The Battle of Late January has ended, as Amazon yields, gracelessly:

We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan's terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books. Amazon customers will at that point decide for themselves whether they believe it's reasonable to pay $14.99 for a bestselling e-book. We don't believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative. [emphases mine]

Whenever a company talks about how it is looking out for your interested, Jim Henley's consumer-surplus version of reality notwithstanding, check for your wallet; it's probably missing.

The first italic is obvious: any firm that calls complete stopping of sales "expressed our strong disagreement" is either really stupid or exercising monopoly power—and no one thinks Jeff Bezos is stupid.

The second is even sillier: Amazon accuses Macmillan of exercising "monopoly power" and declares that they "will have to capitulate." Someone ask the people at Hachette about how Amazon has to yield in a clash between it and publishers.

More below the fold...

Brad DeLong and John Cochrane agree on something. I must dissent.

Delong and Cochrane agree that

"The underlying decline in wealth from the housing bust was ... around $400 billion. ..."

Indeed, relative to the size of the economy the losses during the crash of the dot-com bubble were four times as large.

I object that the two sums being compared are not comparable at all.

More below the fold...

by Bruce Webb

The following is the opening of a proposed post by financial blogger Bruce Krasting.

SSTF – My Numbers (by Bruce Krasting)

A week ago I attempted to get a consensus estimate on some of the critical variables of the SSTF puzzle from the readers and contributors at Angry Bear. I started that effort with what I thought would be the easiest component to estimate; interest rates. That effort failed. It seemed to me that no one reading my thoughts on this cared about interest rates and their impact on the Fund. That is thick headed. They are a central component.

Given that this audience showed no interest in participating in the development of a reasonable set of assumptions, I have used my own. Once assumptions are established and a methodology to use them is created a projection for future annual and monthly results can be established. The actual arithmetic is easy; the hard part is making the assumptions.

Krasting's full letter and a response thereto will be up on my web-site shortly (I'll update with the link). But as one of the "thick headed" ones in question I would like to examine a core assumption here, that interest rates ARE a critical variable. Because they really aren't, not at least over the time period Krasting is using. The following table is derived from Krasting's numbers. The last column is his calculation for total surplus/deficit, the interest rates are his as well, making the accrued interest calculation one of simple multiplication. The unlabled column is simple subtraction and represents the net negative cash flow from operations in each of the years needed to offset the interest accruing.
Year TF Bal Int Rate Interest Surplus/deficit
2010 $2.5 trillion x 4.58% = $114 billion - $20 billion = $94 billion
2011 $2.6 trillion x 4.40% = $114 billion - $56 billion = $58 billion
2012 $2.6 trillion x 4.20% = $109 billion - $86 billion = $25 billion
2013 $2.6 trillion x 4.15% = $108 billion - $125 billion = -$7.2 billion

Krasting places 2013 at $2.7 trillion but that would not matter much, nor would keeping the interest rate steady at 4.58% instead of having it drift to 4.15%, anyway you slice it you have a TF that WILL throw off some $400 to $450 billion in interest between now and 2013. Under Krasting's calculations by 2013 cash losses from operations will eat up not only that entire $110 billion or so in annual interest but enough more to actually start cutting into cash principal. Which is a big claim and one which will be discussed in the later post, but which has nothing to do with interest rates. And changes in interest rates of the order Krasting suggests can only move the number up or down a couple of percent from a median of say $425 billion.

Krasting is making the claim that a variable that can move total accrued interest dollar totals by $5 or 6 billion per year critically explains a projected change that would have total income move by $125 billion per year. That just doesn't make any sense.

Interest is indeed a key variable in Social Security finance (though at least one Bear would dispute whether that makes it a critical variable). But what the simple arithmetic above shows changes in the interest RATE are not critical, instead they are quite literally marginal moving total Social Security financials on the order of +/- 1% per year.

Personally I have used 5% as a nominal interest rate in the past, largely because that is quite close to the average rate during the 1995 to 2005 period in which most of the Social Security debate took form (as shown in the following table
http://www.ssa.gov/OACT/TR/2009/V_economic.html#205214). And since that nominal rate came in at 4.8% in 2006 and 4.7% in 2007 felt pretty comfortable continuing to do so. If someone wants to insist on using something closer to 4.5% then fine. Because within the broader context of Social Security a 0.5% change in interest rate over a four year period just doesn't move the macro numbers in any important way. Interest is important in the medium term, interest rates are important in the long term, but short term changes in those rates are simply not important at all.

The Angry Bears are often stubborn but rarely thick-headed when it comes to simple multiplication and addition. Of the six columns in the mini-table above the interesting ones are columns five and six and for those calculations the variations in column three literally effect numbers around the margin. They just are not a central component for calculating short term TF balances.

I have a good idea why Krasting thinks they HAVE to be critical, because tiny variations in interest rates are indeed critical in his particular area of finance. But Social Security is not an investment fund, it works on an entirely different principle. It intersects the investment world without actually being part of it, something I suggest Mr. Krasting is himself too thick headed to quite understand.

Henry Giroux says of Howard Zinn:

Howard was one of the few intellectuals I have met who took education seriously. He embraced it as both necessary for creating an informed citizenry and because he rightly felt it was crucial to the very nature of politics and human dignity. He was a deeply committed scholar and intellectual for whom the line between politics and life, teaching and civic commitment collapsed into each other.

Howard never allowed himself to be seduced either by threats, the seductions of fame or the need to tone down his position for the standard bearers of the new illiteracy that now populates the mainstream media. As an intellectual for the public, he was a model of dignity, engagement and civic commitment. He believed that addressing human suffering and social issues mattered, and he never flinched from that belief. His commitment to justice and the voices of those expunged from the official narratives of power are evident in such works as his monumental and best-known book, "A People's History of the United States," but it was also evident in many of his other works, talks, interviews and the wide scope of public interventions that marked his long and productive life. Howard provided a model of what it meant to be an engaged scholar, who was deeply committed to sustaining public values and a civic life in ways that linked theory, history and politics to the everyday needs and language that informed everyday life. He never hid behind a firewall of jargon, refused to substitute irony for civic courage and disdained the assumption that working-class and oppressed people were incapable of governing themselves.
Unlike so many public relations intellectuals today, I never heard him interview himself while talking to others. Everything he talked about often pointed to larger social issues, and all the while, he completely rejected any vestige of political and moral purity. His lack of rigidity coupled with his warmness and humor often threw people off, especially those on the left and right who seem to pride themselves on their often zombie-like stoicism. But, then again, Howard was not a child of privilege. He had a working-class sensibility, though hardly romanticized, and sympathy for the less privileged in society along with those whose voices had been kept out of the official narratives as well as a deeply felt commitment to solidarity, justice, dialogue and hope. And it was precisely this great sense of dignity and generosity in his politics and life that often moved people who shared his company privately or publicly. A few days before his death, he sent me an email commenting on something I had written for Truthout about zombie politics. (It astonishes me that this will have been the last correspondence. Even at my age, the encouragement and support of this man, this towering figure in my life, meant such a great deal.) His response captures something so enduring and moving about his spirit. He wrote:

"Henry, we are in a situation where mild rebuke, even critiques we consider 'radical' are not sufficient. (Frederick Douglass' speech on the Fourth of July in 1852, thunderously angry, comes close to what is needed). Raising the temperature of our language, our indignation, is what you are doing and what is needed. I recall that Sartre, close to death, was asked: 'What do you regret?' He answered: 'I wasn't radical enough.'"

More below the fold...

Martin Ford offers further thoughts on where we are headed.

An Alternate Theory about the Root Cause of the Current Economic Crisis

Bernanke's speech in Atlanta a month ago focused a lot of attention on the debate about the forces that led to the current crisis. Was it primarily Greenspan's low interest rates, or as Bernanke suggested, was a lack of regulation and oversight a more important issue? Nearly everyone seems to agree that the crisis was brought on by some combination of these factors. In other words, the current situation is viewed almost entirely in financial terms.

