I just want to remind everyone that the last president to implement a federal pay freeze was Nixon.

And of course we all remember how that worked.

Just after that was when I left government for about a 33% raise in total compensation -- including fringe benefits and retirement.

So much for over paid federal employees.

If federal employees are so overpaid why isn't there a constant flow of people leaving the private sector for the high paying jobs in government rather than the other way around.

The funny thing about this is it always seems to be republicans who are leaving government because of the low pay for government employees.

More below the fold...

by Peter Dorman

The Impoverished, and Impoverishing, Debate about Fiscal Deficits
originally posted at Econospeak

It is like living in a dream—a very bad dream. Everything seems at once real and imaginary, serious and deliriously impossible. The language is familiar and incomprehensible. And it seems there is no waking up, ever.

I’m talking about the “debate” over America’s fiscal deficits, which is what I stumbled into after a night of much happier visions. Now, according to this morning’s New York Times, the left has weighed in with its own plans to achieve deficit stability. Of course, it is more reasonable than the pronunciamenti of the Simpson-Bowles cabal, with a wiser assortment of cuts and more progressive tax adjustments. Still, it is part of the same bizarre trance, disconnected from the basic laws of income accounting.

All you need to know is the fundamental identity. In its financial balance form, it appears as:

Private Deficits + Public Deficits ≡ Current Account Balance

More below the fold...

by Mike Kimel

Hauser's Law is Extremely Misleading
Cross posted at the Presimetrics blog.

A friend sent me a link to this Wall Street Journal opinion piece by W. Kurt Hauser. Who is he, you ask? Here's what it says at the bottom of the article:

Mr. Hauser is chairman emeritus of the Hoover Institution at Stanford University and chairman of Wentworth, Hauser & Violich, a San Francisco investment management firm. He is the author of "Taxation and Economic Performance" (Hoover Press, 1996).

Before I go on, let me note that in this piece, Hauser masterfully demonstrates the Hoover Institution approach to data. The piece contains enough, er, material that I could write several posts on it. Maybe I will, but for now I want to focus on his key point. Here are the opening paragraphs of the essay modestly entitled "There's No Escaping Hauser's Law":

More below the fold...

Ezra Klein explains that Medicare can't cut payments too much or doctors will opt out

The problem is that Medicare can't control costs too much better than private insurers or, as you see from the article above, doctors will simply abandon Medicare.

Klein seems oddly indifferent to the detailed text of the Afordable Care Act. I never would have guessed that I would ever type that. Medicare is four programs which are differently squeezable. Plan C (take advantage of Medicare) can be squeezed to death with relatively low costs to anyone but insurance companiies. Plan B can't be squeezed easily. Doctors can and do refuse deal with the CMS. Plan A can be squeezed as I argued here and here.

Now his conclusion is that Medicare fees can be restrained, but he neglected the fact that the recent health care reform was designed with the problem of doctors with office practices opting out in mind. Matthew Yglesias (another very smart guy) excerpted the silly part of Klein's post.

I blame myself. I wrote a post about how Klein is very smart and so he decided to write a dumb post just to spite me.

I recap the argument after the jump.

More below the fold...

Echoes of Japan, echoes of the Great Depression. One of the few economists who knows history closes a post by presenting the proper context for the choices:

A quick exit [by Ireland, from the Euro] may still be better than a decade of slow, grinding deflation combined with Zombie banks and Zombie household balance sheets being kept on artificial life support before the inevitable rise in interest rates at some point pulls the plug.


When Britain left the gold standard in 1931, the governor of the Bank of England famously declared (having been aboard a ship and out of contact when the decision was made): "I didn't know we could do that." Leaving the euro may seem similarly unimaginable to many, but it may be just as feasible. In the 1930s, cutting the link quickly led to a recovery of demand, by reducing deflationary pressures. Far from the shattering blow to confidence feared by many, exiting the gold standard was actually great for business. Leaving the euro may be every bit as good.

Assume I believe in risk-adjusted return on capital. That is, I don't buy a bond yielding 12% instead of one yielding 6% without first considering that the yield difference is affected by the likelihood of Principal return being lower. (But I will buy the 12% bond if I believe the risk premium is too high relative to the 6% bond.)

In short, I fit the second—not the more accurate "traditional" or the current even-more-bollixed "risk management" definition—of the Prudent Investor.

I can watch my neighbor buy more and more expensive gadgetry, while knowing that s/he makes no more than I do, has some old debts, and doesn't not have dynastic wealth (i.e., the possibility of inheritance or some other deus ex machina) to save himmer. And I notice that hisser buying is growing greater over time.

My neighbor decides to borrow money from people to support hisser ever-more-extravagant lifestyle. S/he offers rates slightly higher than the rate at which I can borrow. (That is, I can borrow money, take the interest payments from himmer, and pocket the difference—if the Principal is paid back on schedule.)

Do I loan the money to—effectively, buy bonds from—my neighbor?

My instinctive answer is "No," but I am a Prudent Investor. So perhaps I give my neighbor some money—monies I can afford, not something I need to borrow—as a token.

Under no condition do I become—by a margin of more than 2:1—the largest creditor of my neighbor's lifestyle. Not, at least, if I want to maintain my reputation as a conservative ("prudent") investor.

Mark Thoma says it well on the 'what comes next' dilemma facing voters and those making recommendations for policy:

there is supposed to be a "rest of the trick," but it doesn't come until later. The idea is that the labor that is freed up from the increased productivity will be used to produce new goods and services thereby increasing the quantity and variety of the nation's output. In a dynamic, growing economy, even though there's a delay before the new jobs appear (and hence a need to help workers through the transition), the new jobs are supposed to be even better than the old ones. But as workers look forward, the fear is that that won't be the case. Workers who have lost jobs face an uncertain future where, if they can get new jobs at all, they are unlikely to pay as well or have the same level of benefits as the jobs they lost. New workers do not appear to have the same opportunities that their parents had, particularly workers without a college degree.

More below the fold...

Nov. 30, is National Call Congress Day to fight Social Security cuts! It's not too late to commit to participating in this important event.

Call your Senators tomorrow (Tuesday) at 1-866-529-7630, toll-free. The operator will identify your senators by asking for your zip code. Call BOTH of your senators if you have time. It only takes a minute each.

by Mike Kimel

A Proposed Bet for Professors Bryan Caplan and David R. Henderson (and Anyone Else Who Believes Lower Taxes Generate Faster Economic Growth)
Cross posted at the Presimetrics blog.

Professors Caplan and Henderson,

Both of you have had recent posts that indicate you have some enthusiasm for betting on economic outcomes. (Your co-blogger at Econlog, Arnold Kling seems less enthusiastic about bets, and thus I have not addressed him by name here.) I have a few criticisms of your approach to betting. The first is that, frankly, y'all are betting on some rather peripheral issues. Why not cut to the chase? Why not propose a bet on something vital to your way of thinking but with which many people disagree? For example, as libertarians you believe that lower marginal tax rates on the "producer class" result in faster economic growth in a well-functioning, more or less market based economy, and that this outcome can be observed in the US economy. (Forgive the wordiness, but I want to be precise so you don't think I'm trying to trap you up in a technicality or some oddball example.) I believe you are generally wrong, at least about the US economy. Many people share your beliefs, and many people share mine, so this would be an ideal topic on which to bet if your goal is to prove a point.

Another criticism I have of the bets I've seen you propose is that your bets tend to be based on a small number of events, typically one or a handful of observations occurring over ten years or less. But that is too short a period to leave out the effect of random fluctuations, acts of God, or long running conditions. For example, though I haven't verified the data myself, I understand that it has been pointed out that had the Julian Simon bet (a favorite of Professor Henderson's) occurred a few years later results would have been different. A truly fair bet would look at more data. In fact, an ideal bet would look at many different overlapping long time periods. Results over ten year windows, twenty windows, thirty year windows, etc., would all combined to ensure that the results aren't just an artifact of the data.

