by Bruce Webb

Well I guess my reputation precedes me at least a little bit. Jed Graham of Investor's Business Daily has devised a new fix for Social Security and published it as A Well Tailored Safety Net (link to chapter summary) and kindly offered to send me a copy to review. Well I am in the midst of a move South to Seattle and a new job search (see note under fold) and so won't have time for a full reading but will put some first impressions below the fold. Mr. Graham points us to a favorable review by Jonathon Chait Noam Scheiber on Chait's blog in The New Republic (h/t Graham) A Bona-Fide Social Security Fix as well as a piece in The National Review by Reiham Salam Jed Graham on Work Disincentives and concludes with some apparent satisfaction:

It’s kind of noteworthy when these liberal and conservative publications see eye to eye on an issue as ideologically divisive as Social Security reform. It’s even more noteworthy considering that these are two of the more thoughtful people writing about economic policy.

Well while Chait is a reasonably consistent liberal both him and TNR lean a lot heavier in the direction of 'neo' than 'New Deal' liberal, if we had an equally favorable opinion from The Nation maybe we could talk here. But Angry Bear readers can make up their own minds on the substance of the reviews and the overall political approach of the reviewers.

Meanwhile Mr. Graham appended a copy of his testimony to the Obama Deficit Commission What I told Obama's Fiscal Commission About Social Security.

Well having let Mr. Graham by implication make his full case up-front I will address some of his points below. Rather roughly I am afraid, since merits of his specific proposal aside he is working from the same flawed conception of Social Security as almost everyone else, he just adopts them to screw over workers in a slightly more equitable way than most other 'Reform' plans.

More below the fold...

by Linda Beale

Link Worth Noting: the Wall St. Journal's anti-FAIR Tax editorial, and Ed's comment at TaxProf
crossposted with Ataxingmatter

I've often commented on the so-called "FAIR Tax" on this blog--a proposal for a consumption tax that tends to be supported by GOP politicians and right-wing propaganda tanks and is often blatantly misrepresented in discussions. See, e.g., Bruce Bartlett on Fair Tax Proposal ; FAIR Tax: Huckabee's win in Iowa requires more discussion of his tax proposals. Caron on TaxProf notes today the Wall Street Journal's editorial on the issue and commenter Ed D notes a number of the problems with the FAIR tax that I've pointed out before.

The so-called "FAIR Tax" is in fact terribly unfair. It is an extraordinarily regressive tax, since it is a tax on consumption rather than income and at least the bottom half of the income distribution tend to spend all of their income. It is often represented as a 23% tax, but that figure is misleading, since it is calculated based on a tax-inclusive sales price rather than a tax-exclusive one as most sales taxes are (so a 23% tax is really considerably higher than 23 dollars on a 100 dollar purchase price). Further, the rate would have to be much higher than that to be revenue neutral-- at least 30% and realistically even around 50%. The Fair Tax proposal includes a tax paid by the government to the government and other unlikely sources of income, assumes no losses due to compliance problems, calls for "simple" enforcement due to elimination of the income tax, and assumes away transition problems (if our income tax were abolished in favor of this regressive tax) while shoving a huge burden to the states. All of those proposals are unworkable:

More below the fold...

This post caught my attention, and worth holding in mind as regulation develops.

After several weeks of officially pleasant interactions, signs are emerging that the Treasury Department’s knives may be coming out against Elizabeth Warren. In recent weeks, Treasury officials have leaked details about Warren to Politico as part of what appears to be an effort to paint her as some kind of prima donna. These relatively silly stories raise troubling questions, however, about what Treasury officials may be leaking with fewer fingerprints and greater ramifications.

The Politico pieces have been petty, but there’s no doubt they both came from Treasury. On Oct. 12, Politico ran a piece featuring this anonymous nugget (among others):

…

If Treasury is indeed behind the Date hit-piece, there could be no real question about Geithner’s machinations. Trash-talking Warren, her top advisers and the CFPB itself would be an unmistakable effort to compromise the entire enterprise. If it worked, Geithner could deny Warren the formal nomination as CFPB director, Warren would go the way of Brooksley Born, and less consumer-friendly officials could quietly crush the young agency.

That would be a shame, since a strong CFPB headed by Warren is the signature accomplishment of the Wall Street reform bill Obama signed this summer. Whatever its other shortcomings, the legislation created the opportunity to level the playing field between bigwig bankers and ordinary citizens and strengthen the financial security of American households.
That’s a big if, of course. But reformers will be watching Treasury very closely from here on out.

Robert Waldmann

Matt Yglesias wonders if people have to speculate in housing. What if someone wants to buy a house but doesn't want to gamble that house prices will increase ? Is there anything to be done ?

More below the fold...

by Linda Beale

Americans are voting on the wrong information
crossposted with Ataxingmatter

Even the Washington Post knows it--a new Bloomberg poll shows that Americans have wrong information about the Obama Administration's record.   see Americans Don't Know, Oct, 29 2010.  They mistakenly think taxes have increased (they haven't--they've gone down), that the TARP money won't ever be repaid (most of it already has been, and the bailout amounts still at risk are those used to bolster mortgage lenders); and that the economy is worse off because of the stimulus (not so--more than a million more jobs would have been lost without the stimulus, and many important public priorities have been funded).

The Obama administration has cut taxes -- largely for the middle class -- by $240 billion since taking office Jan. 20, 2009. A program aimed at families earning less than $150,000 that was contained in the stimulus package lowered the burden for 95 percent of working Americans by $116 billion, or about $400 per year for individuals and $800 for married couples. Other measures include breaks for college education, moderate- income families and the unemployed and incentives to promote renewable energy.

More below the fold...

Yesterday Eurostat released the September unemployment rate figures for the European Union and the Eurozone. From the release:

The euro area1 (EA16) seasonally-adjusted2 unemployment rate3 was 10.1% in September 2010, compared with [downward revised] 10.0% in August4. It was 9.8% in September 2009. The EU27 unemployment rate was 9.6% in September 2010, unchanged compared with August4. It was 9.3% in September 2009.

The Eurozone unemployment rate has been above the EU (27) unemployment rate by an average 0.45% since the outset of 2007.

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Max Sawicky, on his Twitter feed, sends us to this classic piece from Donald Luskin

Believe me, if we raise taxes on hedge-fund managers we'll get fewer hedge-fund managers. Today, with lots of hedge-fund managers trading all the time and keeping markets efficient, stocks are at record highs around the globe and markets are deeper, more liquid and less volatile. With fewer hedge-fund managers, markets would shrink, become more volatile and more costly, and tumble from their present highs.

The date on the piece is 20 July 2007. Just over three months later—pretty much exactly three years ago—the IB-sponsored MBS origination market effectively died, having taken much more value than was produced by the underlying property and placed it firmly into the pockets of traders and originators who knew that the present value they were claiming was—let us be nice—overoptimistic.

Does anyone wonder why Brad DeLong designated Donald Luskin "the Stupidest Man Alive Emeritus"?

This site, Remapping Debate, by Colombia Review Journalism shows some promise for information.

Here's a piece missing from the debate on the impact pension cuts on a consumer and credit driven economy (Coming boomer pension cuts...what impact on the economy, by Diana Jean Schemo) might have on the Great Recession.

It is long and has great links:

Over the last two decades, pension cutbacks have left relatively few private sector workers with defined benefit pensions plans. Now, with health and pension funds for state and local government employees said to be facing massive funding shortfalls, many are describing the guaranteed retirement benefits paid to teachers, police officers, street cleaners, and other public workers as overly expensive and sclerotic. These pensions, the argument goes, are unrealistic — they are throwbacks to another era that must now be curbed.
...