While there is no doubt that the financial meltdown was the proximate cause of the current recession, is it possible that a more fundamental cause exists? What if the housing bubble and the financial crisis were merely symptoms of something even bigger---perhaps of a structural shift occurring in the broader economy?

I've argued here previously that advancing automation technology is likely to result in structural unemployment in the future. In fact, I think this is a trend that is already well underway. The last decade has been characterized by substantial advances in information technology and fairly dramatic increases in productivity. Average workers have seen stagnant or even decreasing real wages, while health care costs have been exploding. Until the onset of the current crisis, official unemployment numbers were low, but those statistics fail to capture underemployment, such as workers who are forced to work multiple part time jobs with no access to benefits.

More below the fold...

Is it really Good News that changes in Real Private Inventories were 3.4% of that 5.7% Q-on-Q GDP in Q4? (h/t Alea's Twitter feed)

Most reasonable assumption: firms overproduced, relative to actual buying, in anticipation of the Xmas season.

Maybe more later.

John Scalzi makes a clear case that Amazon's determination to subsidize the Kindle is coming at the expense of Authors's and their Publishers:

This asinine jockeying over electronic book prices has very little to do with what’s actually good or useful for anyone other than the manufacturer of a piece of hardware… who also happens to be a book retailer.

Since this model is the same one as is used by cell phone providers, we come back to Stan Collender's question of two weeks ago:

That begs an interesting question about my existing phone and contract: Since my existing phone was paid for over the past 24 months, why doesn't my current Verizon bill fall by the monthly amount that was priced in to my payment 2 years ago? Isn't that a rip-off as well?

Yes. It's called monopoly profits.

UPDATE: Charlie Stross correctly piles on:

Amazon.com can kiss my ass. Shorter version: they're engaging in monopolistic practices that damn well ought to be illegal, in an attempt to use their near-monopoly position to fuck over authors and bring publishers to heel.

Which is more concise than what I said below. That's why he gets, and earns, the Big Bucks (well, Quintessential Quid, in his case).

UPDATE 2: Via Felix's Twitter feed, Marion Maneker at The Big Money corrects Henry Blodgett:

Books are, within reasonable limits, demand-inelastic. Just as movies are. Demand comes from the quality or popularity of the book, not the price. We know this because the great transformation of the book business over the last two decades has been to shift readers from mass-market paperbacks to hardcovers sold at discounted but still higher prices. Readers have been paying more for James Patterson and Dan Brown, not waiting for the cheaper mass market paperbacks.

Consumers trade money for time. And publishers should have the freedom to set their prices at what the market will bear, not what suits Amazon's--or Apple's--needs.

The pricing pressure in books comes not from customer demand but from retailers fighting over market share. That's what Barnes & Noble (BKS) did to independent bookstores and Costco did to Barnes & Noble. Now Amazon's doing it Costco with the Kindle.

Via Patrick, of course.

Robert Waldmann

The Congressional Budget Office is different from you and me. Their forecasts are authoratative -- literally. The rules of the House and the Senate refer to CBO estimates and forecasts not some debatable underlying reality.

Hence this slightly edited dialog

Sen. Max Baucus, Chairman: [skip]
We’re not in the old situation where Sen. Grassley once said whatever CBO says is God, you’re God. My judgement, you’re not God.
[skip]
Dr. Elmendorf: Senator, may I respectfully disagree ...

More below the fold...

The Washington Post carries the full transcript. Worth the read and even watching.

Update: Here is the C-SPAN coverage.(h/t MG) This is very good.
President Speaks at GOP Retreat

President Obama - Full Q&A with Republican Members of Congress

Robert Waldmann is back

I didn't mean to stop blogging for so long. I apologize. I also apologize for this post which is one of my occasional screeds against welfare reform. Oddly there seems to be almost a consensus that welfare reform was a good policy. I think this is based entirely on the fact that, by pure coincidence, it was implemented during the late 90s boom.

More below the fold...

by Maggie Mahar
crossposted with Health Beat

Who Voted for Brown in Massachusetts — and Why?

The media continues to report that the Massachusetts vote was a referendum on health care reform — and that this has the White House worried. If so, the White House is wrong. Take a look at polling conducted by Hart Research Associates for the AFL-CIO on the evening of the election, revealing who voted for Brown –and what those voters said. Then consider separate polling done by the Washington Post together with the Kaiser Family Foundation and Harvard University. Read both reports, and you’ll have a very hard time believing that Scott Brown’s election represents a mandate on healthcare legislation.

Finally, factor in the eye-opening Kaiser Family Foundation January tracking poll, and what it reveals about what voters do and don’t understand about health reform legislation. If most voters have only a hazy idea of what is in the legislation, you really can’t say that they voted against the Senate bill.

Who Voted for Brown ?

Democrats who are disillusioned that Obama has not pushed further on health care reform? Upper-middle-class voters who believe that Obama doing too much, going too far, and may well hike their taxes? No, the surprise is that Brown was elected by Massachusetts’ working class, and they were not focused on health care legislation.

Non-college men voted for Brown by a 27-point margin (59% to 32%), and non-college women also voted for Brown by 13 points (while college women went for Coakley by 13 points).
 
If you look at all college graduates, Coakley won this election by five points among college graduates, but lost the non-college vote by a 20-point margin. This represents a huge swing among non-college voters since 2008, when Obama won by 21 points, for a net swing of 41 points.
 

More below the fold...

by Linda Beale


Job creation--tax cuts are not the right tool

Not unexpectedly, the "think tanks" that claim to be nonpartisan but that conduct research sponsored by corporate interests and support "capital market" solutions to economic problems are at it again pushing more tax breaks for the huge corporations that just gained more legislative clout with the Supreme Court's foolish decision in Citizens United. See, for instance, the Milken Institute's, Jobs for America: Investments and policies for economic growth and competitiveness (Jan. 2010) (sponsored by one of the biggest of the "bad guys" pushing corporate tax cuts all the time, the National Association of Manufacturers).

The Milken report wants the government to do the following:

reduce the corporate tax rate (The section 199 manufacturing credit--which amounts to a significant rate reduction for most US companies--has already been passed by Congress under the same argument that reducing taxes will result in job creation. but there not much in the way of new jobs to show for the tax reduction; this report claims that reducing the rate to 22% versus the current statutory rate of 35% would cause a .3 percentage point growth in GDP from 2011 to 2013, with an increase in employment of 2.13 million. These sorts of claims are made for all kinds of tax cuts, but seldom pan out in practice.)
increase the R&D credit (we've already done that--the R&D deduction was made a credit and it didn't have a significant impact on job creation. It's a stretch to think it would, since the research is either going to be done anyway or just tweaking around the edges in ways that doesn't require significant expansion of research facilities. Most of the basic research done at universities is much more important to the core of job development and innovation expansion.

More below the fold...

by Linda Beale

Obama's State of the Union Tax Proposals

President Obama delivered his first State of the Union speech tonight, assuring us that we could jump-start job creation through tax cuts for businesses and gain needed relief for families through tax cuts for middle-class households.

What Obama offers is, as usual, a mixed bag--too much of the same old tax cuts favored by the right for decades , which have not been proven to do much to create new jobs, but some good programs that merit passage.

I've got strong doubts that an accelerated depreciation provision amounting to a 10% tax cut for businesses and costing $38 billion can be considered an effective jobs bill, even when it is generously offered to small businesses. Similarly, more preferences for capital gains (exempting them from taxes when the money is invested in small businesses) goes the wrong way--without much assurance of real job creation.

The proposal for a tax credit for new workers is more promising--although I'd prefer to see stimulus and not tax cuts, this credit is at least directly related to new employment, unlike the other provisions that simply reduce the tax costs for existing businesses without any guarantee of new jobs.

