I was taking the day off, but this is the best news the Obama Administration could get right now.* Wonder how they'll screw it up?

I second the (self-)nomination of Dr. Black, on condition he commit to bringing me on as Assistant Secretary of the Treasury for Financial Markets, which was held in its Glory Days by a former boss of mine.**






*It also stands as yet another reason for Republicans to delay any agreement on the debt ceiling, since he would likely be replaced by a Democrat.

**I, in turn, will promise to get my tax difficulties with NY State straightened out.*** Since the current T-Sec had much more recurrent and lasting issues, I don't see this as a problem for confirmation, should such be required.

***They are the direct result on my current firm having accidentally, I presume, input my Social Security number into their system with "fat fingers."

Fifteen years ago this evening, my wife made the biggest mistake of her life. And she still hasn't repented. But that doesn't mean there might not be a little "buyer's remorse":

G-d help me, that was the best specific option I could find.* So let's go instead with a standard:

*Really, folks, does no one celebrate fifteen years? The only other alternative I could find that specifically mentions "fifteen years of marriage" is even more depressing.

by Rebecca Wilder

What do you want to wager that the IMF's a bit overly optimistic on the outlook for Greek nominal GDP?

Monday, June 27, 2011

Newsneconomics

These jokers have no idea what they're doing.
The IMF has overshot the ex-post path of Greek nominal GDP in each and every one of their World Economic Outlook forecasts since April 2009. What do you want to wager that they're wrong about 2011, too? And now they want more fiscal austerity...

The French are devising a plan to compel bondholers to rollover Greek debt by enhancing the bonds. The new bond rate would be equal to Greece's current borrowing rate on the EU/IMF/EFSF programs plus a variable factor linked to 'an indicator such as GDP'.
Just amazing.
Rebecca Wilder

by Mike Kimel

A few questions about Obama and Next Year's Presidential Election

Assume that Michelle Bachmann wins the Republican nomination next year and Obama wins re-election. Given Obama's governing style (i.e., fold early, fold often), in what way will the outcome of Obama's final five years in office (i.e., next year plus the second term) differ from the outcome GW would produce were he President? And how would the outcome be different if Michelle Bachmann wins the Presidential election?

Assume that Mitt Romney wins the Republican nomination next year and Obama wins re-election. Given Obama's governing style (i.e., fold early, fold often), in what way will the outcome of Obama's final five years in office (i.e., next year plus the second term) differ from the outcome GW would produce were he President? And how would the outcome be different if Mitt Romney wins the Presidential election?

Assume that Mitt Romney of the year 2000 wins the Republican nomination next year and Obama wins re-election. Given Obama's governing style (i.e., fold early, fold often), in what way will the outcome of Obama's final five years in office (i.e., next year plus the second term) differ from the outcome GW would produce were he President? And how would the outcome be different if Mitt Romney of the year 2000 wins the Presidential election?

This is why Andrew Leonard (h/t Yves Smith) gets paid for blogging and I don't. He tries to do the impossible: make sense out of Michelle Bachmann's "economics":

1) The interest can easily be paid for ...

Bachmann is making the argument here that the U.S. can choose to pay its creditors -- the various holders of government-issued debt -- first, and thus not technically be in default. It's an open question whether credit rating agencies and bond investors will accept that technicality. China might get paid in full, but millions of Americans would immediate get stiffed. Of course, Bachmann doesn't mention that choosing such a strategy would require extraordinarily severe and immediate spending cuts -- around $4.5 billion a day -- in programs such as Social Security, Medicare, defense, unemployment benefits, et cetera. Economists generally agree -- the negative economic impacts of such drastic short-term cuts in government spending would almost surely drive the U.S. straight back into recession.

Furthermore, a failure to reach agreement on the debt limit would guarantee bond market jitters, pushing up interest rates and raising the cost at which the U.S. government can borrow funds -- and thus end up increasing the deficit.

So what happened today? There was a seven-year Treasury auction:

Today the 7 yr saw a yield of 2.43%, 3 bps above the when issued

The WI is where that same note was trading even as it was being auctioned. Which works out to be about a 19.2 cent reduction per $100 of security.

19.2 cents doesn't sound like much, but there was almost $30 Billion in securities issued. So that's $55,642,171
that didn't get paid to the U.S. Treasury (or $57,433,536 if you're counting the Open Market Activities).

Even if you want to be generous and assume—it's crazy optimistic, but let's be really generous—that half a basis point of that is just a long tail (not entirely unreasonable, but rather generous), there are still $46,376,844 (or $47,869,918) that just got left on the table out of fear of near-term deficit issues.

Not incidentally, that's $46-57+ million dollars that isn't available for maneuvering to avoid an official default (as opposed to the practical default that has been in effect for almost two months now). From just one of the nearly 300 auctions that are held every year.

But not raising the debt ceiling won't mean anything. Michelle Bachmann assures us that just because Social Security/Disability/Medicare etc. payments won't be made for August 3rd, it's not a problem.

Sooner or later, we'll be talking about really money. Right now, it's just your mother's livelihood. But at least that money has been saved by those who are investing in seven-year Treasuries. Maybe they'll loan her some of that savings. Oh, right:

At least we know where they got the money to buy the notes.

Mark Thoma joins Dr. Black, putting him one-up on some Liberal Bloggers Who Should Know Better.* Thoma:

1. You have to make the Republicans pay in terms of eroded public support before they will agree to cooperate at all. The president in particular has not played a long-run strategy, the Republicans have, and the results reflect this.
2. "Let’s agree that what matters isn't how many jobs you 'get caught trying' to create." Why should I agree to take as given the point being debated here? When we need jobs as bad as we do right now, making it clear the other side is standing in the way of that goal, and fighting for the policies you'd like to enact has more value than it did in the past.

3. To me, this is about leaders and followers, and the administration is not the one leading policy right now.

4. The other side is not shy about going public, and that was also true when they controlled the White House. If this advice is correct, why didn't it hurt Republicans when they were in power?

