So there was this big snowstorm that hit the East Coast a couple of weeks ago. (Not the one this weekend, that dumped about 2' of snow on Upstate New York and a little more than a foot here in suburban New Jersey; the one that wiped out D.C. and gave the Party of No an excuse to do nothing.)

Snow in February. What a surprise! Clearly, not something that happens every year.

My high school classmates and others in the Midwest see the notice and say, "Yeah, gosh, sounds like January and February here."

But This One is Different. Maybe because it gave the U.S. press an excuse to pay no attention to Haiti. Maybe because closing down D.C. meant that all the pundits got to whine and reveal their suffering.

And, just maybe, because it has become the all-purpose excuse for the February Employment Report. Or any other hint that the world is not perfect, and those "green shoots" haven't been eaten by starving deer who were then shot by Big Bank Hunters.

The Usual Suspects are already out in force.* And the hedging (not in the risk management sense) has begun:

"We will have to wait until March to see if February is an aberration or a fundamental sign that the recovery in sales will be more subdued than hoped," [Jessica Caldwell, Edmunds' director of industry analysis said].

So anything that can be marginally interpreted as positive will be The Crest of a Wave, while anything that makes those legendary shoots look as if they were artificial flowers will get the rousing "Wait Until March!" cry.

All we really know is that—thanks to Senator Bunning and a pliant Democratic "leadership"—March, not April, is the Cruelest Month for about 1.2 million normally-working Americans.

But, gosh, the job gains for February might be understated by 5-8% of that total. So let's not do anything hasty.

*Yes, it's "pick on Brad DeLong day." Didn't you get the memo? (Also, I can't find discussion of the topic at any of the Other Usual Suspects, though I haven't checked The Big Picture.)

by Linda Beale

Bankers Bonuses and Bank Reforms: why they are needed, what they might include, and are you angry yet?

A big title for a tiny little sketch of a post, I know. Not much time today folks, but if you can read only one blog posting, read the one at Naked Capitalism at the link provided at the end of this paragraph. Yves comments on the Independent's article on bankers' bonuses and the Wall Street firms' incredible egos and greed. See US Banks Reject Effort by UK Bank Execs to Reign In Pay, Naked Capitalism, 022

 Beale here: As you all know, A Taxing Matter has been hitting that same nail with my tiny little hammer. I think the evidence suggests that we need to take some rather drastic actions, which might include any or even perhaps all of the following:

• break up the investment banks;
• regulate their leverage and their bonuses,
• ban their flash trading
• heavily regulate their involvement in speculative gambling with derivatives (i.e., betting on positions that they don't own). And given that their resurging profits are due to two things--(1) resuming the same casino gambling that caused the 2008 crisis and Great Recession and cost millions their jobs and (2) feeding off the public trough for TARP direct funding (the AIG bailout, etc going directly into Goldman and JPMorgan Chase's pockets) and implicit guarantees resulting in very cheap cost-of-funds permitting Goldman et al to make profits with federal loans--we need to add a new tax for the big banks as a charge for the government guarantee that they are getting rich off of (again). The tax should be a substantial enough bite that it will force the banks to both significantly reduce their leverage and significantly reduce their bonus payment system. It can be either in the form of an excise tax based on their leverage (since their borrowed funding is what costs the government in terms of bailout potential) or in the form of an income tax surcharge that is progressively structured so that the highest rate applies to banks with the greatest amount of leverage. It could even be a tax structured as a tax on each derivative position like credit default swaps entered into that isn't backed by a long position (so not a true hedge but a speculative bet). I don't knw for sure which form is best (comments welcome) but I sure as heck think some version or another should be passed, and soon, else we are in for a repeat that is more disastrous than the GOP-gifted Great Recession we are already experiencing. _________________________________

crossposted with ataxingmatter

by cactus

Yeah, I Felt the Big One: Memories of the Chilean Earthquake

My father had something of a Forrest Gump college experience, being "there" at a couple of unfortunate historical events. One example - in 1960, he was studying Physics at the institute in Bariloche, a town in the Andes in Argentina. That's about 220 miles from Valdivia, Chile, more or less the epicenter of the 1960 earthquake that measured 9.5 on the Richter scale. That earthquake remains the largest one ever measured. (For comparison, last week's earthquake in Chile was an 8.8.) It is worth noting - a tsunami resulting from the quake killed 61 people in Hawaii and 35 foot waves hit as far away as Japan and the Philippines.

Here are a couple excerpts of an e-mail my dad sent me:

YEAH, I FELT THE BIG ONE!!! The Mother Of All Earthquakes (MOAE)

That 1960 earthquake(s) was a different kind of animal. Usually there is a big quake and then several aftershocks follow. In MOAE there were at least 4 pre-cursors of magnitude around 8 and then the 9.5 hit.

In the early morning of May 21 I was with some other guys studying at the Chemistry lab. I noticed that liquid in a glass container was sloshing. I mentioned it to the others but they didn't pay much attention.

At that time we were studying rather hard and didn't know what was going in the outside world. We didn't know that seismic activity had started at the other side of the Andes. There were 2 big quakes on the 21st and 2 more on the 22nd just on the other side of the Andes and we didn't notice much.

Then around 5 in the afternoon of the 22nd, we were having tea or coffee at a cafeteria when a couple of big chandeliers started oscillating like a pendulum. We felt the ground moving and ran outside. We couldn't stand so we sat at the curb which also was moving like crazy. There was also a very funny sound.

That was the huge 9.5 MOAE that had hit Valdivia a few hours earlier. There were many aftershocks - several with magnitude larger than 7.0 through June 4.

2 dormant volcanos awoke and 3 new ones emerged. All that time there was a thick rain of ashes coming down. We had to walk outside covering our faces with scarves.

____________________________________
by cactus

The Bell has an op-ed worth reading.

When Economic Stress Becomes Terrorism

Poverty, Rather Than Anti-Anything Ideology, Is the Common Thread

Joseph Stack is not a terrorist in the sense that we apply this word to operatives for al-Qaida and other groups and he certainly is not a Tea Party terrorist. The same is true for Terry Hoskins. However, both these men provide useful illustrations of the link between economic distress and terrorism.

Stack, of course, is the Austin Texas software engineer who last week set fire to his house and then flew his single-engine Piper Cherokee airplane into the Ecehelon building, housing government tax workers. Friends in Austin called him a straight-laced, quiet person who struck them as incapable of such carnage. However, those who knew him longer said Stack had great animosity for the IRS.

Back in the 1980s and 1900s, two entrepreneurial ventures started by Stack ultimately were put out of business by California’s Franchise Tax Board. The first was suspended for non-payment of back taxes totaling $1,153. The second was suspended for failure to file a tax return. Stack acknowledged his errors but was apparently driven over the edge by the federal government’s bailout last year of various troubled banks and auto companies.

Stack wrote that a little guy like him making little mistakes was ultimately hounded by the government in disputes that cost him his marriage, more than $40,000, and “ten years of my life.” Yet when the companies were deemed too big to fail, Stack wondered, “Why is it that a handful of thugs and plunderers can commit unthinkable atrocities . . . and when it's time for their gravy train to crash under the weight of their gluttony and overwhelming stupidity, the force of the full federal government has no difficulty coming to their aid within days if not hours?”

Terry Hoskins probably is not known to most but in my hometown of Cincinnati he was making headlines locally at about the same time as Stack was making them nationally. Hoskins is a successful businessman. Several years ago, he built himself a sprawling, luxurious $350,000 home, complete with swimming pool and tennis courts. Over the years, he got into several payment disputes with RiverHills Bank, which holds the mortgage on his property.