Adjusting the way the federal government supports loans for college students is a long-needed reform. The current program represents a subsidy for banks that has grown through the years to provide fees to banks even though universities do most of the same administration work that they did under the direct loan programs. Banks have finangled the subsidy (as they have credit card fees, the TARP-related guarantees) into more money for themselves and less for students. It's time to eliminate the giveaway and provide the money to students instead of to the banks. Obama is pushing the right policy here.

More below the fold...

Go read:

1. If you're only reading one post, see FT Alphaville, which incorporates and expands upon...
   
2. Tom Adams and Yves Smith's posting at Naked Capitalism discussing the document and the reality of the situtation.
   
3. the document itself is available from either The Long Room or the Huffington Post.

If the FRB of NY really believed that their only option was payment in full and not telling anyone about it, then Tim Geithner's leadership abilities make Ben Bernanke look like Dwight Eisenhower.

BarryO is, apparently, finally trying to make clear the distinctions between TARP, TLGF, TALF, CPLF, Maiden Lane, Maiden Lane II, Maiden Lane III, etc. and the actual Stimulus Package. A good place to start: One was a huge giveaway that has led to overreported profits and high taxpayer expenses. The other was passed by Congress.

by Bruce Webb

Geekery below the fold.

More below the fold...

by Rebecca Wilder

At least that is the way I read today’s monetary policy release. According to the statement released today: “The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0.1 percent.” However, the statement curiously omits the following from item 6. of the previous release:

The Policy Board has concluded that it is appropriate to further disseminate the Bank's thinking on price stability, by stating more clearly that the Policy Board does not tolerate a year-on-year rate of change in the CPI equal to or below 0 percent and that the midpoints of most Policy Board members' "understanding" are around 1 percent.

I don’t know why the Bank of Japan would rescind their commitment to 0 percent, when the median inflation projection is negative through 2011, although improved from its latest forecast in June 2009 (at the end of the January 2010 policy statement). That’s bad – rising real debt, further hits to consumer spending, the works. Admittedly, there’s debate over the actual benefit of quantitative easing and zero-interest rate policy (see this paper at the FRSB).

But another policy-relevant bit of news hit the wire today: S&P put Japan’s credit rating on negative watch. From the NY Times:

“The outlook change reflects our view that the Japanese government’s diminishing economic policy flexibility may lead to a downgrade unless measures can be taken to stem fiscal and deflationary pressures,” S.&P. said. “The policies of the new Democratic Party of Japan government point to a slower pace of fiscal consolidation than we had previously expected.” Prime Minister Yukio Hatoyama has some lofty spending plans in its budget, funded by an expected 44.3 tn yen bond issuance.

Diminishing policy flexibility? Given the central bank’s propensity to move away from the ZIRP, and the government debt running stock at 183% of GDP (and rising), I’d say that diminishing policy flexibility is a euphemism.

Notice how Japan's government debt rose while the nonfinancial sector's obligations fell - that's the deleveraging story.

Japan is not “insolvent”, at least that is what the external debt metrics say. But the only real policy flexibility is held by the central bank. And the Bank of Japan, ostensibly at least, doesn’t seem to be providing adequate liquidity.

If left unchecked, this could happen to the U.S.: policy mistakes. Raising taxes and hiking rates too early can turn into persistent economic problems.

Rebecca Wilder

by Daniel J Becker (DOLB for the rest of you)

UPDATED BELOW.
Well, I thought being tonight is the big night for the President I would give my version of the SOU. This is an update on the flower shop. For any new readers, these are real numbers from an honest to goodness small business.

As you can see from the chart below, or maybe not, I don't need a loan. I don't need a tax break. I could use a real national health plan as the medical for this year again, including premiums hit $15K (16.5 and 17.7 prior 2 years). I have a high deductible plan that increased from $6471 in '06 to $7195 in 2009, 11% up.

No, even if you did the cash for clunkers again, I don't have the extra cash flow to take a loan. Though the delivery van has 235K miles on it. It's a 2002 Caravan.

All my loans are fixed, so I'm not worried about deficit fueled inflation as it relates to my monthly payments. My property, even with the 15% loss in the last 2 years based on tax evals is still 1.69 times more than my mortgages and I only have 15 or less years to go.

We're working with less people at the shop and have layed off our manager/worker (he's fast, a good designer and can carry the load when we're not there) to 1/2 time. We're watching every penny as to inventory, utilities, insurances (I'm getting money back on the WC because payroll is down).

What I'm worried about is this:

Keep in mind, that we were considered a larger than normal shop. If we're doing this bad, imagine how the wholesalers and everyone else down line are doing. That's the real trickle down folks!

There is only one thing that will fix it: CUSTOMERS!

It's not that people are not trying to spend, it's that they really have run out of money. Note that the credit card sales continued to rise for a year after the account and cash sales started to decline.

The people tried to spend. Now they can't.

So, let me be clear to the Congress and the President: I NEED CUSTOMERS...WITH MONEY!

Update:  A commentor asked for some more data. 
Ins, Maintenance, Rent, Utilities, and Property/inventory taxes are 13% of gross. Payroll is 25% Payroll is down 14%, but gross is down 16%. We can cut payroll more, but the issue becomes my sweety having some down time. (please no lectures). Payroll was 25% of gross last year. 


Supplies (what we sell) were 48% of last years gross, this year 47%.

UPDATE: datacharmer at Bluematter thinks visually.

Bruce, yesterday:

Unless you have had the experience of using an advanced smartphone it is hard to explain how transforming it is to have the Internet in your pocket, if I have a question about anything it is mostly as close as my left pocket. But like the iPhone the Tablet is a lot more than a combined phone/usable web browser, it is a host for Apps, millions of them. And it is the Apps that are the game changer. Because the possibilities are quite literally endless.

Sarah, today:

iPad?! Really?! REALLY? Gosh, I’m sorry I no longer have a Nook now. They would have been great partners.

The iPad, now available in Light, Maxi, and Super (8Gb, 16Gb 64Gb)? As Tessa Dare said, are there NO women at Apple who could have given them the heads up (HA) that this is a BAD NAME?...

This isn’t “standing on the shoulders of Kindle.” It’s giving the Kindle half a nod from across a ballroom full of other people you’d rather talk to....

What about onboard social networks, email functionality, or notation from inside iBooks? Wouldn’t that be a key feature to intregrate with the endless onward wanking about Pages? For example: writing a report… and easily with a single gesture including both the source material and the citation using iBooks and Pages?

I realize that reading isn’t the utmost important thing for everyone else, but come on now! Productivity in all forms includes printed material. The lack of interaction demonstrated in iBook makes me hope for other reading alternatives on the iPad (DEAR GOD THE NAME). Color me underwhelmed in a big, big way.

UPDATE II: Brad piles on:

But ffs, it can't handle flash, and it doesn't have any way to access media not on its own HD, no disc drive, no usb port in. That's fine for a phone but not for a potential media player. Apple has finally made something I have no interest in owning.

CBO:

At 9.2 percent of gross domestic product (GDP), that deficit would be slightly smaller than the shortfall of 9.9 percent of GDP ($1.4 trillion) posted in 2009. [emphasis mine]

A 7.1% decline in real GDP terms isn't just "slightly smaller"; it's a real improvement that is greater than any (mythical or not) "spending freeze" would produce.

by ilsm

The US deficit, and its related total debt, are awesome worries.

Military outlays need to be reviewed, by qualified analysts who have not bought into the climate of continuing to clothe the emperor in nothing. Those outlays that are not "worth the expenditure of scarce taxpayer resources" in the military program need to be "cut".

Naval Open Source Intelligence reports:

"Deputy Defense Secretary William Lynn on Thursday [21 Jan 10] underscored the Pentagon's commitment to Lockheed Martin Corp's $300 billion F-35 fighter jet, saying the U.S. government and its allies still planned to buy 3,000 of the new fighters over time.

"We are heavily investing in the F-35. A successful Joint Strike Fighter is at the heart of our continued air superiority," Lynn told industry and military officials at a conference hosted by Tufts University and the Institute for Foreign Policy Analysis."