5. Yes, jobs at election time would be best. But if the other side is pushing policies that work against that goal so that it is unlikely to be attained...making that clear to the public would hurt. [slightly edited; emphases mine]

As Yves said, can Ezra Klein should stick to being (slightly less but still) wrong about health care?

At this point, the list of Obama Administration Unforced Errors—Summers, Geithner, John Walsh, lack of nominations, etc.; see here—is so long I would be willing to swear they put a one-armed man on the tennis court.

UPDATE: Contrast the Obama Administration statements (and lack of same) with today's Press Release from CGI America:

Today, President Bill Clinton opened CGI America, hosting a plenary session on job creation and announcing new programs that will help foster economic growth in the U.S.

Speaking to more than 700 leaders from businesses, nonprofits, and government at the opening session, President Clinton announced three “Commitments to Action” that will be implemented by CGI America participants. These commitments, presented by Kiva, Visa, Onshore Technology Services, and the AFL-CIO, will expand access to microfinance, train workers, and fund infrastructure development.

“When these commitments are fully funded and implemented, 140,000 people will receive access to job training, 1,000 information technology jobs will be created in rural America, and $3.5 million will be loaned to small businesses in the U.S.,” President Clinton said. “Initiatives like these prove that organizations and individuals around the country have the power to take action to spur economic growth.”

CGI America is the first Clinton Global Initiative (CGI) meeting focused exclusively on the U.S. The purpose of the event is to develop new ideas for spurring economic growth and to highlight existing programs that can be replicated and scaled.

Can't anyone in the current Administration—Tim Geithner is attending CGI America—understand that Bully Pulpits are Meant to Be Used? The last Democratic Administration did.

*I should be fair to Bernstein, but he perpetuates the horse droppings about "people want to see spending cuts and see them they will." The unemployed innumerate vote, sometimes, and they're not going to cheerfully vote for someone who keeps them unemployed by doing what they said they want. That's not leadership, as David Frum (whose ex-boss knew even less about leadership than BarryO does) noted.**

**Frum's claim that Obama is not imaginative enough is clearly bollocks, and his toughness (as distinct from his determination) should be unquestionable too. But "not determined enough" has rung true since his Senate days, and the bad Gerald Ford imitation is wearing thin even with those who were originally nostalgic.

By: Daniel Becker
There is some new information from Adam Hersh of Center for American Progress showing what has happened in the states that have followed the conservative economic approach (yes, talking to you Obama, DLC, Clintonites).  Keep cutting at your own risk.

Here's the thing.  Like the Wile E Coyote, we seem to have run off the cliff.  Our feet are still moving like we are running because we have not noticed we are off the cliff.   Or I should say those in the lofty parts of our power house and economy have not noticed.   Now, in cartoons, sometimes the charater makes the realization and can scramble back to safety at the edge of the cliff.  However,  Wile E never did get it and always fell.

I'm not interested in being taken down by Senator, Represenative, President, Chairman Wile E Coyote.  No thank you.  I know we're off the cliff as do the vast majority of not only the USA but it seems the rest of the 1st world nations.  So listen up Wile E.  We're not following you any more ( I hear you Greek patrons).  Not going to try to catch that road runner your way anymore.   And here is why:

More below the fold...

I just couldn't resist clicking "Bank of America to pay $8.5 billion settlement over mortgages". Finally the Bankers are paying for destroying the economy. My enthusiasm rapidly faded as I read the article. Then I read

"Shares of Bank of America Corp. jumped more than 4 percent, or 48 cents to $11.30 before the market opened".

I should have stopped at the headline. More whining after the jump.

More below the fold...

If I made this up, you would never believe me:

"He informed me by text while he was on the floor," [Erie County Republican Chairman Nicholas A.] Langworthy said of [New York, State Sen. Mark J.] Grisanti's Friday vote. "I urged him to stick by his word he had given. The people elected him on what he ran on. This is not tax policy or something. This is important stuff." [emphasis mine]

Good to know The Republican Party has ceased to give a shit about anything for which the Ancestral Party stood.

(via Lance)

cross-posted from Skippy

Yes, it's another "AB was right" post. Detractors of this blog in general and me in particular could stop reading now.

But they shouldn't. Anyone who thought through the economics could have pointed out what I did on the 17th:

From [Republican Congressman John] Boehner's site:

At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.

This should be intuitive. If the company is paying $1,000 a month for my family's health care along with my $800 a month, it can raise my paycheck by $1,000 a month—employee compensation is employee compensation—and cut back on its health care administration. If I'm not a health-care administrator, it's win-win.

Any economist worth her salt should know that lower costs of employment increase overall employment (assuming there is not a demand-side problem).

If the McKinsey "study" were accurate—again, not the way to bet—we should expect overall employment to increase....

The follow-on effects in that universe: more people joining the HIEs than expected, improvements in the measurement of "real" wage growth, greater transparency in the current health-insurance system, and arguably a larger contingency of workers demanding something closer to a single-payer solution, all improve efficiency and provide opportunity for economic expansion.

Or what Jonathan Cohn wrote for the Kaiser Health Network and The New Republic a week later:

But here’s the irony: Most people like the insurance they get from their employers, which is why you hear politicians from both parties constantly promising to keep that coverage in place. In the long run, though, workplace-based insurance is probably not an arrangement worth preserving....

An ideal health care system would...liberate employers from the responsibility of administering health benefits for workers, allowing them to concentrate on other, more productive activities. Let the car companies make cars and the grocery stores sell groceries and the software firms design software. They don’t need to be running health insurance plans, too.

I've left out Cohn's historically-illiterate paragraph about the groups of private health insurance, since he omits the main reason it developed: wage controls during wartime left employers looking for other ways to attract and keep workers.* At least he comes to the correct conclusion:

A single-payer system, with a combination of basic government insurance and private supplemental coverage, would be a much better alternative. So would a “competition” system that looks like what is currently in place in the Netherlands or Switzerland, or what Senator Ron Wyden, D-Ore., first proposed back in 2007. The Affordable Care Act could evolve into such a system, particularly if the new insurance exchanges work well and workers feel comfortable the insurance available there is as good as what they’d get from employers. But that transition would probably take a lot of time, no matter what corporate officials were telling the survey-takers at McKinsey.