More below the fold...

A few years ago—probably four, though maybe more—I was doing some research at SIBL when the National Sport of Canada came on the television screens.

It wasn't that I stopped to watch; that loyalty had been previously established. It was that everyone else who was walking between the floors stopped and watched for at least five minutes, and often longer.

So when the NYT declares that curling "has captivated the Type-A world of Wall Street almost by accident" as if this were news, I can safely state that it has been so for a while.

(h/t the blog of the London Review of Books)

I have been a Bad Blogger this week. (As opposed to my usual practice, which seems to be described as Blogging Badly.)

While I intend to continue the New Tradition (think of me as Waylon, without the speed), following are Snow Day Links:

D-Squared was on fire on Wednesday: both Bank Lending Channel and The Foundations of Mathematics and the Roots of Finance are essential.

For all those of you—looking straight at you, o six-footed one—who believe TARP was the right idea to save the economy, here's another data point: "Overall bank lending in the US economy shrank 7.4% in 2009 — the sharpest drop since 1942."

James Hamilton looks at Those Other Programs that support the banks without providing any funds to the rest of the economy (though I don't think he put it that way).

With all the talk of Liquidity needs and Greek bonds, jck at Alea posts an essential chart.

by Linda Beale

Duffie on speculative trading (Part one of a series)

In today's Wall St. Journal, Darrell Duffie, a finance professor at Stanford's business school, argues "In Defense of Financial Speculation" (Wall St. J., Feb. 24, 2010, at A15). (Rdan here...AB posting is Feb. 26)

According to Duffie, speculators are beneficial. Here's his argument.

1) speculators absorb risk that others don't want, permitting investors to hedge their positions

2) speculators provide information about invetments--if they buy, fundamentals appear favorable; if they sell, fundamentals are not. That information helps market prices be more accurate.

3) speculation--defined as "accurately forecasting an investment's fundamental strength or weakness"--is not the same as manipulation--defined as "when investors 'attack' a financial market in order to profit by changing the value of an investment.

Duffie admits that speculation "is not necessarily harmless. If a large speculator does not have enough capital to cover potential losses, he could destabilize financial markets if is position collapses."

Are Duffie's arguments strong enough to think, as he suggests, that curbing speculation in the credit default market isn't necessary? Note that item 2 stems directly from the "efficient markets hypothesis"--that markets price items appropriately through sharing of information. But what we know suggests this isn't true. We have an entire vocabulary for talking about the fact that without stabilizing intervention and protective regulation, market pricing--and the kinds of speculation that Duffie praises--tends to lead to market bubbles. The housing markets are a good example. People thought that housing was a good investment. Speculators got into housing to "flip" houses to make a profit. Other speculators bet on the housing market through collateral debt obligations and other types of mortgage backed securities. These were often tied with credit default swaps, which the counterparty banks saw as a "safe" bet that meant steady premiums without any payback day. The speculation is what made the housing market into a bubble. And when the bubble burst, many of the speculators had to be backed by the government to keep the financial system going. Prices weren't an accurate reflection of value. They were only an accurate reflection of the casino mentality estimation of value. And the increased speculation in housing didn't mean there was more accurate evaluation of fundamental values. It meant, in fact, that there was less and less accurate information, as lenders eager for loans to securitize accepted shoddier products and pushed for shoddier lending standards and as the securitization market's key characteristic--the lack of a relationship between lender and debter--became the key variable that made speculative investment in housing too easy because the loss risk could, theoretically at least, be offloaded to the investors, guarantee counterparties and other third parties. Combine the speculative "casino" mentality with the lack of relationships between lending banks and buying families and you have a winner take all casino system where nobody but the winners are served. Here, that ended up being the big investment banks.

More below the fold...

by Rebecca Wilder

Today, North America saw the Q4 2009 GDP figures for Malaysia and Germany. In my view, the two releases accurately depict the developed vs. developing picture of economic recoveries: one is causing the other.

Malaysia's real GDP, population 29,992,577 in 2008 according to the World Bank, grew 4.5% compared to the same period one year ago. The impetus behind headline number was domestic demand (GDP minus net exports), +3.9% Y/Y and external demand (exports), +7,3%.

The recovery in Malaysia is healthy. Domestic private consumption improved 1.7% Y/Y, while investment surged 8.2% over the same period (up from -7.9% in Q3).

The pace of contraction in German real GDP, population 82,140,043 according to the World Bank, slowed to -1.7% Y/Y from -4.7% Y/Y in Q3. On the surface, the trend is sound: the annual economic deterioration is slowing markedly. But below the hood, the true nature of the beast is present: only external demand and government spending are stabilizing GDP.

The growth rate in domestic demand is essentially moving laterally; it fell to -2.8% Y/Y from -1.6% Y/Y in Q3, and is now essentially unchanged from Q2 (-2.7% Y/Y) . Pockets here and there are improving - the decline in imports and machinery slowed somewhat; spending on machinery jumped 3 points to -18% Y/Y in Q4 (this is not much of an improvement).

Is this a country-level illustration of the world growth schism? Are Emerging Markets providing the impetus growth for all? I think so.

Rebecca Wilder crossposted with Newsneconomics

by Bruce Webb

Well I doubt that will be the slogan on the signs at the next Teabag Rally but it is an accurate summation of Rep. Paul Ryan's Roadmap to America's Future tax reform plan. From the website (bolding mine):

This plan discards a needlessly complex and manipulative tax code, replacing it with a simplified mechanism that promotes work, saving, and investment.

Provides individual income tax payers a choice of how to pay their taxes – through existing law, or through a highly simplified code that fits on a postcard with just two rates and virtually no special tax deductions, credits, or exclusions (except the health care tax credit).
Simplifies tax rates to 10 percent on income up to $100,000 for joint filers, and $50,000 for single filers; and 25 percent on taxable income above these amounts. Also includes a generous standard deduction and personal exemption (totaling $39,000 for a family of four).
Eliminates the alternative minimum tax [AMT].
Promotes saving by eliminating taxes on interest, capital gains, and dividends; also eliminates the death tax.
Replaces the corporate income tax – currently the second highest in the industrialized world – with a border-adjustable business consumption tax of 8.5 percent. This new rate is roughly half that of the rest of the industrialized world.

Some attention has been paid to the Roadmap's plan to privatize Social Security and voucherize Medicare but little to this aspect. Under Ryan's Roadmap billionaires don't pay taxes. At all.

In our system there are multi-millionaires whose wealth came from a combination of wages and bonuses, film and sports stars come to mind, but the truly rich earned their billions from returns of capital, they own property and companies and make their money by selling them and pocketing the gains. Under the Ryan Roadmap every form of gain from capital is tax free.

They really do believe that Capitalists are Masters of the Universe, that they are so important they don't even have to contribute to pay for the weapons systems used to protect their interests around the world or from terrorism here at home. Some of us have recognized that the end point of Republican tax policy added up to 'No Tax for Billionaires', it is just that no Republican dared compile that entire agenda and put it down on paper. Well here it is, it is the Roadmap to Plutocracy, that is the Republican vision of America's Future, that 'wage slave' no longer be a metaphor, instead workers will pay for everything.