The pentagon's commitment, like a drunken sailor, is toward the $300B for lockheed and the $600B in sustainment costs that the fighter jet represents. The relationship between air superiority and the common defense is not the issue. What does an airplane which cannot be built on time, pass its test and evaluation, and cannot be kept flying have to contribute to "air superioriity"?

"Heavily invested" means we need to throw good money after bad.

What is important about "air superiority"?

The last airplane "at the heart of air superiority" with these issues was the F-22 (Lockheed, too). For the original price of 800 F-22 the Air Force received 183. For huge maintenace costs the "mission availability" is running 62%. Mission availability is tracked at the flying units. The total availability of F-22 airframes is half are broke at any time, because many airplanes are off the units property books. These are really hard broke and the ones being refitted to fix scrap and rework problems that were found in test but since there is no relation between air superiority and these fighters they can buy the airplane and try to fix them after they are paid for.

If the F-35 were being purchased in a free market in a commercial contract the thing would have been terminated for breach and the judge would have awarded the buyer all their money back.

We must establish rules, which used to exist, that all contracts by the DoD be reveiwed for the value to the taxpayer, not for the money going off to Lockheed or Boeing or Northrop Grumman.

What sense to keep companies in business who cannot develop the F-35?

Air superiority is endangered by bad companies, and better served by killing the F-35.

Big military contracts are all suffering from poor performance from the big vendors.

The F-35 is the most recent and the one where the adminsitration needs to stand tall.
______________________________
by ilsm

Bruce Bartlett:

The Fed has talked openly about new procedures to soak up the bank reserves it has created even as those reserves remain largely idle and unlent.

You don't get inflation if there is no money multiplier in play. So long as the banks are just holding the cash, worries about monetary policy leading to inflation are at best a shibboleth.

(via Brad DeLong)

by cactus
How To Bail Out the Economy - A Less Wrong Way Posted 11/27/2008.

Regular readers know I've had post after post explaining why a bail-out would be a bad idea and would not work, dating to long before the bail-out began. I predicted that the end result would be the further enrichment of some of the very folks who brought us this mess and junior versions of the same folks who were too young to get in on the original crime spree, but otherwise, we'd have nothing to show for the trillions that would get spent.

The supposed "rationale" for this bail-out is to make sure that companies that are willing and able to produce goods and services that consumers wish to purchase are able to do so, and that in turn consumers are willing and able to purchase goods and services that companies want to bring to market. The story line is that this can be accomplished by giving money to the financial sector, that sector of the economy that for the past few years has specialized in selling squirrel meat as fillet mignon. Give those talented folks some money to make up the massive losses pulled off in the past years and they will happily loan money to producers and consumers, we are told.

Its becoming obvious even to the likes of Henry Paulson that no matter how much money gets paid to Goldman, Welfare, Queen & Sachs and Citi and Countrywide and the rest of 'em, the "financial system" of old is gone forever. Compensating buyers of squirrel meat is more than enough burden on the taxpayer, but it seems we're expected to make Goldman, Welfare, Queen & Sachs whole for paying the exorbitant salaries of folks like Henry Paulson in the past, and the current and future generations of Henry Paulson to boot. Clearly this is not only a very, very, indirect way to keep companies producing and consumers buying, its also adding a bunch of layers of unnecessary expenses.

So... if the goal is to stimulate production and/or consumption, why not cut out the unnecessary layers of exorbitant expense? I'm not sure I see the reason for bailing out car companies, but say that was the goal for some reason. In that case, the government could simply buy a $20K car for every single American, every single one, and spend less than the $7 trillion that's been committed so far. That's well over 30 times as many cars as GM made last year. Worldwide. You could bet the car companies would tool up for this, and it would employ a lot of people, and it would stimulate the economy. Additionally, we'd all have another car thrown in. Sure, it might be a GM vehicle, but its still something, which is more than the nothing we're gonna get from pumping it into the Goldman, Welfare, Queen & Sachs black hole. Heck, it doesn't have to be cars - the gubmint could simply commit to spending $20,000 on something, anything each of us picks. You could take your 20 G and spend it on a menu of American made options.

Preposterous, you say? Inflationary, you say? Jingoistic, you say? Sure, I say. Its a stupid idea and I don't like it all. But I think its a much better idea than the current bail-out approach, which I think is worse than taking (for now) $7 trillion and setting it on fire. Giving the money to the likes of Henry Paulson's former employer is simply rewarding bad behavior and sending the wrong message, not to mention preposterous, inflationary, and jingoistic.
___________________________________

Cactus of Jan. 2010 writes: "That was the old cactus of yesteryear. Today's new, improved, modern cactus realizes that his obsolete self made a mistake - all those trillions being printed weren't the creation of new money. They were merely replacing imaginary money created by the banks through derivative trading that nobody believed in any more."

The world would be a much better place if people had listened to Tom last August:

Now some elite opinion favors Ben Bernanke's reappointment, but politicians are irritated over Fed stonewalling of bailout oversight and others (e.g. Dean Baker) point out that Ben Bernanke who put the Fed throttles to the firewall to save the world is also the Ben Bernanke who carried over Greenspan policy until it was too late. [links in original]

Not a strong enough source for you? How about the Internet's Chief Bernanke Apologist? Brad DeLong last August:

I am surprised that he is being reappointed. I would have thought that the combination of people angry because he has given too much public money to the banks and people angry because he didn't stop the recession would together make him damaged and that Obama would want to bring in a fresh face--never mind that Bernanke had no way to try to lessen the recession save by policy steps that inevitably involve giving money to the banks.

Tom also dealt with that:

To which the obvious response is, duh, who says it has to be one or the other? A reality-based critique of the bailouts allows them to be both effective at saving the world and unconscionable screw-jobs that kept an array of bad actors from paying for their greed and incompetence. (The latter clearly feeds a lot of the underlying sentiment of the tea partiers, even if it's ultimately the greedy and incompetent who are marshalling it.) However, considering Team Obama's political tone-deafness, it'll be a pleasant but major surprise if they let Bernanke go back to Princeton for some R&R.

And DeLong himself (today) moves the goalpostsnotes where the problem is centered:

[Bernanke] is no longer the academic intellectual who advocates inflation targetting. He is, instead, the voice for the consensus of the Federal Open Market Committee–and a member of that committee who can, by his own internal arguments, move that consensus at the margin. So he is going to reflect that consensus....[A] Fed chair who doesn't reflect the consensus in public has less power to move the consensus in private. From my perspective, I don’t think that there’s anything wrong with Ben Bernanke’s (private, intellectual, academic) analysis of the current situation. What is wrong is that the FOMC consensus is wrong—and Bernanke’s public statements reflect that wrong consensus. So here I tend to blame Obama more than I blame Bernanke for the recent character of Bernanke’s public statements–for the fact that Fed policy and rhetoric right now is not more Gagnonesque, because Obama could have done things over the past year to move the FOMC consensus that he has not done. [emphases mine]

This is a true statement—but it is no less true now than it was in August, and Ben Bernanke has been the ostensible leader of the FRB since then—and, indeed, since 2.5 years before then, as the crisis was unfolding.

In the past four years, Bernanke has "led" the Federal Reserve. And even those who are not sympathetic to Steve Keen's interpretation of Bernanke's flaws (h/t Yves and Naked Capitalism, who printed it themselves as well) would have to agree that the sounds coming from the Fishers* and Hoenigs, not to mention Bernanke himself, are more reminiscent of Morgenthau than Volcker.

Which should have been the death knell for his renomination. To turn Brad DeLong's statement on its side: Ben Bernanke has been unable to lead and change the consensus of the Federal Reserve Board, even marginally, to be more in line with what Ben Bernanke, the skilled economist, knows would be a better policy.

Leaders lead. Ben Bernanke hasn't and doesn't.* For that alone, he should be replaced, and Janet Yellen nominated to replace him.