...If there is one document that can be said to have galvanized public alarm over the state of public pensions, it would be an analysis issued by the Pew Center on the States last February. The study, whose findings were reported by almost every major media outlet and echoed by countless lawmakers and pundits, threw a spotlight on public sector pensions and health benefits for retirees, estimating that these obligations were under-funded by at least $1 trillion. It urged drastic and immediate action to put existing pensions on more solid footing, and to lower future taxpayer obligations by curbing benefits. In state houses across the land, lawmakers are heeding the call.

But another major analysis of the movement in pensions, alarming from a different perspective, drew virtually no notice. The November 2009 study, by researchers at the Social Security Administration and the Urban Institute, modeled the consequences over the next 22 years of eliminating many defined benefit pensions. The report projected what would happen if, over the ensuing five years, all defined benefit plans in the private sector were frozen, and a third of all state and local government plans were also frozen. It then asked: what would that mean for the income of Boomers when they reach the age of 67, between now and 2032?

More below the fold...

Make your bets for Tues. elections

There’s a reason for this.

After the (wholly justified, understated) bitterness of my last post, a moment of cheer:  An old friend of mine is in the process of losing his job.

Now, normally I wouldn’t celebrate anyone—let alone a friend—losing a job, but, you see, he sells medical insurance in Texas and Indiana.  And he’s been told that over the next three years, his income will be reduced, and basically eliminated entirely ca. 2015.

Translation on a macro level: insurance companies—far from acting as if they are “uncertain”—are cutting the commissions they are paying to agents in preparation for greater competition as the phases of the PPACA come into effect.

We have already seen variations on this: insurance companies that will no longer write policies for only parents, because their children have other options.  Insurance companies complaining about the “cost” of having to cover basic services—you know, the preventive care that would seem to be implied when you call your plan a “Health Maintenance Organization” and which is covered by State Medicaid plans such as NJ FamilyCares.

More below the fold...

by Beverly Mann
lifted from an e-mail, used with permission of the author of the blog The Annarborist

This article in the New York Times on this one page court order by the Supreme Court elicited the following response from Beverly Mann:

“Eric M. Freedman, a law professor at Hofstra University, said that the lesson of the Supreme Court’s ruling in the Landrigan case was ‘crime pays.’

“He explained: ‘The state flatly stonewalled the lower courts by defying orders to produce information, and then was rewarded at the Supreme Court by winning its case on the basis that the defendant had not put forward enough evidence. That is an outcome which turns simple justice upside-down and a victory that the state should be ashamed to have obtained.’”

This is part of a Roberts Court trend that is, in my opinion, so very John Roberts: The erection of a cute procedural tautology that eliminates access to federal court because the specific evidence that the person trying to gain access (the “plaintiff”; the “petitioner”) will need to prove the claim is solely in the possession of the corporation or government entity that the claim is against.

Last year, in a case called Ashcroft v. Iqbal, the 5-4 crowd held it appropriate and in fact obligatory that trial-level federal judges dismiss civil lawsuits, willy-nilly, if the judge declares that the formal complaint (the document filed with the court that initiates the lawsuit) lacks evidentiary specificity sufficient to prove the case. This defies a longstanding federal statute known as Federal Rule of Civil Procedure 8(a), which explicitly bars dismissals of lawsuits in such grounds.

But no matter; the originalist/textualist/non-judicial-activist justices effectively rewrote that statute—eliminating the plaintiff’s or petitioner’s right to require the corporation or government entity to disclose the evidentiary specifics, e.g., internal memos; product test results; police audiotapes; (in the Landgrigan case) documents showing where the drug was manufactured and what it contains.

What’s most stunning about the order in Landrigan is the 5-4’s bald, deliberate conflation of the standard of proof for barring the execution using this drug and the standard for staying the execution until the state provided the evidence sought. These are—or at least were—two separate standards. And logic requires that they remain so.

This new rule of law that you have to present evidence that your opponent is keeping from you before you’re entitled to access to federal court is a dream come true for perpetrators of corporate and government malfeasance. And its quasi-legislative authors on the Supreme Court are frightening diabolical in quietly promulgating that rule of law.

by Barkley Rosser
lifted from Econospeak


Deleterious Doodling About The Deficit: What Else Is New? Department

In today's Washington Post business section, Lori Montgomery has a big article on "A renewed focus on spending," starting with how the GOP is making noises about cutting spending to cut the deficit without raising taxes, while not mentioning anything too serious, although Boehner supposedly might be open to cutting some loopholes in the tax code, thereby de facto raising taxes, if Grover Norquist will let him (assuming as most think that the GOP will take control of the House after next week's election), and if anybody thinks elimination of the tax deduction for mortgage interest is remotely on the table in a period with a terrible housing market, there is a bridge in Brooklyn for sale to them. Then most of the article lugubriously goes on about all the efforts at supposed bipartisanship on the Deficit Commission.

More below the fold...

How 720 became the new 680? article in the Washington Post drew the following reaction from Tom:

Credit: A Vicious Spiral
by Tom aka Rusty Rustbelt

Somehow over the years I became known as a bit of an expert in personal financial planning, I suppose the tax background plus getting dragged into senior financial planning (via my involvement in nursing homes and eldercare) and business client planning. I was also pretty good at assembling professional teams and keeping the right focus.

While I do not really practice any personal financial planning (except at the coffee shop pro bono) I do keep informed and I do troll my network for updates, and lecture now and again.

The Great Recession is hammering credit scores, for all of the obvious reasons. At the same time lenders, have been whipped for lending too easily, are raising standards and looking for higher credit scores.

So we get into a spiral of lower credit scores, higher credit standards, less lending, more credit problems, lower credit scores, etc. etc.

And if the economy does not come around soon, we may require a generation to get totally out of the cycle.

There will likely be more subprime credit available, at higher rates. Some retailers (such as auto makers) will use their own credit subsidiaries to lower rates and keep traffic coming. All in all, it is going to prolong the mess and prolong the misery.

The big reset, the "new normal" is upon us.

I doubt even the Internet's self-appointed Chief Geithner Apologist will be foolish enough to stand by him after this piece of shite:

Some people just don’t like movies with happy endings. How else to explain this week’s report by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP)? Rather than focusing on the growing evidence we’ve seen in recent months that TARP will be far less costly than anyone expected, SIGTARP instead sought to generate a false controversy over AIG to try and grab a few, cheap headlines.

There are no "facts" in that paragraph, and there is no excuse for this coming from Treasury. Ignore that Treasury is deliberately including selling off its expected future value as part of its "break-even" calculation. Ignore that Treasury's practice has been to count "TARP" (the first effort) as the only Government Subsidy to those institutions that have "paid back" their loans by ramping up debt and refusing to be "financial intermediaries" [Link updated] which was the half-assed justification for giving them that money in the first place. Ignore the billions of dollars of asset guarantees from the Fed that are still the only reason people pretend The Big C is solvent.

What we have is the Department of the Treasury impugning the purpose and the office of the Special Inspector General for TARP, that is the office charged with

the responsibility, among other things, to conduct, supervise and coordinate audits and investigations of the purchase, management and sale of assets under the Troubled Asset Relief Program ("TARP"). SIGTARP's goal is to promote economic stability by assiduously protecting the interests of those who fund the TARP programs - i.e., the American taxpayers. This is achieved by facilitating transparency in TARP programs, providing effective oversight in coordination with other relevant oversight bodies, and through robust criminal and civil enforcement against those, whether inside or outside of Government, who waste, steal or abuse TARP funds. [emphasis mine]

If Tim Geithner wants to whine that someone doesn't believe his lies, he's welcome to do so—as a private citizen, reaping the fruits of his last few years fellating Goldman Sachs by accepting the Senior Management position that surely awaits him.