And you can bet that the Capitalists will still be claiming WORKERS are the Parasites.

by Linda Beale

Swiss banking secrecy in the news again as Germany seeks data

The Swiss are fighting hard to maintain their edge in providing tax evasion services for the euro zone and the US. In spite of the modest changes to the US-Swiss tax convention, we can expect difficulty in acquiring information from Swiss banks that should be turned over routinely. Germany is experiencing the same problems. But, as many will have read, a whistleblower offered Germany more data on Swiss bank accounts, for a price. And Germany bought it last month for $3.5 million, gleaning the names of 1500 account holders and other information (information that may also be shared with other countries such as the US and provide additional ways to hone in on US tax evaders with secret accounts).

Now starts the internecine wrangling between the two EU countries. Before the deal was finalized, the Swiss authorities and a German Taxpayers Association complained that the German deal would reward a criminal who had engaged in industrial espionage. See Bild.com, Is It Right to Do Business with Criminals? Feb. 2, 2010.

And now that the deal is done, the Swiss are considering how to get even. See Dempsey, Battle over Tax Data Heats Up between Switzerland and Germany, NY Times Feb 15 2010. At least one Swiss lawmaker has proposed a law that would have Switzerland releasing the names of all German politicians who have secret bank accounts in Swiss banks. Hmmm. That might be a very good idea. The trifle of a breach to the wall of Swiss banking secrecy would be a good start towards a law that does away with it altogether. Having German politicians exposed for speaking out of both sides of their mouths--those who have secret Swiss accounts but are publicly making a big show about Germans who are using the accounts to escape German taxation--might provide enough Schadenfreude to help shame the system back into greater compliance. And once people realize that Swizterland is still intent on maintaining its tax evasion services no matter what it has agreed to in its newer tax treaties, maybe countries will get even tougher on the country and insist on real tax information sharing.

More below the fold...

Let us see if we can translate my previous post on job selection into an economic model.  Start with a basic formula:

(1) AcceptOffer = a(1) + a(2)*w + a(3)*b + a(4)*oa + a(5)*t

where a is a constant, w is wages, b is benefits, oa is "opportunity for advancement" and t is treatment received in the workplace.

The first observation we make is that several of these variables are difficult to quantify—and even more difficult to objectify. So let’s start with the easy ones.

w is very identifiable: reported (on a per capita aggregate basis), subject to enforcement penalties (e.g., minimum wage laws), and used in “downstream applications” (e.g., tax filings) and therefore relatively verifiable.

b is (1) known to be non-negative and (2) often variable within, let alone between, organizations. (Vacation time, sick days, insurances offered and costs to the employee all may vary depending on level, time of service, location of office, etc.)

This could present a problem, but here we can use standard economic theory to our advantage. We do not know the amount of b, but we can assume that the employer is rational, and is offering a total compensation to the worker that s/he expects will be less than or equal to the marginal product of that person’s labor. We therefore can reasonably assume that b is related to w. If we then review the available aggregate data we can approximate that benefits offered will be approximately a certain percentage of w—and that workers will assume that assumption (and, in most cases, verify that assumption within a margin of error) before accepting the job.

We then restate the equation as

(2a) AcceptOffer = a(1) + a(2’)*w’ + a(4)*oa + a(5)*t

where w’ is the weighted combination of w and b above, and a(2’) is the restated coefficient.

If we then assume that all parties have full information of the ratio of wages to benefits, then a(2’) = a(2)=a(3), so we simplify to:

(2b) AcceptOffer = a(1) + a(2)*w’ + a(4)*oa + a(5)*t

We now have to consider opportunities for advancement and treatment. Here, we have two problems that are difficult, possibly insurmountable, for modeling.

The first is a lack of measurability. There are no public records for "didn't get promoted." Nor, except in extreme cases, is there a way to measure treatment by supervisors. The data that might be available&mdassh;lawsuits, official complaints, even Human Resources files (for which there are significant privacy considerations)—is all negative and, accordingly, skewed (biased). This is because (a) ninety percent or so of all workers and/or bosses will never have a complaint filed against them and (b) the ability to file a complaint may be present because the general work atmosphere is more amenable to filing one than not, so the presence of a complaint is not in itself a good or bad thing for the overall measure.

The second is that tolerances vary by person. To use an absurd example, people who use "Every Breath You Take" for their wedding may be more likely to tolerate attentions that others view as harassment. Similarly, forcing people to clock out for a "smoke break" will be viewed differently depending upon whether one is a smoker or not. General policies are just that—general.

So, if we are building an economic model, we must come up with a reasonable approximation of these last two variables. The most direct way to do this is the standard method: assume each individual has their own Utility Curve, and "prices" accordingly.

Based on their preferences and options, then, we map the compensation required to offset negative consequences from oa and t. While the variables still are not directly observable, we can make a simplifying assumption:

Assume that the compensation required to do the work is a factor of w’.

Have to work in the sewer system? Change w’ to compensate. Need to work the night shift and/or weekends? Same type of adjustment. Boss clearly favors buxom blondes and you’re a petite redhead? Adjust current salary requirements to compensate for lowered opportunity for advancement/promotion. You’re a b.b. who will have trouble getting work done because the boss will harass you? Adjust accordingly.

We assume—due to the constraint: a lack of available data—that we can reduce "a(4)*oa + a(5)*t" to some proportion of w that will compensate the worker for the environment into which they are being placed. If we further assume that the worker has complete information as to hisser preferences, the worker will not accept a job that does not offer that level of compensation.

So we can restate equation 2(b) using the Utility Curve assumption. Assume

(3a) a(6)*w" =a(4)*oa + a(5)*t

such that w" also proportionate to w(and therefore w' as well) and a(6) is the coefficient selected by the individual that makes the offered wage compensatory to the opportunities for advancement and expected treatment on a Present Value basis.

We can then reduce equation (2b) to

(3b) AcceptOffer = a(1) + a(2)*w' + a(6)*w"

or, given that (a) w" is proportionate to w and w’ and (b) that the multiplier in most cases is 1, and (c) the constant (e.g., signing bonus) can be assumed without loss of generality to be 0,

(3b) AcceptOffer =

to indicate that the value varies with individuals.

To concretize the example, assume that a redhead and a blonde, as above, are both offered a job. Assume further that the redhead’s compensation requirement—lower-but-still-positive opportunity for advancement—is lower than the blonde’s for will-be-harassed-and-work-will-be-impeded. That is

(r) < (b)

There are four possibilities:

1. The offered wage will be below(r), in which case neither will accept the job


2. The offered wage will be below (b) but above (r), in which case one of the two positions will be filled


3. The offered wage will be above (b), in which case both will accept the offer and the company will have offered a higher wage than was required to fill both positions. (That the offer is what the company believes will be the employees’ s marginal product of labor [MPL] is a collateral issue.), or


4. The company will negotiate with each, offering the redhead (r) and the blonde (b), and everyone will be happy—so long as initial expectations were accurate (or, if you prefer, the new employees both had full information).

Note also that there is a learning process for both the applicant and the employer. Offers and demands will be adjusted based on historic data (if both decline the offer, the next candidates of similar background will be offered more, and perceptions of growth (improvements in experience and/or education by the worker).

If we generalize this, we note that there is a distribution of (due to Individual Preferences). If we further make simplifying assumptions—e.g., a normal distribution of among the population—we come to the conceit of the "reservation wage," and all the economic literature that is attendant upon it.

So that is how you build an economic model.  The question then becomes: how do you use it? A relatively short (though it does incorporate a micro model) discussion of that continues below the fold.

More below the fold...

