, is, or will ever rely on Social Security is just a Randite 'parasite' or at best 'dependent farm animal' and you can bet it is a long time since Simpson read Timothy 1:18: "For the scripture saith, Thou shalt not muzzle the ox that treadeth out the corn. And, The labourer is worthy of his reward." and clearly he glossed over the even more famous admonition "Honor thy Father and they Mother". For Simpson workers are suckling pigs and seniors are 'Greedy Geezers'.

Naturally the Simpson remarks sparked large and heated discussions in the blogosphere including my old, old stomping grounds at dKos including one by commenter bink Time for Obama to Shut Down the SS Commission which sparked a long and ongoing comment thread with some vigorous participation by me. In the course of that conversation some people pushed back in defending Obama by noting that it wasn't formally just a Social Security Commission, instead it was focused on deficit reduction generally and was formally known as the Fiscal Responsibility and Reform Commission, and that moreover both current commissioners and people around Peter G Peterson, who clearly was the inspiration for applying the BRAC Commission model to deficit reduction, were on record supporting defense cuts and tax increases, meaning that nobody was really in the tank, and that everything was on the table. But how does the Commission seem to be defining 'defense cuts' and 'tax increases' and how does that relate to Simpson's open contempt for the 'lesser people' sucking away at those '310 million tits'. Well some discussion under the fold.

First as to defense cuts. Given the requirement for a 14-4 minimum vote for any recommendation to come out of the Commission major cuts in defense acquisition were never likely to make the cut, the six Republican Congressional members should have been enough to prevent anymore than tinkering on that front. But seemingly to make sure Obama named Republican David Cote, CEO of major defense contractor Honeywell, and he, understanding that nothing could be seen to be a total sacred cow, came up with an ingenious idea to have defense cuts while avoiding cancellation of current and future weapons program cuts: you just stick it to the troops. I'll let TPM take it up from here: Source: Debt Commission Fights Over Freezing Military Pay, Slashing Benefits

A source familiar with the proceedings of the working group on discretionary spending tells TPM that some commissioners, including one military contractor, would prefer to save money by freezing military pay and scaling back benefits, rather than by eliminating waste in defense contracting.
The source said that different members of the commission come down on different sides of the issue. The discussion group is led by Sen. Tom Coburn (R-OK), whose primary aim is trimming fat on the contractor side, but, according to the source, David Cote, the Honeywell CEO who was appointed to the panel by President Obama, is pushing to find savings elsewhere.

"Coburn raised concerns about all of the cost overruns and redundant weapons system," the source told TPM. "Cote made excuses for it all."

According to the source, Cote and other members, including the commission's co-chair Alan Simpson, are focusing instead on "freezing military pay, making military people pay for their health care."

So Simpson's '310 million' was not just a misquote, it not only includes all those working civilians whose retirement will be based on Social Security, it also includes all those military people relying on military retirement. And since retirement pay is formulaically based on final military pay, the Commission can save $100s of billion off the back end, to say nothing of requiring service persons and retirees to kick in more for their health care. And all without taking a penny from the bottom line of Honeywell or Raytheon. But plenty of 'shared sacrifice' for the lower 98%.

Now as to tax cuts, also alleged to be on the table. Do you think Commission sponsor Peterson is generously offering to have the exemption for 'carried interest' for Hedge fund billionaires to be on the table? I don't think so, his cofounder at Blackstone suggested that any attempt to address that would be the equivalent of Hitler invading Poland. Schwarzman: A 'Fat Cat' Speaks Back and I think it is safe to think it is still speaking for his old partner (and obviously still huge investor) Peterson. And Peterson has been on record for a few decades for eliminating the corporate income tax and doesn't seem to have changed his stripes. In an op-ed last month in the WSJ (where else) Tax Aversion Syndrome and Our Deficit Future: We've run out of painless options. Higher taxes and reduced entitlement benefits for the well-off are the only solutions. he spells that out. (And note the clever word play-the 'higher taxes' on the left side of the conjunction don't actually apply to the 'higher off' on the right side, only the benefit reduction)

Some have tax aversion syndrome—they have never met a tax increase they didn't do everything in their power to block. While I believe that spending cuts must play a lead role in any solution to our long-term structural deficits, the sheer magnitude of the imbalances requires revenue increases.