It's not just a lot of time. It's a lot of opportunity cost and underutilized human capital. And we have enough of that already,** no?

Good to see the Mainstream catching up with AB.

*As an alternative history, consider that, if that industry hadn't begun to develop during the War After the War to End All Wars, the U.S. might have followed the same path as the United Kingdom and founded the National Health Service, instead of leaving the country, almost sixty-five years later, trying to pretend that Barack Obama is Tommy Douglas.

**Yes, I would have found a way to link to this piece just for the title. When Brad DeLong is starting to entitle his pieces as if he were Lee Papa (or at least me; see the following link), the Sensible Centrists are once again signaling that their imminent move into the Activist camp.

Guest post by Nancy Ortiz

(Rdan here...Nancy is a long time reader of Angry Bear and has worked within the Social Security system professionally)

One of the many fixes now being considered as a remedy for Social Security and Medicare's projected shortfalls is means testing benefits. The rationale is that rich people shouldn't get SS because "they don't need it." Many people who ought to know better believe this would save a great deal of money and help fix the 2037 benefit gap. Sorry, people. This idea isn't worth the paper it's rotten on (as Dorothy Parker once said about someone else's screen play). The short and long of it is that it costs more to means test benefits than to pay SS benefits without regard to the beneficiary's income and assets.

More below the fold...

Angry Bear invites Dan Reale.

Dan Reale, Chairman of the Libertarian Party of Connecticut replies with this e-mail:

Libertarians oppose the initiation of force to promote social or political goals. We acknowledge that a "right" is a power, faculty or ability inherent to ownership and incident upon another. This applies to both to your property and yourself, as you own both.

More below the fold...

An Invitation for Libertarians

Here at Angry Bear, we've had a number of posts on LIbertarians over the years. Inevitably, someone writes to tell us we're misrepresenting Libertarians... even when we're quoting well known libertarians.

So... if you are libertarian consider this an invitation. Send me one to three paragraphs on what it means to be a libertarian or what libertarianism is. Or put it in comments. (I beg the indulgence of non-libertarians to please not put up comments of their own.) If you feel what you are writing about applies particularly to one or another strain of libertarianism, please make that clear.

I will put up as a separate post, verbatim, those e-mails and comments I get sent that seem to me to best tell the libertarian story from the libertarian perspective to the slightly left of center audience that resides here at Angry Bear. (I can't promise to print everything that comes in to avoid the sort of repetition that will simply detract from the story.)

Here's your chance to have your story told in your words.

I don't see why the aggregate state funding gap is not numero uno on the 'risks' to the US outlook (I usually hear oil, Europe, China, etc., in my line of work). According to the Center on Budget and Policy Priorities, the State budget gap is not expected to clear at least through 2013. From the CBPP report "States Continue to Feel Recession's Impact":

Three years into states' most severe fiscal crisis since the Great Depression, their finances are showing the clearest signs of recovery to date. States in recent months have seen stronger-than-expected revenue growth.

This is encouraging news, but very large state fiscal problems remain. The recession brought about the largest collapse in state revenues on record, and states are just beginning to recover from that collapse. As of the first quarter of 2011, revenues remained roughly 9 percent below pre-recession levels.

Consequently, even though the revenue outlook is better than it was, states still are addressing very large budget shortfalls.

Better put: state revenues are rising more quickly than expected from a low base following the most precipitous drop 'on record'. Not feeling too confident here.

(MORE AFTER THE JUMP)

More below the fold...

by Beverly Mann

Paul Clement’s weird tail-can-morph-the-dog ACA-litigation argument

Earlier this month I wrote a post called “Markets and the ACA: Why the Supreme Court Will Uphold the ACA" that discussed an article-length post by Santa Clara constitutional law prof. Brad Joondeph published on a blog he runs dedicated entirely to the ACA litigation. I wrote:

[Santa Clara law prof. and ACA-litigation blogger Brad Joondelph is] right, but only if, as he says earlier, the market for health insurance is defined so narrowly that health insurance is viewed as a commodity, a product, independent of the product’s purpose and effect. And then, the constitutional issue would not, I think, be whether Congress has the authority under the Commerce Clause, aided by the Necessary and Proper Clause, to regulate the health insurance market, but instead whether this violates some other constitutional limitation. You know: the slippery-slope-to-government-compelled-consumption-of-broccoli argument.

More below the fold...

As our manufacturing sector has shed jobs, especially during the past 15 years, there have been few opportunities for young people to start working and train in manufacturing.

Now that manufacturing is picking up just a little, and as the boomer work force hits retirement age, there are reports of a growing shortage of skilled manufacturing workers and allied skills (welders in particular).

So what do tell young people? Get into manufacturing, learn the skills, and you may have a job for an entire career, or maybe for ten years until the offshoring starts again. How do we convince young people, who have seen nothing but deterioration in their lifetimes, that devoting time and energy to manufacturing will have a good payoff?

Or should we tell them the economy is lousy, there may be nothing else, take the job and ride it as long as you can? What would you tell your child?

Interested in your opinions.

Tom aka Rusty Rustbelt

We have just printed the eleventh (11th) straight week in which new jobless claims have exceeded 400,000 people. As Krugman notes, "The Fed predicts disastrously high unemployment as far as the eye can see(pdf) [a]nd, in response to this dire prospect, it declares its work done."

So this it is almost palliative that Barry Ritholtz writes the Quote of the Day, or perhaps the Decade:

The sooner we recognize that the field of economics is a branch of Sociology and not Mathematics, the better off we will all be.

Anyone who has looked at the CF that Microeconomic doctrine has created over the past twenty years will not be surprised by Ritholtz's conclusion. The question would almost be why he waited so long to say so explicitly.