More below the fold...

by Tom Walker (aka Sandwichman)

(Dan here...this piece is in the middle of a conversation starting in 1997 to now and how we measure up in our capacity or willingness to learn different lessons from the series of financial bailouts of the last thirteen years. The links are necessary to flesh out the argument, but I hope further posts will develop the debate for newcomers. This also marks Tom's new website Ecological Headstand)

Accounting for the Current Economic Crisis and Inadequate Political Responses

The day before yesterday, while searching for an online copy of an article on the rhetoric of Polish accounting he had cited many years ago, Sandwichman stumbled upon an old email list exchange from thirteen years ago between himself and the inestimable Miracle Max. The exchange illuminates the present economic crisis and the inadequate political responses to it from the left as only "a tiger's leap into the past" can.

More below the fold...

by Linda Beale

Increasing taxes on the rich
crossposted with Ataxingmatter

Sometimes a few letters to the editor can restore one's faith in the sensibleness of fellow Americans.  I particularly like Jerry Trupin's Nov. 25, 2010 New York Times letter responding to Nicholas Kristof's article on hedge funds.  In A Hedge Fund Republic, New York Times, Nov. 18, 2010, Kristof noted that the US has long surpassed familiar "banana republics" in rampant inequality, with plutocrats in the top 1%  controlling 24% of American income in 2007.  In that context, it simply doesn't make economic sense, Kristof says, for Congress to plan to give $700 billion in tax cuts to the wealthiest amongst us for the next ten years and yet not be willing to extend unemployment benefits for the long-term jobless as a result of this recession.  The richest 0.1% of taxpayers would get an average tax cut of $370,000--no way, Kristof says, that they will hire enough new groundskeepers and garage maintenance personnel to make that a good way to jumpstart the economy,  compared to getting money in the hands of those at the bottom. Tax cuts didn't work to create jobs in the Bush II regime, and they're not going to work now.  Getting money into the hands of the poor and middle class--especially the unemployed--does. 

Trupin's brief letter says it all--as one of the fortunate whose taxes would increase if the Bush cuts aren't renewed for the wealthy, he benefited last year by being able to refuse to take out a 401(k) minimum distribution, saving himself $28,000 in taxes but not spending an additional penny.  That was a giveaway for the rich, as so many of our policies have been.  And it didn't do a thing to create jobs.

What Treasury under Geither does, according to the Washington Post:

"I think we are known as the front line," said [Michael] Pedroni, 38, a former International Monetary Fund economist and Federal Reserve Bank of New York employee who has spent time at a Wall Street research firm. "Our analysis is meant to be very candid, very quick, very unvarnished."

Fortunately, he left the FRB NY before Geithner did, so it's not a question of nepotism, just the finance perspective.

A letter sent from Ireland (updated):


For less than what the US spent to save AIG, a corporation, with relatively easy terms; a country sinks below the financial waves. TBTF reaches across the ocean. As posted by Zeus-boy, his comments on his homeland of Ireland. (introduction by run75441)

Ireland is Bankrupt

Herman Van Rompuy, President of the European Council, warned that if Ireland didn't apply for an EU/ECB/IMF bailout for its failed banking system, its soaring budget deficit and its colossal national debt, then the European single currency might collapse [the bond markets have already panicked and cashed in], and if the International markets lost confidence in the Euro, then the dissolution of the Union would quickly follow. He said the future of the Eurozone depended on stemming the tide of market distrust caused by the tanking Irish economy. He feared contagion, that Portugal and Italy and Spain would soon follow.

More below the fold...

This is another post linking to Ezra Klein. I can't help linking to his post noting that self identified Republicans and Democrats agreed about how the economy was going when Clinton was President, but then disagreed when Bush was President, with most Republicans saying it was excellent or good in 2006.

The data from Pew.



My thoughts after the jump.

More below the fold...

First, there was Fred Schwed's Where are the Customer's Yachts?, which is still the standard bearer for why Money Managers are overpaid.

Now (via the NYT) there is The Investment Answer (preface here [PDF]).

The Prologue opens more Matt Taibbi than Jason Zweig:

Wall Street brokers and active money managers use your relative lack of investment expertise to their benefit...not yours

Of course, they have a method That Will Work to solve this, which looks suspicuously like what those Active Money Managers say they do. And what you would think Economic Theory would tell you to do, which may be why they have the endorsement of Eugene ("the markets are too efficient") Fama among many others.

Perhaps it's time for economists to model why economic theory doesn't work?

The last time people realized their money managers were taking them for a ride, the market basically sat still for a generation. Whether this dying text is a leading indicator is left as an exercise, though not an academic one.

by Linda Beale

Friday Animations: Why is health care reform so difficult
crossposted with Ataxingmatter

If you think about it, health care surely is one of the basic human needs that we should try to ensure is met for every person, if at all possible. That's the idea behind universal health care--that is, that the US should have a system that covers everyone, not just the wealthy. That no one should have to give up home or job to have health care. That no one should die from an easily treatable illness simply because they didn't have enough money to pay a doctor. That our health system should work for the people, and not for corporate interests. That health insurers, if they are to be involved, should only be making a reasonable profit out of guaranteeing that the services we want are available--they should not be able to deny care, they should not be able to decide what kind of care is available, they should not be able to rip people off for exorbitant profits. Because they are providing a service that meets basic human needs, they are a quasi public utility and must be regulated as such, if they are to exist at all.

Other countries seem to have managed this much better than we have. Canada's health care system costs about half what ours does yet provides better service. Same in Europe. We have missed the boat.

The health care reform act is just a first step in the right direction. It involved way too much payoff for the health insurers, and not enough reform. But it is a start. The new rules about pre-existing conditions are very important. The mandatory coverage is very important. Eventually maybe we'll finally be able to enact a public option. And then, who knows, maybe we'll finally enact a single-payer system that will provide to Americans the quality of health care, at the lower expense, that Europeans have enjoyed for decades.

So here's today's animation feature--a reminder that health care reform made some progress, but that we have a long way to go. What we don't need, however, is gutting of the little progress we did make.

Higher Wages, Profit Sharing and Greater Flexibility Benefit All Employees -- And the Company Bottom Line Too
(link repaired)

Costco is so certain that its policy is sound that it has kept paying better wages than rivals, even as Wall Street has pressured the company to conform to industry standards.

As the economy slowly recovers, it's no secret that companies would like to boost productivity and profits. Many think the best way to do so is to slash costs. As an entrepreneur and business owner, though, I'd like to suggest another idea: Pay your employees more.

That's not as crazy as it sounds. A growing body of evidence is revealing that companies that pay fair wages, and offer flexibility and training to even entry-level and lower-skilled employees, do better than those that don't. A vast number of businesses mistakenly assume that their lowest-wage workers are easily replaced or not worth investing in, but those that do the right thing soon find that they're doing the right thing for their bottom lines. It's time that this becomes a business norm.

To solve the deficit, the numbers add up - but not the votes Ezra Klein

The sudden proliferation of deficit-reduction plans is a reminder that the deficit is, at its heart, a math problem. To get the budget into "primary balance" in 2015 - that's wonk-speak for a balanced budget before interest payments, and it's the target everyone is trying to hit - we need $225 billion in savings and new revenue. And you know what? That's not so hard.

You get there by adding taxes and subtracting spending. As the differences between the various plans suggest, there are a lot of ways to do that. Alan Simpson and Erskine Bowles, the Bipartisan Policy Center, Rep. Jan Schakowsky (D-Ill.) and the conservative Americans for Tax Reform all have their own proposals, with their own unique mixes of policy suggestions.