Ideally, the country should raise as much government revenue as possible from a progressive consumption tax. Such a tax can be designed so that it won't overly burden lower-income families but will raise significant revenues and increase our savings rate.

However, given political realities, it is not likely that we could enact a progressive consumption tax that would raise sufficient revenues to meet our needs. Therefore, I would initiate such a tax in conjunction with a simplified income tax (that would have far fewer corporate and individual credits and deductions)—thereby allowing for lower individual and corporate income tax rates.

Meaning that for Peterson 'shared sacrifice' means retaining current reduced rates on capital gains, means testing the middle class for Social Security, slapping on a broad 'progressive' consumption tax on everyone. And you can bet 'progressive' doesn't mean a huge luxury tax on yachts.

So the translation of "Everything is on the Table" seems to be: across the board benefit cuts to Social Security, additional means testing on the middle class, cutting military pay and shifting more of the cost of medical care to soldiers and retirees, and 'progressive' consumption tax. Meanwhile I guess the top 2% and even more the top 0.001% just keep producing along supporting us 310 million sucking parasites. (0.001% of the population is roughly 3100 individuals and maybe 1000 households and should handily include all those with 9 digit (multi-multi millionaire) and 10 digit (billionaire) net worth and 310 million - 0.001% still equals 310 million, Simpson was not indicting everyone, just you me and everyone we know).

We can couple this with troubling statements out of the Obama Administration touting the success of TARP, the stimulus bill, and HAMP even though TARP hasn't led to a loosening in credit to small business, the stimulus is turning around profits while not actaully reducing unemployment, and HAMP only seems to have allowed some extra months of mortgage payment extraction from homeowners who are now in large numbers re-entering default. But it is all good for the banks and the bonuses of the top 2%.

Somebody is playing a dangerous game here, surely they can't be so far in the bubble that they want to add active unrest among the left to the ongoing tea party anger emanating from the right. If the Obama Administration allows the Catfood Commission to define 'shared sacrifice' in he way this post suggests they are preparing to, that nice smooth road to re-election in 2012 may shape up to be a lot rockier than they intended. Even Reagan didn't run explicitly on a platform of "Screw the Middle Class" and nobody back then dared openly come out and admit that in practice 'Trickle Down' meant 'Golden Shower'. Why the Democratic Party is attempting a merger with the Plutocratic Party is beyond me.

Robert Waldmann

Saul Alinsky sure has a lot of followers. Obama is a fan. Hillary Clinton wrote her senior thesis about Alinsky. However the people who follow him to the letter are Republican's who want to privatize social security.

Rule 13 (slightly edited)

13. Pick the target ... personalize it,...

The latest follower of Alinsky is Club of Growth radical Pat Toomey who claims he never advocated privatizing social security. Laura Vecsey notes the clear Alinsky influence

The key to understanding this semantic subterfuge is, well, semantics. The word Toomey uses is "personalized" Social Security

So far rule 13 hasn't worked, so I guess they will have to back uo to rule 13

12. "The price of a successful attack is a constructive alternative."

Nah not gonna happen.

Full rule 13

13. Pick the target, freeze it, personalize it, and polarize it.

I am kidding on the square. Check the rules. Republicans have been following them since 1992 at the latest.

It has been hard for them to stick to their followers areas of expertise, since there aren't any.

Robert Waldmann

Andrew Harless argues that there was no housing bubble ?!?

Apparently it is now generally accepted that the rise in house prices was an aberrant bubble, justified only in the minds of irrational buyers who ignored the fundamentals and expected house prices to keep rising simply because they were already rising.

