This is pure speculation (also called theory). I have no respect for economic theory definitely including my own efforts, so the post will all be after the jump.
I am not able to get anyone to debate me on monetary policy in a liquidity trap. Therefore I resort to crude provocation.
I recall two claims about monetary policy which were not controversial until this year. First that the effects of a shift in monetary policy peak after roughly 6 months. Second that it acts through investment and especially housing investment (the second follows from the view that it acts via interest rates but not the short term rates which the Fed can control but medium and long term rates which matter a lot for housing and some for investment in productive capital).
After fiddling with the dates to avoid the inconvenient fact that medium term nominal interest rates went up when the actual QE2 purchases began the money supply side economists decided that the date the policy began was late August. That means that the data you present here would, in a sane world, be the last nail in the coffin of the hypothesis that the Fed can stimulate the US economy when it is in a liquidity trap by buying 7 year Treasury notes.
I get rude after the jump.
Various congressional representatives held town hall meetings recently, and the news channels and print media were abuzz with the lively give-and-take, including shouting matches. See, e.g., House G.O.P. Members Face Voter Anger Over Budget, New York Times, Apr. 26, 2011; Republicans facing tough questions over Medicare overhaul in Budget Plan, Washington Post, Apr. 22, 2011.
The issue--the House's adoption of the Ryan budget proposal and its clear agenda of overturning New Deal safety nets embodied in the current understanding of Medicaid, Social Security and Medicare.
Those at or near retirement are worried that the Ryan proposal will hurt everybody. The Ryan proposal comes with frequent disclaimers about protecting the already older population and needing to act now to protect our grandchildren, a clear effort to massage the message to appeal to current grandparents. See, e.g., House G.O.P. Members Face Voter Anger Over Budget, New York Times, Apr. 26, 2011 (noting Webster's statement that "not one senior citizen is harmed by this budget" while implying that it is necessary to prevent grandchildren from "looking at a bankrupt country"); Congressional Republicans go home to mixed reveiws, CBS.com, Apr. 26, 2011 (noting North Carolina GOP Rep. Renee Ellmers'claim that "If you're 55 and older, your Medicare and Social Security will not change").
Hoocoodanode that replacing someone described as "too Professorial" with someone whose concept of True Patriot Love was to spend the time of the Life of Legendary Jesus out of the country (being a Torture Apologist from the comfort of Cambridge, Mass while Maher Arar traveled different roads) and then act upon his return as if he were the Second Coming could have negative consequences with the electorate?
The glory for the Conservative Party for the past twenty years has been that the ABC vote would split between the Liberals and the NDP and the PQ would distract enough people in the non-oil-producing East to keep them in power. So in some small way, we should credit Ignatieff for doing the impossible—uniting the Canadian center-left.
Update: CT has a post from Tom Slee that discusses everyone except the elephant in the room, with more joie de vivre than I did (but less surety).
by Beverly Mann
The Fine Print
It’s hardly a secret that Chamber of Commerce types have co-opted a bare majority of the Supreme Court as their proxy in their war against business litigation, and that the most potent categorical weapons are arbitration as a forced substitute for lawsuits and the effective elimination of class actions.
In a manipulative, far-reaching opinion that the Court issued Monday, the five corporate proxies killed both birds with one stone.
The stone was thrown in a lawsuit by a California AT&T cell-phone service customer who signed a service contract with the company and received what the company said was a free phone but for which the customer later was billed $30 in sales tax—the sales tax on the regular retail price of the phone.
The contract, like virtually all consumer contracts and many other types of non-negotiable standard contracts between a business and a customer or client, or between an employer and employee, includes an arbitration provision. The provision waives the right to sue, and provides that any disputes be resolved instead in arbitration, a setup in which the business pays the arbitrator and, as a wink-and-nod practical matter, will use that arbitrator again in other arbitrations, or not, depending on, well … you know. The blindfolded lady holding the evenly-balanced scales of justice isn’t around.
Update: (Dan here.... From Scotusblog AT&T Mobility v. Concepcion (No. 09-893), and the Court's opinion is here
Spent the morning at this event: presentations and discussion by Joe Stiglitz, Yves Smith, Mike Konczal, Joe Gagnon, Matt Yglesias, Tom Palley, and many others.
Mike K. tole me he expects that video will be available this evening, at least of the speakers's presentations. I plan to post at more length later; meanwhile, you can review the real-time commentary on Twitter by @NewDeal2.0 and others with the #FutureofFed hashtag. (Some of my early Tweets went out as #FedFuture before I "got with the program" and surrendered that 1.4% of TweetSpace to the Greater Good.)
by Mike Kimel
Where Has the Spending Gone, Joe Dimaggio?
Lately there's been a gnashing of the teeth about the deficit and the debt and what to do about it. Democrats point out that when GW took office, there was no deficit, and that a big part of the problem is that federal tax revenues have fallen from 20.6% of GDP in Fiscal Year 2000 to 14.9% in Fiscal Year 2010 (warning - Excel file), and are slated to fall to 14.4% this fiscal year. I found a nice graph here. Despite the nonsense that gets referred to as Hauser's Law, the big fall in tax revenues is is in large part due to the tax cuts, although the poor economy also plays its share.
(Note - so I don't have to keep typing it, all years in this post are fiscal years.)
But for there to be a deficit, tax revenues (whether high or low) have to be less than spending. And spending has also gone up (again see OMB Table 1.2 referenced above) from 18.2% of GDP in 2000 to 23.8% of GDP in 2010, and is slated to go above 25% of GDP this fiscal year. (It is worth noting – federal spending as a percentage of GDP fell in every single year during the Clinton administration… which means Newt Gingrich doesn’t get credit for it unless you believe he had one heck of a time machine.)
A lot of trading in the Fixed Income (and especially FX) market is done for "liquidity" purposes. There is often an underlying goal involved (e.g., push prices higher with small lots, sell large ones at the elevated prices) and frequently such strategies are discussed as "algorithmic trading." (Example: the algorithm estimates that you will need to buy 5 $100MM lots of JPY at incrementally higher rates to be able to sell $1B USD at the higher JPY level.)