Other signs that people are coming around to the positions taken at this blog:

1. The gracious, even-tempered Mark Thoma has been driven to pointing out that the math, let alone the social issues, don't work:
   

   I had hoped to see more acknowledgement that the current soft patch may turn out to be something more significant than a temporary aberration in the numbers, and some hint of willingness to ease further should those worries come true. But the Fed shows no such willingness, in fact as Neil Irwin notes, the “employ its policy tools as necessary to support the economic recovery” language is gone, and the main question at this point is when the Fed might begin tightening policy by reversing QE1 and QE2 rather than when they might ease further.

   
   
2. Brad DeLong channels Bruce Webb or me in talking about Diane Lim Rogers:
   

   Get out of the defensive crouch, Diane. If you and your peers won't stand up and say that every single Republican presidential candidate is talking hogwash and that every economist who wants high federal office in the next Republican administration is acting like a craven coward, then you are giving them every incentive to do so.

   
   
3. The NYT—Gretchen Morgenson, of all people—notices that Executive Pay is not aligned with optimal company management, let alone shareholders:
   

   WHEN does big become excessive? If the question involves executive pay, the answer is “often.” ...just how this paycheck stacks up against, say, a company’s earnings or stock market performance is rarely laid out.

Guest post by Michael Halasy

AMA backs the mandate…

The AMA has its annual House of Delegates meeting last week, and boy, are they concerned. Recent evidence has suggested that they have lost 12,000 members since 2009. Much of this has been due to the AMA’s support of the PPACA. Today, the HOD voted to maintain the support of the individual mandate, (Chicago Tribune story here).

The problem with this concern is that it isn’t new. The AMA has been losing members for many years. They have also been losing money.

More below the fold...

by Mike Kimel

Ignorance, Fake Turing Tests, and Bads

I don't think Bryan Caplan realized he was advocating ignorance as a strategy for passing this non-Turing test.

But it actually got me thinking. I may soon be spending a bit of time on a small project that some years ago I might have tackled by trying to build some adaptive behavior into a piece of software, though I'm older and (I hope) wiser now, so if the project goes forward, the software will rely more on script and less on what some people erroneously call artificial intelligence. (I don't like that term. Machines don't learn and machines don't think. It may happen some day but we're a long way from that now and I don't think there's anyone out there who has any idea how it might happen, if it ever does.)

We live in a world where a surprising amount of the public put an astounding amount of time and effort into keeping track of the affairs of other people who don't actually do very much. I discovered the other day that not just did I, a guy who rarely watches tv, have knowledge of a show called Jersey Shore and can even recognize three of its cast members. How this, er, information got into my brain I'll never know, but if anyone can tell me how to remove it I'd be most appreciative.

So... could it be that the optimal strategy for building a program that can pass a Turing test is filling it with information about useless stuff? Which leads to another question - is it possible that we consume a lot of things that are harmful to the economy's long run health? Not because they generate externalities, but because they are really "bads" rather than "goods"?

PGL, in the process of an optimistic piece, points us to Martin Feldstein ringing in 2011. Apparently, the reason is this:

The most substantial potential boost to spending comes from a temporary reduction of the payroll tax, lowering the rate paid by employees on income up to about $100,000 from 6.2 per cent to 4.2 per cent. But, while the decline in tax payments will be about 0.8 per cent of GDP, it is not clear how much of this will translate into additional consumer spending and how much into additional saving. Because this tax cut will take the form of lower withholding from weekly or monthly wages, it may seem more permanent than it really is, and therefore has a greater impact on spending than households’ very feeble response to the previous temporary tax changes.

Feldstein attempts a free-finesse with "it may seem more permanent than it really is." This is like playing the seven to the Queen when you're only other holding is 10-x and expecting it to work.

It's six months later. The crowd jewel of BarryO's deficit-saving agreement, per Feldstein, was a low-impact change that was mostly (if my paycheck is any indication) neutralized by other factors (such as increases in health insurance costs). So the payroll cut is going to UHC or Aetna, or BCBS, or some other place where the money multiplier will be significantly less than one.

Even more interesting is that, just three paragraphs before, Feldstein understood that workers are still engaged in balance-sheet repair, and the likely consequences of same:

Even for those taxpayers who had feared a tax increase in 2011 and 2012, it is not clear how much the lower tax payments will actually boost consumer spending. The previous temporary tax cuts in 2008 and 2009 appear to have gone largely into saving and debt reduction rather than increased spending.

It is surprising, therefore, that forecasters raised their GDP growth forecasts for 2011 significantly on the basis of the tax agreement.

But Feldstein did see some good in the greater tax deal—it would temper deficit fears:

Obama wanted to continue the 2010 tax rates permanently for all taxpayers except those with annual incomes over $250,000....By agreeing to limit the current tax rates for just two years, the tax package reduces the projected national debt at the end of the decade (relative to what it would have been with the Obama Budget) by some $2 trillion or nearly 10 per cent of GDP in 2020.

That reduction in potential deficits and debt can by itself give a boost to the economy in 2011 by calming fears that an exploding national debt would eventually force the Federal Reserve to raise interest rates — perhaps sharply if foreign buyers of US Treasuries suddenly became frightened by the deficit prospects.

There can be only one remaining question:

When will Martin Feldstein endorse Jon Hunstman for President?

I was going to point out that finance people are not so dumb as economists,* but Echidne's takedown of Gary Becker is so divine it deserves your attention more:

This argument was initially made by Gary Becker, an economist, a very long time ago.** It is not an uncommon argument from conservatives (or from certain types of anti-feminist sites.) That does not mean that it shouldn't be discussed. So let's do that by looking at what is unrealistic about the specific conclusions....

In [Becker's] first model only owner/managers have a dislike towards workers from a particular group. That, my friends, is the model from which the above conclusion comes, though even then it would only work to eradicate discrimination from the whole industry if the industry was essentially a competitive one. If the industry is not sufficiently competitive, the bigoted owner/managers can hang on and practice discrimination....