And he should do so sooner, not later.

And, by the way, Barry: you should request and then accept his resignation. Because only the thought of Joe Biden (Sen-MBNA/BofA) as President keeps me from pointing out that such releases are your responsibility, sent out as part of whitehouse.gov. Enjoy your next two years, and the Palin/Huckabee Presidency you will have wrought.

by Linda Beale

UBS and other ? offshore bank accounts
crossposted with Ataxingmatter

The government's dismissal of a criminal information against UBS filed in Florida-- United States v. UBS AG, No. 09-600333-CR-COHN, Dismissal of Information, Oct 22, 2010-- leaves the tax cognoscienti wondering what the next step in its fight against secret offshore bank accounts will be.  Bryan Skarlatos of Kostelanetz & Fink says that "the UBS case was the beginning of the end of Swiss bank secrecy.  We don't know whether it's the beginning of the end of IRS activity, or only the beginning." BNA Daily Tax RealTime, (Oct. 25, 2010).

It is questionable whether the UBS case and Swiss changes to information releases are sufficient to call it the "beginning of the end of Swiss bank secrecy."    But it is likely that the government isn't finished with the topic, and that the information received through the reporting process will be tapped to target other banks and jurisdictions on the issue.  As Skarlatos noted, "the real question is whether another shoe is going to drop" or whether there will be "different strategies" going forward.  BNA Daily Tax RealTime, Oct. 25, 2010.

Switzerland and the UK have agreed to negotiated a new tax agreement requiring withholding on behalf of the UK on assets of UK nationals in Swiss banks and supposedly also a better provision for cooperation in tax evasion cases.   It will be interesting to see where this is five years from now--will wealthy Americans still be able to hide their assets in Swiss banks because the IRS can't get the information unless it already has enough information?  My colleage Mike McIntyre has written about the inadequacies of information exchange provisions when the government doesn't already know considerable particular information about tax evasion in progress.  See McIntyre, How to End the Charade of Information Exchange, Tax Notes (Nov. 9, 2009) (noting that banking secrecy is "not over yet").

Lifted from comments at Economix on the distorted comparisons of public versus private wages:

These BLS data have been frequently cited to support the claim that public sector workers are paid more than private sector workers. However, as described at a February 2009 conference sponsored by the Federal Reserve Bank of Chicago, the wage differentials shown above do not adjust for differences in the types of jobs in private and public sectors. According to an analysis of the 2008 BLS data presented at the Fed conference, the main reason for the wage discrepancy is that private sector jobs are generally lower-skilled and thus lower-paid retail jobs, while public sector jobs are generally higher-skilled and higher-paid professional positions, although lower-skilled positions pay more in the public than in the private sector due to higher levels of public sector unionization. Representatives of the BLS pointed out that "..roughly two thirds of public sector jobs are professional and administrative, while 51% of private sector jobs are; and retail sales and food service jobs, relatively low-paid and often part-time positions, represent 20% of private sector jobs, but only 2% of public sector jobs."

More below the fold...

Candorville
h/t Noni Mausa

The Japanese yen, the Eurozone euro, and the British pound have appreciated 16%, 14%, and 9%, against the USD, respectively, since their 2010 lows. Some say that the "US wins" since the Fed's quantitative easing (QE2) will drive export growth via a weaker dollar. (Note that the Fed has not actually announced QE2, this is all just speculation.)

I'm not suggesting that the stated Fed policy will be to drive down the dollar. What I do know, however, is that the United States production model is not structurally positioned to enjoy the economic panacea that is a persistent debasement of the dollar, neither in the near- nor medium- term.

More below the fold...

This is actually good news, since everything else the Fed has done has been to benefit the insolvent large banks.

Still, I didn't expect my post of three days ago to be such a perfect "negative indicator" so soon.

by Mike Kimel

There seems to be something inherent in human nature that leads to frequent predictions of the end of the world. Usually, those predictions turn out to be wrong and then require some form of backpedaling. As an example, folks who use(d) a statistical package called Shazam might remember the two quotes that appear at the start of the chapter on Probit and Logit estimation in the user's manual:

"The deliverance of the saints must take place some time before 1914."
Charles Taze Russel
American religious leader, 1910

"The deliverance of the saints must take place some time after 1914."
Charles Taze Russel
American religious leader, 1923

Charles Taze Russel, incidentally, founded the Bible Student Movement, which would birth, among other things, the Jehovah's Witnesses.

But more, er, secular predictions are not uncommon - there's always someone predicting that a given policy is going to bring gloom and doom. Those predictions are also usually wrong, but here there's an important caveat - sometimes the doo-doo really does hit the fan. The Great Depression happened, and more recently, so did the Great Recession. Even systems collapse - the past few decades alone have seen the end of the military dictatorships in South America, of the USSR, and of Apartheid in South Africa, which goes to show that the end comes to the bad as well as the good.

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Mark Thoma expresses his exasperation with the tax cut slogans of lawyers and journalists:

The disappointing part is that the press still lets them get away with this. At best, the press generally says something like "some economists claim this isn't true," implying there's a debate about this issue -- that some credible economists think the tax cuts will, in fact, pay for themselves -- when there is no debate and the answer is clear. Tax cuts don't pay for themselves.

If the press won't call them on this obvious falsehood, how can we trust them on anything? Instead of reflecting poorly on the press, this ought to bring the general credibility of the people making these claims into question. The press ought to ask something like, "Are you this ignorant about economics, in which case why should anyone vote for you, or are you deliberately misleading people? I'll assume you aren't ignorant, so here's the question. If you are willing to make false claims about the revenue generated from tax cuts in order to promote them for the wealthy, what other falsehoods will you be willing to promote in order to serve political ends? If voters can't trust you to tell the truth about tax cuts, how can they trust you on anything?"

But then, there is more to the story.

More below the fold...

by Tom aka Rusty Rustbelt

Health Care: Reinhardt thinks about (health) accounting

Uwe Reinhardt (Princeton) is one of the world's preeminent health care economists. In a NYT piece he makes an interesting attempt to define a new “health care accounting.” ( and see his earlier pieces mentioned in the article)

Reinhardt explains and critiques the evolution of financial accounting, and then draws parallels about how we might use some of the same tools and techniques to develop a new “health care accounting.”

Prof. Reinhardt oversimplifies and mischaracterizes financial accounting (space limitations the probable culprit) and some of the parallel fit and some do not (and health care accounting does not 100 years to evolve). Financial accounting is not without its problems.

I imagine Reinhardt knows something about the current efforts in benchmarking and cost analysis, so he is not completely in the realm of theory..

I would propose a slightly different parallel - not all accounting is financial accounting, managerial accounting has a much more diverse tool kit and may well offer a better framework for some aspects of a new health care accounting. Less public, more practical. This is actually the sort of analysis Reinhardt is promoting.

As I explained to students for many years, financial accounting is rule drive whereas managerial accounting is need driven, drawing from a big toolkit and utilizing both historical and prospective data and analysis, even economics. Cost accounting, a subcategory of managerial, is widely used already (e.g., provider cost reports) in health care.

Having read hundreds of pieces (journalism, opinion and scholarly) on health care in the past year, this piece is one of the most interesting. Economics marries managerial accounting and clinical benchmarking? Some potential here.