The liquidity of the "markets" is facilitated by algorithmic trading: the seller for the first five trades in the above example doesn't care about the purpose of the counterparty's trade, just that the price bid is agreeable.
Then there are the times when algorithmic pricing goes terribly wrong:
Eisen began to keep track of the prices until he caught on to what was happening: The two sellers of that particular book — bordeebook and profnath — were adjusting their product prices algorithmically based on competitors:Once a day profnath set their price to be 0.9983 times bordeebook’s price. The prices would remain close for several hours, until bordeebook “noticed” profnath’s change and elevated their price to 1.270589 times profnath’s higher price. The pattern continued perfectly for the next week.
The biologist continued to watch the prices grow higher and higher until they hit a peak price of $23,698,655.93 on April 19. On that day "profnath’s price dropped to $106.23, and bordeebook soon followed suit to the predictable $106.23 * 1.27059 = $134.97." This means that someone must've noticed what was happening and manually adjusted the prices. [italics mine]
As a mathematical exercise, the shift from $106.23 to $23,000,000 and change is clear: one dealer must price their copy higher than the other dealer. (If both do so, you get to the same point or higher even quicker.) Similarly, if both dealers price at a fraction below 1.000 of the other, the price will converge toward $0.00 as the algorithm progresses.
Consider the implication for a potential third seller, though. Depending on when they check, they may believe they have a book that will make them (if and when sold) rich. But the "market" they see is two computers offering against each other—there is no bid-side shown, and pricing "to sell" (say, $850K when both of the others are offered at around $1.7MM) implies that the third potential seller is carrying that asset at an inflated value.
Market transactions do not require two entities to like each other, or even to understand what the other is trying to do. Indeed, if your alogirthm is buying at 85.3 JPY/USD and mine is selling at that level, neither of us necessarily cares why the other is transacting. And the rest of the market sees an actual trade against which they can adjust their pricing.
It's only when the algorithms are trying to do the same thing that $23MM+ books are offered.
The implication for mark-to-market valuation seems obvious, and is left as an exercise to the reader.
Guest post by Steve Roth
Oh Yeah: Crowding Out Has Been a Huge Problem
Cross-posted at Asymptosis
Right-wing economists love to claim that government spending "crowds out" private spending, especially investment spending on fixed assets. It's probably true at some level and in some situations.
But if it was true for postwar America, you'd expect to see some evidence in the historical data, right?
Not so much:
Note: Government includes all levels -- federal, state, and local.
This morning in his Monday column Paul Krugman discussed the need to raise taxes to
deal with the long run structural federal deficit.
You can read the column at Economist's view without worrying about the Times' pay wall.
http://economistsview.typepad.com/economistsview/.
Every time any one proposes higher taxes Larry Kudlow and the right wing noise machine shouts to the rooftops that it is a tax the rich scam and that there are not enough wealthy people to raise the necessary revenues.
But as usual with these claims maybe we should actually look at the data before we accept this meme. Since 1980 the top 5% of family's share of national income has increased from 15% to 21% -- the percent is derived from the five year moving average centered on 1980 and 2007. The last year that this data is available is 2009
Source: Bureau of the Census/Haver Analytics
If we taxed away half of this increased share of national income it would generate a sum roughly equal to 3% of GDP, or about the CBO estimate of the long run structural deficit.
Moreover, it would still leave the top 5% of families with some 15% of national income, a larger share than was ever recorded before 1993.
Just look at Tracy Alloway's imagery at FT Alphaville, and you'll know what's expected: an imminent Greek default. I still argue no, although European policy tactics are quite enigmatic and their next move is really anyone's guess. Alas, here's mine.
Assuming that Greece does not secede from the Euro area, I give you three reasons why Greece will not be allowed to default soon (at least the next 12 months, given current market conditions). I say 'allowed' because true to the IMF legacy, EU/Euro area officials very likely see restructuring as a 'gift' for good fiscal behavior.
(1) Moral hazard is an important issue in Europe, and Greece has only begun its austerity program. We'll need confirmation that they are not on track in order to assess the timing of default, in my view.
Ironically, the EU/IMF/Euro area are sticking to the 'exports will grow the Greek economy' story. I say ironically because Greece was exporting a larger share of GDP before the recession, average 22.6% spanning 2005-2007, than it is now, 19.8% in 2010 (average Q1-Q3).
(2) The banking system's not ready. Unless the Germans want to instantly recapitalize the Landesbanks this year, I'd argue that the Euro banking system remains overly exposed to mark-to-market accounting (i.e. holding the assets at fair value not wishful thinking) for all of the crappy debt that it holds on balance.
In fact, the German banks purchased 11bn 1.1bn euro in Greek sovereign bonds in January. That's the most current data available; but I bet they're simply moving debt out of the Greek banks and corporates and into the sovereign as the probability of default rises (see chart below).
(3) This one's critical: policy makers must shore up Ireland and Portugal in order to avoid a quick contagion across the European banking system. They haven't done that yet. In fact, the Finnish election results exposed the tenuous negotiation process overall.
See, the Greek yield curve is inverted - so are the Portuguese and Irish yield curves, albeit to a much lesser degree. The point is, that Portugal and Ireland are very close to the Greek brink.
(read more after the jump!)
by Mike Kimel
Why Don't Tax Havens Become Industrial Powerhouses
Cross-posted at the Presimetrics blog.
The other day I read somewhere (yet again) that low tax rates encourage development. Which got me to thinking about tax havens. I’ve noticed that places like the Cayman Islands, for instance, seem to be magnets for hedge funds, but rarely if ever do countries which are mainly known as tax havens become industrial or technological powerhouses. What gives?
Here’s my thought… a hedge fund can buy and sell assets in country A from anywhere in the world, provided that it knows that country A has strong property rights, infrastructure, and legal institutions. If it can take advantage of those property rights, that infrastructure, and those legal institutions without paying for them (i.e., if it can free-ride), it can increase its private profits by having others pay for some of its costs.