Resolving the deficit, however, requires a different sort of math. The equation is almost insultingly simple: 218 + 60 + 1. That's a majority in the House plus a supermajority in the Senate (though you could do this through budget reconciliation, meaning you only need a majority) plus a signature from the president. This math problem, however, is almost impossible to solve. That's because the politicians don't agree, and perhaps more important, neither do the people.

EEOC offers this information:

The Commission heard testimony from a number of experts on the impact of the economic crisis on older workers, the legal issues surrounding age discrimination today, and best practices to retain older workers. Dr. William Spriggs, Assistant Secretary for Policy, U.S. Department of Labor, testified that the rate of unemployment for people age 55 and over “rose from a pre-recession low of 3.0 percent (November 2007) to reach 7.3 percent in August, 2010, making the past 22 months the longest spell of high unemployment workers in this age group have experienced in 60 years.” Older workers also spend far more time searching for work and are jobless for far longer periods of time compared to workers under 55.

(bolding mine)

Econospeak's Peter Dorman has an excellent debate going on with Sandwichman and cian, among others, about using GDP as a main measure of a healthy economy, the components of growing the economy, and the state of mainstream political economic discourse. We have touched on related issues on Angry Bear. Our own Rusty puts the question in literal and layman's terms. It is a theme that would be worth pursuing here I believe.

Matthew Richardson, a professor at NYU Stern School of Business, offers his thoughts on risk management and the economy.

Market Failure Cannot Be Resolved Without Regulation

Matthew Richardson on November 23, 2010, 12:00 AM

I am all for free markets and not mucking them up with government intervention. But the economic theory of regulation tells us that if there is a market failure, it cannot be resolved privately. The public sector must get involved.

The most illustrative examples of such failures in U.S. financial markets were the frequent financial panics from the 1850s until the Great Depression. Those episodes taught us that when illiquid, asset holdings (e.g., loans) of the financial sector are financed short-term (e.g., by deposits), and are hit by a severe macroeconomic downturn, failures of financial firms can lead to system-wide runs on deposits. This in turn leads to a massive disruption of the system that provides credit to households and corporations. When economists bandy about the term systemic risk, this is the type of event they are referring to.

The market failure here is that, although each financial institution may have been behaving optimally on an individual basis, the firm had no incentive to take into account the effect of their actions on the system as a whole. In economics, we call this a negative externality and it is analogous to an industrial firm causing pollution. In the example above, financial failure of one bank increased the possibility of runs on other banks, leading to the system-wide collapse.

More below the fold...

by Tom aka Rusty Rustbelt

Consumer Finance: Let Wal-Mart be a Bank

One of the side effects of the "great recession" is damage to credit records and banking relationships for many people who get in financial trouble. Many of them will have trouble reestablishing banking relationship (that the banks caused the recession is irrelevant, of course) because the bank computers have them on a reject list, even for a savings account.

Several years ago Wal-Mart starting actively talking about becoming a bank, and the banking industry and their lobbyists went all postal insane on Congress (some Wal-Marts have a Wood Forest bank branch).

Truth is, for many people, the customer service counter at WM is already their de facto bank. They use it to pay bills, transfer money, cash checks, and use prepaid debit cards and gift cards for many purposes.

So, since Wal-Mart is already a de facto bank for millions, why not let it be a bank? The other banks do not want the business anyway.

(PS: some academic research I did a few years ago leads me to believe WM plays a major role in transferring money from undocumented workers to Mexico, although WM denied in writing the possibility of such transfers, while running a discount special on transfers to Mexico!)

by Linda Beale

WaPo (inaccurately?) reports consensus forming on deficit
crossposted with Ataxingmatter

The buildup in the corporate media supporting the corporatist wishlist on budgeting is growing.  First there was the clamor about the Bowles-Simpson road map to conquering the deficit--depicted as a reasonable, middle-of-the-road approach.  Bowles-Simpson is a neo-liberal/neo-conservative group of people with little understanding of the predicament of the vulnerable middle class in this economy, and apparently as little creativeness for moving the economy out of the stagnation from the four decades of Reaganomics and into a new era of broad-based growth that lifts all boats, rather than just the yachts of the already rich and famous.

More below the fold...

The International Federation of Health Plans released its 2010 report today. (PDF here.)

The good news is that the problem is clear: Americans pay too much for the same services. The bad news is (1) we've known that for years and (2) the factions who are gaining these excessive rents want to keep their sinecures.

But I've said this before. That it remains true is as true as "that which cannot go on will not go on."

How it ends—its eschaton, as it were—is what is being discussed. Hint to doctors: You are the farmers of the 2010s; you will lose either way. (Think 1994 all over again, this time with a vengeance.)

by Bruce Webb

Strengthen Social Security a coalition of progressive organizations determined to protect and strengthen Social Security, coordinated and hosted by Social Security Works (or maybe by now SSW is hosted by SSSC) produced the above graph. I didn't see it on their website and so grabbed it from Ezra Klein's post (which does credit SSSC) The Future of Social Security in One Graph

This doesn't tell the whole story, for one thing it shows wage indexed results which would seem to discount the actual gains in real benefits under the current schedule, and for another it would be interesting to see the results on the "if nothing is done" trendline if we added in the revenue effects alone of the other plans. But however you slice it clearly the goal of 'reform' is not to deliver an appreciably better result for workers, at best they are being asked for a significant giveaway from the current schedule.

More below the fold...

by Linda Beale

Irish Bailout--impact on taxes uncertain
crossposted with Ataxingmatter

As plans for the $100 billion bailout of the Irish economy and banking system by the European Commission, International Monetary Fund and European Central Bank continues, Ireland's downtrodden prime minister (who will call elections after the budget is finalized) has said that it "will not" change its corporate tax haven status--its corporate tax rate of 12.5 percent will remain for now.  At the same time, however, Daily Tax RealTime reports this evening comments today by Eurogroup President Juncker that discussions about Ireland's low corporate tax scheme are ongoing, Both France and Germany would like to see Ireland raise its rate closer to the average 25% EU rate.

North and South Korea Exchange Fire Near Border reports the New York Times.

Mark Thoma goes to something called the Business Ethics Blog for an economics thought-experiment:

A Montreal accessories company has taken its policy of using no animal products beyond the rack and has forbidden its staff from eating meat and fish at work.

A former employee says the policy violated her rights as a non-vegetarian….

It’s an interesting experiment for many reasons, none of which deal directly with economics as it is currently taught.  For one thing, it is a dictated change in a contract with workers.  As a standard microeconomics problem, there is a negotiation, the worker’s preferences are examined, and the student is asked to find an economic balance that will satisfy the worker, with the implication that the employer desiring the change with provide compensation. (Note that the standard intermediate or graduate-level microeconomics problem merely teaches math, with dollars and preferences substituted for widgets and variables.)

For another, there is insufficient information to discuss externalities. (Aside to Brad DeLong: it’s not only, or even most importantly, Irving Fisher who is forgotten; Alfred Marshall appears to have been stripped from the curriculum as it transmogrified into a Libertarian Wet Dream.)  Absent evidence, we cannot know if the company had a legitimate reason for banning meat eating. Perhaps chemicals used in their processes combine with some proteins and produce a marginally higher level of cancer in those exposed for long periods. Perhaps the maintenance crew has discovered multiple rat nests because the workers have not been attentive to clean-up requirements, leaving enough pieces of pork, chicken, beef, and tripe around to make the building a desirable habitat. We do not have sufficient information.

We do, however, know that bars that permit smoking produce lung, throat, and other cancers in even the non-smoking bartenders and wait staff.  It may be unlikely that the aggressive hormone and radiation treatment given to meat these days produces a similar effect—radiation and drug treatment, after all, are both perfectly safe—but it is also possible that the company has seen recent research that indicates otherwise and fears for its future health-care costs.