Reinhardt NYT

Robert Waldmann

Paul Krugman October 23

This isn’t original, although I don’t know who deserves the credit.

So, here it is: in effect, QE2 amounts to a decision by the US government to shorten the maturity of its outstanding debt, paying off long-term bonds while borrowing short-term.

[skip]

It’s just as if Treasury sold 3-month T-bills and used the proceeds to buy back 10-year bonds.

Angry Bear October 10

But why the Fed ? The Treasury is a huge player in the bond market. They are still selling long term bonds. Why ? What if the Treasury decided to finance the deficit with 1 and 3 month T-bills alone ?

No success link begging so far :-(

update: Oh nooooo. Now Paul Krugman has found a link, but it isn't to here on October 10 it is to EconoBrowser on October 3rd. "Missed it by that much" is a very week argument.

Robert Waldmann

Nate Silver, like essentially all election handycappers, ignores internal polls -- polls financed by one of the candidates or by the party of one of the candidates. Unusally, he explained why noting that even if the polls are unbiased there is extreme publication bias as campaigns release the polls if and only if they like the results. I think that, if this is the explanation of the known bias in published internal polls, then internal polls should be included in averages of polls.

More below the fold...

by Linda Beale

Democrats touting tax cuts
crossposted with Ataxingmatter

The New York Times ran a story this week about the Obama tax cuts--the point? while the Tea Partiers rage against the Obama administration because they want more tax cuts, they have missed the fact of substantial tax cuts under the Obama administration. See Michael Cooper, From Obama, the Tax Cut Nobody Heard of, NY Times, Oct. 18, 2010 (noting that a reporter's query at a Republican gathering ifound most commenters saying that their taxes had gone up under Obama and a NY Times, CBS News POll that showed that fewer than 1 in 10 Americans knew that Obama had cut taxes for most Americans, with a third mistakenly thinking their taxes had increased under Obama).

The reason for the failure to notice. It might be partly the vast expenditure of funds to support misleading propaganda that claims that the Obama administration's policies are terrible for ordinary Americans. But it is at least in part because of the design of the economic stimulus tax cuts--intended to let the tax relief arrive in paycheck after paycheck (about $65 a month for typical families) so that it would be spent and thus help the economy, rather than arriving in a lump sum that might more likely be used as savings/debt reduction that would have less of an effect on the economy, coupled with the fact that the recession was cutting into spending money as businesses cut back, construction workers worked less, state services declined and, in at least 30 states, state taxes rose (see CBPP, States Continue to Feel Recession's Impact, Oct. 7, 2010), and deductions for the ever-spiralling health insurance bills increased.

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I present an update on aggregate demand using the highest frequency of economic data available, US Treasury tax receipts. Tax receipts serve as a proxy for nominal aggregate demand via a nominal indicator of private payroll growth.

US daily Treasury tax receipts are improving. (This chart has been modified since its original posting to enable reader to click to enlarge).

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I have (vainly, I suspect, in both senses of the phrase), tried to start a meme on Twitter, #ifTimGeithnerrantheEmergencyRoom. “The defibrillator would only charge to 30 to prevent scarring; anything more and you’re on your own” probably isn’t winning friends or influencing people, but it does make me feel better.

It also makes me look back at the histories written of the time.  A detailed analysis of Keynes’s discussion of Goldman Sachs’s antics in the late 1920s, which echo their trading in middle 2000s, is left to someone else. (Suffice it to say, one never quite listens to John Denver’s “Take Me Home, Country Roads” the same way again after reading about Blue Ridge and Shenandoah.)

It’s the macro monetary moves that abide, and the lessons of history. Years ago, people failed to notice that money whose multiplier is 1 is not inflationary—most especially when you have one of the so-called “balance sheet recessions” where assets are being carried at a value significantly higher than can be realized even in Edward C. Prescott’s or Thomas M. Hoenig’s most lurid fantasies.  To wit:

Over time, Fed officials became increasingly concerned about substantial increases in bank reserves, especially excess reserves. During 1934 and 1935, gold inflows of some $3 billion contributed to a doubling of member bank total reserves (from $2.76 billion in January 1934 to $5.72 billion in December 1935) and more than a tripling of excess reserves (from $866 million to $2.98 billion; Board of Governors of the Federal Reserve System 1943, 371). The buildup of excess reserves alarmed Fed officials, who feared that these “idle” balances might permit a wave of speculation and inflation.

Using its traditional tools the Fed would have reduced reserves (or slowed their rate of growth) by selling securities and raising the discount rate. But this was not feasible in the mid-1930s. A discount rate increase would have had no effect on reserves since discount-window borrowing already was trivial, even at a discount rate of just 1.5 percent. Similarly, by mid-1935, member bank excess reserves alone equaled the Fed’s total security holdings, leaving the Fed unable to slow significantly the growth of total reserves through open market sales….

And the result, Basel III-like, of ignoring that the accounting Fantasies of Solvency were dwarfing the lending realities:

Alarmed at the sharp increase in excess reserves that had taken place since 1933, and viewing it as potentially inflationary, the Board of Governors increased required reserve ratios in August 1936, and again in March and May 1937. In total, the reserve requirements on time deposits were increased from 3 percent to 6 percent. Requirements on demand deposits were increased from 7, 10, and 13 percent to 14, 20, and 26 percent for country, reserve city, and central reserve city banks, respectively. The increases, according to the Annual Report of the Board of Governors for 1936, were intended to eliminate those excess reserves the board deemed ‘‘superfluous for prospective needs of commerce, industry, and agriculture, and, if permitted to become the basis of a multiple expansion of bank credit, might have resulted in an injurious credit expansion” (14).

If “those who forget the past may be condemned to repeat it,” are those who remember it and still fail to do anything are just condemned to be economists?

All quotes from Charles W. Calmoris and David C. Wheelock, “Was the Great Depression a Watershed for American Monetary Policy,” 1996-1998, as published in Bordo, Goldin, and White eds., The Defining Moment, NBER Press, 1998

Robert Waldmann is pleased to note that he was right and that Paul Krugman and Joeseph Stiglitz were wrongggg. They claimed that PPIP was a huge giveaway, because purchases of toxic assets would be 85% financed by no-recourse loans from the FDIC. I noted that this financing would only be available if the FDIC (not just Treasury) agreed, and that the FDIC had no intention of being taken to the cleaners.

Now I read that, so far, PPIP has generated a 36% annual return for the Treasury. That's not the point. The point is that it has generated approximately no profit or loss for the FDIC, because the FDIC refused to be played for suckers. They key sentence is

The Treasury is an equal equity partner in each of the funds and provided debt financing for the $29.4 billion program.

Note that the acronym FDIC doesn't appear.

*Sorry for the brief uninformative title. I foolishly precommitted to the title:

OK so Masaccio is a great painter but I don't know if he is right about the final outcome of the legacy loan portion of the Geithner plan. If he is I will write a post entitled "I Told You So."

Robert Waldmann

Krugman not considered a competent data downloader in the Newspaper which employees him.

Writing about the new slashed budget proposed in the UK, Landon Thomas Jr sees invisible bond vigilantes

" bond market demands to follow through on promised austerity plans." If this means anything it means that, before the announcement of the austerity bond prices were unusually low and/or falling sharply. In fact, bond prices were extraordinarily high.

"If you look at the real yields available in index linked gilts, even out to 2017 – seven years time – the real yield available on a index linked gilt is close to zero. That is telling you that rates are going to stay very low," he claims.