Becker argues that if the only problem we have consists of some bigoted owner/managers, while everyone else is just so sweet, sufficiently well-lubricated markets can get rid of those nasty bigots, always assuming that everybody knows everything relevant about everyone else.

There are no misconceptions in the model. Even the bigoted owner/managers of a pizza parlor, say, know that Joe and Jane are equally good pizza-bakers. They just hate Jane and are willing to hire her only if they can get her for less money.

This cannot last if we can find at least [one] non-bigoted nice owner/manager.

That's the background of the old chestnut. Becker, having become immersed in the imaginary world of his simple model, concluded that competitive industries would never exhibit any long-run sex or race discrimination. Only oligopolies or monopolies could survive with at least some bigoted owner/managers. [emphases mine; hers varied]

It is a rare and delightful moment when someone looks seriously at an economic model. Strangely, when you examine the social premises of the mathematics—returning economics to its beleaguered claim to being a social science, as it were—it starts to be clearly why people believe economists are the problem, not the solution. It's progress to see a blogger destroy an economist this thoroughly.***




*And I may still, using this post by Mish as the springboard, but I think the post leads to that as an inevitable conclusion, so for now I'll just refer people there.

**1971, apparently, though, iirc, several of the papers are from 1965-1966.

***Yes, I know The Snake Woman is, in real life, a qualified economist. But she's not being asked to play one on television, like Larry Kudlow, whose degree from WooWoo is patently not in economics, or Megan McArdle, who has an Ivy League degree in English Literature and an MBA.

Welcome to the New United States.

Trust that Jared Bernstein (if this one shows up, instead of this one) will have more on how much future damage can be done to the economy.

UPDATE: Scott Lemieux weighs in, correctly seeing it as worse than any reasonable examination of the facts would have permitted*:

Systematic discrimination at a large corporation such as Wal-Mart simply cannot be addressed piecemeal. I could have lived with a ruling that focused on the unique facts of this case. But in their broad ruling, the Court’s five most conservative justices have made it much more difficult for civil rights laws to be meaningfully enforced in practice. It will be part of the classic conservertarian bait-and-switch: individuals filing lawsuits will not have enough evidence to prove discrimination, and class action suits that develop systematic evidence will be thrown out for not having enough in common.

Between this and Andrew Samwick's recent declaration that the rule of law should not apply in the United States, it's a good week for the youngsters among our readers to check out this site.


*Although, as is becoming far too usual, on par with my cynicism being optimistic.

Despite winning the big prize, evolution scores low on the scale at the Miss USA pageant:

Only Miss Massachusetts and [newly crowned Miss USA, Alyssa] Campanella stood up for Darwin.

Score one for Charles Darwin. Campanella, 21, of Los Angeles, who calls herself "a huge science geek," says evolution should be taught in public schools.

The good news is that only three contestants were "flat out opposed":

Miss Kentucky, home state of the Creation Museum; Miss Alaska who assures us "each of us was individually created by God for a purpose;" and Miss Alabama who doesn't believe in evolution.

Which leaves 45 or so to be confused.

Go read the whole thing. Then make the decision: either (a) emigrate to a country that educates its beauty contestants or (b) ignore them entirely for the sake of your sanity.

(h/t Andrew Verdon—far left of the bottom picture—or available in video here)

Readers of this blog know that I am in finance, specifically global fixed income. This blog post covers wealth effects in the financial industry, which is a relatively dominant share of total US compensation, 7.3% in 2009 and likely higher now (data are truncated at 2009). My view is that economists underestimate the wealth effects on consumption in the financial industry, given that financial wealth affects not only portfolio net worth but also the present value of labor income. Therefore, the sell-off in global risk assets may hit consumption more than expected in coming quarters, given that finance is the fifth largest industry, as measured by total compensation, on average spanning the years 1989-2009.

Why US consumption matters. The outlook for the US economy is of utmost importance to that for the world, given that the US will hold an average 22.1% of World GDP through 2016 (measured in $US), according to the IMF April 2011 World Economic Outlook. And the outlook for the US consumer is of utmost importance to that of the US economy, given that personal consumption expenditures hold a large 71% share of 2010 US GDP. Therefore, holding the US consumer share constant, US consumption is expected to be 15% of the global economy on average through 2016.

How wealth usually matters for US consumption. In economics, one of the drivers of consumption patterns 'now' is the wealth effect, usually defined as the shift in consumption due to changes in tangible (home values) and intangible (paper assets, like stocks and bonds) net assets.

(click to enlarge)

(Read more after the jump!)

More below the fold...

I'll add the scene from It later. Or someone can put it in comments and we'll promote it to here.

UPDATE:


R.I.P., Clarence Clemons.

QOTD from Walter Jon Williams:

Young folks may be shocked to discover that Clarence Clemons had a band before Lady Gaga.

Go. Read.

1. US Bank Exposure to Greece, part 3. The FT lets someone from Nomura argue that Kash's declaration of U.S. bank exposure to Greek default in Part 2 (referenced here, but just go to Kash's link for the gist) was overstated.
   
   Nomura and The FT lose the argument, badly.
   
   
2. "Disasters for an economy -- either real or financial -- are not always disasters for the economy's currency."* Good to think of in combination with this piece from Barry Ritholtz.

*I may write up more using this when I can do some charts and graphs. It is starting to appear as if no one other than Dr. Black understands The Whole of The Euro Story.

I'm not going to do this with graphics (at least for now), but the finger exercise seems intuitive.

Assume—against all evidence—that the "once we educated them, 30% said they would stop offering health insurance to their lowest-paid employees" study is accurate.

How does that, as John Boehner declares, cost America jobs?

From Boehner's site:

At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.

This should be intuitive. If the company is paying $1,000 a month for my family's health care along with my $800 a month,* it can raise my paycheck by $1,000 a month—employee compensation is employee compensation—and cut back on its health care administration. If I'm not a health-care administrator, it's win-win.**

Aside: Reality will interfere. If we make the Baumolian assumption that cost of health insurance will continue to grow faster than GDP—at a slower rate, probably, but still faster—I'll give you odds that the labor share of revenues will decline, cet. par. over time. But we're talking about jobs, not profits.***

Any economist worth her salt should know that lower costs of employment increase overall employment (assuming there is not a demand-side problem).