But what were the fundamentals? Certainly, if one had foreseen today’s circumstances, it would have been clear that housing was not a good investment. If one had been able to say, “In a few years, the unemployment rate will rise to 10%

Go read the whole post. I can't choose the key quote but basically he argues that high asset prices were required to achieve a normal unemployment rate and therefore they weren't aberrant. He argues that it must be possible to achieve normal unemployment without a bubble. He then sure seems to argue that since some asset price could have been sustainably high, clearly US houses were those assets.


More after the jump





This time I'm not convinced. You don't define bubble and don't respond to the alleged evidence that there was a housing bubble. Why was the relative price of housing in the 21st century so much higher than in the 20th (during which it was quite stable) ? Why was the ratio of price to rent so high ? Neither is easy to explain assuming 4% unemployment.

In effect you claim that, if policy makers agressively countered the recession and we were at full employment now then housing would have been a fine investment. So why did everyone with a brain and an open mind assert back in 2006 that there was a housing bubble (that is housing was a very bad long term investment) ?

I think an important issue is that you note a worldwide problem and assume that the US economy can solve it.

If you were writing about the alleged housing bubble in Ireland (I am sure there was such a bubble I only use "alleged" in an attempt to be polite) such a claim would sound silly. I think it is also silly for the USA. The US can't keep running huge current account deficits forever. The global savings glut requires increased final demand in other countries

Transunion reports:

TransUnion's quarterly analysis of trends in the credit card industry revealed that the national credit card delinquency rate (the ratio of bankcard borrowers 90 days or more delinquent on one or more of their credit cards) decreased to 0.92 percent in the second quarter of 2010, down 17.1 percent over the previous quarter. Year over year, credit card delinquencies fell by 21.3 percent.
...
Average credit card borrower debt (defined as the aggregate balance on all bank-issued credit cards for an individual bankcard borrower) again drifted downward for the fifth consecutive quarter nationally by 4.1 percent to $4,951 from the previous quarter's $5,165, and down 13.4 percent compared to the second quarter of 2009 ($5,719). This represented the first period credit card debt was below $5,000 since the first quarter of 2002.
...
On a year-over-year basis, national credit card originations dropped almost 6.5 percent.

There was no mention of how writedowns of bad debt may have affected the numbers as part of savings. State by state and city and not city areas varied widely in numbers, as well as regions of the US.

by Linda Beale
crossposted with Ataxingmatter

Dealing with the Sunset of the Bush Tax Cuts (Part IV in a series)--the Tax Relief Coalition

The Tax Relief Coalition--another of the myriad anti-tax groups comprised of Grover Norquist's group and those of similar ideology--is at it again with a letter to Congress (available on BNA) urging the passage of new legislation to pass tax cuts to extend the temporary cuts enacted under the Bush administration. The group is spending millions lobby for its interests with the dubious claim that discontinuing tax cuts for the wealthiest Americans will hit small businesses the hardest. See, e.g., Jensen & Salant, Leader on Bush Tax Cuts Wins Allies to Keep Provisions in Place, Bloomberg.com (Aug. 20, 2010) (noting that the coalition groups have spent $3.8 million since Jan. 1, 2009 on candidates and advertising, and that the Chamber of Commerce plans to spend $75 million influencing elections in its favor).

Note that the coalition--formed of "trade associations, advocacy groups, and corporations"--calls itself favoring "pro-growth tax policies". But what it means is favoring tax cuts. It is arguable that tax cuts support economic growth--at best they are a second-rate stimulus compared to direct government spending on public and human infrastructure that provides long-term support for economic stability-- such as public transportation, public communication networks, development of alternative energy sources, education (K1-university), and basic research.