"When people are using an historic onset to base where 10 year gilts should be, the zero real yield is a very unusual situation, it would typically be closer to 2.5 per cent. Unless you are willing to say that the real yield is wrong and, as such, argue that the BoE are about to start hiking rates, I don’t think you can say that gilts are inevitably going to give you a poor return."

Looking ahead, Mr Apel

Most bond traders might be claiming they are worried about the deficit, but, if so, they are lying. The bond market says that the default risk is miniscule.

I propose we take up a collection to buy Mr Thomas a subscription to the New York Times.

bonus link to Peter Dorman Via Mark Thoma

Via Jonathan Turley, a real "it gets better" video:

By Daniel Becker

We all know the arguments about the loss of good jobs. Automation, competition, outsourcing. We've been told that America was striking out to raise it's status when it came to jobs. Don't lament the loss of those blue collar manufacturing jobs to cheap labor. They aren't worth it. Step up. The new jobs will pay more if you get educated. Well, an entire generation got educated, and they are now looking for a job that will just keep them at their status quo.


We seem fixated on just this singular aspect of the decline of the middle class. Well, there is an entire sector of our economy that was and is just as important to growing and keeping a middle class: Retail.

The entire economic focus on finance to the point of believing that all that is important to having a successful economy is to keep improving the efficiency of money has not only generated a formula for making money from money (CDO, CDS, ABS, subprime, leasing, arbitrage, shorting, longing, etc, etc, etc) it has also convinced us and made us act on the idea that consolidation is efficient and that efficiency is growth. The old "economies of scale" thingy.

Well, here from my friend is what he recalls of main street in Central Fall, RI. This is what we lost as a pathway into middle class for the sake of "efficiency".

More below the fold...

Chris Blattman highlights the latest version of Janet Currie and Reed Walker’s research on a positive externality of the shift to E-Z Pass (PDF link). From the Abstract:

We find that reductions in traffic congestion generated by E-ZPass reduced the incidence of prematurity and low birth weight among mothers within 2km of a toll plaza by 6.7-9.1% and 8.5-11.3% respectively, with larger effects for African-Americans, smokers, and those very close to toll plazas. There were no immediate changes in the characteristics of mothers or in housing prices in the vicinity of toll plazas that could explain these changes, and the results are robust to many changes in specification. The results suggest that traffic congestion is a significant contributor to poor health in affected infants. Estimates of the costs of traffic congestion should account for these important health externalities.

The interesting thing is that I read this paper a while ago—earlier this year, or even late last.  Well, maybe not this version of  the paper, but an earlier version of it which also showed significant positive results.  And it gets me thinking about how we deal with research.

Because the past six months or so—since the previous version—are six months in which this information apparently didn’t get disseminated to the Chris Blattmans and Kevin Drums of this world, six months during which uninformed people have bought houses near non-EZ-Pass toll plazas, six months during which every Republican candidate for the House or Senate not named Mark Kirk has spoken as if since climate change is not real, and therefore there are no possible reasons to reduce emissions. (As an aside, that the glorious liberal days of IN-9 are when Lee Hamilton seat for as long as he wanted it is an indicator of discourse shift, as this blog’s pretense to being “left of center” makes clear.)

In a limited sense, that’s probably as it should be.  People who knew about the paper read it, sent comments to the authors, asked questions, suggested changes and the refinements.  I’m certain the current version is a better paper than the one I read, with better details.

But there is likely someone who, in the past six months, bought a house near a toll plaza that doesn’t have E-Z Pass exits, thinking she was going to raise her soon-to-be-born child in a better environment than an apartment who would have liked to have known about this study, instead of ending up with "Buyer’s Remorse" in a real—not just an economic or psychological—sense.

As long as research is delayed by details and false narratives remain information-free, markets will remain inefficient. And people will have what economists gracefully call “suboptimal outcomes.”  Such as “prematurity and low birth weight,” neither of which is a positive indicator for future success and earnings.

From the Lex column in today’s FT:

Tim Geithner’s extraordinary denial that the US is deliberately weakening its currency is a reminder that the [Hong Kong Monetary Authority] should no longer talk blithely of the “unparalleled credibility” of US monetary policy.

by Beverly Mann
crossposted note from Annarborist

The National Review: Christine O’Donnell Wants the Koran Taught in the Public Schools

“O’Donnell stressed that preventing schools from the possibility of teaching intelligent design would violate the First Amendment clause that Congress could not prohibit ‘the free exercise thereof’ of religion. ‘He [Coons] forgot to quote [that] part,” she said.”

—The National Review, today

So Christine O’Donnell thinks that the Constitution requires that public schools teach religious beliefs and represent those beliefs as science. That, presumably, means that public schools are required to teach, say, the contents of the Koran as fact, too. Unless, of course, she thinks the First Amendment guarantees only Christians the right of free exercise of religion. In which case she forgot to quote that part of the First Amendment.

Tom aka Rusty Rustbelt

Health Care: book recommendation

Overtreated: Why Too Much Medicine is Making Us Sicker and Poorer by Shannon Brownlee

I was able to spend some time with Ms. Brownlee recently. She is a scientist turned journalist. I do not agree with everything she says be she is most thought provoking and we had quite interesting conversations..

Amazon link: http://www.amazon.com/Overtreated-Medicine-Making-Sicker-Poorer/dp/1582345791/ref=sr_1_1?ie=UTF8&s=books&qid=1287005120&sr=1-1

Tax Shelter Pleas Still Being Entered--Erwin Mayer

by Linda Beale

Erwin Mayer is one of the attorneys at the former firm of Jenkins & Gilcrhist.  The law firm, with accounting firms and financial institutions, helped wealthy clients evade tax "through deceit and trickery" (quoting the U.S. Attorney's Office for the Southern District of New York in its Oct. 19, 2010 press release about Erwin Mayer: Download Erwin Mayer Press Release).  Mayer pled guilty to conspiracy and tax evasion "stemming from his work in the design, marketing, implementation, and defense of fraudulent tax shelters, which resulted in the generation of billions of dollars of fraudulent tax losses claimed by tax shelter clients."

Mayer worked on tax shelterse at Jenkins & Gilchrist between 1996 and 2004, on shelters such as "short sales", "short options strategy" and "swaps".  The Short Sale shelter was marketed to at least 290 wealthy individuals, generating at least $2.6 billion in tax losses.   The law firm got a fee based on the tax loss generated for clients, and assisted with implementation at every stage of the shelter, providing a "more likely than not" opinion.  But Mayer admitted that he knew the shelters had no reasonable possibility of a profit because the costs exceeded the (non-tax) profit potential.  He'll face a maximum sentence of 5 years on conspiracy and 5 years on tax evasion and will forfeit his two residences and various accounts, worth more than $10 million.

Too bad the Feds haven't pursued the banksters that profited from their frauds on customers as aggressively.  Wouldn't we all--left-wingers and Tea Partiers alike--like to see the CEOs of Goldman Sachs and other investment banks suffer some real personal inconvenience and real financial losses out of the mess that they stuck on the rest of us with their securitization "get rich quick" schemes?

China took the world by surprise on Tuesday by raising bank lending and deposit rates for the first time since 2007. The story is, that restrictive monetary policy (i.e., raising rates) is needed to curb excessive lending, with an eye on mitigating inflation pressures. See this Bloomberg article to the point.

While restrictive monetary policy is needed, raising rates is not the only tool available to policy makers: China could allow their currency (CNY) to appreciate. With support from the fiscal sector, a broad CNY appreciation would improve prospects for global growth ex China via import demand. Instead, the higher domestic rates may crimp domestic demand, perhaps reducing inflation, but contemporaneously lowering import demand.