Of course, a manufacturing, tech, or creative firm can also increase its profits by exporting its costs onto third parties (think externalities) which would make a tax haven ideal for such firms too. And yet, except for some transfer pricing games, for the most part, tax havens simply don’t attract or internally generate such firms in large numbers. My theory – it takes something else for that. It takes actually having a sound infrastructure (legal and physical), an educated populace, and a mindset, and these are things which tend to be generated by a not extremely incompetent government.
Your thoughts?
PS. Before the inevitable mention of Hong Kong, construct a Venn diagram of a) former British colonies and b) tax havens.
by Linda Beale
In earlier posts on ataxingmatter (here and here), I reviewed Robert Reich's 2010 book, After Shock, and wrote about his suggested cures for the problems made most visible in the 2007 crash and the Great Depression that followed.
The gist of the book is summed up in the following quote:
"[L]eft to its own devices, the market concentrates wealth and income--which is
disastrous to an economy as well as to a society." at 59
by Michael Halasy Practicing Emergency Medicine PA, Health Policy Analyst, and Health Services Researcher
Medical Tourism, separating facts from fiction
One of the greatest myths that I hear on a somewhat regular basis, centers around the belief that the US must have one of the greatest health systems in the world, because everyone comes here for their care. Well, let’s examine that shall we?
As with many things, reality is a little different from the mythology.
According to the Deloitte Center for Health Solutions and Health-tourism.com, there will be roughly 561,000 inbound medical tourists to the United States by 2017….Conversely, 750,000 Americans traveled to foreign countries in 2007, and this grew to between 1.1 and 1.3 million outbound tourists in 2008. Spending on healthcare in foreign countries was estimated to be 20 billion dollars in 2008.
Estimates for growth demonstrate a consistent 35% growth in outbound medical tourism annually. Projections indicate that roughly 1.6-2.5 million Americans will travel abroad in 2012, and spending could reach 100 billion dollars. That’s right, 100 billion US dollars being spent in foreign countries for healthcare such as elective surgeries, complicated dental surgery, plastic surgery, and even coronary bypass surgery.
Guest post by Dale Coberly
Sixteen Men on a Dead Man's Chest Yo Ho Ho
Social Security and the Facts of Life
Sen. Mark Warner (D-Va.) said on Sunday the "Gang of Six" senators is "very close" to a deal on deficit reduction, suggesting the plan would impact Social Security that most Democrats have said is off limits.
Asked by host Bob Schieffer to clarify that the group will take on Social Security, Warner said, "Part of this is just math: 16 workers for every one retiree 50 years ago, three workers for every retiree now."
What we have learned in ten years of watching the Social Security "debate" is that when someone says "it's just math," he is lying. Unless, of course, a United States Senator simply doesn't know what he is talking about.
The "16 workers for every one retiree" is one of those true facts that doesn't mean anything... and is therefore used by liars to mean what they want it to mean.
The Senator does not read Angry Bear, but in the hope that one of his friends will try to explain it to him, I offer the following simplified model.
Update: The Atlanta Fed Macroblog from 2006 includes Dean Baker, pgl, Ken Houghton on this issue.
Guest post by Michael Halasy Practicing Emergency Medicine PA, Health Policy Analyst, and Health Services Researcher
Massachussetts leads the way
We have talked about bundled payments here, and getting rid of the antiquated and inefficient fee for service model. It looks like Massachussetts is on board suggests The Washington Post.
Blue Cross is not alone. At Partners HealthCare, the famous Boston-based medical system that dominates health care here, Massachusetts General Hospital has been conducting a Medicare experiment in which nurses are assigned to coordinate care for about 2,500 older patients with multiple ailments. The experiment, which began five years ago, so far has reduced hospital re-admissions by one-fifth and cut medical spending by 7 percent.
They will be the first to implement integrated care organizations (really, a version of ACO’s) and a new bundled payment mechanism.
With 98% of the population insured, Massachussetts saw their costs soaring, at about 15% above the national average. The markets have already begun to respond, and some, like Partners, are already ahead of the curve.
Cross-posted at The Street Light.
Absurd news today from S&P's credit rating analysts, who have apparently been drinking liberally from the Deficit Crisis Kool-Aid:
NEW YORK (MarketWatch) — Standard & Poor’s cut its ratings outlook on the U.S. to negative from stable on Monday, lighting a fire under Washington’s deficit-reduction debate and sending stock markets sharply lower.
The rating agency effectively gave Washington a two-year deadline to enact meaningful change, just days after House Budget Committee Chairman Paul Ryan and President Barack Obama each outlined their plans for slashing debt. S&P nonetheless kept its highest rating, AAA, on the U.S.
US debt is still rated as AAA, which effectively means that S&P's rating analysts believe there is a zero percent chance of the US government not making payments on its debt. However, this new "ratings outlook" indicates that they now believe that there's a reasonable chance that some time within the next two years they will change their mind, and start to believe that there's a chance -- albeit a remote one -- of the US government defaulting on its debts.
For perspective, the following chart shows the OECD's forecast for the burden of debt payments in the US and the world's other largest developed economies. Net interest payments both this year and next year will be lower than any other major OECD country with the exception of Japan.
Update: NYT offers six more reactions here. (h/t Rebecca)
by Mike Kimel
Update: McClatchy tackles the question here.
GW Broke with Clinton. Did Obama Break with GW?
Cross-posted at the Presimetrics blog
The following major initiatives had occurred toward the end of April 2003, about two years and three months into the GW Bush administration:
1. Marginal income tax rate cuts in 2001, 2002 and 2003.
2. Passage of No Child Left Behind Act
3. Outlays as a percentage of GDP rose.
were 18.2% in fiscal 2000, 18.2% in fiscal 2001 and 19.1% in fiscal 2002.
4. The inherited surplus became a deficit.
5. Passage of the Patriot Act.
6. Invasion of Afghanistan in response to the Sept 11 attacks. Note that by April 2003, the Taliban insurgency was already gaining strength again.
7. Abortion restrictions. Reinstatement of the Mexico City Policy. Withdrawing funding for the United Nations Population Fund. Began the push for the Partial Birth Abortion Ban (introduced in Feb. 2003 by Rick Santorum, passed in November of 2003).