If the McKinsey "study" were accurate—again, not the way to bet—we should expect overall employment to increase. As with the Earned Income Tax Credit, the expansion of HIEs will benefit firms, allowing them to reallocate capital into more useful areas.

The follow-on effects in that universe: more people joining the HIEs than expected, improvements in the measurement of "real" wage growth, greater transparency in the current health-insurance system, and arguably a larger contingency of workers demanding something closer to a single-payer solution,**** all improve efficiency and provide opportunity for economic expansion.

Which is supposed to mean more jobs, not fewer.

If the McKinsey presentation accurately reflects what companies will do given the opportunity—think the Wal-Mart Effect Writ Large—then the prospects for employment will be, if anything, increased.

Greater political pressure for cost-reduction that leads to single-payer becoming more politically viable is just lagniappe.


*Not the real numbers, of course.

**If I'm a Benefits Coordinator, I don't lose my job, and I get to spend more time working on ensuring that the firm is competitive in other areas. If I were doing an economic model of this against employment, I would bet that the coefficient would be small but positive, so let's be generous and assume it's equivalent to zero, i.e., no effect on employment supply.

As an aside, this was in part the reasoning behind the Bear Stearns "bag of rubber bands, box of paper clips, go buy all your own supplies" thinking. It didn't necessarily save on corporate expenses directly, but it meant not having to manage that area of inventory.

***If anything, the extra profits, cet. par., facilitate business expansion and more hiring. That the multiplier effect will not be 1:1 simply reflects what a poor social investment private corporations are.

****More people forced to use the HIEs=> more people demanding similar plans across state lines => more demand for a larger uniform baseline (especially as families move from state to state) => more interest in cost controls => greater need to control Administrative expenses => disequilibrium in service demand and supply => demand for service efficiencies that result in either single-payer or, at worst, unified Servicer processing.

by run75441

The Medicare Sky Is Falling (Part 2)


Chicken Little, Courtesy of "EW.Com Entertainment Weekly"

Over at The Health Beat Blog, Maggie Mahar explains why the collapse of Medicare HI is less likely with the passage of healthcare reform. The Medicare “Crisis: A Shaggy Wolf Story.

Potentially heading off the shortfall of Medicare funding is the passage of the ACA which is used by the Trustees to forecast a positive projection to Medicare. Before healthcare reform, Medicare HI would run short of funds in 2016. After its passage, the Medicare Trustees forecasted Medicare HI funding lasting to 2024 if Healthcare Reform program implemented. Why is such a delay in insolvency possible? Elmendorf's (the same Elmendorf who helped kill Hillary-Care) Congressional Budget Office forecasted a $950 billion generated over the next decade from the passage of healthcare reform. Two areas account for most of the savings and the third area could not be measured:

More below the fold...

Alea gives the lie to that lie.

Italy!!!?

Yahoo! News, Tuesday early afternoon

Dr. Black, Wednesday, just before noon.

Brad DeLong, about fifteen minutes after Dr. Black

Me, Monday morning.

But this isn't a "First Mover" claim. It's a note that there are no "savings" in getting rid of the website. There aren't even the "registration fee" that applies to private enterprises. Commenter Bryan at Skippy notes:

The Federal government is the registrar for the .gov TLD [Top Level Domain], so the only cost is storage and bandwidth on government servers.

The cost of locating and removing a site is probably the equivalent of 20 years of ignoring it.

So not only is "the Sheriff" going after chump change, the actions aren't even going to save any money.

The difference between Joe Biden and Paul Ryan appears to be that one isn't even talking about real money.

I left out of the last post why David Vitter (claims) he is blocking the two SEC nominees:

Sen. David Vitter (R., La.) will block two nominees to the Securities and Exchange Commission until the agency announces whether victims of R. Allen Stanford's alleged Ponzi scheme are owed compensation from the Securities Investor Protection Corp....

More below the fold...

David Vitter (R-DiaperPuta) stands firm:

Sen. David Vitter (R., La.) will block two nominees to the Securities and Exchange Commission...

More below the fold...

by Mike Kimel

On the Job Market

Recently, my employer went through a merger. As part of the process, my position disappeared. I turned down a different position that was offered, the result being that at the end of the month I will no longer be with my current employer. Yes, I am aware of how bad the job market is, and yes, I learned a lot at and enjoyed my job, but without getting into a lot of inside baseball, it was time to go. In fact, it has been time to go for a while. Sometimes it takes something like this to tell you something you already know. So, yes, I have butterflies in my stomach (I've never been on the job market with this many mouths to feed), but I'm also looking forward to what comes next.

So... time to assess the situation. Here's what I got.

More below the fold...

I wisecracked yesterday chez DeLong that, given the current political climate, I wouldn't invest in a company without political connections using his money, let alone my own.

What I didn't realize at the time was that the Supreme Court already had decided earlier yesterday that investing in mutual funds should be a hazardous activity:

Janus Capital Group Inc (JNS.N) and a subsidiary cannot be held liable in a lawsuit by shareholders over allegedly false statements in prospectuses for several Janus mutual funds, the U.S. Supreme Court ruled on Monday....

More below the fold...

Traditionally, non-commercial banking (i.e., everything except savings deposits and consumer loans) was about one of two things:

1. Tax arbitrage or
   
2. Regulatory arbitrage
   
   The rest is window dressing; that is, it was basic financial intermediation, usually for the purpose of helping Corporate and/or High Net Worth clients.*
   
   That was until the late 1990s and the Noughts, when the third level came to liquidity-prominence:
   
   
3. Credit rating arbitrage

The third is the most chimerical of all, becausemdash;unless you're selling to or buying from the company that is involved (which has correlation issues, as I noted long ago)—neither party (in theory) has control over the outcome of events. It's asymmetric information on both sides: not so much gambling against the house as shooting craps in the alley, not certain whether there is a bobby down the block.