In my view, China's move yesterday should be viewed as competitive devaluation: reducing domestic prices in order to capture a competive edge. The currency war, as so-called by Brazil’s finance minister, Guido Mantega, is afoot; and China just confirmed its participation.

More below the fold...

Hat tip Atrios for the link to Bloomberg for another link to add to this chain of title in the
Bloomberg news

Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.

and Cedric Regula for this news.

Update: Of course, go out to do family things and news pops up...New fronts in foreclosure crisis at Naked Capitalism.

Atlantic Wire has a post based on Matt Taibbi's book America on sale, Griftopia. There are a number of considerations to be drawn from this deal, but the head spins with possiblities. When visiting my son in Chicago this year he told me of the changes on the practical side...charges from 7 AM to 9 PM, no holiday parking waivers, no merchant holidays, rates raised 400% as a first step increase...

Why Does Abu Dhabi Own All of Chicago's Parking Meters?
By Max Fisher

The city of Chicago has 36,000 parking meters. In 2008, it sold them on a 75 year lease for over one billion dollars. The buyers were led by Morgan Stanley. But as Matt Taibbi reports in his forthcoming book Griftopia, previewed in Rolling Stone, the state-owned investment arm of Abu Dhabi ended up owning a large share -- possibility a controlling majority -- in Chicago's parking meter system.

More below the fold...

New Tax Man at Huffington Post points us to a growing trend:

Nearly a dozen major banks and hedge funds, anticipating quick profits from homeowners who fall behind on property taxes, are quietly plowing hundreds of millions of dollars into businesses that collect the debts, tack on escalating fees and threaten to foreclose on the homes of those who fail to pay.

The Wall Street investors, which include Bank of America and JPMorgan Chase & Co., have purchased from local governments the right to collect delinquent taxes on several hundred thousand properties, many in distressed housing markets, the Huffington Post Investigative Fund has found.

In many cases, the banks and hedge funds created new companies to do their bidding. They gave the companies obscure, even whimsical names and used post office boxes as their addresses, masking Wall Street’s dominant new role as a surrogate tax collector.

In exchange for paying overdue real estate taxes, the investors gain legal powers from local governments to collect the debt and levy fees. At first, property owners may owe little more than a few hundred dollars, only to find their bills soaring into the thousands. In some jurisdictions, the new Wall Street tax collectors also chase debtors over other small bills, such as for water, sewer and sidewalk repair.

The Big Business Wall Street Won't Discuss Full VideoSome states allow the investors to tack on as much as 18 percent interest and a passel of legal fees and other charges. When property owners fail to make full payment, the investors can sue to foreclose – in some states within as little as six months.

And anatomy of a tax sale describes the 17 LLCs traced back to one hedge fund:

Fortress Investment Group, a hedge fund led by former Fannie May chief Daniel Mudd, emerged as the largest purchaser in the Pinellas tax lien sale, though it never used its own name to bid. The hedge fund spent about $12 million buying nearly 20 percent of the county's liens. It bought them using 17 different “limited liability companies,” or LLC’s, that trace back to its Manhattan headquarters.

A Washington Post editorial suggests the meme that deliquencies are the main concern for us to consider instead of ownership issues that are more fundamental and problematic. But the author also suggests the states are at fault for their antiquated registration system...

To be sure, the revelations of "robo-signing" and other sloppy or unlawful methods are disturbing. There are big lessons to be learned, especially about how mass securitization of poorly underwritten home loans may have swamped the states' antiquated, cumbersome property registration and foreclosure procedures. It is also true that the scandal underscores the failure of the Obama administration's efforts to prevent foreclosures.

But what matters most is whether the misconduct caused large numbers of people to lose homes they otherwise could have kept. And so far, officials have found no evidence of that. This is logical. The robo-signed affidavits at issue were part of a technical review of documents, not the actual determination of a borrower's delinquency. By the time robo-signers put pen to paper, default had been well established. An ironic consequence of diverting staff to fixing affidavits now is that it leaves fewer people to modify salvageable loans.

I had to recheck the date of the piece, which is this Monday Oct. 18, 2010. Banks have suggested there are only technical glitches for mostly foreclosure procedures, but to simply bypass documenting property ownership without asking anyone is okay? Stay tuned for new slogans.

Robert at Robert's Stochastic Thoughts says it more forthrightly:

They have decided that the time derivative (not the level) of house prices is more important than the principle that claims to own something should not be accepted without evidence.

They have the idea that the foreclosure mess is a bad thing and not good because it slows foreclosures (OK) and therefore we should just ignore massive widespread perjury and accept any banks claim to own a house just on their say so (and robosign so).

They assert that property titles are "antiquated." Lenin thought the same and it didn't work out so well.

All that is sacred is profaned all that is solid melts into CDOs of RMBS.

Update: How many times can a mortgage be sold? See Naked Capitalism for one answer.

I took a couple of days to let life interfere with blogging, but none of the standard politics/economics bloggers seems to have highlighted this note from the Lex column of last Wednesday’s (13 October 2010) FT (again, no link; feel free to provide in comments) under the heading “Defence M&A”:

Lockheed has two small services businesses on the block. [These] in particular appear vulnerable as Robert Gates, secretary of defence, looks for back-office savings to fund operational spending.

That’s pretty much a fair description of the reason for the existence of MERS.* If there is an area of the U.S. economy that it is more corrupt has poorer incentive-alignment than FIRE, it is Defense Spending.  Mr. Gates’s willingness to encourage that by removing processing controls does not bode well for long-term budgetary value.

 

*Well, the other reason, after tax evasion.

When the question is asked whether the Obama Administration are fools or liars—and a certain Chicago mayoral candidate is often nominated as both—you can be certain discussion of “the public option” will come up.

It doesn’t come up directly in today’s FT (page 4 of the print edition; no link; I get the paper edition, and there’s no relationship between the two*), but it certainly abides in the plan put forth by Paul Ryan (R-Innumeracy) to de-reform health care reform:

Congressman Paul Ryan…says he believes an arcane budgetary procedure known as reconciliation could be a vital tool for his party to scale back funding for some of the administration’s policies. Under congressional rules, bills passed under reconciliation—which must be related to budgetary issues—need only 51 votes to pass in the Senate.

It’s that self-same “arcane budgetary procedure ” that provided an opportunity to pass an initial health care reform bill with “the public option.” Strangely—feel free to Google for evidence—the Republican opposition to using reconciliation was varied and loud.  Now, it’s about to be their touchstone for dealing with health care budgeting.

Glenn Greenwald and D-Day have made the case that the Obama Administration were liars, not fools, when they declared they couldn’t pass the public option during the reconciliation process.  On the off chance we still believe they were only fools, it will be interesting—or, for some of us, horrifying—to see their reaction to an open declaration that the reconciliation process is fair game when used to reach Republican goals.

*If anyone in comments provides the link, I’ll add it.

Industrial production is clearly slowing as total output and manufacturing output fell 0.2% in September-- the difference between total and manufacturing output is utilities and mining and mining includes oil and gas production. The slowdown was widespread as output of oil dirlling and the information technology sectors both fell. About the only increase was an expansion of auto and light truck production from 7.75 to 7.84 million units. As the chart below shows after rebounding strongly in the early stage of the recovery industrial output is starting to closely followed the pattern displayed in weak recoveries.
My estimate of monthly productivity growth in manufacturing is also weakening sharply as the smoothed year over growth has slowed to 3.4% versus a peak rate of 9.0% in January of this year. Moreover, the smoothed three month growth rate and the unsmoothed monthly increase of only 0.1% in September implies that the slowing of productivity growth is not quickly reversing. Weaker productivity growth is bad for profits growth that historically leads income and employment growth. Weak productivity could imply that manufacturing employment growth was improving. However, the index of manufacturing aggregate hours worked peaked in May at 78.0 as compared to its September reading of 77.3. So on balance, prospects for continued manufacturing employment growth do not look encouraging.

by Mike Kimel

Discouraging Greg Mankiw From Working Would be Good for the Economy, Part 2: Why the Correlation Between Top Marginal Rates and Real Economic Growth is PositiveCross posted at the Presimetrics blog.