Forget the Eurozone for just a minute. Japan's problems are big: Toyota is a major exporter/employer. Last year 48% of all new standard passenger vehicles sold in Japan were Toyota (or its Lexus brand). The WSJ article describes Toyota's status in Japan as the following:

In short, Toyota is to Japan what General Motors Corp., in its heyday, was to America. And for a beleaguered country that has suffered a series of institutional blows in recent months—the collapse of the long-ruling political party, the bankruptcy of its champion national airline, a renewed bout of deflation— the global humiliation of Toyota may be the most psychologically damaging blow of all.

Psychological blow, what about an explicit economic blow! Toyota is certain to drag the only Asian G7 economy down due since auto exports are big in aggregate export income.

Japan’s single largest export category in December was, of course, manufacturing: 22% of total exports. And a huge 14% of the total value of exports in December came from motor vehicles (auto sales, that is - separate from parts).

More below the fold...

by Rebecca Wilder

Beginning of the year economic blues in the US? I think so. Just looking over Spencer's CPI post; here is an excerpt (the first paragraph):

The CPI report was encouraging. The total CPI rose 0.2% and the year over year increase is only 2.6%. Although real average hourly earnings fell, real weekly earnings were unchanged.

The core CPI actually fell for the first time since 1982, bring the year over year change in the core CPI to 1.6%. The 6 month SAAR for the core CPI is 0.8%. Despite all the worries about inflation the normal pattern is for the best cyclical reading on the core CPI to occur in the first year or two after a recession. If the economy follows the normal pattern, the core CPI should continue to moderate for another year or two.

My first thought is that I don't think that this is encouraging at all; and I'm not alone. Core prices fell; these prices are typically very, very sticky. For example, shelter prices are biased upwards in their calculations, but have been declining or unchanged for every month since August 2009. I know that the output gap is not directly observed, except by proxy in the capacity utilization numbers or the unemployment rate; but it must be huge to do this to housing costs.

Look at it differently: the velocity of money improved in October and November of 2009...

... but then took a step back in December of 2009. If this trend continues, non-energy prices are sure to back down much further. There's just no support for price action at this time - the Fed can't pull back... it probably should be putting more in.

crossposted with Newsneconomics by Rebecca Wilder

Note on data: Macroeconomic Advisers now publishes a blog where they make available their calculated monthly GDP series (nominal and real) to the public (thank you).

by Bruce Webb

The immediate economic/political news this week will revolve around Health Care and then transition to Jobs. Which is a good thing because I could really use a job with health care benefits. But Social Security blogging is what I do so here is a piece on the various ways in which Social Security 'crisis' is viewed which in turn controls the structuring of the proposed solutions. A lot of meta with not much in the way of numbers so I'll tuck it unobtrusively under the fold.

More below the fold...

Robert Waldmann

It's alive

update: Igor Volsky provides a good summary of the proposal

As far as I can see the Snowe plan worst tax ever free rider provision to prevent employment of people who need jobs provision is included.



I believe I am the first person to publicly object to this proposal when the gang of six said that they were considering it.

Any company with 50 or more employees that does not offer coverage and whose employees access taxpayer supported health programs will be required to help offset the costs to the American taxpayer.

update 2: In comments Bruce Webb explains that the worst tax ever is almost certainly not included. It wasn't in the Senate bill. The Senate bill has a free rider provision that sounds vaguely like the Snowe worst tax ever proposal, but doesn't have the same perverse effects. The administration hasn't released legislative language, but presumably didn't reintroduce the strong perverse incentives.

The point is that Snowe wasn't thinking precisely when she made her proposal and so can easily be convinced that something quite different is what she had in mind.

On the other hand she voted against cloture anyway, so I don't see why the administration didn't just go with the house approach which is better than the not the worst tax ever version of the free rider tax.

end update 2

There is a tax increase on the rich so that's something

Broadened Medicare Hospital Insurance (HI) Tax Base for High-Income Taxpayers
Under current law, workers who earn a salary pay a flat tax of 1.45 percent of their wages to support the Medicare Hospital Insurance (HI) trust fund, but those who have substantial unearned income do not, raising issues of fairness. The Act will include an additional 0.9 percentage point Hospital Insurance tax for households with incomes exceeding $200,000 for singles and $250,000 for married couples filing jointly. In addition, it would add a 2.9 percent tax for such high-income households to unearned income including interest, dividends, annuities, royalties and rents (excluding income from active participation in S corporations).

In exchange the cadillac plan excise tax is reduced. It now starts at a higher level and there are corrections for plans which are well read it

Reformed Excise Tax on Insurance Companies
Beginning in 2018, the Act imposes an excise tax on insurance companies to help finance the tax credits and other portions of comprehensive health reform.

[skip]

The excise tax will only apply to premiums above $27,500 for families and $10,200 for singles in 2018 and would be adjusted at the consumer price index plus one thereafter.

The excise tax includes important new permanent reforms that will focus its impact on plans that provide the highest-cost benefits – not those that happen to cover the highest-cost workers. These include permanent adjustments based on age, gender and high-risk professions.

I'd say the financing is improved. It seems to be a genuine compromise between the House and Senate plans.

There is no hint of a public option.

I guess it's OK. It's very important that the changes not add to the deficit or they can't be implemented by 50 Senators plus Biden. I'm angry about dumping the public option now that cloture is out of the question anyway, but I'm not surprised (leaks made this very clear).

I can't quite believe that the worst tax ever version of the employer mandate is still in the bill. I hope I'm misinterpreting the very brief explanation.

by Linda Beale

How much do the wealthiest Americans make, and how much do they pay in taxes?

Bloomberg.com's Ryan Donmoyer has a brief story out on recent IRS statistics of income. See Top Earners Averaged $345 million in 2007, IRS says (Feb. 17, 2010).

Here are the figures cited in Donmoyer's report (based on Tax Analysts' data analysis presented by David Cay Johnston on Tax.com):

Average income of top 400 US households in 2007: $345 million (that's income per year, folks)
Average income of top 400 US households in 2001: $131.1 million (that's about half)
Average effective tax rate in 2007 for this same group: 16.6% (per Johnston article)
Average effective tax rate in 1993 for this same group: 29.4%
Percent of the top 400 earners in items taxed at preferential (low) tax rates: about 75%
So the richest of the rich managed to do quite well in the artificial boom of the Bush years when most Americans were barely holding even (or actually declining) in wages. They doubled their annual income from 2001 to 2007 in the years after the Bush ta cuts that disproportionately benefited the wealthy.

Johnston adds this comment in his article on Tax.com, noting that the top 400 enjoyed a 27% increase--nine times the increase enjoyed by the bottom 90%:

The figures came at the peak of the last economic cycle and show that widely published reports in major newspapers asserting that the richest Americans are losing relative ground and "becoming poorer" are not supported by the official income data.

These statistics evidence "two long-term trends: that income at the very top has exploded and their taxes have been cut dramatically" says Chuck Marr of Center on Budget and Policy Priorities. Donmoyer, op.cit
___________________________________
crossposted with ataxingmatter by LInda Beale

by Brenda Rosser
cross posted from Econospeak with permission of author.

Global Trade Imbalances as a Statistical Artifact:

Today, the latest spin that purports to describe the still unfolding global economic crisis is that of 'global trade imbalance', with particular attention being focused on the US and China.

The US, we are told, has a huge trade deficit and China is conveniently blamed for this. "They say China's currency manipulation hurts the U.S. economy" [1] making China's goods much too cheap relative to those produced in America.

This tale does not reflect the contemporary reality and it is all the stranger because, on the other hand, it's never been a secret about the manner in which the large global corporation has evolved its operations over the last 4 decades. These huge networked businesses now have production systems that most often span a large number of countries at the one time. That means, in effect, that world trade is now mostly defined by the nature and extent of the global corporation and its networks. The nation is no longer the core economic entity.