8. Sarbanes Oxley.
9. Homeland Security Act.
10. Invasion of Iraq.
Guest Post by RJS
Crisis in public education
School districts around the country have been hit with a triple whammy of cuts to their funding this year...
First, the direct aid in the form of federal ARRA has run its course, so they're no longer receiving that supplement.
Second, the states have budgetary problems for the same recession-related reasons that federal revenues have declined, and as a result a significant number of them have cut their funds for education and local governments...
Third and most recently, the decline in housing & commercial property values accompanying the bubble bursting has started to translate into declining property tax revenues...but even last year, while school districts were supposed to be getting direct aid from the federal stimulus, I was seeing about a half dozen articles a week from districts around the country where cutbacks to their educational programs were being made...this year, now that federal aid has been cut off, the problem seems to have gotten worse...
According to the recent BLS Employment Situation Summary, local governments have lost 416000 jobs since an employment peak in September 2008....from what I've observed, it seems the lions share of those job losses have resulted from school district cutbacks...but it's not normally a national story; typically, its a local news story, where upset parents show up at the school board meeting and each district cuts something different; some cut teachers, some spec ed, some cut sports, or art & music, or field trips, still others have cut over a month off the school year...so im going to try to tell this larger story with links to a number of small ones which have appeared since the beginning of the year...
Done your taxes yet?
In March the CPI increased 0.5% bringing the year over year change to 2.7%.
I will leave the analysis of the CPI to other and just discuss some of the implications.
First, this caused my Fed policy index to turn positive for the first time since 2008. This index is a form of a Taylor Rule but it gives inflation and the unemployment rate an equal weight as compared to most versions of the Taylor Rule that give inflation roughly double the weight of unemployment or growth. But this implies hat the Fed should allow QE 2 to expire this spring. Moreover, it raises a real possibility that the Fed may raise feds funds in the second half of the year.
Second, I will look at the not seasonally adjusted (NSA) core CPI. In a low inflation environment firms tend to raise prices once a year, typically at the start of the year. As a consequence in the NSA core CPI over half the annual increase occurs in the first quarter of the year.
by Mike Kimel
Why I will not be Voting for Obama in 2012
Cross posted at the Presimetrics blog.
The presidential elections are a year and a half away, but I am pretty certain of one thing: I will not be voting to re-elect Barack Obama. That does not mean that I will be voting for the Republican nominee, or for any of the third party candidates, but rather that I do not see any likely circumstances under which Barack Obama will do anything I think is necessary to earn my vote. That may seem unusual because I voted for Obama, and my economic views are probably best described as slightly left center.
Guest Post From Robert Bowman, M.D.
No Assumptions for a Change
Assumptions are often incorrect and the assumptions are incredibly inaccurate in primary care and in basic health access. When one starts with the assumption of more pay, then it is easy to rationalize more training or more complexity of care - even when there is little evidence other than assumption.
Primary care is often more difficult than specialty care.
Via Business Insider Joe Weisenthal reports some of the buzz in DC:
The White House is officially going to release its budget for the coming fiscal year at 10:30 this morning. The full announcement will be found here.
Of course, several members of the media have the details already.
Talking Points Memo points us to a nine page chart specifying which programs are sustaining funding cuts in the Continuing Resolution reductions as published by the Republicans on the House Appropriations Committee. (h/t rjs)
(h/t MG) The original documents from the House Committee on Appropriations are located here. These include the legislation text, legislation summary, and the program cuts. The legislation summary provides a breakdown of spending authority.
by Steve Roth
Don't Like "Money Printing"? Then Stop Borrowing. Whip Inflation Now!
Cross-posted at Asymptosis.
There's a widespread conception that "money printing" by the government causes inflation, and that "money printing" = government deficit spending.
But people don't realize that:
Here's how borrowing prints money:
To be fair, applying maximizing thinking has achieved some major successes even in macroeconomics. The permanent income/life cycle style of consumption theory does a much better job of accounting for the stylized facts about spending than the old, mechanical consumption function. The natural rate hypothesis, with its crucial implication that high inflation would get built into expectations and not reduce unemployment, was the result of (loose) maximizing reasoning.
I have two discouraging thoughts. First both of the examples of a useful application of the assumption of maximizing behavior are due to Milton Friedman (and others). This shows that Milton Friedman can say useful things while appealing to maximization. I think we can conclude that either the concept of maximization is useful or Milton Friedman was so smart that he could say smart things when standing one foot, rubbing his belly, patting his head, and talking about maximizing agents. I'm afraid the question of which conclusion is more plausible answers itself. Outside of macro we have Arrow and Samuelson and well a bunch of smart people who can say smart things and solve equations at the same time.
by Mike Kimel
John Taylor in Favor of Higher Marginal Income Tax Rates? If Not, Why Not?
A couple of weeks ago, John Taylor posted a graph showing that since 1990, there has been a negative correlation between the Investment to GDP ratio and unemployment.
There's been some back and forth between Taylor and some of the other big boys (some of it summarized at Mark Thoma's Economists View, and even Krugman has weighed in).
Guest post by Michael Halasy
Latest from Cato…
Kaiser Health News carries an article from Michael Cannon from Cato Institute on the benefits of Ryan's proposal on Medicare.
Cannon is wrong.
First, he begins by advocating for repeal by comparing the roughly 500 billion in cost of the program to the overall debt and deficit, never mentioning that the 500 billion is actually over 10 years. Next he proceeds to Medicare savings, and concludes that there were no mechanisms to constrain Medicare savings...and he's right here.
{Crossposted from dKos Social Security Defenders Group}
Social Security has been off the radar this week for obvious reasons, progressives being more focused on efforts of Republicans to win the War on Women via the Continuing Resolution. Plus while Paul Ryan's original Roadmap proposed privatization of Social Security his Budget proposal for next year left it mostly aside (except for an obscure 'trigger' mechanism for future cuts) in favor of a trillion dollar assault on Medicaid and a proposal to voucherize Medicare. Which only leaves one current assault vehicle, the pending bill to raise the Debt Limit which under current estimates needs to happen by mid May, and sure enough there are rumblings to this effect, no changes to Social Security, no votes to raise the Debt Limit from the Republicans.