*This one was reprinted, without several of the cronyism acknowledgements, in the WSJ comics section today. I prefer the original.

**The similarity to the Canadian Liberal Party's selection of Celine Stephane Dion as their leader should not be overlooked. That they had the good sense to replace him after one term is a sign of sanity the Obama Administration would have been wise to consider. (That they compounded the mistake by replacing him with a pro-torture American conservative is a mistake from which one would expect the Obama Administration could and presumably will learn.)

by Bruce Webb

I'm serious. But out of mercy towards those who want to reach for sharp objects every time they see a Mac/PC ad, whether that be to hurt themselves or others, I'll take this below the fold. Because you don't HAVE to slow down to see that car crash.

More below the fold...

Via David Wessel's Twitter feed, the WSJ publishes a letter:

Ben Bernanke is a good person, a fine academic and a well-respected professor. But those traits have no bearing on whether he should be reconfirmed as Federal Reserve chairman....

Applying accountability principles, there's no way Chairman Bernanke should be reconfirmed by the Senate, let alone reappointed by the Obama administration....He's been at the helm from the very beginning of this Great Recession. That alone warrants a "no" vote on reconfirmation.

At this point, I feel obligated to note that if you're going to declare this The Great Recession—i.e., if you are assuming the chance of having the third Depression is over*—then Bernanke deserves credit, not blame. (Even those of us who do not assume we're out of the woods admit we aren't quite sunk yet, though 17.3% unemployment is problematic at best.)

In addition, the Fed's behavior over the past 15 months has put America on a very dangerous path. The Fed has increased the monetary base (high-powered or wholesale money) by the largest amount ever, from colonial times to the present, times 10. Without an exit strategy, inflation is a virtual certainty over the coming decade, while an effective exit strategy virtually assures a further weakening of the U.S. economy. [emphasis mine]

This is Gospel for the WSJ editorial page, and a logical confusion of the first order. Any "exit strategy" assumes that the conflict is primarily over, so any exit strategy would, by definition, not weaken—let alone "further weaken," which suggests that the writer's faith that "the Great Recession" is accurate is wavering—the economy. (We can, and will, discuss where All That Money Has Gone; suffice to say, it's not exactly producing a Multiplier Effect.)

But the writer saves the best for last.

And lastly, on a more personal note, [Bernanke] doesn't have the gravitas of a Paul Volcker, Alan Greenspan or William McChesney Martin. In this day and age of crisis management, gravitas is essential. Almost anyone would be better than Mr. Bernanke.

Well, at least Arthur Burns is conspicuously excluded. It's nice to know that Arthur Laffer believes in gravitas, while his best-known disciple believes "deficits don't matter."

*Yes, I could 1873-77 as a Depression in the United States. Looking at the evidence, it would be difficult not to.

by cactus

Is China a Bubble?

A friend of mine who does just about all of his business providing a very specific service to selling to companies who do business with China. (And yes, that is as specific as I am willing to be, except to say that right at this moment, the service he provides is extremely tailored toward China.) My friend tells me he believes "China is a bubble" which very much resembles the dot com bubble and the housing bubble. According to him, this is the resemblance - there is no due diligence to speak of on any deal involving China, not from the Chinese and not from the Westerners dealing with them, and all the deals are being done with "other people's money" and heavily leveraged.

In most instances, on the Chinese side, everyone is in some way connected - that is to say, they are connected to one of a few key organizations, or more likely, key people in the government. The more such people involved in the deal, the more people there are who are used to big payoffs and have the juice to make sure they will get paid. The Chinese government ends up providing its "blessing" to all sorts of crazy operations based on the simple principle that once enough people who have to get paid are involved,a project cannot be stopped. And its not merely that connected people have leverage; in China there is a feeling that this is China's time, so its not like something can go wrong. Throw in the unlimited pot of money trying to do business in China, and you end up with big projects - half a billion dollars and up - happening simply because they have to happen for the sake of the parties that put them together.

The Westerners also have the sense that it is China's time. So if you ask them about a particular deal they're doing and why they're doing it, if you scratch hard enough, it comes to because "its China." That includes the very biggest private equity funds in the world.

The end result is that a lot of things are happening that make no financial sense and wouldn't pass the laugh test if the magic word "China" wasn't there. Deep down everyone knows it, but nobody cares.

So is my friend planning to get out? Heck no. He simply makes sure on every contract that he gets paid early. Everyone he's dealing with is very happy to comply since the expectation is that China is going to grow forever. Being shortsighted as far as everyone else is concerned has had some big benefits, and so far he's done very, very well. Of course, if he's wrong, he'll lose out on the gravy that comes in the back end. If he's right, he'll move on to servicing the operators of the next bubble when this one bursts, no worse for the wear.

I don't know enough about doing business with China to say much other than I trust my friend's judgement, and if he tells me he's seeing no due diligence on multi-billion dollar projects, it means there are multi-billion dollar projects with no due diligence happening. I do that the demographics are going to get very interesting in China over the coming decade. With my limited knowledge, I'm leaning toward agreeing with my friend. So waddaya think? Is China a bubble?
_______________________
by cactus

by Tom Bozzo

Update: See Brad DeLong. The exercise may even have been carefully conceived to do little harm, or perhaps little good if you're an anti-deficit crazy. But even if this is not as bad on the substance as it could be, the engagement of the administration in the production of Potemkin policy initiatives is not reassuring.

See also: Steve Kyle at Americablog.

--------------------------

Jackie Calmes' story on the Obama administration's apparently forthcoming appearance-of-fiscal-rectitude initiative leaves me solidly in agreement with Ian Welsh. Calmes:

President Obama will call for a three-year freeze in spending on many domestic programs, and for increases no greater than inflation after that, an initiative intended to signal his seriousness about cutting the budget deficit, administration officials said Monday...

More below the fold...

by Tom Bozzo

Shorter [1] Jim Hamilton (via [2] Brad DeLong):

Ben Bernanke's record leaves nine links' worth of things to be desired, but considering the zombie ex-Fed Chair alternatives (plus Brett Fav-Paul Volcker), he deserves to be confirmed for a second term.

I am almost not kidding. Here's what Hamilton actually asks Bernanke's critics:

I wonder which of [sic] previous Fed Chairs critics think would be better for the job than Bernanke. Surely you don't think we'd have been better off bringing Alan Greenspan back? [touché] G. William Miller [deceased] fumbled badly with much simpler problems. Arthur Burns [also deceased] is a case study in how not to conduct monetary policy.

Would DeLong accept this sort of argument from a Berkeley undergrad seeking a decent grade? The question of far greater interest is why critics should have preferred Bernanke to prospective candidates who might have the combination of background and metabolic function to carry out the job — say, Janet Yellen or Alan Blinder — and might also do better than Bernanke in a pop quiz on the Fed's dual mission.

Nor does Hamilton impress in reviewing the (admittedly odd) politics of Bernanke's reappointment:

I shake my head when I look at the list of senators who say they'll vote "no." How could there possibly be an alternative whom Barbara Boxer (D-CA) and Jim DeMint (R-SC) would both prefer to Bernanke?

Obviously an alternative candidate need not be preferred by both Boxer and DeMint. An SDJ commenter rightly notes that DeMint's opposition is in the nature of a political stunt, that is rejecting the rightmost potential nominee for Fed Chair to try to help along the development of the Obama political suicide machine. (They may not need the help.) As little as they act like it, the Democrats hold a sizeable majority of Senate seats, and a reasonable choice of a Democratic monetary policy technocrat ought to have little trouble lining up at least 59 votes. As for the sixtieth, I'd have liked to see the Republican Senate caucus hold ranks in preventing a Yellen nomination from receiving an up-or-down vote.

[1] ‘Shorter’ concept created by Daniel Davies and perfected by Elton Beard. We may not be aware of all Internet traditions™ but try to keep abreast of the popular ones.