In 2006 Samuel J. Palmisano, Chair of the Board, President, and Chief
Executive Officer of IBM described the evolution that has occurred in the nature and function of the international corporation.[2]Since the early 1970s economic nationalism has abated, Palmisano says. Trade and investment barriers consequently receded. A revolution in information technology also occurred and this development improved the quality and cut the cost of global communications and business operations "by several orders of magnitude". The large transnational corporation was then much more able to standardise technologies as well as its business operations all over the world. This, in turn, led to the interlinking and facilitation of work both within and among companies.

More below the fold...

by cactus

A Graphical Look at the National Debt in the Bail-out Era

Apologies for the lighter than normal posting, but things have been very hectic around here. Aside from some health issues facing my wife and work being particularly interesting right now, I'm reviewing a lot of stuff that is coming back fast and furious from the illustrator for my (our, actually, as I have a co-author) book which comes out later this year.

Meanwhile, last minute we ended up needing an "Obama chapter." Here's a graph that was produced on the fly for that chapter (before the illustrator does his magic and makes it really look snazzy):

That's all I got. Reach your own conclusions.

Data sources...
Debt comes from the the Treasury.
CPI and Population come from Fred.
____________________________________
by cactus

Even more than Digby on CalPERS, the one piece everyone should read today is Charlie Stross on International Travel. Since this is an economics blog, let's pull a key section:

Here's the rub: security is a state of mind, not a procedure. Procedures can't cope with attackers, because they're inflexible. If you search passengers for guns, someone will carry a knife. If you search for knives, someone will sew themselves a set of underwear full of PETN. And so on. To deal with a threat — say, someone who wants to attack your air travel infrastructure — you must look for the attacker, not their tools, because they can change their tools at will to exploit weaknesses in your procedure for identifying tools.

JFK is wide open to terrorists intent on causing mass casualties....

Schiphol — Amsterdam airport — gets the security screening right, or at least less wrong than JFK and most other airports. Rather than having a hideous bottleneck between check-in and the departure area, security screening is carried out at each depature gate, with a separate metal detector and X-ray belt; no huge crowds form in unsecured areas. On US-bound flights, someone who clearly isn't a minimum-wage drone checks ID documents and asks a couple of questions that seem to me to the aimed at flushing out anyone who is disturbed or tense — a crude form of profiling.[italics his; boldfacing mine]

South Carolina Senator Jim DeMint preferred to let the TSA remain leaderless for the past year in fear of unionization of the workers. As he explained to CNN:

Or, as quoted by Mark "neither Ernest nor earnest" Hemingway the Washington Examiner, in a piece oh-so-sensibly entitled Napolitano wants to unionize TSA employees despite safety concerns:

The administration is intent in on unionizing and submitting our airport security to union bosses [and] collective bargaining, and this is at a time, as Senator Lieberman says, we've got to use our imagination we've got to be constantly flexible. We have to out think the terrorists. When we formed the airport security system we realize we could not use collective bargaining and unionization because of that need to be flexible. Yet that appears to be the top priority of the administration.

But DeMint was much clearer on the Senate floor, and speaking to Fox:

It makes absolutely no sense to submit the security of our airports and the passengers here in this country to collective bargaining with unions.

Which, of course, is why police and fire departments are all non-union as well.

The people you attract to any job—by your deliberate practices, not "unintended consequence"—are those who cannot get a job that they know to be more stable, pays better, has better benefits, or provide a more friendly work atmosphere. By your policies and procedures, you reveal the type of worker you prefer. This is as true of the TSA as it is of Goldman Sachs.

In the case of the TSA, though, the combination produces the natural hire as the people who couldn't get a job at Applebee's, The Olive Garden, or Ruby Tuesday's.

As Paul Kedrosky recently noted, it's more "security theater" than security. So when DeMint compares the TSA to the FBI, he's neglecting that the average staring salary at the FBI eight years ago was over $43,000—with an increase of at least $10,000 upon completion of training. This is $20,000-$30,000 a year more than the $12/hour my neighbor made when he started with the TSA. (He quit quickly, finding restaurant work more profitable.)

If you want security, you pay for people who know how to do security. If you want theater, you depend on Jim DeMint to ensure that the TSA remains leaderless, and then have no right to be surprised when a British novelist points out that your security isn't secure. Even when he says:

Suppose I wanted to attack the US air travel infrastructure....I can kill lots of passengers! All I need to do is to buy a maximum-size carry on bag (US dimensions: 7" x 13" x 20") and build the biggest, heaviest bomb into it that I can wheel behind me....

All I would have to do then is buy a ticket...and go queue. Then, when I get to the middle of the crowd, detonate the device. (For added horrors: have an accomplice with a similar device hang back, to detonate their bomb amidst the fleeing survivors.)

[S]ecurity checkpoints are a target, too, because they slow down travellers and cause crowds to form, and another term for "crowd" is "convenient target". And because the attacker has not been separated from their weapon at the point when they reach such a target, it's the logical weak point for causing maximum damage.

by run75441

Breaking The Healthcare Cost Curve

Quite a bit of the commentary has been written on the question of how-to-rein-in rising healthcare costs and to slow costs to less than the rate of inflation. Massachusetts has been able to provide healthcare to its citizens but still struggles with keeping healthcare insurance costs low and affordable. Healthcare costs continue to rise at 8% annually and will double by 2020 unless Massachusetts can find a methodology to control the rising cost of healthcare.

One answer might be Maryland’s solution, a regulatory commission of seven governor-appointed-commissioners serving 4 year terms and having the responsibility of setting appropriate rates for hospital inpatient, outpatient, and emergency department care to manage its rising healthcare costs by limiting payment to the minimum amount necessary to cover hospital operating expenses, and requiring all payers (both private insurers and Medicare) to adhere to the rates set. This regulatory commission is nothing new for Maryland and has been in place for years. At one time, 30 other states regulated hospital rates only to have them fall by the wayside in the late seventies and earlier eighties with the deregulatory movement.

When Maryland’s Commission determines what can be charged by each hospital, it takes into consideration a hospital’s wages, charity cases, and the severity of illnesses. If not satisfied with the commission’s decision, hospitals can appeal to the commission or go to court for a variance in prices. So what has been the success of Maryland in its attempts to tamp down healthcare costs? Separately, the net savings for Maryland was determined to be an ~$40 billion since 1976 (Health Affairs, “Setting Hospital Rates to Control Costs and Boost Quality,” 2009) and additionally:

“Had a similar system for all states been in place, a savings of $1.8 trillion dollars would have been achieved for the nation’s healthcare system.”

More below the fold...

The CPI report was encouraging. The total CPI rose 0.2% and the year over year increase is only 2.6%. Although real averge hourly earnings fell, real weekly earnings were unchanged.

The core CPI actually fell for the first time since 1982, bring the year over year change in the core CPI to 1.6%. The 6 month SAAR for the core CPI is 0.8%. Despite all the worries about inflation the normal pattern is for the best cyclical reading on the core CPI to occur in the first year or two after a recession. If the economy follows the normal pattern, the core CPI should continue to moderate for another year or two.

The most severe source of higher prices was medical care where medical commodities increased 0.7% and medical services jumped 0.5%. Meanwhile we have our political system voting to ignore the severe problem of soaring health care cost.

Interestingly, one of the largest increases was used car prices that rose 1.5% in January and is now 11.5% above their year ago level. But real used car prices are one of the most reliable leading -concurrent indicators of auto sales. This is logical since the supply of used cars is trade ins for new cars and if new car sales are too low this creates a shortage of used cars.