So this seems an opportune time to explain the actual relation between Social Security and Public Debt and the paradoxical effects on debt from cuts to future benefits. Because all else held even all this does is increase real debt over the medium term (25 years) while reducing purely theoretical debt over the God help us Infinite Future Horizon. Conceptual unpacking in Extended.
Update: Nouriel Roubini front pages this post on Euromonitor here.
The ECB dove in and hiked its policy rate by 25 basis points to 1.25%. I had the pleasure of listening to Wolfgang Munchau on Thursday, and he reiterated what I reluctantly understood: the ECB's strict inflation target is ridiculously simple for such a complex region; but more importantly, the Governing Council is just itching to tighten.
Eurointelligence blog highlights the various interpretations of the ECB's shift in policy: Thomas Mayer at Deutsche Bank suggests that the ECB's normalization is appropriate, while David Beckworth and others (links at Beckworth's site) are more sympathetic to the impact on the Periphery. They highlight that relative price fluctuations could facilitate the much-needed redistribution of capital flows (i.e., the current account); and furthermore, that ECB policy is even too tight for the core (a google translation of Kantoos Economics). Yours truly has written extensively about this - among others, here's one, another, and another. Who's right? Ultimately time will tell.
But I do suspect that we haven't seen the end of this crisis. The ECB is squeezing out liquidity when more liquidity is needed. Furthermore, the core remains subject to export shocks via external demand; and there's building evidence that global growth will slow (see this excellent post on global PMIs by Edward Hugh).
It's ironic, too. While the ECB is currently being heralded or chastised for raising rates, monetary and financial conditions in Europe have been tight for some time, both on a relative and stand-alone basis!
(read more after the jump!)
AP's Andrew Taylor describes a part of the federal budget debate that needs clarification for the average voter and others regarding this current round of 'negotiations':
Some $18 billion of the spending cuts involve cuts to so-called mandatory programs whose budgets run largely on autopilot. To the dismay of budget purists, these cuts often involve phantom savings allowed under the decidedly arcane rules of congressional budgeting. They include mopping up $2.5 billion in unused money from federal highway programs and $5 billion in fudged savings from capping payments from a Justice Department trust fund for crime victims
Both ideas officially "score" as savings that could be used to pay for spending elsewhere in the day-to-day budgets of domestic agencies. But they have little impact, if any, on the deficit.
The Tax Policy Center The Supreme Court Says Tax Expenditures aren't Goverbment Spending points us to a notable decision by the Supreme Court that has been lost in the federal budget fracas.
Ever since Stanley Surrey popularized the concept of tax expenditures nearly half a century back, economists have argued that many tax breaks are equivalent to government spending. Virtually any spending program can be transformed into a tax expenditure that directs money in the same way.
This week the Supreme Court rejected that equivalence, ruling that an Arizona tax credit differed enough from a comparable direct spending program to deny taxpayers the right to sue on the basis that the credit represented an unconstitutional government activity. The Court’s decision suggests that while the majority in this decision may be great lawyers, they are lousy economists.
Today RJs Aggregator presents opinion across the web regarding proposed Republican budget cuts for fiscal year 2012. Of note, AB authors Ken Houghton and Kash also contributed to the debate.
Guest Post: The RJs Aggregator - The Ryan Plan
by RJ
House Republicans Propose $4 Trillion in Cuts Over Decade - "House Republicans plan this week to propose more than $4 trillion in federal spending reductions over the next decade by reshaping popular programs like Medicare1, the Budget Committee chairman said Sunday in opening a new front in the intensifying budget wars2. Appearing on “Fox News Sunday,” the chairman, Representative Paul D. Ryan3 of Wisconsin, also said Republicans would call for strict caps on all government spending that would require cuts to take effect whenever Congress exceeded those limits. “We are going to put out a plan that gets our debt on a downward trajectory and gets us to a point of giving our next generation a debt-free nation,”"
The Republican budget: Praising Congressman Ryan - The Economist - "BARACK OBAMA, as we unhappily noted when he produced his budget in February, has no credible plan for getting America’s runaway budget deficit under control. Up to now the Republicans have been just as useless; they have confined themselves to provoking a probable government shutdown in pursuit of a fantasy war against the non-security discretionary expenditures that make up only an eighth of the total budget, rather than tackling the long-term problem posed by the escalating costs of entitlements. Now that has changed. On April 5th Paul Ryan, the young chairman of the House Budget Committee, laid out a brave counter-proposal for next year’s budget and beyond (see article)—brave both in identifying the scope of the problem and in proposing the kind of deeply unpopular medicine that will be needed to cope with it. It is far from perfect; but it is the first sign of courage from someone with actual power over the budget."
(Read much more after the jump!)
Guest Post: The RJs Aggregator - The Ryan Plan
by RJ
House Republicans Propose $4 Trillion in Cuts Over Decade - "House Republicans plan this week to propose more than $4 trillion in federal spending reductions over the next decade by reshaping popular programs like Medicare1, the Budget Committee chairman said Sunday in opening a new front in the intensifying budget wars2. Appearing on “Fox News Sunday,” the chairman, Representative Paul D. Ryan3 of Wisconsin, also said Republicans would call for strict caps on all government spending that would require cuts to take effect whenever Congress exceeded those limits. “We are going to put out a plan that gets our debt on a downward trajectory and gets us to a point of giving our next generation a debt-free nation,”"
The Republican budget: Praising Congressman Ryan - The Economist - "BARACK OBAMA, as we unhappily noted when he produced his budget in February, has no credible plan for getting America’s runaway budget deficit under control. Up to now the Republicans have been just as useless; they have confined themselves to provoking a probable government shutdown in pursuit of a fantasy war against the non-security discretionary expenditures that make up only an eighth of the total budget, rather than tackling the long-term problem posed by the escalating costs of entitlements. Now that has changed. On April 5th Paul Ryan, the young chairman of the House Budget Committee, laid out a brave counter-proposal for next year’s budget and beyond (see article)—brave both in identifying the scope of the problem and in proposing the kind of deeply unpopular medicine that will be needed to cope with it. It is far from perfect; but it is the first sign of courage from someone with actual power over the budget."