We also do not know whether the company provides eating areas for its staff, or under what conditions it does.  Is there a company cafeteria (or eating spaces on various floors) that provides napkins and utensils to those who bring their own food? Is eating at one’s desk permitted? (I have worked places where it is not.) In such a case, we cannot even model the type of microeconomics problem referenced above, because we do not know the extent to which the workers are being told to give up something. (Smokers having to leave the building has positive externalities for them, such as work breaks others do not get and social networking opportunities that provide compensation.)  We cannot, in short, know the value of the widgets or the identities of the variables.

The question then becomes whether this is an economics problem at all.  And, if we assume it is, what does that mean for other. more standard, problems?  On the Next Rock: capital, labor, and taxation.

Brad DeLong notes an experiment subject (as is the wont of the Obama Administration to date) to regulatory capture:

In a surprising move, the Obama administration will extend special bonus payments meant to reward top-performing Medicare Advantage insurers to those that score only average ratings....The law says bonuses, which start in 2012, would go to insurers that scored at least four out of five “stars” on a set of quality measurements. Instead, a “demonstration project” authorized by Medicare officials will extend bonus payments to plans that score at least three stars. Based on this year’s star ratings, the change means 62 percent of all Medicare Advantage insurers...will qualify for the quality bonuses, compared with only 14 percent of plans under the health law provisions.

If those figures are accurate, then 48% (62-14) of all M.A. insurers are judged to provide "average" (three star) quality.

Perhaps more importantly, 38% (100-62) are judged to be substandard. (The good news is that those M.A. insurers have only 16% of the market. The bad news is that they have 16% of the market.)

In the optimistic version, the new structure facilitates culling the worst of the herd while not damaging that plurality of users who are receiving "average" care.

The pessimistic version is to suspect that those 16% who receive substandard care are in non-competitive markets, and will therefore end up, for the next three years, paying more for the privilege of being ill-served and then receive only marginal benefit from the HIEs.

I'm uncertain whether Dr. DeLong is a pessimist, or is just looking at the additional short-term spending and ignoring that the endgame is to have quality providers in the HIE, and punishing the bulk of the market for the ills of the few this early will make improvements later on less effective.

Then again, I'm uncertain whether I should trust that the Administration knows what it's doing on its Signature Issue. Which is, as Digby noted in another context, rather more the problem for that Administration.

Beat the Press Dean Baker November 22, 2010 says it well:

The Washington Consensus That Excludes the Overwhelming Majority of the Public

A front page Washington Post editorial * touted the "accord seen in debate over deficit." It begins by telling readers that: "the sacrifices necessary to achieve those goals are coming into sharp focus."

Included in the Post's list of sacrifices are cuts to Social Security. It never mentions the fact that poll after poll continue to show that the vast majority of the public strongly opposes cuts to Social Security. It is only the select group of Washington insiders that the Post chose to cite that is agreeing on the "sacrifices necessary."

More below the fold...

by Mike Kimel

E Pluribus Unum and Our Finest Hour
Cross posted at the Presimetrics blog.

But if we fail, then the whole world, including the United States, including all that we have known and cared for, will sink into the abyss of a new dark age made more sinister, and perhaps more protracted, by the lights of perverted science. Let us therefore brace ourselves to our duties, and so bear ourselves, that if the British Empire and its Commonwealth last for a thousand years, men will still say, This was their finest hour.

Winston Churchill, Speech to the House of Commons, June 18, 1940

Assuming, as many do, that the British Empire ended some time around the handover of Hong Kong, it did not last a thousand years. (Britain and its Commonwealth, of course, are still going strong.) Nevertheless, I suspect many would say that Churchill got his way, and that the Battle of Britain and the remainder of World War 2 was, in fact, the finest hour of the British Empire.

What about the American Empire? If we define that institution as existing from some time around the Spanish American War (1898) to the point where it was overextended and became unable to impose its will on friend or foe alike (i.e., some time around 2005), what was its finest hour? What were its most impressive achievements, those that will be written up in history books a thousand years from today?

I am not a historian, but I have a few guesses, in no particular order: (below the fold)

More below the fold...

by Linda Beale

ABA TAx Section Pronouncement on Carried Interest
originally posted at Ataxingmatter (Nov. 10)

The American Bar Association Section of Taxaction has issued a letter on Comments on Carried Interest Proposals in senate Amendment 4386 to H.R. 4213 (Nov. 5, 2010).

As many are aware, a letter from the officers of the ABA Tax  Section is one that has been developed by a relatively small group of participants and submitted to the council of officers for approval.  Most members have little opportunity, if any, to comment on the statement, though one can assume that in many cases the statements are likely to represent the views of a majority of the membership.  The leadership is not likely to step lightly into territory that they do not think would be supported by a majority of the membership.

This letter went to the current chairs and ranking members of the House Ways & Means Committee and the Senate Finance Committee, with copies to staff directors as well as the Chief of Staff for the Joint Committee on Taxation.

More below the fold...

US firms warn Irish over tax move

The Irish government has been given a stark warning from some of the biggest American companies in Ireland on the risk of a mass exodus if the country's low corporation tax rate is raised.

What is the difference between a multinational corporation and a trans-national corporation? And what will be the growing consequences for US firms as voters imagine they are versus changes happening at an accelerating pace in real terms?

In that I am not going to answer this question this morning, I believe it is a topical discussion. Could use some links, however.

The NYT notes this morning:

Ireland Will Apply for Bailout Package

Irish finance minister Brian Lenihan confirmed today that
Ireland had formally applied to Europe and the International
Monetary Fund for a bailout package.

He would not give an exact figure but said the amount would
be in the tens of billions of euros and that the final figure
was still subject to further negotiations.

by Linda Beale
crossposted with Ataxingmatter

Friday Animations--being a good mother

These days the tea partiers and libertarians have tended to mock those who think that we should all tax ourselves to take care of those who are less fortunate, and that the wealthiest amongst us--corporate managers, private equity managers, and shareholders--should pay more in taxes. Libertarians claim that everything they have "earned" is theirs, and that the government is stealing from them. They forget, or fail to notice, that nothing they have earned would have been possible without roads, contracts, internet, schools, disease control, decent food, clean air, clean water, clean soil, etc. Those are the things we want government to do for us--protect and preserve the environment that nurtures us, protect and preserve the infrastructure that gets us to and from our work and homes and lets us socialize with our friends and co-workers, protect and preserve our sources of food, clothing and housing. Help those of us who are most vulnerable whether from inherited traits or catastrophic illness or unfortunate accident or lack of work or old age. Protect and preserve.

So this struck me as a good video feature for today--a pup whose young ones had grown up and been adopted, willing to mother some motherless kittens who needed milk and warmth and pulling out of danger. Mothering. Maybe that isn't far from what is at the heart of good government, community spirit, and neighborliness --caring and showing a willingness to help others, to protect them, and preserve for them a home.

Robert Waldmann

The gap between public opinion and elite opinions about public opinion never ceases to amaze me. The policy elite seems to have decided that Social Security old age pensions have to be cut. The public is adamantly opposed. It is even more striking that a strong majority supports lifting the payroll tax ceiling (66% favor 27% oppose). This is demonstrated by the latest Lake Partners exit poll of 2010 voters (warning pdf from a secondary source). That's a poll of voters, not adults or registered voters, but the people who just elected a Republican majority in the House of Representatives.

The amazing result is that 59% of self identified Republicans support the tax increase and 60% of self identified Tea Partiers support the tax increase.