I had a post the other day noting that the correlation between top marginal rates and real GDP per capita is positive. Depending on how you look at it (i.e., growth over several years, growth over one year, going back to 1929, focusing only on the period since Reagan took office, etc) that correlation might be small or it might go above 50%, but it is positive. That is to say, higher top marginal income tax rates have not caused with slower real economic growth in this country. Not the message you'll get from most economists, but the data says what the data says, and where economists disagree with the data, its a sign that something is seriously wrong with the profession, not the data. (Note - the post appeared at the Presimetrics blog and at Angry Bear, and was in response to an op ed piece by Greg Mankiw noting that higher marginal income tax rates would dissuade him from working.)

Now, in that post I didn't explain why higher top marginal income tax rates haven't reduced growth, and may have, at times, dare I say it, actually been a force for faster real economic growth. So I'm going to cover that here.

More below the fold...

by Dale Coberly
An Op-ed

There's no way out of here said the Joker to the Thief
... or is there?

This essay grew by strange turns from an argument I was having with another Bear, with whom I agree about all important things.

A long time ago I went with some civil rights workers to visit a migrant labor camp for sugar harvesters near Belleglade and Pahokee in way south Florida by the Everglades.

What I saw there left no doubt that these people were underpaid and treated badly, and that there was a dangerous level of race-based hate among the poor whites in the neighborhood.

But what we saw there could be understood in another way.

More below the fold...

Hat tip comments in Economic Populist:

Where is the note offers a way to check on your house!

Request for original mortgage note and additional information

To whom it may concern:

This is a qualified written request under Section 6 of the Real Estate Settlement Procedures Act (RESPA). I own the property at the address listed above, and your bank services my mortgage.

Over the last several weeks there have been many stories documenting the problem that banks are foreclosing on homes without proof that they own the loan. I have learned that in many cases, banks like yours do not even know who owns the loans you service. Employees at several leading banks have admitted to rubber stamping tens of thousands of foreclosures every month, without even checking to make sure that the bank had a legal right to proceed with foreclosure. In some cases, banks allegedly falsified mortgage documents to cover up their mistakes. There have been reports of two banks trying to foreclose on the same home, banks foreclosing on homeowners who were current on their payments, and even of a bank foreclosing on a home where the homeowner had never taken out a mortgage to begin with. This is not merely a "technical problem"--it is the difference between having a warm bed at night and being out on the street.

...
To protect myself and my family, I need to know who owns my mortgage. Within sixty days, I would like to know the name, address, and phone number of the bank or investor that owns my mortgage. Furthermore, in light of the recent allegations of foreclosure fraud, I demand to see the original mortgage note proving ownership over my home loan. If you fail to produce a mortgage note proving that you have a right to collect my mortgage payments, I will be forced to consider all options available to me to ensure that my family and my home are protected.

I ask that I receive my response in writing. I understand that under Section 6 of RESPA you are legally required to acknowledge my request within twenty business days and must try to resolve the issue within sixty days.

Thank you for your attention to this matter.

And follow up by Michael Collins at Economic Populist on the states attorney general responses to the MERS record keeping versus municiple/county titles to property is worth a read.

Also see Denninger's piece on a an alternative to a general suspension of foreclsure activity, and a way to address concerns on proper 'title to property' for any house owner. Remember that while chances are small, there is at least one owner with NO mortgage who wound up in foreclosure proceedings.

Tom aka Rusty Rustbelt

Health Care: Leave the gun, take the cannolis

A few months ago I posted about the changing face of health care fraud, and especially about fraud committed by non-providers - such as non-existent durable medical equipment shops.

These groups often combine computer hacking, identity theft and bill-and-run phony front offices.

Today (13th) the federal government arrest 73 people charged with racketeering for creating more than 100 phony clinics in more than a dozen states and billing Medicare and Medicaid something like $163 million. The crooks, allegedly with an Armenian "godfather" in charge, stole the identities of both doctors and patients before blitzing the feds with phony billings from non-existent clinics. The "godfather" is in lockup today.

Meanwhile the feds are auditing legitimate providers with contract auditors and cranking up requirements for compliance work. Maybe the feds should pay more attention to internal controls before paying crooks?

Tom aka Rusty Rustbelt

NYT reports No Social Security Increase Next Year:

One feeling reported was this:

"I just hope there is some way to reconsider that decision (on the COLA) because it is going to affect so many people," Edelman said. "I can't understand why the Congress hasn't seen that there's been an increase in everything."

The explanation offered here:

More below the fold...

by Linda Beale

Misleading tax and spend rhetoric--public worker "overcompensation" and "too-high pensions"
crossposted with Ataxingmatter

In my earlier ataxingmatter post on how tax rhetoric is used in political campaigning and think tank propaganda, I noted that our nation is threatened by an epidemic of misleading tax rhetoric. The GOP for four decades has made tax cuts its primary (if not only) answer to every problem, as well as its first-choice tool to achieve their proclaimed goal of decreasing the size of government. (I say "proclaimed" since they are notorious, when in office, of actually increasing the size of government by significant increments while cutting revenues through tax changes especially favorable to corporations and the wealthy.)

The advent of the tea party, sponsored in large part by groups run by GOP operatives such as Dick Armey and Karl Rove with lots of corporate funding, has obfuscated matters even further. We are all familiar with the irony of tea partiers decrying government activities and federal taxes as evil while chanting that the government should "stay out of" their federally administered and tax-funded Medicare benefits.

More below the fold...

by Mike Kimel

Discouraging Greg Mankiw From Working Would be Good for the Economy
Cross posted at the the Presimetrics blog.

A few days ago Greg Mankiw had an op ed piece in the NY Times talking about how even small increases in the marginal tax rate would keep him (and by extension, other talented folks like him) from working.

For a laugh, I pulled data on the top marginal tax rate from the IRS and real GDP per capita from the BEA's NIPA tables. Data on the latter goes back to 1929, and the tax rate info goes back further.

More below the fold...

...Corporations. Since earnings season is now well underway, I decided to look at the breakdown of aggregate domestic income (gross domestic income). Corporate profits are up 44.7% since the outset of the US recovery, while wages and salary accruals are up just 0.9%.

The chart above illustrates the peak-trough losses (total loss), trough-Q2 2010 gains (total gain), and peak-Q2 (relative to peak) deviations of nominal gross domestic income, disaggregated by income type.

More below the fold...

by Linda Beale
crossposted with Ataxingmatter

Greg Mankiw's anti-tax arguments
[edits 3:00 pm]

When academics write about our own experiences in op-eds and blog posts, we risk making a common error--assuming that we can view ourselves objectively and that we can rationally dissect the pros and cons of our own situations as illustrative of humanity in general or at least of "typical" people in our circumstances. What we all tend to do is overlook obvious counterarguments to the position we espouse based on our own proclivities.

More below the fold...