These claims that the tax cuts help small businesses are at best dubious. (See, e.g., yesterday's post outlining various reasons why the capital gains preference has very little to do with stimulating entreprenuership or helping small businesses.) The coalition tries to cast the Bush tax cuts in terms of job creation. But the fact is, the Bush regime had a lousy record for job creation, and the tax cuts that were especially favorable to corporations probably did almost nothing to contribute to job creation. The "American Job Creation Act of 2004" for example, mainly acted as a tax cut for multinational corporations that used the very low taxation of repatriated money to pay big dividends to shareholders even while they were laying off thousands of workers. Similarly, expensing provisions and other tax cut provisions (especially for oil and gas industry and other targeted industrial provisions) mainly gave more money to managers and owners, not workers. Real wages of workers have fallen, while corporations sit on big kitties of cash--keeping the productivity gains for managers and owners and not sharing them with workers and certainly not creating new jobs for new workers.

What about the small company owners that the National Federal of Independent Business brings in to calim that any tax increase is a job killer? See Bloomberg article, above. That's a superficially self-serving claim that is probably in truth a case of blind greed keeping business owners from admitting that federal dollars spent for unemployment, infrastructure, education and other important programs will actually create a more sustainable economy that will be better for their businesses. A little bit more in taxes now will have positive impact, not negative, on the economy. And those arguments also leave out a few of the details--like the fact that the proposed tax increase on joint returns with $250,000 or more impacts very, very few small businesses.

The hypocrisy is also evident, as coalition members refuse to limit extension of the tax breaks to the lower income group, even while they complain about deficits. The deficit argument is essentially brought out to create fear in average voters and to provide a salient objection to any additional spending that does not directly go to the benefit of business managers and owners, but it isn't a real concern since it doesn't enter into the discussion of whether or not to extend tax breaks to the wealthy who don't need them.

Regretably, the Democrats don't have much backbone on this issue. Senators Conrad and Bayh, for example, have accepted the idea that it is problematic to raise taxes on anybody during an economic slowdown. That their position doesn't make sense--a little bit more in taxes on the wealthiest Americans won't really affect either consumption or investment in new businesses--doesn't seem to matter.

I have no words for this e-mail to OWL by Alan Simpson on Social Security:

I’ve made some plenty smart cracks about people on Social Security who milk it to the last degree. You know ‘em too. It’s the same with any system in America. We’ve reached a point now where it’s like a milk cow with 310 million tits! Call when you get honest work!
Al

There are plenty who have weighed in, some of them major organized voting groups such as AARP. Alan Simpson also has other views regarding "the federal deficit" not worth exploring except he still is co-chair on the Deficit Commission.

Update: Mr. Simpson's apology is here... http://library.constantcontact.com/doc209/1102372204926/doc/nP49Pz07tDokfhHd.pdf

"I can see that my remarks have caused you anguish, and that was not my intention."

Update 2: Ms. Carson's response is here...www.owl-national.org

Hat tip r.j.sigmund for finding this leading to the Philadelphia City Paper:

Philadelphia Demands License Fee and Taxes from Bloggers

Philadelphia bloggers were dispatched letters informing them that they owe $300 for a [lifetime] privilege license [or $50 per year for an annual license], plus taxes on any profits they made. Even if, as with Sean Barry, that profit is $11 over two years.[...] Even though small-time bloggers aren't exactly raking in the dough, the city requires privilege licenses for any business engaged in any "activity for profit," says tax attorney Michael Mandale of Center City law firm Mandale Kaufmann. This applies "whether or not they earned a profit during the preceding year," he adds.

Now a blog has to have an 'owner', and I assume the 'owner' is designated a location based on office (or residence), and that some level (state of federal) of tax collection is providing the information about profits.

Now we know that in 2003 many econoblogs were simply hobbies and the best were love affairs but hardly businesses, and that now in 2010 a whole bunch have been to the Whitehouse several times, and some of our own Bears to Treasury offices or other national organizations, universities, and some work in private companies mesaured in billions of dollars. Then again some of us don't.