More below the fold...

by Linda Beale

Torture--It's the Economy, Stupid.....

Naked Capitalism ran a "guest post" by "George Washington" yesterday on Cheney's role in furthering the Bush Administration's torture agenda: Cheney Admits to Being a War Criminal, Naked Capitalism (Feb. 16, 2010).

Washington notes that the mainstream media's approach to Cheney--letting him argue for torture without ever challenging him with tough questions--is "no different than interviewing Charles Manson and letting him argue--without challenge--that murder is a great thing." And we are all guilty. "By failing to demand that torture stop and those who ordered it--like Cheney--be held to account, Americans are complicit in war crimes, just like the Germans who failed to stand up to Hitler were complicit in crimes against humanity."

The preface argues that "torture is bad for the economy", with a link to Washington's own blog post on January 9 noting that "The Military-Industrial Complex is Ruining the Economy."

The impact of militarization is huge, and the long-term wars we are engaged in currently, and their high costs, surely impact our economy. Surely the military-industrial complex and its demands on the tax system (and its potential threats to our democratic institutions) are viable topics at ataxingmatter, as part of the discussion of tax policy and institutional sustainability. The military-industrial complex gobbles up huge portions of the tax revenues that our system brings in. At the same time, our income tax provisions are extraordinarily vulnerable to the intensive lobbying of members of the military-industrial complex--from provision of multiple tax breaks to soldiers in the military front line to enormous subsidies for the natural resources extractive industries that feed barrels of oil into the pipeline of energy inefficient ships, planes, drones, trucks, and other energy gobblers in the military supply network. Taxing and spending go hand in hand--even when their relationship has been warped by the kinds of tax cuts passed in the Bush Administration that built in huge shortfalls of revenues in order to benefit the owner/manager class while at the same time treating war expenditures (and the future expenditures for replacement equipment and care of wounded necessitated by today's war) as after-thoughts that could be added as supplemental budget items that are slipped through the legislative process without the kind of in-depth discussion and understanding that is required. As a result, we have followed a "make war now, figure out how to pay later" mentality. Put together with the huge, multiple Bush tax cuts--especially those for big corporations and their owners/managers--and the enormous financial commitment that was required to bailout the financial system because of its one-way-casino mentality (gamble the house's money and if you lose, the house makes it up to you; if you win, you eat it all yourself and leave no crumbs for the house), we are left with an economic system that requires deep and thoughtful intervention to right itself--tax reforms to undo at least a portion of the disastrous Bush policies, financial institution reforms to break up the Big Banks and return them to quasi-public utility status where the public interest counters their private greed in the types of decisions they can make, and military reforms that include long-term thinking about the relationship between military decisions and the sustainability of democracy are at the very top of the list .

More below the fold...

by Rebecca Wilder

(Rdan...published two day ago at Newsneconomics)

Foreign holdings of U.S. Treasuries: was it really that bad? No.

I can’t believe that the Financial Times can get away with this. From the FT, titled Foreign demand falls for Treasuries:

Foreign demand for US Treasury securities fell by a record amount in December as China purged some of its holdings of government debt, the US Treasury department said on Tuesday.

China sold $34.2bn in US Treasury securities during the month, the US Treasury said on Tuesday, leaving Japan as the biggest holder of US government debt with $768.8bn. China overtook Japan as the largest holder in September 2008.

I don't know what foreign demand is (these are net flows, so it could likewise be a product of domestic supply and/or demand), but foreign holdings of US Treasuries grew! In December, foreign holdings for US Treasury securities – official and private holdings of US Treasury bonds/notes + US Treasury bills – increased by $17 bn over the month (you can see the major holders by country here, or the total on the press release, lines 5+10+23).

And lookie here, China dropped its overall holdings , yes, but the article fails to mention the shift in holdings by other key countries that offset completely China's sell-off. In December, the UK and Japan jointly increased their holdings by more than China dropped its holdings, + $US 36.4 bn vs. -$US 34.2 bn.

And finally, China's current portfolio is really not that difference from recent history. China's December share of US Treasury holdings, 20.9% (as a % of total foreign holdings), is barely off its 2007-2009 average, 21.4%. But Japan's holdings are way off, and could revert towards the average, 23.7%.

The FT's coverage of the TIC report does not do justice to the undertones of this massive release (especially the China piece, in my view). More TIC analysis to come tomorrow…

crossposted with NewsnecomicsRebecca Wilder

by Linda Beale

Financial Reforms: no dearth of suggestions, but a lack of action

As economists track the signs of a possibly receding recession, investors test the waters for investing, and Congress is pushed to focus more on deficit reduction than on economic stimulus (probably wrongly), the financial institution imbalance that started it all goes on unabated. We still have huge financial institutions risking not just their money but ours, under the implicit federal guarantee that lets them borrow for less and earn more than similarly situated banks that don't enjoy that federal guarantee. We still have endless variations of derivative instruments available for custom delivery, instruments that were ill-understood by the market participants before the crisis burst andthat remain problematic from tax and regulatory perspectives. Swaps, CDOs and other securitization instruments continue to be traded between counterparties without the widespread knowledge of important market information to inform the trades. Banks continue to hold onto loan portfolios, unwilling to acknowledge--either in their "mark" for financial and tax accounting purposes or in their relationships with borrowers--the appropriate decline in the principal amount of the loans.

What are the solutions, if any, that will be imposed. Two figures from prior administrations have suggestions about what they should be. Not surprisingly, the focus, and corollary impacts, are profoundly different.

Robert Reich, labor secretary under Bill Clinton, looks at the bank bailouts and the banks' failures to modify principal amounts on mortgage loans and sees what many other commentators have seen--socialization of bank (i.e., manager and shareholder) losses, privatization of gains. Welfare for Wall Street, Free markets for the rest of us. Salon, Feb. 12, 2010. Reich reminds the President that there is not that much differnce between the "lower" bonuses paid to Goldman CEO compared to other big investment bankers ($9 million versus $17 million)--those are both stratospheric pay amounts, entitling their recipients to live in the exclusive realm of the top percent of all households in this country--kings in their privileged domain, and both paid for by taxpayer largesse, which bailed the companies out of inevitable huge losses and possible insolvency (if counterparties hadn't paid on their debts, if AIG had defaulted on all of its guarantees, if the government hadn't made credit available on very easy terms, etc.). Meanwhile, they contrast sharply with the economic situation of ordinary Americans--millions with lost jobs, millions more with "furloughs" and other forms of pay cuts, millions with real fear of imminent job loss, and almost all with homes whose values have tanked and retirement accounts whose funds are now much less than adequate for the years ahead. Wall Street is making hay, but Main Street is suffering. And the banks that securitized those mortgage loans--and pushed homeowners to take out new loans, to get equity out of their homes, to refinance so that banks would have more product to sell in securitizations to earn more fees--are not doing the one thing that could make the biggest difference in ending the struggles of this recession for many people--modifying the principal amount of mortgages by writing them down to reflect the true value of the homes on which they were granted. Here is Reich's argument in his own words.

More below the fold...

Leninism in the USA
First let me define Leninism. To me the key feature of Leninism is that Lenin declared the party to be the highest good. Thus acts were to be judged as pro-party or anti-party. In fact the very same acts were good or bad depending on whether they were done by the party or some other organization. Claims of fact were judged as pro-party or anti party. People were told not to be selfish and to choose between “your truth and the party’s truth.” Events were evaluated as good for the party or bad for the party hence “The worse it is, the better it is.” Most of all, the party demanded absolute obedience -- a Leninist level of discipline.