Hat tip to Simon Johnson through Bloomberg and Baseline Scenario:

Public Input for the Study Regarding the Implementation of the Prohibitions on Proprietary Trading and Certain Relationships With Hedge Funds and Private Equity Funds

by Beverly Mann
crossposted with The Annarborist


GINNI THOMAS v. CLARENCE THOMAS

“The Supreme Court, issuing its first orders accepting cases for the new Term, on Tuesday edged toward analysis of the government’s authority to label information it has as a “state secret” and thus to prevent its disclosure in court. It will do so, though, only in a narrow context: the rights of defense contractors. The issue in two cases brought by major defense contractors is whether it is unconstitutional for the government to invoke the “state secrets” doctrine in a way that prevents a contractor from defending itself against a claim it did not live up to its contract.”

— SCOTUSblog, Sept. 28, 2010

More below the fold...

by Noni Mausa

How exactly do you create a job? Raising and Training Omadiki

How exactly do you create a job? The president is blamed for not doing it (but warned not to do it directly.) Business is exhorted to do it, (but not blamed for not doing it.) But what is the “it” that they are not doing?

A big heap of Lego blocks, piled on the floor, are mere caltrops to the unwary new parent. But with a little imagination, the blocks link up and can take the form of people, machines or even animals. Given enough blocks and a little ingenuity, the range of forms they can assume seems endless.

In human societies each person is a highly complicated Lego block, and each employed person is someone who has found a spot in a structure and helps animate it. This creation of powerful “living” structures out of many participants is a skill like no other species on our planet. To reify this sort of structure is difficult in English, since the words “team,” “crew,” “corporation,” and others all have precise meanings that don’t embrace the whole set. So, when in doubt, go check the Greek. And there we find the word omadiki, “group,” all handy to be stolen, ahem "adopted" for the purpose.

More below the fold...

I've been working on White Paper on Liquidity and the idea of a "market," and plan to post some pieces of it here over the next week or so.

But this is too good to pass up, and I'm late to the game as is.

On 15 September, the CFTC and the SEC held a joint "public roundtable discussion" on Swap Execution Facilities (SEFs). Part 1 is here, Part 2 here.

What is most amazing, if you didn't pay attention to the markets, is how few actual transactions occur in the "derivatives market"—at least according to people who work in the Industry and are discussants.

Take, for example, the Credit Swaps Market. According to ISDA, the Credit Default Swaps Market in 2009 declined to $38.6 trillion; that's $38,600,000,000,000, give or take forty or fifty billion.

More below the fold...

Via David Roodman's Twitter feed, the Economic Development video to watch if you're watching only one:

Pull Quote: "We have several unintended consequences that show that while we were growing Pakistan economically, we retarded our community, we retarded our ability to innovate, we retarded our ability to think. Those things are coming back to haunt us."

(Aside to Ryan Avent: if you treat economics only as a matter of money, it ceases to be a social science in any real sense. Is that really what The Economist wants to claim?)

Robert Waldmann

A new Washington Post, Kaiser Family Foundation, Harvard poll of US opinions on the role of government reminds me that actual people in the US have progressive views on the role of government.

click to enlarge

commentary after the jump.

More below the fold...

The kids in the next town over don’t.  Indeed, the place where my Eldest Daughter’s swim team practices is closed because it’s a holiday, and their schools are.  But not here: the banks are closed, the government offices are closed, the local libraries are closed. (Heck, the New York Public Library is closed.)  But the schools are open.

For more than three years, the teachers worked without a contract.  While the Administration grew—and paid itself very well, taking an ever-increasing share of the budget—the teacher showed good faith.  They continued to negotiate, continued not to strike.  It wasn’t until the third year that they started cutting back on the extra effort they put in—things such as displaying children’s art projects in the hallways--.

More below the fold...

Dean Baker finds gaping holes in deficit hawk rhetoric using the simple accounting identity that national saving must equal the current account (S-I = CA). If the domestic private-sector's desire to save is positive, then the only way for the public sector (i.e., government) to net save is for the economy as a whole to run a sizable current account surplus.

Singapore does just that. Spanning the years 2004-2009, the average current account surplus was near 21% of GDP, which enabled the government to run surpluses near 5% of GDP and the private sector to save 16% of GDP. Singapore is a net-saver in all sectors of the economy: private, public, and international. However, it's Singapore's huge current account surplus that allows the domestic sector to net save, and not all financial balances are created equally.

Let's use a slightly different version of Rob Parenteau's 3 Sector Financial Balances Map to illustrate that not all financial balances are created equally.

More below the fold...

by Mike Kimel

In Response to Bryan Caplan et. al., Part 2 - Unanticipating The Great Depression and the Great Recession
Cross-posted at the Presimetrics blog.

Last week I noted that Bryan Caplan, like many libertarians (and conservative economists as well), operates under the assumption that the data doesn't support the Keynesian view of the economy. I put up a few graphs showing he is in error, and that growth rates are, in fact, lower when libertarian and conservative economic prescriptions are followed. But the problem is worse than one of slightly slower growth - that would simply mean we're all just a little poorer than we otherwise would be. The problem is that every so often, bad policies leads to an outcome worse than just slightly slower growth.

Consider something I wrote back in March of 2008:

More below the fold...

Robert Waldmann

Alternative title: Stimulus without Congress.

Many argue that the Fed should buy long maturity and/or risky assets in order to reduce interest rate differentials. The Federal Funds rate is essentially zero, but interest rates which matter are still significantly positive so more could be done by some huge player in the bond market.

But why the Fed ? The Treasury is a huge player in the bond market. They are still selling long term bonds. Why ? What if the Treasury decided to finance the deficit with 1 and 3 month T-bills alone ? A now deceased parrot said that this would reduce the slope of the yield curve.

But so long as the Fed keeps the target federal funds rate roughly zero, that means lower medium and long term interest rates.

There must be something wrong with this proposal. What ?

What is the profound difference between the Fed buying more and the Treasury selling less which outweighs the fact that Obama can fire Geithner and can't fire Bernanke ?

More below the fold...

I just can't resist this story of moralizing and posturing for the cameras by MBA and matter of fact dailey business practice. Out loud, in the open, in your face...and no surprises, but are we really that disconnected from ourselves?

Mortgage Bankers Association Strategic Default

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
www.thedailyshow.com
Daily Show Full Episodes Political Humor Rally to Restore Sanity

by Beverly Mann
crossposted with Annarborist

Dan here..This post is quite long but interesting in the workings of the court and decision making process. Take the time, you will be rewarded.

WHAT A RECENT IN-CHAMBERS ORDER BY JUSTICE SCALIA ILLUSTRATES ABOUT THE SUPREME COURT

In a recent court order issued from his chambers that garnered attention in the legal blogosphere but not in the mainstream media, Justice Antonin Scalia stopped immediate enforcement of a Louisiana state appellate court ruling requiring several major tobacco companies to pay more than $240 million to fund a state program to help smokers quit the habit.

The Louisiana court ruling came in a lawsuit filed on behalf of all smokers who live in that state. The case is a class action filed under Louisiana state class-action procedural law, rather than under federal class-action law. The smokers allege that the companies violated Louisiana’s civil fraud law by distorting public and scientific knowledge about the addictive properties of nicotine.

In Louisiana as in most states, the claim of fraud in a civil lawsuit normally requires proof that the plaintiff relied, to his or her detriment, on the defendant’s misrepresentations. But in this case, the Louisiana appellate court ruled that class lawsuits alleging fraud are exceptions to that rule; under Louisiana class-action law, the class does not have to prove detrimental reliance on the part of the members of the class. So the smokers in this case had to prove only that the companies lied about whether the great body of scientific research showed conclusively that nicotine is highly addictive. Which they proved.

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