More below the fold...

Demand destruction. Demand destruction. Demand destruction.

That is all one seemed to hear from analysts and managers for months as food and energy prices soared. But now that we are actually seeing demand destruction, no one seems to recognize it.

More below the fold...

by Mike Kimel

The Historical Relationship Between the Economy and the S&P 500, Part 3: The S&P 500 and the Employment to Population Ratio

A few weeks ago, I had two posts looking at the relationship between the S&P 500 and real GDP (Part 1 and Part 2).

The first post noted that using data from 1950 to the present, the adjusted close of the S&P 500 appears to lead real GDP by about 10 quarters... and real GDP appears to lead the S&P 500 by 16 quarters. That is, each factor appears to influence the other with a lead time of a few years. In the second post, I noted that while the S&P 500's influence over real GDP appears to have remained relatively stable over the decades, real GDP's influence over the stock market seems to have gone by the wayside some time in the 1970s.

Today's post is similar to Post #1, but instead of looking at how the S&P 500 influences real GDP and vice versa, it looks at the relationship between the S&P 500 and the civilian employment to population rate.

More below the fold...

by Beverly Mann

Ah! It’s not about regulating markets, after all! It’s about regulating the individual!

ATLANTA — In perhaps the weightiest of the dozens of challenges to the Obama health care law, a panel of appellate judges grappled Wednesday with the essential quandary of the case: if the federal government can require Americans to buy medical insurance, what constitutional limit would prevent it from mandating all manner of purchases and activities?
—Kevin Sack, New York Times, Jun. 8

In my last post, Markets and the ACA: Why the Supreme Court Will Uphold the ACA, I wrote:

[Santa Clara law prof. and ACA-litigation blogger Brad Joondeph is] right (see my earlier post), but only if, as he says earlier, the market for health insurance is defined so narrowly that health insurance is viewed as a commodity, a product, independent of the product’s purpose and effect. And then, the constitutional issue would not, I think, be whether Congress has the authority under the Commerce Clause, aided by the Necessary and Proper Clause, to regulate the health insurance market, but instead whether this violates some other constitutional limitation. You know: the slippery-slope-to-government-compelled-consumption-of-broccoli argument.

Turns out I was onto something.

More below the fold...

Brad DeLong, not generally a Leading Indicator in such matters, follows Mark Thoma yesterday in looking into the abyss and seeing the outline of a train around the "light":

Henceforth, I will call the current unpleasantness not "The Great Recession," but rather "The Little Depression."

This still strikes me as optimism, but I'm stil on what do you call 1873-1896 (much more similar to the current situation) when "The Great Depression" only lasted about 17 years?

(Aside: Round One of Economists Catching Up was here.)

...it seems that way, at least, when I listen to much of the rhetoric coming out of Washington.

But it's not just Washington, it's Wall Street, too. In my line of work, finance, market participants grapple with the monthly economic data flow, eyeing each release as if it's telling a new story about the current prospect for US economic growth - that it isn't just treading water. 'Consensus' economists forecast their expectations for the economic release of the day, the market then trades based on the surprise to which the data beat or disappointed expectations. Day in, day out, that's what we do.

I have a problem with this automated way of viewing the world. It's tough to hear Wall Street economists defend their forecasts, stating that 'oil' or 'Europe' are the primary risks to the outlook; or that the structural unemployment rate has risen markedly so that harmful inflation is right around the corner. Step back, take a look at where 2.7% annual growth (current Consensus for 2011) actually gets the US labor market (see chart below).

The biggest risk to the outlook is not oil, it's unemployment. The longer that the labor market remains idle - in fact, the labor force is now trending downward - the lower will the average skill level will go. Then you're going to get something much more structural, the so-called positive feedback loop.

READ MORE AFTER THE JUMP!

More below the fold...

Via the overworked Tom Bozzo, who I keep hoping will post here about Ford's plan to triple their Electric Car output for next year, Tom Toles Explains It All to You:

Oh the transgression was bad, but we the proud and truth-loving American public just cannot abide the lies! We are TRUTH-SEEKERS around here, and we punish the lying liars where they are found!

Except Tim Pawlenty when he says that he will fix the budget with MORE, HUGER THAN EVER tax cuts! Just like Bush’s only BIGGER! But THIS TIME they will pay for themselves! This will not be punished as a crazed lie, no, this will be reported straight-faced as a POLICY POSITION. And Pawlenty is running as the GUY WHO WILL TELL US HARD TRUTHS!

Journalists apparently understand that calling an underwear model shot "a penis" will get more links, which is their sole purpose in life, but actually noticing a lie that would impact people who are supposed to make rational decisions will lose them a key source who then takes the opportunity to lie to them with impunity and anonymity.


Note: If I Were Brad DeLong, I would be calling this series (which reveals my innumeracy, unless Google just can't find entries 11 and 12) "Why Oh Why Can't We Just Have the Good Part of the Press Corps?" Sadly, I'm not that clever, so it would be something like "Reasons to Be Cheerful..." There's a reason he's a Syndicated Columnist and I'm a blogger.

Trying to upgrade an iMac from 10.4.11 to something in the 10.6.x range, but can't seem to find any way to transition to 10.5.x (which is, apparently, required before 10.6.4 can be installed).

Apple presents files, but no instructions. Anyone done this? Or should I just keep treating 10.4.11 as something like Windows Vista--an OS without a future?

by Beverly Mann

The link to the ACA litigation blog article I discuss is here .

‘Markets’ and the ACA: Why the Supreme Court Will Uphold the ACA

In my post last week about the activity/inactivity canard on which the challengers to the constitutionality of the ACA claim, I wrote:

In his [blog] post, [high-profile rightwing law professor Randy] Barnett pointed out something that was not in the other reports I’d read about [last month’s oral arguments in the 4th Circuit Court of Appeals]: that in a lengthy exchange with [acting Solicitor General Neal] Katyal, [Judge Diana Gribbon] Motz indicated that she buys the activity/non-activity distinction, because she believes the definition of the word “regulate” means “regulate activity.” She kept insisting that if the failure to buy health insurance is inactivity rather than activity, then, under her understanding of the definition of the word “regulate,” Congress couldn’t regulate it.