There it is, 60% of Tea Partiers support a tax increase. Some of the people whose taxes would go up are not rich, but the taxes of rich people will go up. Tea Partiers support higher taxes and a more progressive tax code so long as they are told that the point is to shore up Social Security.

Full data here (warning 21 page pdf)

Tom aka Rusty Rustbelt

The Un-foreclosure

What could be worse than a foreclosure? An Un-foreclosure (HT: Columbus Dispatch) also known as a dropped foreclosure or a bank walkaway.

Although exact statistics are hard to come by, the un-foreclosure is apparently become very common in Ohio, Michigan and Indiana. At some point the bank decides the economics of taking title do not justify further action, and walks away.

The General Accountability Office is investigating the problem, and believes as many as 50% of the drops are in these three states. Senator Sherrod Brown (D, Ohio) has gotten involved.

The mortgage servicer forecloses on the property and evicts the former owners, but then fails to take title to the property, leaving the property in limbo. No owner equals no property taxes paid, no insurance, and probably no maintenance. The property is left to rot, damaging the neighborhood. Ironically, due to the failure of the bank to take title, the former owner may still be on the hook for property taxes, and not know it.

The bad news just keeps on coming.

Premise: The difference between the Irish and U.S. situation is in the breadth of institutions (smaller financial institutions still intermediate and control capital usage), not the foolishness of the leaders in committing to make the banks whole.

Discuss.

Robert Waldmann

Matt Taibbi is to Robert Rubin as Glenn Beck is to George Soros.

There is a lot of fanfare today about the success of GM to date as it turns around the bankruptcy of a couple years ago. Let's look at the nature of this success, which may offer voters an insight into patterns of successful competition as it stands today.

So, what does the new GM look like? A few nuggets from the registration statement:

• 33 percent of its sales come from North America;
• 44.5 percent come from Asia-Pacific, South America, Russia, Eastern Europe, Africa and the Middle East, including a market-leading position in China;
• 43% of its vehicles are manufactured in regions of the world where the "all-in" labor cost is under $15 an hour;
• Its U.S. pension plans remain underfunded by about $17.1 billion.

Here's wishing the new GM success.

Hat tip Economist's View for Lane Kenworthy's post on growing the GDP and distribution of the benefits. It is also related to concpts determining trade policies:

None of these countries significantly increased the share of GDP going to government transfers. What happened is that some nations did more than others to pass the fruits of economic growth on to the poor.

Trickle down via transfers occurs in various ways. In some countries pensions, unemployment compensation, and related benefits are indexed to average wages, so they tend to rise automatically as the economy grows. Increases in other transfers, such as social assistance, require periodic policy updates. The same is true of tax reductions for low-income households.

Should we bemoan the fact that employment and earnings aren’t the key trickle-down mechanism?

by Linda Beale

Tax cuts and deficit commissions
crossposted with Ataxingmatter

The game continues, as Republicans hold out for tax cuts for the wealthy (who are garnering increasing amounts of the total income) and various "deficit commissions" put out austerity plans that all call for cutting Social Security benefits and Medicare benefits.

Alice Rivlin, who spoke here at my campus some time ago, seemed clearly to have cutting Social Security and Medicare in mind even then.  See Alice Rivlin on Financial Reform and Deficits, ataxingmatter.  She is now "trying to stir a debate" about a national sales tax, according to Bloomberg.  Przybyla, Rivlin Proposes 6.5% National Sales Tax as Part of Deficit-Reduction Plan, Nov. 17, 2010.  See also Jackie Calmes, New Deficit Reduction Plan from Bipartisan Group, NY Times, Nov. 17, 2010.

More below the fold...

On Econbrowser last week: The Impact of Health Insurance Reform in Massachusetts

The use of emergency rooms for routine care fell, as did hospital admissions for treating preventable conditions, and the proportion of uninsured among hospital inpatients (by 36%), while there was no increase in the growth of hospital costs. From the NBER Digest article summarizing NBER working paper 16012 [ungated version] by Jonathan T. Kolstad and Amanda E. Kowalski:

More below the fold...

by Bruce Webb

Well it is out and I have a copy. And no doubt in short order it will be up at the following web-page: http://www.ssa.gov/OACT/solvency/index.html but as of 10:43 AM PST it wasn't. Because just like the SSA score of the Chairmen's proposal there is a lag between release and web publication.

I'll extract some tables and publish them in a future post but the results are very similar to the Simpson-Bowles Plan with the bottom line being a 75 year improvement in actuarial balance of 2.48% in the face of a current imbalance of 2.01%, that is there is a certain amount of over-kill if the problem is considered simply as one of solvency. For now I will leave you with this simple graphic from the score.

It’s Back! H.R. 3808 Interstate Recognition of Notarization Act of 2010...simply a watch and see item after the pocket veto by Pres. Obama, to be voted on today for confirming or overturning the veto, noted by 4closureFraud.

Update: Voting in the House was pretty much by party...results are here.

by Linda Beale

Brad DeLong on Economists (and non-economists)
crossposted with Ataxingmatter

In Economists (and Non-Economists) Behaving Very Badly Indeed Watch, Brad DeLong accosts the austerity bandwagon that objects to any more federal stimulus, whether from Congress or from the Fed.

At the moment our flow of nominal spending at $14.7 trillion per year is some 12% below its pre-2008 trend. And in the absence of any 12% decline in prices and wages, that shortfall in spending has to produce our current macroeconomic distress: there is not enough "money" to support enough of a flow of spending to chase all the goods we could produce. We don't have a deficiency of real supply (for whatever reason). We have a deficiency of nominal demand.

More below the fold...

by Bruce Webb

And by 'framing' I mean as in Film Noir gangster movies rather than Lakoffian terms. (Apropos of nothing, Prof. Lakoff gave me the worst grade I ever got in college, but felt so bad about it I wanted to tell HIM to 'buck up'. Long time ago.)

Peter Orszag has made quite a stir with a couple of Op-Eds this last weekend of which the most recent was Safer Social Security in which he cleverly indicts and then sentences Social Security with the following:

Nevertheless, Social Security does face an actuarial deficit. Current projections suggest that, after 2037, benefits would need to be reduced by more than 20 percent to match revenue. Measured over the next 75 years, the deficit in Social Security is expected to amount to 0.7 percent of the economy — not a huge amount, but a deficit nonetheless.

So it would be desirable to put the system on sounder financial footing. And that is precisely what the co-chairmen of President Obama’s bipartisan commission on reducing the national debt have bravely proposed to do. It’s too bad their proposal has been greeted with so much criticism, especially from progressives — who really should look at it as an opportunity to fix Social Security without privatizing it. Although the plan leans too much on future benefit reductions and not enough on revenue increases, it still offers a good starting point for reform.

Well this is going to take a whole lot of unpacking, and the only question is where to start. And a prosaic answer is 'Under the fold'.

More below the fold...

by Mike Kimel

Extrapolated September 2010 Debt, by President

Cross-posted at the Presimetrics blog.

This one is quick and dirty because I'm very low on time.... Anyhow, these days there's a lot of talk about the debt, and some talk about how irresponsible Obama is, or maybe its GW. Who knows, there's a lotta talk and very little hard facts, much less context. So, from working on Presimetrics, I had some debt data lying around and started with that.

The table below shows the total national debt and ending national debt for each President for December of the year before he took office and the growth rate over that time period. For grins I threw in the President's extrapolated September 2010 debt. That was computed by taking the debt in December (in September 2010 dollars) of each President's last year in office, and, assuming the rate at which debt had increased during his term would continue all the way to September 2010.

All data is in September 2010 dollars.




To interpret:

More below the fold...

NELP (National Employment Law Project) notes:

For administrative reasons, states need to shut down their extended unemployment programs in advance of the federal government’s Nov. 30 cut-off. NELP estimates that 800,000 people will lose unemployment benefits in the coming weeks and 2 million workers will lose their benefits by December if Congress fails to act.