But on bad days I feel more like this young lady. One reader innocently accused us of having staff/interns that waylaid comments...how could he know there were plans for a part time staff in 2017? A backhanded compliment I believe, in that we are all volunteer researchers and authors.

I want to take this opportunity to let front page authors know I will shoulder this burden of filing forms, even if we make a profit from the ads (revenue minus expenses and no payroll, but my need for a new laptop battery and the present for Mike's baby may shatter that dream this year).

Anyway, this is my goofy way to say thanks for value freely given and making this bunch of amateur writers well worth any efforts I add to keep the writing published. Thanks..it is an honor.

Robert Waldmann

Minneapolis Fed President and famous economist Narayan Kocherlakota made my jaw drop with this argument

Long-run monetary neutrality is an uncontroversial, simple, but nonetheless profound proposition. In particular, it implies that if the FOMC maintains the fed funds rate at its current level of 0-25 basis points for too long, both anticipated and actual inflation have to become negative. Why? It’s simple arithmetic. Let’s say that the real rate of return on safe investments is 1 percent and we need to add an amount of anticipated inflation that will result in a fed funds rate of 0.25 percent. The only way to get that is to add a negative number—in this case, –0.75 percent.

Kocherlakota asserts that expansionary monetary policy will eventually cause deflation. This is very odd. My honest opinion is that he wants to argue for a higher target federal funds rate and he’s decided to present every argument that supports that proposal even if it is half baked, unbaked or negabaked (frozen ?). However, I can’t resist trying to make sense of the argument (after the jump I try and fail).





First, as noted by Andy Harless, Kocherlakota is asserting super-neutrality – not just that the level of the money supply doesn’t affect real variables in the long run but also that the rate of growth of money doesn’t affect real variables in the long run. Kocherlakota is right that this claim is not controversial – it is uncontroversially false as argued in, say, much of Kocherlakota’s academic work. Weird.

Second, Kocherlakota does not say anything about economic agents and their objectives. For there to be deflation firms must lower prices. Kocherlakota does not discuss why firms might do that. This is very strange coming from an economist who was, until recently, chairman of the Minnesota economics department.

update: This is not as unoriginal and pointless as the rest of the post.

Immediately above the quoted passage Kocherlakota wrote

As I said, the FOMC meets eight times a year. Its decisions are always influenced by fairly recent economic data. But, at the same time, its decision-making has to be shaped by long-run considerations. In that vein, let me close by offering some thoughts about long-run inflation—or really, long-run deflation. I mentioned earlier that inflation has been near 1 percent recently. These data have led some observers to worry about the possibility of a multiyear period of falling prices—that is, persistent deflation. I don’t see this possibility as likely. It would require the FOMC to make the surprising mistake of ignoring the long run in its desire to fix the short run.

He notes that there is a long run equilibrium in which the Fed funds rate is very low and inflation is negative. He strongly suggests that this would be a bad thing. In Kocherlakota's academic work, he asserts that optimal policy implies an euqilibrium with deflation and a very low nominal interest rate (optimally 0). This is called the Friedman rule. So why would reaching such an equilibrium require a mistake. The argument about the equilibrium real interest rate is an argument about the real interest rate which corresponds to unemployment equal to the natural rate. The problem with deflation is that it can cause real interest rates to be higher than that rate. Kockerlakota assumes that there is no problem caused by deflation in his warning that loose money might lead to deflation.

[intemperate outburst deleted]

end of update.



Further up in the speech, Kocherlakota notes that it makes no sense to consider a policy of keeping the federal funds rate at 0.25 percent from now until T= infinity, since the question at hand is the target rate for the next month and a half. He then just says this doesn’t matter (1.5 is approximately equal to infinity). I think that to the man in the street, this is stranger than deciding micro foundations are optimal and that neutrality implies super neutrality.