(Read much more after the jump!)
by Michael Halasy Health Policy Analyst and Emergency Medicine PA
Regional Disparities in Health Spending...
Jason Shafrin, over at the Healthcare Economist, brings up an interesting paper examining the data from the Dartmouth Atlas. For those that are unfamiliar, the Dartmouth Atlas is a compendium of data examining Medicare spending per beneficiary, and then comparing that spending by geographic region. The differences are stark. I know. I use the Dartmouth Atlas data in my health policy talks all the time. The data was highlighted in an Atul Gawande article in 2009 on McAllen, Texas. Jason points us to an article from the New England Journal by Zuckerman...
“Unadjusted Medicare spending per beneficiary was 52% higher in geographic regions in the highest spending quintile than in regions in the lowest quintile. After adjustment for demographic and baseline health characteristics and changes in health status, the difference in spending between the highest and lowest quintiles was reduced to 33%. Health status accounted for 29% of the unadjusted geographic difference in per-beneficiary spending; additional adjustment for area-level dif ferences in the supply of medical resources did not further reduce the observed differences between the top and bottom quintiles.”Now, sure, health status may reduce the difference in spending, but it doesn't completely eliminate it. In fact, I would argue that 33% is still a large difference, and one that still needs to be addressed. Comparing the spending in Florida to Minnesota PER beneficiary is quite startling indeed.
crossposted with Health Policy Wonk
by Beverly Mann
I Wonder What John Yoo Thinks of All This
Most of you, I’m sure, know of the controversy concerning Freedom of Information requests by Wisconsin Republican officials to University of Wisconsin professor history and environmental studies professor William Cronon, in retaliation for certain postings on his new blog and for a New York Times op-ed piece critical of his state’s high-profile Tea Party governor. The requests demand copies of all the professor’s email exchanges using his university email account that include certain search words.
Cronon’s blog posts reported on a secretive rightwing state-legislation-drafting mill called the American Legislative Exchange Council, the Chamber of Commerce’s (not to mention the Koch brothers’) private Make A Wish Foundation, which drafts “model” legislation directed against unions, litigation plaintiffs and other usual-suspect Chamber/Koch targets, and then forwards the drafts to state legislators for introduction as legislative bills.
Actually, although this group’s membership is secret, the forwarding probably doesn’t require middleman lobbyists, because apparently some Republican state legislators are members. The group’s “model” legislation almost certainly is the source of a veritable slew of extremis sometimes really weird, sometimes clearly unconstitutional legislative bills proposed in state legislatures around the country in recent years, including more than a few that have been enacted. The immediate purpose of FIOA requests to Cronon is to find emails that include political discussion or planning, although of course the larger goal is retaliation and intimidation.
But Cronon, not surprisingly, didn’t remain the only victim of this FIOA-request-as-a-political-weapon tactic against state university professors for long. After all, all states have Freedom of Information laws, and most have liberal professors at state universities. The folks at the far-right Mackinac Center in Michigan have made a request to see e-mails from people in the labor studies departments at the University of Michigan and Wayne State University. And, undoubtedly, other such requests are in the works elsewhere. As well they should be.
It occurred to me that John Yoo is a professor at a public university, U-C, Berkeley. And I’d bet that his university email trove would make for some interesting reading. So, I’m sure, would the university email-account exchanges of, say, certain law professors at George Mason University a state university in Virginia that is a longtime Federalist Society hotbed. As is the venerable law school at the Univerity of Virginia. Ahhh, yes. Turnabout is fair play. And it’s time that the Democrats start playing fair. ----
Cross-posted on my blog at Annarborist
Guest post by Steve Roth
Want a Flat Tax? I Got a Flat Tax for You
crossposted with Asymptosis
One percent of financial assets. Personal and corporate. Annually.
With somewhere north of $55 trillion in U.S. financial assets out there (2009, down from $63 trillion in 2007), a Financial Assets Tax would generate more than $550 billion in annual revenue.
What could we do with that revenue? Here are some options:
• Eradicate taxes on corporate profits, dividends, and capital gains, and cut income taxes by between 22% and 51%. (Depends on which tax year you're looking at; this for 2007-09. NIPA Table 3.2.)
• Pay off some of our national debt, invest in productive infrastructure to build true national wealth, greatly expand the EITC (and index it to unemployment) to turbocharge the real economy, or...
• Some equitable and economically efficient combination of the above
Why should we do this?by Daniel Becker
This is an interview of Joseph Stiglitz on Democracy Now regarding his article in the current Vanity Fair. He discuss the issue of income inequality, taxes, etc and how it has set us up to be less of a land of oportunity than what old Europe was.
This is new. This post by Matthew Ygelsias isn't about monetary policy, and I don't find it convincing at all. He wrote
if you raise high-end marginal rates while leaving deductions alone, what you do is massively increase the value of the deductions. The home mortgage interest tax deduction, for example, is both distributively regressive and also economically damaging by shunting too much money into the housing sector. If wealthy people start paying a marginal income tax rate of 47 percent, then the incentive to overconsume housing becomes much more intense. A economically sound approach to the tax code needs to go after some of these deductions, and that means some middle class families will have to pay somewhat more.
"The practice of medicine was accepted to be a chancy way to make a living, and nobody expected a doctor to get rich, least of all the doctors themselves." - Lewis Thomas, The Youngest Science, p. 4 (Penguin, 1995 edition, quote via Google Books)
Lost in the discussion of Paul Ryan’s “plan” is the group of entrepreneurs that will be most harmed economically by enacting it: doctors—most especially general practitioners.
I was speaking with David Warsh last week at Kauffman, and pointed out what “everyone knows” but no one will say: U.S. doctors net about twice as much money as doctors in the rest of the civilized world. (As a ballpark, $200K in the U.S. and $100K elsewhere.) And until you can solve some of that, you won’t really make much of a dent in the High Cost of Medicine. David noted that solving that “isn’t going to happen.”