The Columbus Dispatch puts the ending of benefits another way:

Nearly 40 percent of Ohioans receiving jobless benefits will exhaust their unemployment by the end of December unless Congress agrees to continue funding extended benefits.

Main Street Alliance small business owners write:

“Get a job – any job. Don’t wait for a good one, take anything you can get.” So goes the refrain. But that advice denies the reality of this recession and its impact on the job market. And it obscures the realities of how employers go about hiring people.

There simply aren’t enough jobs out there for the vast majority of the unemployed. There are so few jobs available that even if someone could wave a magic wand and instantly fill every job opening with someone who is unemployed, four out of five of the jobless would still be out of work.

Equally important, those telling the unemployed to “get a job, any job” fail to grasp the realities of hiring. Employers want the most qualified candidate for the job, not the most over-qualified candidate...The costs associated with employee turnover are significant and businesses, especially small businesses, can’t afford to waste resources on another job search and training someone yet again.

The Washington Post notes more on foreclosures is coming, this time from The Congressional Oversight Committee today. No link yet.

A congressional oversight panel is set to warn on Tuesday that a widespread problem of flawed and fraudulent foreclosure paperwork could upend the housing market and undermine the nation's financial stability, just as the issue is coming under greater scrutiny this week in Washington.

Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation

Update: Yves Smith offers her thoughts:

The spectacle of Senators in Tuesday’s banking committee hearings on the mortgage largely siding with articulate, fact-driven critics of the mortgage securitization is a sign that financial services industry misdirection and lame excuses are wearing thin. But far more devastating is the contrast between the long-promised American Securitization Forum paper on mortgage transfers, versus the Congressional Oversight Panel report on the broader issue of mortgage documentation.

The Japanese economy grew 3.9% at a seasonally-adjusted annualized rate in Q3 2010 and over 2X the pace in Q2 2010 (data here). According to Bloomberg, the headwinds to Q4 growth are household consumption and the yen:

Consumption, accounting for about 60 percent of GDP, led the gain as households stepped up purchases of fuel-efficient cars ahead of the expiration of a subsidy program and as smokers stocked up before an Oct. 1 tobacco-tax rise. The yen’s climb to a 15-year high will probably damp growth this quarter as companies from Sharp Corp. to Nikon Corp. cut profit forecasts.

To be sure, the surge in real GDP growth is unlikely sustainable; but it's not because of the yen's strength, per se. True, consumption growth is more likely to print on the lefthand, rather than the righthand, side of the 0-Axis. However, the yen on a trade-weighted basis and in real terms hovers at its historical average; hence, the currency poses less of a risk to growth.

The chart illustrates the contributions to non-annualized quarterly growth (not annualized, GDP grew near 1% in Q3) from each of the GDP components: private consumption (C), investment (I), inventory build (Inv), government consumption (G), and net exports (NX).

More below the fold...

by Bruce Webb

On Thursday I put up an extract from a SSA Office of the Actuary score of one of two of the Simpson-Bowles draft Social Security plans, that is the bottom line of Plan 2A Bottom Line Score on Simpson-Bowles. This post expands on that by including the cover letter and plan details on 2A as well as details and score on 2B. As it turns out 2A and 2B have the same bottom line projections and outcomes but in the interest of completeness here you have them. This is not the complete letter, there are two more tables which did not as I could see add much. I don't know if the letter has been published on the SSA site, I received it in PDF form, but I can forward the whole 7 pages to whoever wants it. (For example I was not able to screen capture the footnotes in a single shot so I left them off).


Tables below the fold.

More below the fold...

Purpose of trade policy in the summary Congressional Rsearch Service paper March 24 2010 caught my attention.

U.S. trade policy is at a cross-roads as the Obama Administration and the 111th Congress face a range of policy issues and challenges. The future direction of trade policy and how the issues will be addressed are unclear at this time and the subject of sharp debate within Congress, the Administration, and the trade policy community at large. While a number of issues are related to trade policy, the fundamental question that is the subject of this debate is which trade policy, if any, will maximize the benefits of trade and boost U.S. living standards.

(bolding mine)

In a simple statement of what has and can happen, the disconnect implied in the quote is striking. The benefits of trade are obvious to many, but the winners and losers in such trade is not at all obvious to many in the big picture.

If the 'economy' was the driver for this election, meaning I assume the perceptions each voter carried with him or her to the voting booth, then understanding our economy is better for us all.

One thing voters need to keep in mind is that trade is global in scope, and what is good for a trans-national monopoly is not the same as good for the voters. Maximixing benefits of trade may have little to do with maximizing US standards of living for most.

The idea of smaller government may be popular right now, but if you expect anyone else to protect overall voter interests, I see no other institution willing to do so other than the federal government if you can steer policy that way. Any other institution I am forgetting about??

In a second post to come involving Michael Pettis, Spencer England, and Paul Krugman, how this plays out is explored.

Mainly from minute 10 to 20 for the story, start at minute 17 to listen to the jist of some Wallstreet laments from several regular traders about the bailout and how it is framed:

Bailout blues??? Shame? Nah...just smarter than most.

Reader HM suggests this sort of letter to Congress:

Senator/Representative _________:

I am writing to you to ask you to join the fight against those who want to "privatize" / "personalize" or otherwise roll back the Social Security retirement insurance program as we know it.

As I'm sure you know, to ensure Social Security had the funds to meet the baby boomer's retirement this century, back in 1985 Alan Greenspan and the Democratic Congress changed the plan to overtax FICA payers so that the baby boom could pre-pay their retirements.

But now that the program has over-taxed FICA payers over $1.5T (Trillion), and has another $1T of accrued interest, very powerful forces are at work to essentially steal this money from middle class ratepayers like me.

More below the fold...

There was a question on what ACO meant for health care practices and as part of reform of current practices. Rusty sends two links he thinks might help:

A guide to Accountable Care Organizations... from Health Reform Watch offers a glimpse:

Specifically, their findings illustrate that there exists wide variations in the cost of care across the country, and profoundly, that the regions that spend more per patient do not necessarily obtain better outcomes. So what to do? Dr. Fisher believes he has found at least part of the answer: the Accountable Care Organization, known as an “ACO”.

And this one here:

Thinking of selling your practice and switching to a hospital-employment model? If so, you're not alone. In fact, if you aren't already working as a hospital employee, you're in the minority: Hospital employment among doctors has jumped from 25 percent in 2002 to 50 percent in 2008, according to the MGMA, and is probably even higher today.

by Tom aka Rusty Rustbelt

Health Care: Religious, Gender and Cultural Issues

The Muslim population in the U.S. is now about 7 million, some having been here many generations and others being new immigrants. Muslims arrive with various cultural backgrounds and various degrees of cultural conservatism. Americans of other religions and beliefs also have cultural sensitivity issues as well.

This sometimes creates issues for health care providers, particularly caring for Muslim women.

A hospital on the east coast is being sued because the only EKG tech in the building at midnight was a male and a Muslim female in the emergency department refused the test, later leaving for another hospital.

Culturally conservative women have issues with male physicians and any state of undress. Many women of various persuasions prefer female ob-gyn care.

For most routine care women can find women physicians in this era, for emergency or specialty care this may not be readily possible.

Female patients (of all religions) in nursing homes often have problems with male nurse aides. Males generally do not care as much (although some males have an issue with care from very young women).

Most of these issues can be worked out, but sometimes the issues interfere with prompt care. Patients in more rural areas may have problems choosing providers. (In our rural Mrs. R has a male Muslim primary care doc, I have a male Mormon, so some rural areas are a little more diverse).