More below the fold...

No, the US Treasury's time is not running out. Where's Brad Setser when you need him - and the media definitely needed him in reference to the December TIC report.

Okay, okay, we know: China dropped its share of Treasury holdings in December by $US 34.2 bn. China now holds just 20.9% of the total foreign-owned stock of Treasuries, second only to Japan (21.3%).

But China’s share is closer to its average, while Japan’s share is way off – there may be a reversion here, i.e., Japan will grow its stock of Treasuries relative to China (Please see my post yesterday). Except for the period of September 2008 through November 2009, Japan held a much larger share of Treasuries than did China for every month since 2000.

Is there a sinister plot developing? Is China selling off S-T T bills to retaliate against the Obama administration’s push on the renminbi? Or is China simply reallocating its portfolio toward risk?

Perhaps there is a (partial) retaliation scheme underway, as suggested by the 3-month accumulation of short-term US assets (mostly T bills agencies with a maturity of less than 1 year).

But isn’t it just slightly more plausible that the Chinese are – official + private – selling off zero-yielding (practically) Treasuries in exchange for longer-duration, higher-yielding, and riskier assets.

The first bit of the story is this: one should take care in not reading too much into the TIC report. It’s just one month’s worth of data; but more importantly, the data miss a critical component of the capital account, foreign direct investment.

More below the fold...

NBER paper of the day:

We analyze asset-backed commercial paper conduits which played a central role in the early phase of the financial crisis of 2007-09. We document that commercial banks set up conduits to securitize assets while insuring the newly securitized assets using credit guarantees. The credit guarantees were structured to reduce bank capital requirements, while providing recourse to bank balance sheets for outside investors. Consistent with such recourse, we find that banks with more exposure to conduits had lower stock returns at the start of the financial crisis; that during the first year of the crisis, asset-backed commercial paper spreads increased and issuance fell, especially for conduits with weaker credit guarantees and riskier banks; and that losses from conduits mostly remained with banks rather than outside investors. These results suggest that banks used this form of securitization to concentrate, rather than disperse, financial risks in the banking sector while reducing their capital requirements.

UPDATE: If anyone knows of Tom points us to an "ungated" version from three weeks ago, please mention it in comments or e-mail.

by Bruce Webb

I'll let the other Bears comment on this one. I just thought the graphic useful. As always click to enlarge. For table plus footnotes click the link.
Major Foreign Holders of U.S. Treasuries

January industrial production rose 0.9%, with the gains with gains across almost all components.

Industrial production has now risen for seven months and is 5.5% above its bottom. This implies that so far industrial production has been rising at a 9.4% annual rate. Compared to previous industrial production recoveries this appears to be about a normal recovery. However, given that this was the most severe drop in industrial production in the post WW II era and that recoveries are typically proportional to the decline, this implies that the recovery is moderate.

The gains were widespread,but perhaps the most important development is that information technology is soaring. Over the last three months it rose 1.8%, 1.2% and 1.7%, respectively.
This translates to about an 18% annual rate, compared to about a 15% growth rate in the 2002-08 expansion.


The other major development is that manufacturing productivity appears to be slowing. Over the last three months estimated manufacturing productivity slowed to only a 1.7% annual rate as compared to an 8.1% rate over the past year. This may imply that the typical early cycle extremely strong rebound in productivity is ending and that we may now start to see stronger employment gains.

More below the fold...

by Brenda Rosser
crossposted with Econospeak

The currency quarrel with China is a dangerous distraction

In an article in the Washington Post last November entitled ‘The currency quarrel’ [1] there were a number of assertions made about the economic relationship between the US and China that are questionable, to say the least.

The opening sentence begins by pointing out that “it is a cliche that the United States has no more important bilateral relationship than that with China.” Is that true? Steve Dunaway, adjunct senior fellow for international economics at the Council for Foreign Relations says:

“Only roughly 15 percent of U.S. imports come from China. Moreover, all of the basic types of manufactured consumer goods that China exports to the United States (clothing, textiles, footwear, toys, small appliances, etc.) can be imported from other countries or could be produced domestically. The prices for goods that could substitute for products from China would be higher, but the difference in costs would be relatively small.” [2]

It's Canada – NOT China - that is the U.S.'s largest trading partner. It has been for some considerable time. [3]

The Washington Post article goes on:

“The United States, in fact, consumed more than it produced, but China enabled this by accumulating $2.3 trillion in reserves and plowing much of it back into U.S. government bonds.”

In actual fact, it is clear that the US Government created the conditions under which America consumes more than it produces at home. Successive American Governments have deliberately pursued a policy entailing the embedding of its domestic corporations or their subsidiaries in foreign nations. “Investment abroad is investment in America” has been the slogan of American corporations at least since the late 1960s.

More below the fold...

by Daniel J. Becker


Back in June of '08 I asked regarding Jason Furman's appointment by Obama:

Is this the concession the Clinton/Blue Dog group was looking for? The DLC still keeps control of the money issues?

I asked because of his connection to the Hamilton Project at the Brookings Institute: Hamilton Project, a small think tank created by Robert E. Rubin, Bill Clinton's Treasury secretary and key economic adviser, and former Treasury deputy secretary Roger C. Altman...

Bruce posted a response by Furman regarding Obama's SS plans:

As president, he would work with Congress on a bipartisan basis to design the details of such a change, including the tax rate, how it is phased in over time, the linkage between these tax payments and benefits and other critical design elements of this plan.

We have known what Obama's position is since his campaigning.  Unfortunately, many have ignored it even blaming the victim (the voter) for his lack of left leaning action.   But, just to bolster the smacking up side the head Bruce is offering via NewDealDemocrat, I went digging further on Mr. Furman and found this from 2005 via Center on Budget and Policy Priorities:

By contrast, under traditional reform plans like that proposed by economists Peter Diamond and Peter Orszag, the debt would be reduced immediately, and by 2050, the amount of debt reduction would be substantial.

Mr. NewDeal stated:

In short, only a month into his Administration, Candidate Obama's insistence on tax hikes as the method of long term Social Security budget balancing was replaced by President Obama's embrace of the Diamond-Orszag plan...

I was certain with Hillary we were getting the DLC and all the Chicago School Econ we could handle. I was resisting the temptation of conspiracy thought when I asked if Furman was a concession to the Clinton power block, but I feel confident now that this is exactly what happened.  Hillary conceded on June 7th, Furman was appointed on June 9th.

Remember the 60's and the warnings about how the "Man" was messing with our heads? The message wasn't to be paranoid, the message was to be aware.

“The argument that the two parties should represent opposed ideals and policies, one, perhaps, of the Right and the other of the Left, is a foolish idea acceptable only to doctrinaire and academic thinkers. Instead, the two parties should be almost identical, so that the American people can throw the rascals out at any election without leading to any profound or extensive shifts in policy. Then it should be possible to replace it, every four years if necessary, by the other party, which will be none of these things but will still pursue, with new vigor, approximately the same basic policies.” — Carroll Quigley

by Bruce Webb (UPDATE: Digby readers, I want to make it clear that I am not NewDealDemocrat, I just got permission to cross-post this important compilation from NDD.)

Blog friend NewDealDemocrat has a recommended diary up on dKos called Mr. President, No Real Democrat is agnostic about Social Security. NewDeal gave me an advance look and authorized me to cross post it which I am doing below the fold. I don't entirely endorse the conclusions but think this is an important reference work, NewDeal having tracked down just about every public statement ever made by Obama on Social Security. So this is more an archival post to be added to the Social Security series. Comment here if you like but I would urge everyone registered at dKos to put in a word over there.