[2] Econbrowser's feed has a high-attention place in my feed reader, and it should be in yours; this piece, though, gets emphasis largely via DeLong's apologist-in-chief blogging.

In the Wake of the Mass Massacre—Bipartisan Reform or the Senate Bill?
by Maggie Mahar
Crossposted with Health Beat Blog

Let’s begin by addressing some of the myths:

First, the Massachusetts vote was not a “Massacre”: Brown won 51 percent of the vote.

Secondly, this was not a referendum which shows that the public opposes health care reform. Among Massachusetts’ voters who said health care was their top issue, 53 percent voted for Democrat Martha Coakley reports JoAnne Kenen, over at the “The MA Message? Not So Fast” New America Foundation Kenen understands politics better than most health care commentators: for more than a decade, she covered Congress for Reuters. Ignoring what the pundits are saying about “the Massachusetts message”, Kenen looked at the data:  “Jill Lawrence at Politics Daily crunched some Massachusetts numbers and discovered that 'a solid majority—56 percent—said health care was their top issue.' And 53 percent of them voted for  . . . Coakley." http://www.politicsdaily.com/2010/01/20/poll-majority-of-massachusetts-health-voters-wanted-to-save-ref/ “Majority of MA Healthcare Voters wanted to Save Reform” Politics Daily

Third, health care reform is not dead.  Democrats are not going to walk away from the issue. If they did, they would give the conservatives everything they need to re-take Washington. “President Obama is incapable of governing,” the opposition would argue. “He is another Jimmy Carter.”  Obama would be left a dead man walking. Democrats who had voted for reform would then have to try to explain to voters that either a) they were right but just weren’t able to pass legislation that so many Americans sorely need –even though they had a majority or b) it wasn’t that important after all. Yes, your insurance premiums are likely to rise by 25%--or more—over the next four years . . . and if you lose your job, you’re in big trouble.  But, well . . . we had other priorities. .

Fourth, I very much doubt that Republicans will step up to help forge a bipartisan bill.

More below the fold...

It's bad enough to violate Brad DeLong's first rule (which, I hasten to rationalize, was posted when DeLong himself was disagreeing).

It's worse when the opposition to Krugman is coming from...the WSJ editorial page. (Or, as Barry Ritholtz correctly describes it, "the comics section." Just less funny, and more likely to make the two-drink minimum unnecessary.)

This seems to be a direct violation of reality.

But compare the Krugman "endorsement":

But — and here comes my defense of a Bernanke reappointment — any good alternative for the position would face a bruising fight in the Senate. And choosing a bad alternative would have truly dire consequences for the economy.

Furthermore, policy decisions at the Fed are made by committee vote. And while Mr. Bernanke seems insufficiently concerned about unemployment and too concerned about inflation, many of his colleagues are worse. Replacing him with someone less established, with less ability to sway the internal discussion, could end up strengthening the hands of the inflation hawks and doing even more damage to job creation.

with the WSJ:

No matter how it plays out, Ben Bernanke's bruising confirmation battle has damaged the U.S. Federal Reserve's clout and perceived independence.

Mr. Bernanke is more than the Fed's chief decision maker. Fed officials see him as their brand, a smart, honest and stoic voice best able to defend decisions of the past two years to a skeptical Congress and public. Even if the Senate backs Mr. Bernanke this week, he won't speak with the same authority, and the Fed will have a harder time casting itself as above partisan politics.

Fortunately for the Fed, the hard call about when to raise interest rates doesn't need to be made now. Fortunately for Mr. Bernanke, his support inside the Obama administration, and even more so inside the Fed, is solid. But the longer the battle drags on, the more it could interfere with the Fed's ability to communicate convincingly. And no matter what, the Fed will have less sway as Congress debates whether to rein in its powers.

Oh, wait. That's a news article. The editorial page throws a few random facts:

Mr. Bernanke continues to deny any Fed monetary culpability for creating the mania. Shortly after the New Year, even with his nomination pending, Mr. Bernanke issued an apologia that was striking for its willingness to play to the Congressional theory of the meltdown by blaming bankers and lax regulators. [note: lax regulators includes the Fed itself.]

with semi-credible analysis:

Others argue that any alternative to Mr. Bernanke could be worse, and that is certainly a risk. Mr. Geithner and White House economic adviser Larry Summers couldn't be confirmed, even in a Democratic Senate. In the short term if Mr. Bernanke is defeated, Vice Chairman Donald Kohn might run the Open Market Committee, and he shares Mr. Bernanke's contempt for Fed critics. President Obama could also select San Francisco Fed President Janet Yellen, but she thinks the Fed should be even easier. [Oh, the evil of Ms. Yellen, who immediately replaces Laura D'Andrea Tyson as my pick to run the Fed.]

with sheer insanity:

We agree that the Fed needed to ease money precipitously when the financial markets suffered their heart attack in late 2008, and we praised Mr. Bernanke for that at the time and since. But the issue for the next four years is whether the Fed can extricate itself from its historic interventions before it creates a new round of boom and bust. We already see signs that it has waited too long to move.

Yes, because—along with more obvious indicators—Durable Goods orders have been down two months in a row. Anyone betting January will be up? I fear they have used "real" tea leaves to make their tea.

So the WSJ came to the right conclusion for all the wrong reasons, while Krugman comes to the wrong conclusion for the right reasons.

How did we get here? in the next post.

by Divorced one like Bush


For this post I will formally introduce myself. I am Daniel J. Becker. It is only proper and just to do so. I am using Mr. Greenwalds discussion only as a platform to add my thoughts regarding the Citizens United decision.  Also this is a long read. So I'll give you up front the crib note version: The source of error and thus argument is that the arguing/arguments are starting in the middle of the line of reasoning and not at the beginning.

The "rule of law" means we faithfully apply it in ways that produce outcomes we like and outcomes we don't like.

The above is, I believe, the thrust of Mr. Greenwald's argument. It has always been his strength and the source of the pleasure I receive when I read his arguments. I do not disagree with his statement. I believe it is the same argument presented by Mr. Jonathan Turley on MSNBC and by the ACLU. Mr. Turley specifically states that the Constitution does not protect us from bad decisions.

Our predicament with this latest decision and the examples of Bush et al's “warrantless eavesdropping, torture, unilateral Presidential programs” which Mr. Greenwald presents is not found in the argument of whether we like or dislike the outcome. The argument however is addressing an issue I have had for years with the way law is practiced.

What is the proper means of using, applying, implementing a form of governance based on the ideology of “the rule of law”?

We need to step back further to see the source that can lead to a dire results upon implementing a ruling of properly applied law. One side is asking “how can you ignore the cliff?” The other is responding with “it's the law”. There might even be a third party arguing that both sides can be viewed as just differences of interpretation of the words used. Maybe this even comes down to a simple placing of a comma? 

More below the fold...

Arstechnica points us to NASA data.

I took a trip back to memory lane via the archives to the very first post from the Angry Bear on Feb. 28, 2003 that I know of. The look and style of Angry Bear has changed over time, as well as who writes and having an expanded list of subject matter. 2003 seems an eternity ago in internet time.

I had to chuckle at an early post by Angry Bear exuding excitement about being 'linked' by Atrios. The fun and newness of the format for many of us needs refreshing sometimes.

Yesterday, the release of key economic indicators in China produced headlines like this: China Targets Inflation as Economy Runs Hot. The table below lists the full release, including the consensus expectations (Bloomberg's survey) for each statistic. (Here is the link for the actual data release.)

As you can see, the survey undershot the actual results across many of the releases, including that for GDP and inflation (CPI). The surge in the CPI, 1.9% y/y in December versus 1.4% y/y expected, attracted a lot of attention. According to the Economist, Helen Qiao and Yu Song at Goldman Sachs points out that prices may be on an (increasingly) upward trajectory:

The recent rise in inflation was caused mainly by higher food prices as a result of severe winter weather in northern China. In many cities, fresh-vegetable prices have more than doubled in the past two months. But Helen Qiao and Yu Song at Goldman Sachs argue that it is not just food prices that risk pushing up inflation: the economy is starting to exceed its speed limit. If, as China bears contend, the economy had massive overcapacity, there would be little to worry about: excess supply would hold down prices. But bottlenecks are already appearing. Some provinces report electricity shortages, and stocks of coal are low. The labour market is also tightening, forcing firms to pay higher wages.