Just one more complication in a very complicated system.

by Rebecca Wilder

Ireland: the battle against "markets"
crossposted with Newsneconomics

Is it the sheer size of its contingent liabilities that is driving Irish spreads? Finance Minister Brian Lenihan thinks so via the Irish Independent:

"There is no doubt in my mind that while the announcement on the banking sector in September was not disbelieved by the markets, it wasn't fully believed either because there is a wait and see policy of seeing whether it is an accurate account of exposures in the banking system," the minister said.

Or is it German Chancellor Angela Merkel's recent rhetoric? According to the Irish Times, since her most recent statement on private haircuts, "All stakeholders must participate in the gains and losses of any particular situation", officials are readying the EFSF for possible tapping by the Irish government:

The Irish Times has established, however, that informal contacts are under way between Brussels, Berlin and other capitals to assess their readiness to activate the €750 billion rescue fund in the event of an application from Dublin.

The EU quashes this rumor.

More below the fold...

Lifted from comments here by Reader Jack, who recommends writing to your Congress representatives. Now this is probably not as satisfying as the (hat tip Yves Smith crosspost) post from Steve at the Daily Bail.

Dear-------,
I hope that you will be standing tall against the current forces of deception that are campaigning hard to destabilize Social Security as we know it. The SS program works very well and has been doing so since its inception. The program is in the black and only a deceitful campaign to destroy the program presents it any other way. The Trust Fund is real and is a debt to the system as well as the program's "savings account" upon which if draws when receipts from FICA are insufficient to cover benefits. Do not conflate Social Securities solvency with the deficit condition of the general budget or the Medicare program.

More below the fold...

by Bruce Webb
The above though not yet widely released is a from a public document produced by the Social Security Office of the Chief Actuary. It shows the final results of the Simpson-Bowles Social Security proposal as percentage of benefits payable to various income levels compared to 'scheduled' and 'payable' benefits. Under current projections 'payable' benefits after Trust Fund Depletion will have to be reduced by 22% initially and 25% ultimately. On the other hand 'scheduled' benefits are payable in full up to the point of Depletion. So any payout less than 100% in the 'scheduled' column between now and 2037 is a loss compared to the status quo as is any payout less than 78% in 2037 or 75% in 2080.

Coberly and I (and some others) have been warning for years about the dangers of turning Social Security from an insurance program with mild progressive transfers to a welfare system. Well this is a pure illustration of that, I can't imagine any scheme designed to more undermine support for Social Security than one that calls for earners in the top 50% taking a cut even from the projected cut. The answer to a 'crisis' defined as an ultimate 25% cut in scheduled benefit is for upper income folk to take a 35-41% cut? All in an effort to save them a phased in 0.1% of payroll per year increase over the next 20 years?

(In passing note that despite promises to hold current retirees harmless changes in (mostly) COLA result in cuts compared to the 2030 baseline of between 5% for medium earners to 12% for maximum earners.)

Economist View provides a few reactions to the The Fiscal Commission's "Report":

• NY Times: Panel Weighs Deep Cuts in Tax Breaks and Spending
• Real Time Economics: Deficit Commission’s $200 Billion in Proposed Spending Cuts
• Paul Krugman: Unserious People
• Brad DeLong: Yes, the Entitlement Commission Was an Unforced Error by the Obama Administration
• Ezra Klein: The fiscal commission reports -- sort of
• Ezra Klein: There is no report from the fiscal commission
• Andrew Leonard: A truly radical debt reduction scheme
• Felix Salmon: The deficit commission’s plan
• Dean Baker: Statement on Deficit Commission Proposals
• Richard Green: One hand clapping for the Deficit Commission Co-chairs' powerpoint

Robert Waldmann

I made the following predictions on September 15 (the predictions are down in the comment thread).

I guess R gain 5-6 (which is huge given the fact that this election is 6 years after 2004).

To go way out on a limb, I guess R pickups in ND, AR, IN
PA & IL and 0 D pickups. You will notice that compared to polls I am predicting poor perfromance [SIC TSW*] for tea partiers (so lose NV and Co).

I didn't see Feingold's loss in Wisconsin coming, but there was almost no polling before September 15 and almost no discussion (I admit Cook had moved it to toss up).

I made 8 specific predictions of which 8 were correct.

In the post, I speculated that the narrative about 2010 might be that Tea Partiers ruined Republicans chances to take the Senate. That is asserted from time to time, but the narrative is, of course, Democrats Shellacked -- Republicans take house gaining more seats than in 1994. But see I used the weasel word "might." I very explicitly went against the polls on two races (NV and CO) and was right on both.

Seven steps to Social Security cuts by Bruce Webb was posted January 2010 this year at Angry Bear and has proven to be prophetic:

'...is that the strategy to get major slashes to Social Security and Medicare takes an Seven Step and that this technique is not new and in fact mirrors the original plan for Bush's Commission to Strengthen Social Security (CSSS) in 2001-2002.

Step one. Get consensus on 'Crisis'. In this case that current debt growth levels are unsustainable.
Step two. Get consensus that there are only three possible paths out: revenue increases (A), cuts in military and other discretionary spending (B1 and B2), or cuts to non-discretionary spending, meaning Medicare and Social Security (C)
Step three: Having agreed that some combination of A, B, and C is needed set up a Commission with a mandate to propose an up or down vote.
Step four. Committee decides it is unwise to increase taxes during a recession and eliminates (A). Commission further decides that it is unwise to cut defense spending in the middle of two wars eliminating (B1) and that eliminating infrastructure spending or farm supports is both unwise or politically impossible in the current climate (B2)
Step five. Recommend a package of cuts to Medicare and Social Security-C on the basis of shared sacrifice, after all every CD and State has a share of the elderly population.
Step Six: Tell Congress that the statute doesn’t allow them to revisit A or B and then that NOT voting for a C based solution means denial of Steps one and two.
Seven: Either get a vote for C or run against opponents as ‘Do Nothing Deficit Deniers”

There will be plenty of reactions to the draft release of the fiscal draft proposal, but one caught my eye as I just came home. Reader HW at TPM has this reaction

I took a very quick look at this document and what's amazing to me is that they came up with these draconian cuts in Social Security, which is off-budget and currently in the black, but have barely anything for Medicare, where the government is hemorrhaging money.

More below the fold...

Some of the recommendations as outlined by TPM from the Pres. Obama’s Bowles and Simpson fiscal commission:

Social Security cuts:

• Index the retirement age to longevity -- i.e., increase the retirement age to qualify for Social Security -- to age 69 by 2075.
• Index Social Security yearly increases to inflation rather than wages, which will generally mean lower cost of living increases and less money per average recipient.
• "Increase progressivity of benefit formula" -- i.e., means test part of Social Security benefits by 2050.
• Increase the Social Security contribution ceiling: while people only pay Social Security taxes on the first $106,800 of their wages today, that's only about 86% of the total potentially taxable wages. The co-chairs suggest raising the ceiling to capture 90% of wages.

More below the fold...

Spencer

The New York Times had blog commenting on the suggestion that we should return to a gold standard. (NYT Back to the gold standard)

My question about such a proposal is what should be the price of gold in the new gold standard ?

The 18th century gold standard system that so many people view as a free market alternative to central banks determining credit conditions, money supply, etc., was not really a free market.

The system was dependent on the central bank, in this case the Bank of England and later the US Government offering to buy all gold tendered to it at a price established by the government. Moreover, that price had to be far above any foreseeable market clearing price.
If it was less than any foreseeable market clearing price the banking system could not accumulate the gold stocks necessary for the system to work. If the price was too low private individuals would see it as a one way bet to accumulate gold stocks, much as they did in the 1960s.

More below the fold...