However, I find it comprehensible. When one attempts to deal with difficult mathematical models, the temptation to consider steady states is almost irresistible. Furthermore Fresh water economists have been saying “that may be true in the short fun but not in the long run” for decades. In fact, economists have been dodging questions by talking only about the long run since before Keynes wrote “in the long run we’ll all be dead” to respond to exactly that invalid argument.

Another key point is the immense power of “if.” Kocherlakota discusses the irrelevant question of sticking to 0.25% target forever (he doesn’t consider sticking to it for a mere million years). He thus implicitly assumes that the Fed can keep the Fed funds rate at 0.25 from now to infinity without interruption. I think that is impossible and it certainly won’t happen if the Fed follows the policy opposed by Kocherlakota.

The Fed has been keeping the Fed funds rate that low via open market operations in which it issues high powered money in exchange for other assets. Such an approach might fail to achieve the target because it leads to inflation. It is easy to see how a policy of trying to keep the federal funds rate below the equilibrium real interest rate would cause high inflation until the Fed would lose its ability to drive short term interest rates down because the real value of new high powered money issued would be too small – that is the amount of money they create doesn’t matter if no one wants it.

I not sure that it’s even possible to write down a model in which such a policy succeeds in keeping the Fed funds rate 0.25% for the long run and leads to an equilibrium with deflation. Certainly no such model currently exists.

The Fed could achieve 0.25% starting in around 2020 and lasting forever by reducing and reducing the money supply, however that would imply very high nominal interest rates in the near future (this isn’t theory it is an empirical observation) and it is not the proposal which Kockerlakota opposes.

I guess I have wasted your time. I started with no clue about Kocherlakota’s mental processes and and I still have no clue.

by reader Ilsm

Misspent Tax Dollars for Profits, Not Replacing 1970’s Military Equipment

US outlays for military programs are wasted through mismanagement and neglect: these must not be spared in spending cuts. 20% of US government outlays are for the Defense Department. Something that needs to be to considered while reading the report is that the sum of Research and Procurement appropriations in DoD 2011 proposed budget is $214B ($189B baseline with an additional $25B for overseas contingencies).

According to GAO 09-326SP Assessment of Selected Weapons Programs (8mb pdf!), the largest weapon projects, the "portfolio" of 96 major programs with commitments for spending on revised acquisition “baselines” has grown to $1.6T, averaging a 19% increase since each program started, with 42% (40 programs) of the reviewed programs rising in cost more than 25% since inception. At 25% increase the Sec Def is required to justify to congress why the department will continue with the program.

There not only is room to cut, there is screaming need to cut. It will take 8 to 10 years’ at current 2011 budget levels to work through these commitments assuming cost increases stop, schedules are met, technical performance is delivered, and the US doesn't "go broke" trying. The $1.6T is the tip of the DoD acquisition iceberg, for these are the largest systems mismanaged at reviews by the highest level, an Undersecretary of Defense led panel. There are a lot of other urgent requirements against the research and investment budgets, which were not reviewed in this assessment.

There will be a huge logistics burden for these systems. Acquisition costs are a fraction of DoD’s total weapon system commitments, each system requires two to three times acquisition costs over the planned 20 year life to train and maintain “capability” for fictitious wars and entanglements. This bow wave of future logistics for the major programs is $3 to 5 Trillion in support costs spread over 20 years. (Operations and Maintenance 2011 with OCO $317B, about $200B base budget)

Cutting most of this $7T unfunded liability will encourage national security, and reduce deficits. What good is it to be "bankrupted" for the wrong weapons, whose untested specifications are watered down to limit the obscene cost overruns, years after promised?

These commitments scream to be reviewed and many cancelled. They represent gross mismanagement, waste, nothing but dividends to companies who profit.