More on the health-care later, but let me be clear:
Congressman Paul Ryan's "plan" is NOT a budget.
Budgets show Sources and Uses. As the CBO analysis makes clear, this "budget" is no more a budget than Ryan's last round of fakery. To wit:
The path for revenues as a percentage of GDP was specified by Chairman Ryan’s staff. The path rises steadily from about 15 percent of GDP in 2010 to 19 percent in 2028 and remains at that level thereafter. There were no specifications of particular revenue provisions that would generate that path. (CBO, page 11; emphasis mine)
This is the equivalent of my current household budget, which is heavily dependent upon winning the lottery sometime in the next three years even though there is no provision for buying tickets.
Much is being made of the reported gains in same store sales by major retailers.
But it may be best to take these reports with a grain of salt.
Until late last year price increases in the retail sector were minimal
and the reported retail sales increases reflected real gains.
Through year end the Y/Y deflator for retail sales rose less than 1%.
But late last year price increases accelerated sharply
In the fourth quarter the retail deflator rose at a 5.5% annual rate and in January and
February it rose at about an 8% rate. The March data has not been reported yet,
but until new information is reported it probably would be best to assume the January
and February experience was repeated.
Also note that in March auto sales actually fell from 13.4 to 13.1 million(SAAR) --
a 2.2% drop.
In January the deflator for GAFO-- department store type goods -- sales rose at a 4.45%
annual rate, the largest jump in over a decade. No wonder Wal Mart is warning about higher inflation.
Economists's claims that taxes should not be paid by corporations is based on the premise that government should be relatively inefficient and/or run a deficit in perpetuity.
Discuss.
by Beverly Mann
Justice Kennedy’s Hard-Right Turn After (and Because of?) Citizens United
Anyone who watches the Supreme Court closely surely recognizes that Justice Kennedy last year took a hard-right turn, effectively removing himself from the role of swing voter and siding nearly always with the Court’s four-member rightwing bloc in ideologically determined cases. This term, he’s nailing any loose ends left over from last year in order to kill, kill, kill that annoying perception that his vote may be in play on ideological issues. The coffin holding the dead body of Kennedy-as-swing-vote is nailed and lies six feet under.
I want to open a pizza place. I find an available space; a previous pizza place that went out of business. The only catch is that there are four other pizza places nearby, none of which is overcrowded, except at the peak of peak hours.
One--a block or two away, on another street--is the oldest and best: table service, other dishes, liquor license. The other three--two across the street, one up the block--all offer traditional and Sicilian slices and fountain and bottled sodas.
My store will offer regular and Sicilian slices, with fountain and bottled sodas.
When I use up all my capital and go out of business, is there any rational observer who would describe that as a "failure of the market"?
Wisconsin Supreme Court election update
They seem to have gone to sleep over in Wisconsin. I did too but now I'm awake.
The current state of the supreme court election is that 3,596 of 3,630 precincts have reported and the incumbent conservative Walker ally is Prosser is ahead of the challenger Kloppenberg by 733,074 to 732489, that is by 585 votes. The precincts which haven't reported are almost all in counties which went heavily for Kloppenberg.
I calculated a crude predictin by extrapolation assuming that votes in precincts which haven't reported will be equal to the county average over precincts which have reported. This requires two approximations, first that the fraction won by Prosser is about the same and second that there are about the same number of votes in each precinct withing a county. Importantly, it is reported that some precincts which have "reported" haven't reported absentee ballots.
Anyway, I extrapolate that Kloppenberg will gain 1857.13 votes on Prosser and so win by 1,272 votes which is about 0.09% of the extrapolated total.
I confidently predict a recount.
Plain text version of spreadsheet after the jump.
Update: hat tip rjs
twitter via google: seungminkim RT @HotlineReid: WI Supreme Court results as of 10:43a.m. ET: Kloppenburg 738368, Prosser 738228. Difference of 140 votes (.000009%)Twitter - 1 minute ago 10:51 AM
Health Care Thoughts: ACO Draft Regulations On March 31st the Obama administration issued the draft regulations for Medicare Accountable Care Organizations (ACOs). ACOs are to eventually be the centerpiece of cost savings for the entire US health care system. This is the first peak at how the ACOs might be defined. In the "they never learn" category, the draft regulations are 429 pages long. http://www.ofr.gov/OFRUpload/OFRData/2011-07880_PI.pdf Okay, I read the beast, and have a couple of findings among the many dozens of pages of bureaucratic gibberish. 1. The sections delineating what an ACO should accomplish and how to do it are well formed and should be adoptable without much change. Whether these ambitious goals are attainable is a major question and concern. 2. The feds are not certain who should participate in the first round of Medicare ACOs and have laid out many options that will require a great deal of comment and time to sort out. I suspect the more limited options (physician and physician-extender providers and hospitals) will be used for the first round. It is likely the final regs will not be published until fall, and these ACOs are supposed to be operating January 1, 2012. This is a tight timeline. Tom aka Rusty Rustbelt
Germany is competitive on a relative basis as measured by productivity, standard of living or prices
The point of this article is to demonstrate that Germany has enjoyed increased 'competitiveness' as measured by productivity levels and relative prices. But the clarity of Germany's 'competitiveness' cannot be established by using German data in the form of a black box - a bird's-eye view of the region is the only way to see this.
In a very well written piece, Kantoos highlights that the German current account surplus is more a function of reduced investment and productivity passing through to low market-clearing wages than it is 'competitiveness', per se. While I agree with his economic analysis, I disagree that Germany is not competitive - Italy, yes; Germany, no.
(read much more after the jump!)
Crossposted at The Street Light.
Well, it seems as if Congressional Republicans are going to propose a complete refashioning of the Medicare program. Specifically, they are going to recommend scrapping Medicare as a provider of health insurance to seniors, and instead replace it with a system that will provide subsidies to individuals who will then buy health insurance from private insurance companies. In other words, they want to get the federal government completely out of the health insurance business for senior citizens.