And yes as New Deal warns this is very long.

More below the fold...

I was going to post something a couple of days ago on Greece's derivatives deal, but knew I was missing a key piece.

It became prominent yesterday, and Felix's summary today gets it spot on:

So while it’s entirely fair to blame Greece for trying to hide its debt, and to blame Eurostat for letting it do so, I think that blaming Goldman is harder. It was surely not the only bank involved in these transactions, and the swaps were simple enough to be shopped around a few different banks to see which one could provide the best deal. Structuring swaps transactions is one of those things which investment banks do. If countries like Greece buy swaps in order to hide their true fiscal status, then that’s the country’s fault, not the banks’. No self-respecting bank would decline such a transaction because they felt it was unfair to Eurostat.

Yes, I’m sure that Goldman put a team of people onto the Eurostat rules and made that team available to the Greeks. But let’s not blame the advisers here, for structuring something entirely legal and which the Greeks and Italians clearly wanted to be able to do all along. This is a failure of European transparency and coordination; Goldman is a scapegoat. [emphases mine]

In the "good old days," some corporate treasurers would use swaps because they were an off-balance sheet way to bet on the movement of Treasuries. But the good ones were using them for asset-liability management: reducing their cost of funds and/or the risks associated with that funding.

Greece is Asset-Liability Management Writ Large—and they made certain that the Eurostat agreements specifically permitted them to do it. Only an economist would call the result an unintended consequence; the finance world will be surprised if they were the only ones.

Tom aka Rusty Rustbelt

The Independent Contractor Problem Continues and Grows

HT: Associated Press

The IRS and many state governments are stepping up enforcement of the use of “independent contractors” who are actually employees.

While there are plenty of legitimate business-to-business independent contractor arrangements, other businesses sidestep the law by misclassifying employees as ICs. (lay person readable information at the IRS site, http://www.irs.gov/businesses/small/article/0,,id=99921,00.html).

Example: Sam the General Contractor needs plumbers to work on new homes. He finds three plumbers, but treats them as “contractors” rather than as employees, although they meet the statutory definition of employees. Sam issues Form 1099 at the end of the year, in an attempt to look legit.

Taxation agencies know there is a lower percentage of income reporting from the ICs, and for those who do report the income there are usually expense deductions not normally useful to a real employee.

Taxation agencies receive less revenue, there are no state and federal unemployment taxes paid, and the ICs are not covered by workers compensation insurance.

This tactic is not limited to small businesses, ten of thousands of engineers and computer programmers have found themselves in similar arrangements (some by choice, some not). Also, millions of undocumented workers fall into this somewhere, with very little reporting by either employer or employee (or reporting with stolen or fictional identities).

Businesses using this dodge derive a huge advantage over legit employers. However, for those needing work, be a phony IC is a lot better than sitting at home. Raising costs is a bad idea right now, but legit employers already have those costs.

This is a game of whack-a-mole with millions of moles, and even I have some empathy for the tax agencies trying to get this under control. But then Sam might decide to get by with only 2 plumbers.
____________________________________-

Tom aka Rusty Rustbelt

What is a good approximation ?
The word good is important but very general. One (long long ago) I pulled a hair out of my scalp and told Elisabetta Addis (we’re married) “look my first white hair.” She replied “you have a very good wife and a very bad mirror.” Odd the same event, failure to point out my many older white hairs, can be both good and bad.
The same thing goes for approximations.
Click the link for my latest anti economic theory diatribe.

More below the fold...

Marshall Auerback responds to Rebecca's "I have to side with China on this one".

There's another factor as well. There's been an enormous increase in money and credit in the past year. In fact, it seems to be as great as 5 years' growth in credit in the previous Chinese bubble. What happens is that the increase in money and credit is so great and so abrupt that you tend to get a high inflation quite quickly even if there are under utilised resources? Add to this the fact that you've got massive fiscal stimulus occurring today in China.

You have the makings of a very messy situation: if China seeks to sustain demand via fiscal policy, then you could get a big inflation problem, which could severely erode the tradeables sector. And you have all of these Chinese students all steeped in Chicago School monetary theory, coming home and taking over. So they might do a Paul Volcker to stop inflation.

But, what if the they don't? Inflation can take off and thereby begin to ERODE the competitiveness of Chinese exports. This might be the real reason why China is so reticent to revalue its currency. The Americans might go crazy if the Chinese devalue, but if the inflation is high enough, they might have to do it, as it will severely erode their terms of trade and cause their tradeables sector to collapse.

Or you get the hard-line monetarists triumphing by fighting inflation and you get riots as unemployment increases.

It could get very ugly.

This could be happening now in China. Everybody says no. The consensus is that inflation is a couple per cent and it is all pork prices because there was a lousy corn harvest.

More below the fold...

Tamyra d'Ippolito has suddenly become a Very Important Person.

She needs signatures primarily in Indian's Eighth District (currently represented by Brad Ellsworth, who would be the Party's pick to replace Evan Bayh), Evansville, and Terre Haute. She has a background to make a Tea Partier proud:

I was born in Worthington, Indiana and raised in Linton. Currently, I live in Bloomington. I was raised an only child with a single, hard-working mother who "retired" from General Electric as a factory worker.

I attended college at Indiana State University in Terre Haute, receiving my degrees in Graphic Design and Photography. The United States government financed my education with federal grants.

In 1981, jobs were limited in Indiana so I moved to Houston, Texas and worked for over 3 years at Foley's, an advertising agency, as a Production Artist. At 25, I moved to New York City where I lived for the next 20 years. I worked on Wall Street for Salomon Smith Barney and later for Lehman Brothers. While in NYC I picked up another degree at the New York Film Academy in Filmmaking....

When I returned to Indiana, I was chosen by the Linton Rotary to go with a team to the country of Brazil. We were Ambassadors of the USA and traveled to 6 different cities. In Indiana, I became involved with World Learning. I worked as a Regional Director with World Learning in Indiana, Boston, and New York City

However, since moving to Indiana I have had no health insurance. I was diagnosed with colon cancer five years ago giving me a pre-existing condition. Additionally, I own a small business. Those two obstacles make insurance very expensive and unattainable. As a cancer survivor and small business owner, health reform is an issue that directly affects me like many Indiana residents.


I own and operate the Ragazzi Arte Cafe in Bloomington. I also founded the Poor Club, www.thepoorclub.org, after meeting many people who are in need. Our mission is to bring awareness and education to the fact that poverty is prevalent in Indiana and I want to make a change for the better.

I am a past board member of Women Inspire, www.womeninspire.org. I am also a member of PSI XOTA, a philanthropic sorority. Some of my accomplishments are Leadership Bloomington Graduate of 1995 and City of Bloomington Citizens’ Academy Graduate in 2008. I also serve on the Volunteers in Medicine Advisory Board.

Right now, the Democratic Party (having been royally screwed by its current Senator) is hoping that Tammy doesn't get enough signatures to qualify for the ballot, which would enable them to pick someone without bothering with a primary.

But here's a small business owner, someone who earned things and is quite aware of "from where it is that I come from."

In short, an ideal candidate from outside of the Establishment—but one who comes naturally without having to build a third party. And someone who—as a small-business owner—knows very well what works and what doesn't.

If the Tea Party people endorse her, then I'll take them seriously. If they avoid her because she would have to run with a (D) next to her name, then that will tell us everything we need to know about whether they are Astroturf.