GAO released 10-388SP in March 2010, however it does not have “rolled up data” due to “lack of complete Selected Acquisition Report data for 2009”.
http://www.gao.gov/new.items/d10388sp.pdf

Footnote: GAO Acquisition Cost: All cost information is presented in fiscal year 2009 dollars using Office of the Secretary of Defense approved deflators to eliminate the effects of inflation. We have depicted only the program’s main elements of acquisition cost—research and development and procurement. GAO 09-326SP, App I, Pg. 168 (175/190 .pdf)

Lifted from an e-mail from Dale Coberly regarding Social Security and the dangers of increasing 'costs' of helping our old folk live a bit above a level of destitution:

...that while SS will eventually cost 6% of GDP, this is not a lot of money for the basic needs of 25% of the population. Moreover, they will have paid for it themselves.

And that is what it is going to cost "us" in any case, however the money is arranged... that is what the old people will "eat." And the bread will be baked by "us." You can fool yourself with financial transactions, or you can take the money directly via a payroll "tax." At the end of the day...in terms of distribution of goods and services to the elderly vs the "young," it will come out exactly the same.

You would have to show that laundering the money through the financial markets will result in more production or a fairer distribution, and while the first is an article of religious faith with some people, there has been no evidence whatsoever to support it for the past eighty years. I suspect it has something to do with the maturation of capitalism, but I am no economist. Merely an observer of what is.

To put it in terms any might understand: Granny is going to consume 6% of what "we" produce. So what? (She produced a hell of a lot of what we consumed in her prime time.)

(Rdan...lightly edited for readability)

Angry Bear front page author Bruce Webb has kept the numbers straight and well covered, and Dales's Northwest Plan offers an especially workable answer to the possible problems in the money stream for workers, but sometimes you just gotta say it out loud and in real family terms many of us actually believe about the over 65 group. Thanks for working hard.

by Linda Beale
crossposted with Ataxingmatter

Dealing with the Sunset of the Bush Tax Cuts (Part III in a series)--considering the ill-advisedness of favoring capital income


During the Bush administration a number of significant reductions in revenue were enacted, especially in the 2001 and 2003 tax bills, but with a sunsetting provision that (extended in some cases) generally will mean that the pre-existing provision will be reinstated after 2010. Both individual and corporate taxes were reduced. Many of the corporate and business provisions involved accelerated expensing provisions, allowing businesses to write off purchases much faster than the economic depreciation of the asset would require and thus amount to a significant tax reduction for businesses. Rates on capital gains were reduced, and dividends, which have traditionally been treated just like interest income and taxable at ordinary rates to individuals, were temporarily made subject to the preferential capital gains rates. The estate tax was phased down and then completely eliminated for the 2010 tax year. As a result of these and other changes, capital income is especially favored under the temporary provisions, and the wealthiest 1% who own a substantial portion of the financial assets received significant benefits.

Much of the argument in favor of reducing taxation on the income from capital is spurious. It is a claim that by taxing returns from capital less heavily than returns from labor, those who receive those returns will invest them in new businesses, spurring entrepreneurship. The returns from capital that are favored, however, are not closely correlated with reinvestments in businesses. Most of the returns are those gained merely from secondary market trading and those increases in capital do not go to businesses but to other investors or financial institutions. There is a special provision that taxes initial issuance corporate stock gains more favorably, but that is only a small piece of the capital gains preference.

In terms of the economy, it is highly likely that tax cuts for lower income taxpayers will be spent domestically and thus provide important impetus to economic growth at this point in the recession. Tax cuts for the wealthy and owners of financial assets at the top of the distribution are much less likely to spur economic development--the wealthy are well known for utilizing tax shelters (legitimate and not so legitimate) and for moving assets offshore into tax haven jurisdictions (sometimes through illegitimate use of foreign banking secrecy laws to evade US taxation). The wealthy may reinvest their gains in new businesses (or private equity funds that spend some part of their accumulated assets in funding new businesses), but they are also likely to invest much of those gains abroad or to put them into the shadow banking system, which played a role in the financial crisis (that developed into a full blown recession) by creating a huge amount of leverage and interconnectedness.