GOP 2012: overhauls on entitlements and taxes, $6.2 trillion in cuts over decade
House Republicans plan to propose Tuesday historic changes to Medicare, Medicaid and other popular programs that pour federal money into Americans’ lives, arguing that a sacrifice now will keep those programs solvent for the future.
...On Medicare, Ryan will propose altering the plan so that the federal government no longer acts as a health insurer for seniors. Instead, he would create what’s called a “premium support plan.” Seniors would pick from a list of private insurance plans, and Medicare would subsidize their coverage.
The idea, again, is to use market competition to create a system with lower costs. Ryan’s plan would not apply to Americans age 55 and older, for whom Medicare would remain under the current system.
The notion that Medicare costs have been rising because it is a government-run health insurance program, or because it is not a "competitive" health insurance program, is odd, to say the least...
OMB Watch reports here and here on the Transparency Through Technology: Evaluating Federal Open-Government Initiatives : Transparency Through Technology: Evaluating Federal Open-Government Initiatives and testimony here.
It's no secret I'm not a fan of the birth-death adjustment to the employment serieses: not from a necessary belief that they're biased, but rather because they give the lie to the illusion of accurate monthly data.
But imagine for the moment that there had been no adjustment before the January data release. The headline number for January might well have been north of 400,000, making the past three months even more impressive (from a headline perspective only, but still…) in terms of job creation.
Would that change anyone's opinion of the timing and/or need for tightening? (See also my post earlier today with the graphic borrowed from The Big Picture marking a growth comparison with 2003-2004.)
I don't remember seeing any of this type of story last year. But this year, Socialism stories abound from the Midwest.
My ex-roommate* sends this link to a story about Butler Bulldogs's Senior Matt Howard's family being able to attend the NCAA Finals tonight in Houston (video link here).
Invictus at The Big Picture notes that, as recent recoveries from recessions go, the current "recovery" has the best private-sector hiring of the past three.
Source: St. Louis Fed Expansion Charts via The Big Picture
by Mike Kimel
Deficit numbers for CEA chair signatories on the deficit letter Cross-posted at Presimetrics Title updated
I'm kind of late to this, but apparently ten ex-chairs of the President's Council of Economic Advisors decided to share their opinion about the national debt with the rest of us. There's been commentary here and there about how hypocritical some of the names on the list are - the CEA chair is the President's chief economic advisor, and many of these people served under Presidents (and provided economic advice) that drove up the debt. I thought it would be an interesting exercise to put some numbers on the hypocrisy.
Guest post by Michael Halasy Practicing Emergency Medicine PA, Health Policy Analyst, and Health Services Researcher
Interstate Health Insurance Sales
One of the more common ideas often thrown around in health policy is the idea of allowing patients to purchase health insurance across state lines. The idea of course, is to allow patients access to potentially cheaper policies, and that by increasing competition, lower rates will ensue.
While this does not sound like the worst idea, there are several problems with this concept, the first, and most obvious, being regulatory. Insurance plans are regulated by each state, and each state has a mandatory minimum coverage. State regulators have legal authority to oversee all insurance matters within their state boundaries, but do not have the authority to oversee out of state plans. If a patient were to purchase insurance in a neighboring state, and then have a grievance or complaint against that company, the patients legal recourse might be very limited. Additionally, if they buy plans that do not meet the minimum coverage requirements of their own state, are there potential legal problems?
by: Daniel Becker
update: corrected some formating and duplication.
What is this the definition of:
The global economy, and capitalism, will be “reset” in several important ways.The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.
Introduction: Here's another timely compilation of economic commentary by Rj from the Global Glass Onion. His thread highlights a recent interchange between straight Keynesian economists, Paul Krugman, for example, and Modern Monetary Theorists (MMT), like Jamie Galbraith, Bill Mitchell, Randy Wray, and Warren Mosler.
I'll add just one link to The RJS Aggregator today. At his Benzinga column , Randy Wray describes the monetary mechanics of MMT, which is the cornerstone of several theories (like how government deficits drive down short rates through reserve creation). Rebecca Wilder
Guest Post: RJs Analysis: The debate about government deficits - MMT
by RJ
The Austerity Delusion, by Paul Krugman - "Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating; any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks."(Read more after the jump!)
Alternative title: Dog bites man.
The results of a new CNN poll are still very interesting, since the poll is much more thorough than the many other polls which showed, more or less, the same thing.
CNN has a write up where they note that the median respondent seems to think that much more money could be saved by cutting programs which he-she wants to cut. Those programs are foreign aid (as always) and, by a plurality, pensions and benefits for retired government workers.
No Foolin'
I politely disagree with the conclusions of the article written by my Angry Bear colleague, Kash, where he envisages Greece defaulting in 2011 similarly to Argentina in 2001.
I do agree, that the macroeconomic initial conditions in Greece scream default (actually, if you focus just on the measurable factors, like the current account, debt levels, or fiscal imbalances, Greece is much worse than Argentina in 2001 - see Table 4 of this IMF paper to see Argentina's initial conditions and compare them to Greece in 2009 using the IMF World Economic Outlook Database).
Where I disagree, arguing that Greece is not like Argentina, is that the debt crisis in Argentina didn't bring down the banking system of Latin America overall. In contrast, the default of Greece has the potential to do just that in Europe.
Update: see David Beckworth's Macro Market Musings includes Rebecca's thoughts on ECB
The employment report was the strongest this cycle as total payroll employment expanded some 216,000. This consisted of a 230,000 gain in private payrolls and a 14,000 drop in government jobs as state and local governments are still shedding jobs. Moreover, the household survey reported a 291,000 gain in employment. The last two months private employment gains have been the strongest this cycle, exceeding the 229,000 gain in April 2010. Last months gains now appears to be the start of a new stronger trend rather than
just an offset to the weak numbers in January.
The unemployment rate fell 0.1 percentage points to 8.8%. Earlier this year it looked like signs of a stronger economy was showing up almost everywhere but the employment data.
The post after the jump will make "What More can the Ded do?" seem disciplined, succinct and sober.
update: Minds think alike, but some bloggers are more concise than others -- How About Prison Then ?
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