The final sentence is very important - a tight labor market will lead to higher wages (the data on wages is 4 months old, so I will not plot it out). This suggests, completely by inference on my part, that prices pressures will be the wage-price spiral type - this can quickly get out of hand.

More below the fold...

by Bruce Webb
(Update-something in this doesn't look quite right. The over all argument is right but something is amiss down in the post. Bonus points if you find it before I do.)
(Update 2-found it. I think, see strike out and addition below. But there are a lot of numbers in play here.)

Blogger/Reader BK: I know what the TF says and I know what the CBO says,and I think they are both wrong. We will top out the Fund at a much lower number $2.8 T and it will come much sooner than anticipated.

To see why this isn't so and actually just can't be we need to inspect the following table from the 2009 Report Table IV.A3.—Operations of the Combined OASI and DI Trust Funds, Calendar Years 2004-18. The second column from the right shows the Combined Trust Funds projected to go from $2.4 trillion in 2008 to $4.0 trillion in 2018. What would it take to freeze it at $2.8 trillion? Discussion below the fold.

More below the fold...

by Tom aka Rusty

The Trouble with Cost Containment

Long-term care facilities face multiple pressures thwarting cost containment attempts.

The nursing homes have three types of patients:

rehab: typically younger post orthopedic surgery or cardiac care, short stay
joint hospice patients: who are to be provided comfort care while dying
true long-term care residents: typically an 84 year-old with multiple chronic conditions, unable to live in a residence and who will likely die in the facility




Patients #1 and #2 are pretty clear cut as to costs and treatments. #3 is a problem.



The facility is in a vise created by regulators, physicians, families, residents and malpractice lawyers. Too much aggressive care is a waste of money and often violates patient wishes. But some family members want aggressive care.



Some family members hound physicians to provide more care, and the physicians may cave in. Nurses are often put in the middle of family battles (Mrs. Rustbelt once had a distraught daughter call 911 and had paramedics arrive to resuscitate a dead cancer patient, while family members screamed at each other in the hall).



Too little care is declared neglect by regulators and malpractice lawyers. And who wants a parent or grandparent to die? How much do you want to put someone through who is on the threshold of death?

The pressure on nurses is insane, partially accounting for high burnout and high turnover rates.

So what do harried nurses and physicians do? Transfer the patient to the hospital ER, for a stay that may last 2 hours to several days. The easiest course for a physician is to approve the transfer. This drives huge Medicare costs for little value. This drives Medicare administrators batty.

Some of the transfers make sense, rehydrating a flu patient who is nowhere near dying.

Other transfers create severe discomfort for the resident, with little to show for it.

How do we solve this?
______________________________-
Tom aka Rusty Rustbelt

by Rebecca Wilder

The term of Brazil's President, Luiz Inácio Lula da Silva, concludes this year. During President Lula's tenure, Brazil enjoyed stable monetary policy and strong economic growth. However, President Lula is likewise known for growing the size of Brazil's government, for example, by adding over 300k government jobs. This translates into a 4.8% increase in the government payroll when adjusted for working-age population growth.

This is a criticism of Lula's administration - growing the size of the government (here, as measured by its payroll), and stifling some prospects for long-run economic growth.

Accordingly, let's see how previous U.S. Presidents grew the U.S. government payroll: is there a party trend? The general idea is, that the Democratic Party seeks a larger role for government as a mechanism to increase economic welfare than does the Republican Party (generally). A priori, I expect to see more robust government payroll growth during Democratic administrations.

The chart illustrates the level change in the total government payroll by Presidency since 1953 (the data are not seasonally adjusted and reported here). There is no noticeable correlation between party and the government payroll, although LBJ and Clinton, Democrats, did grow government jobs by the widest margin, 2.6m and 2.3m, respectively.

More below the fold...

SCOTUS says corporations are jes folks like us? Good, then let's lay some justice on them. From a post over here, discussing "Housebreaking the Corporations:"

The core difficulty is simple enough to describe. Corporations, under the laws of the United States and most other nations, are legal persons; they have many, though not all, of the same rights that “natural persons” – that is, you and me – have under the law. Still, the most obvious difference between corporate persons and natural persons these days is that the corporate kind are noticeably more antisocial. They pursue their purposes – primarily, making money – with a single-mindedness and a lack of concern for consequences that, in natural persons, would be accurately labeled psychopathic; they’ve proven themselves consistently willing to lie, cheat, steal, and kill whenever the likely return on these acts outweighs the risk of punishment.

[...]

... we’ve actually got a tolerably effective way of responding to antisocial behavior; we just don’t apply it to corporate persons the way we do to natural persons.

A glance back into the history of law may help clarify the matter. I’m not sure how many people these days know that the earliest version of English common law, from which our American legal system descends, operated entirely on the basis of fines. The principle of wergild, as it was called, gave each person a cash value; if a murder took place, the murderer had to pay the family of the victim that cash value as wergild for the death.

[...]

From this perspective, the problem with corporate persons is simple enough: the only risk they run in breaking the law is that they have to pay wergild, and that doesn’t constrain antisocial behavior any more effectively now than it did in Anglo-Saxon times.

My more perceptive readers may be wondering at this point whether I’m seriously proposing that corporations should be thrown in jail or put to death. Yes, that’s what I’m proposing, with the adjustments needed to account for the differences between corporate persons and natural persons.

More below the fold...

by Divorced one like Bush

If you haven't heard, the SCOTUS just ruled 5/4 that corporations are now your brother and sister under the constitution. 

Hey brother, can you spare a dime?

To bad corporations didn't have to fight in the Revolution and actually bleed to get such rights.

More seriously, the court ruled that free speech is protected not based on the ability to bleed human genetic material.  An artificial entity is just as protected.  What happens now as artificial intelligence and robots become more capable.  All those programed rules to protect us from something going wrong can now be considered a violation of the electronic entities free speech.

(h/t Mudflats)

Humor:



This little video resonated with some of my thoughts on the MA Senate election and responses in the media. The little guy/gal is MA. Where the startle goes remains to be seen...

Today is Bank Regulation day with Paul Volcker and the White House. And Health Insurance reform day is coming soon. And Social Security shuffle the numbers day in Congress is now happening because 'that is where the money is'. I have not been able to find a trade policy day set for anytime soon.

by Linda Beale

Two "R"s in the news: Rachel Alexandra and Rudolf Elmer--Swiss banks, hedge funds? assist with tax evasion
Maybe the world is looking up. A filly has won the Eclipse Award for Horse of the Year, by a whopping 130 votes to second runner Zenyatta's 90 votes. I've always had a soft spot in my heart for horses, and especially for fillies. Comes from growing up visiting my country cousins in Tennessee, where my favorite part of the visit was getting to ride old Dan or some other horse.

And Rudolf Elmer is doing his bit, too, to add some cheer to the day. He's the banker who worked for Swiss bank Julius Baer until he was fired in 2002 and has spent time sense sharing with the world the nefarious deeds of some of the Swiss institutions who have helped clients evade billions in taxes through uses of offshore havens. Says Rudolf "Offshore tax evasion is the biggest theft among societies and neighbor states in this world." Swiss Banker Blows Whistle on Tax Evasion, New York Times, Jan 19, 2010

Elmer is flying to Germany where he is planning to blow the whistle even louder on Swiss banking assistance for tax evasion. The German authorities are "putting him up in a five-star hotel" but you can bet the U.S. authorities are eagerly probing his show and tell--apparently documents covering more than 1300 individuals and 100 trusts over five years that "detail the undisclosed role of American investment management companies in funneling American, European and South American clients who wished to avoid taxes to Julius Baer." Elmer's no saint, obviously, but the IRS strategy is described as "it takes a rogue to catch a thief" (echoes of television's crime dramas).