Those with considerable amounts of financial assets also tend to be the ones who make possible the riskier types of investments. Yes, we want some adventuresomeness, but the appetite for risk and high returns that led to the financial crisis and recession was problematically high. Higher taxes on capital income would tend to temper that appetite for risk.

Further, concentrations of wealth create problems for democratic societies, especially at a time when at least 8 million Americans find themselves out of work and many out of their homes at the same time. Wealth concentrations lead to gated communities and the isolation of the wealthy from the mainstream of society. The ability to understand problems and to understand the distribution of benefits and burdens diminishes. When there is a group of people so well off that they are simply not "in the same boat" as everybody else, society is negatively impacted. Tax policy cannot cure the problem, but it can address it and ameliorate the worst of the consequences of concentrated wealth accumulation.

These are concepts that Congress should bear in mind as it considers whether or not to enact new tax cuts that will extend the Bush tax cuts longer.

by Tom aka Rusty Rustbelt

HEALTH CARE: Resident Rights versus Caregiver Rights

In 1987 the federal government passed a comprehensive "bill of rights" for nursing home patients. Most states followed.

The law gives nursing home residents wide protection, including (when mentally able) the ability to refuse care, meals and just about anything else they please.

Resident care preferences regularly create all sorts of difficult issues though, including:

Can white residents refuse care from black nurses and nurse aides? ( a common problem)

Can female residents refuse care from male caregivers? (the courts say yes on privacy grounds)

Can residents request care from specific employees (a latino requesting a latino)?

Can residents request care from specific employees just because they like the employee?

Mrs. Rustbelt has dealt with all of these issues (recently) and many more. Her first comment was "I only have to do 12 hours work in 8 hours, of course I need to referee a unit full of adult children. Grrrrr."

According to a recent federal court in an Indiana case, if a white resident requests "no blacks" and the facility accommodates (according to Indiana law) the facility has discriminated against the employee.

Keeping in mind the average nursing home resident is about 78 years old with multiple physical problems and some level of mental and emotional impairment, this creates just a great big mess, and the facility loses in every scenario.

The unintended consequences of government regulation. Everyone suffers except the bureaucrats, and the lawyer who profit. Anyone got any solutions?

Earlier this week I compared household saving rates across the US, UK, Canada, and Germany. My conclusion was pretty simple:

So generally, this simple analysis would suggest that Menzie Chinn's skepticism of a "status quo" of US consumer imports is worthy. But with the status quo firmly in place in Germany, the household saving data paint a foreboding picture - certainly for the Eurozone, but possibly for the global economy as well.

The financial circumstances of US and UK households are very similar despite their diverging saving rates over the last two quarters (see saving rate chart here): leverage is high.

The chart above illustrates the total stock of household loans/debt (including non-profit organizations, which is small relative to the "household") as a share of personal disposable income.

In the UK, household leverage peaked above that of the US at 161% of personal disposable income in Q1 2008, having fallen to 149% by Q1 2010. Furthermore, recent deleveraging by UK households has occurred through income gains, rather than paying down debt: spanning the period Q2 2009 to Q1 2010, the UK household stock of loans increased 1.2%, while disposable income grew 3.1% (you can download the data here).

Given the remaining leverage on balance, the divergence in household saving rates across the US and UK is probably not sustainable. The UK household saving rate is likely to increase, or at the very minimum, hold steady.

The problem is: that according to the sectoral balances approach, it's impossible for the government and the private sector to increase saving simultaneously unless the UK is running epic current account surpluses (it's not). Therefore, the £6.2billion in public "savings" may push UK households farther into the red. However, the more likely outcome is that UK public deficits rise amid shrinking aggregate demand (and with it, tax revenue) and the increasing household desire to save.

The punchline: the US household has something that the UK household does not: (still) expansionary fiscal policy ($26 billion in state aid and extending unemployment benefits, for example).

Rebecca Wilder