The Federal Statistics Office reported that German consumer prices increased 0.2% on a seasonally-adjusted basis in October, translating into a 1.3% annual gain on a harmonized basis. German prices are very sticky, since the domestic economy doesn’t see the boom and bust cyclical behavior like that in other developed economies. However, inflation may headed north, especially if the trend in industrial prices (PPI), a +3.8% annual clip, is any leading indicator. (Click on chart to enlarge.)

Will German policymakers see the inflation for what it is? It’s a shift in relative prices to drive real German appreciation in order to rebalance current accounts across the region amid a fixed currency regime.

More below the fold...

by Mike Kimel

Post WW2 Private Investment v. New Deal Private Investment
Cross posted at the Presimetrics blog.

I had a post the other day (which appeared at the Presimetrics blog and Angry Bear, and which was followed up by my fellow Angry Bear, Spencer, here) looking at a paper by David R. Henderson about the supposed post-World War 2 economic boom.

I noted that his view fit into a libertarian/conservative story line, but required not only assuming the GDP (or GNP) data from WW2 is wrong, but also that the data at least through the early '50s is wrong too, despite the fact that the data fits other known facts pretty well. By contrast, Henderson's story conflicts with known facts in a number of places.

However, there is one point - another libertarian/conservative myth which comes up in the paper that I'd like to focus on in this post. Henderson tells us:

Why did the economy do much better after the war than at the beginning? We can’t know for sure, but the most likely explanation is the change in administration from Roosevelt, who championed central government planning of the economy, to Truman, who was much less inclined to support government control.

Also see Econospeak's Prof. Rosser on 1920-21 recession

More below the fold...

A battle to keep using rare earths on our terms
by Tim Worstall in The Register points to a facet of trade policy that would seem to demand some government action...I fail to see why trans-national companies would feel a need to act at least currently to implement more modern technology (or search for an unproven alternative). I can't speak to the efficacy of his suggestions.

Note that I'm not saying that all of this is easy, that we can just fall off a log and it'll be all right. I'm only saying that China really doesn't have a long-term lock on RE supplies. The seeds of how we get out of this half nelson are already there, ready to be nurtured. We can and will deal with competition and industrial dominance from a low-wage/high-pollution country or company by doing what all of you people around here do. We can use brains rather than brawn to design better, more mechanised, ways of ensuring our supply of what we need to keep industry on its feet.

by Linda Beale

David Cay Johnston on the Child-Care Credit
crossposted with Ataxingmatter

David Cay Johnston, former tax reporter for the New York Times, now does a column in the weekly Tax Notes called "Johnston's Take."  This week, he examines Alan Viard's claim that the child-care credit is a boon for working parents.   Download Who Benefits from child-care credit.110810

Viard is an American Enterprise Institute economist/scholar in residence, joining Paul Wolfowitz, Lynne Cheney and other prominent names from the Bush right-wing support squad.  He has touted the child care tax credit and gotten some supporters.  For example,  legislation was introduced in the House this spring to increase the credit and remove the income limitation, so that even well-to-do couples could get the full credit (current law limits credit to $600 for familes with income above $43,000).  See Martin Vaughn, House Plan Targets Child Care Tax Credit, Wall St. Journal, May 11, 2010.

Johnston argues that the incidence of the child tax credit, like the corporate income tax, is uncertain.  (The corporate tax may be borne by shareholders, but it may also be passed off to employees, vendors or customers.  That, of course, is if there is any tax paid at all....)  The credit is not so obviously a benefit to those who ostensibly receive its benefit.  Johnston works through some simple formulas to show how wages decline with the availability of the credit--both because employers can pay less (since the government is in effect picking up part of the tab) and more employees come into the labor market because of the credit (which lowers wages because of the increased supply of labor).

How many of you read Frank Rich In the Sunday New York Times?

http://www.nytimes.com/2010/11/07/opinion/07rich.html?_r=1

It is an interesting approach.

But I would do him one better.

I would suggest to Obama that he offers the Republicans a deal for the Bush tax cuts for those making more than $250,000. Offer to sign legislation for this tax cut only if the legislation also contained spending cuts to offset every Penney of revenues lost to the tax cuts.

While he is at it ,offer the same deal on the inheritances tax.

Remember, the legislation will also have to go through the Senate before it gets to the White House and to get through the Senate will require a certain number of democratic votes.

Yes, the republicans ran on a platform of cutting spending. But if history is any indicator
the "borrow and spend" party will not be able to put together a piece of legislation actually cutting spending.

Obama should take a hard nose stance and call the republicans bluff on this. The democrats ability to get health care reform through Congress suggest they have the ability to play hardball. So show the republicans that the democrats can really play hardball on this.

I do not believe the republicans will be able to deliver. When it comes to spending, as they say in Texas, the republicans are all hat and no cattle.

by Bruce Webb

A year and a half ago I put up a post here called The Fierce Urgency of 'Nothing' whose conclusion was:

"Nothing". The numerically proven plan for Social Security since 1997.

So you can imagine my gratification at running across the following by the co-author of the must read book from 1999 Social Security: the Phony Crisis, economist and co-director of CEPR (Center for Economic and Policy Research) Dean Baker.

Action on Social Security: the Urgent Need for Delay

There is enormous public confusion (much of it deliberately cultivated) about the extent of Social Security’s projected shortfall. Many policymakers and analysts point out that projections from the Congressional Budget Office and the Social Security Trustees show the program to be out of balance in the long-term, therefore we would be best advised to make changes as soon as possible. This paper argues that supporters of the existing Social Security system should try to ensure that no major changes to the core program are implemented in the immediate future. It points out that:
There is good reason for believing that the public will be better informed about the financial state of Social Security in the future, in part because of the weakening of some of the main sources of misinformation;
Many more people will be directly dependent on Social Security in the near future. These people and their families will likely be strong defenders of the program;
The group of near-retirees, who may be the victims of early action, will desperately need their Social Security since they have seen much of their wealth eliminated with the collapse of the housing bubble; and
The concern over “maintaining the confidence of financial markets” is an empty claim that can be used to justify almost any policy.

The full paper in PDF can be found at this link The Urgent Need for Delay. And if I say so myself goes a long way towards explaining the justification of my previous post from Sept. Why 'Nothing" is STILL the 2nd Best Plan for Social Security. I am doing what I can here at AB to make sure that "the public will be better informed about the financial state of Social Security in the future", but you could do worse than taking the word from the Leader of the Pack. Because Dean has been on this beat even longer than I have, and is a real economist to boot. Go Read!!

lifted from comments by spencer on Mike Kimel's post Very bad economic theory (historiography)

From Real Civilian GDP in July this year.

From 1933 to 1950 real civilian GDP grew at a 5.6% growth rate even though it fell -18.4% and -14.8% in
1943 and 1944 -- a decline about the same as the drop in 1929-33.

The analysis that the economy boomed after WW II by Henderson is really bad analysis, largely because it omits so much information, some of which Mike has pointed out. But mainly it omits the information on "forced savings" during WW II that provided people the means to finance the post war increase in spending. To say the post war economy happened without government policy playing a significant role is just blatantly misleading and dishonest. Second, no one brought up the question of what happened to all the women who had been drawn into the labor force during WW II like by mother who was a Rosy the Riveter in the local aluminum plant in eastern Tennessee. Like most of her fellow female workers she silently went home and started having babies. In other words they dropped out of the labor force and this created openings for the returning servicemen. This movement in and out of the labor force of female wartime workers massively distorted the data but of course no is pointing this out in the analysis. That is why the labor force contracted in 1946. Note Henderson did not say anything about this.

Moreover, his analysis of Germany is just as blatantly misleading in that it says nothing about the Marshall Plan or the German currency reform. The German recovery did not really start until after the currency reform of 1948.