The hiding places for all those wealthy tax scoflaws who thought they could just slip their millions into the shadows may not be much good these days. Further, the possible complicity of hedge and private equity firms in assisting tax evasion should, if verified, be the final nail in the coffin of the privileged "carried interest" taxation of hedge and equity fund managers' compensation.

by Rebecca Wilder

How are the data presented? At an annual, quarterly, monthly, or weekly frequency? At the onset of the New Year, you will undoubtedly see many charts illustrating records broken in 2009 using annual measures. This is always fun (from a data junkie's point of view), but it only tells the reader where we were, on average in many cases, rather than where we are now! Quarterly data are the same story - often presented well after the culmination of the period.

Alternatively, monthly data are a little more telling but still lagged by at least one month. For example, the employment report is the first major economic release of the month, which sets the stage for many subsequent releases. However, by the release date, generally the first Friday of the month, the survey information is already one month old.

This leaves weekly, or even daily, data. High-frequency data can tell us "where we are now", but are subject to substantial volatility. Nevertheless, high-frequency data are quite informative at economic turning points. So where are we?

Here are three high-frequency indicators that show an improving labor market, as illustrated by initial claims and daily tax receipts. However, the money multipliers remain at historically low levels, signaling that consumer spending and credit growth continues to elude monetary policymakers.

More below the fold...

AARP and Social Security Matters sent these messages:

AARP:

As early as today, your senators will vote on whether to allow the future of Social Security and Medicare to be decided by a commission without a public debate.

Unless we can count on AARP supporters like you to flood their senators with calls right now – there's still a chance they will pass this dangerous amendment.

If they do, a special commission would then have fast-track power to propose drastic cuts to the programs that millions of seniors depend on to survive: Medicare, Medicaid, and Social Security.

Socialsecuritymatters.org sends this e-mail:

Subject: The Call-In Day is TODAY

Please share with your lists and grassroots! Thanks!
www.youtube.com/owlnational
www.socialsecuritymatters.org

"Say NO to the Fast-Track Commission"
National Call-In Day - January 19, 2010 - # 1.800.998.0180

More below the fold...

AFTER THE PARTY
by Dale Coberly

I wrote the following note to Bruce Krasting after our earlier exchange on Angry Bear. He sent the reply below, and agreed to have it be printed here with the disclaimer that it was not originally intended for publication. My reply to him is in comments, at his request.

COBERLY wrote:

I have to thank you for raising the subject of the bond market. It was something I didn't know about and will have to try to learn.
Not to be a bond trader... just not in the genes... but to anticipate where the other guys are coming from. They don't always say.
Heck, we had to beat it out of you.

BRUCE KRASTING:

I learned a fair bit in the process. I understand the scope of this better as a result.

I understand the attitude, "Don't touch SS. If there is problem, fix it outside of tinkering with SS."

I do think this is going to come up for discussion in the next year or so. The debate that we framed will be part of that. Tinkering with SS can potentially have beneficial impacts to the ratio of Public vs. Intergovernmental debt. This benefit could last 5-8 years depending on what is done. Right in the scope of the election cycle. So this makes the fiscal side of this a political issue. No Administration that was thinking straight would set a course that might lead to a blow up in the debtmarket.

The numbers are so large. Others will see the shift of this ratio as a negative as I do. There is just so much public sector borrowing that can be accomplished. There is a broad awareness of this by those who think 2-5 years out. I am sure that Larry Summers, Bernanke and others are looking at what is coming and looking for ways to stall or delay the negative impacts. (not just SS, across the board of the intergovernmental side)

So yes, some non SS issues (or side effects of SS) are going to become factors in evaluating this. Steve Goss would be remiss if he did not make this case privately. He understands SS's important role in the intergovernmental picture. It is his 'wild card'.

The best argument against this is yours. Fix the problem outside of SS. I have come to understand that this is intellectually correct. But I do not think that it will be the basis of the choices that I believe will be implemented over the next few years. What would you do if you were the Boss? Tinker with SS or increase income taxes? I know what you would do, but you are not the boss. The folks who run the show would do anything that they can do, short of raising income taxes.

Slowly moving back into everything, and so catching up with Mark Thoma's use of Paul Volcker as his latest line of Defense of Giving the Fed More Regulatory Power. (Amusing in itself, given Volcker's description of the Fed before he was Owned by the Obama Administration.)

I like Thoma (a lot more than he likes me) and his professional work is clean and clear. (Judging by his videos, he's also the second best college-level Econometrics teacher I've ever seen—and it's no crime to be behind Peter Loeb in that regard.)

But he's an Incurable Optimist, especially in his blogging. For instance:

If we ask tough questions and insist that the Fed take action in response to the problems that are uncovered, oversight can be improved without moving the authority outside of the Fed.

The English translation of that is: Better the Devil We Know Has Already Failed and that doesn't have—or appear to want—the Governance Skills to Do the Job Required.

by cactus

Taxes and Business Creation

When you cut taxes, it leads to the creation of new businesses. By cutting taxes, people keep more of their hard earned money which gives them the resources to start new businesses. The cut in taxes also encourages people to take more risk knowing the fruit of their efforts is not going to be seized by the government and used on homeless orphans or other loafers. And its not all about folks getting off the couch and entering the business world - a low tax regime encourages those who are already in business to expand. Conversely, as we have been reminded ad nauseum as of late, rising taxes provide a disincentive to the producing class, whereupon their full-time occupation becomes going Galt (with occasional breaks to join together in large groups for some good old-fashioned collective Tea Bagging).

Of particular importance are cuts in marginal tax rates; potential entrepreneurs make their decisions at the margin.

This is all pretty basic stuff - you'll find it in textbooks. But does the real world match up with the pretty theory? We'll never know unless we find some data. So I got me some primo data. And as they say about data, flaunt it if you got it.

More below the fold...

The flak started quickly. Rusty suggested taking Red Cross training and being part of the solution—the very solution that can't reach the country. kharris compared me (un?)favorably to The Drudge Report for saying (after Robert Gates did) that the delivery obstruction was "deliberate."

The problem is the evidence keeps mounting—and it's all on my side. Exhibit One:

US forces last week turned back a French aid plane carrying a field hospital from the damaged, congested airport in the Haitian capital of Port-au-Prince, prompting a complaint from French Cooperation Minister Alain Joyandet. The plane landed safely the following day.

Exhibit Two:

The State Department has also been denying many seriously injured people in Port-au-Prince visas to be transferred to Miami for surgery and treatment, said Dr. William O’Neill, the dean of the Miller School of Medicine at the University of Miami, which has erected a field hospital near the airport there.

"It’s beyond insane," Dr. O’Neill said Saturday, having just returned to Miami from Haiti. "It’s bureaucracy at its worse."

Exhibit Three (wrong people doing distribution):

When the aid helicopters descend on the Pétionville Club golf course, once a playground for the wealthy and now a sprawling city of makeshift tents, the residents hurry toward them. But to get there, they must climb a steep embankment to a landing zone on top of a hill where the 82nd Airborne Division distributes the food and water....

The elderly get priority, but some of them cannot make it up. Families with young children also have priority, so some people are said to have borrowed babies and hauled them up the hill....

Since members of the 82nd Airborne, from Fort Bragg, N.C., began distributing food on Saturday, their delivery method has evolved.

On the first day they wore rifles slung around their backs. By Monday, they had ditched the rifles and were trying to present themselves more as aid workers than as soldiers. [emphases mine]

This is the job usually done by the Red Cross (or that was done the first few days in New Orleans by the SCA, who had the advantage of knowing how to move a large amount of supplies through mud and floods), and who know the issues involved in distribution. This is the job those $10 contributions by texting are supposed to be supporting.

This is the job that isn't being done for nonexistent "security" issues.