More below the fold...

by Daniel Becker

Continuing my prior post suggesting that what ever monetary policy has done, it has not reached that vast majority nor has it addressed what is the main issue, I viewed this chart by Mike Kimel and thought: Perfect!
Then comes Ken Houghton linking to this article with it's chart.
What do they have in common? Income inequality. So let me repost this graph from my 12/2007 post.
I'm only posting the second half of the graph, as that is the one that matters.

Take a look at 1996. That is the year that personal consumption crossed over the income level of the bottom 99%. It's been borrowed money ever since. For an economy that runs on making money from money, that's not a problem for those who earn their income by such a manor, is it?

More below the fold...

Anyone who was in the MBS market and not working for a primary originator can tell you that the MBS securitization market ended around Halloween 2006. (Those of us who were at places with origination go a few more months, but had no flow by February.)

Only economists were fooled by what I've been calling a Xmas Miracle, and even they (via Mark Thoma) are starting to wise up:

The blue line is the usual measure of GDP, which is obtained by adding up total spending. When you read the newspapers, this is the number they report. But the Fed’s Jeremy Nailewaik has convincingly shown that red line—which is the sum of all income—is the more reliable measure. In theory the two lines should be identical—one person’s spending is another’s income—but in practice, the measurements differ. I’ve also plotted the peak, trough, and latest reading of each measure.
Focus on the red line, and you’ll see that the recession began in the final quarter of 2006, not the end of 2007.

You can sustain a bubble as long as more funds are coming into the system. Sell the 1BR on the West Side, reinvest the profits on the 2BR in Park Slope while that seller reinvests in 2,600 square feet in Summit or Hasting-on-Hudson who...

Until the incomes stop moving—transaction costs slow the margin, generally just after a few of the easier lenders demonstrate the flaws of their "business model" and the infrastructures have been built up at other firms based on those chimeric profits, when fixed costs and narrowing margins make better and better firms look worse and worse.

Economics has caught up with finance. What will they think of next?

Note: Subtitle added as I realized this may become a series. - klh, 10 June 2011

Reuters reports that the mainstream Republican Party has decided to jump the shark admit it is insane:

David Frum, a former speechwriter for President George W. Bush and a Republican advocate for raising the debt limit, said he holds regular question-and-answer sessions with Republican congressman over a beer.

"I have yet to meet one Republican who actually says a failure to raise the debt limit scares them," Frum said. "It is deeply, deeply troubling the number of Republicans I now talk to - and I include the mainstream - who think a technical default is manageable."

Many on Wall Street disagree.

They fear even the briefest default would cause a steep climb in interest rates worldwide and a tumbling U.S. dollar, which would tip a fragile economy back into recession and cause financial market upheaval on a scale not seen since the collapse of Lehman Bros.

Let us be clear: a "technical default" is manageable. It is being managed right now. We've been in "technical default" since around May 15th. Vendors are seeing payments delayed, contract signings are being put off, funding is being delayed. We can not pay soldiers, after all. They're getting food and lodging in Afghanistan or Iraq or Libya anyway; they don't need money.

Pat Toomey appears to believe that would be a good idea:

Republican Senator Pat Toomey has even introduced legislation directing the U.S. Treasury to prioritize debt service over other payments if the debt limit is not raised. It has 22 Republican co-sponsors in the Senate and 98 in the House of Representatives, although no members of the Republican leadership have backed it.

Good thing Toomey thinks those ungrateful Chinese bondholders are important. But who are they more important than?

Short answer: Republican voters.

More below the fold...

by run75441

"The Medicare Sky Is Falling"

Chicken Little, Courtesy of "EW.Com Entertainment Weekly"

A recently released Medicare Trustees report detailing the insolvency of Medicare HI has been used by conservatives and supporting news media to call again for an overhaul or privatization of Medicare to save healthcare for those on Medicare.

More below the fold...

by Mike Kimel

Eat Your Heart Out PZ Myers



Now that is what you call an octopus. Eat your heart out PZ Myers.

It's not that the data is different; it's the interpretation.

For instance, Brad DeLong's What Obama Needs to Do is three(or four) fine suggestions, one point (2) that hasn't worked yet but bears repeating, and a moment (5) of hope that really does required Congressional action, as Stan Collender noted today.

But the three good points are things several of us have been saying for years now, and the chance that the Obama Administration is rational enough to do them has only increased by the degree to which Larry Summers is no longer there. I want a pony, too.

So when I suggested a few days ago that Buce was Much Too Generous to Maurice ("Hank") Greenberg here, it's not that I believe Greenberg was an absolute failure. He built AIG into what it is today—well, what it was before he lead it to what it became, which is (again) about what it is today.

And there's the rub, if not all of The Real Story. So this will be a Very Long Post, with Muliple Sidebars and Anecdotes. Feel free to skim; it's below the fold.

More below the fold...

It was bound to happen...

House Republicans propose Social Security opt-out by Pete Kasperowicz -

House Republicans on Friday introduced legislation that would allow workers to partially opt out of Social Security immediately, and fully opt out after 15 years.

Rep. Pete Sessions (R-NY), who chairs the National Republican Congressional Committee, and several other Republicans introduced the Savings Account for Every American (SAFE) Act. Under the bill, workers would immediately have 6.2 percent of their wages sent to a "SAFE" account each year.

That would take the place of the 6.2 percent the workers now contributed to Social Security.

Another 6.2% is sent to Social Security by employers. Under the Sessions bill, employers would continue to make this matching contribution to Social Security, but after 15 years, employers could also send that amount to the employee's SAFE account.

More below the fold...

by Mike Kimel

Predicting Recessions, The Great Stagnation, and Will There Be a Double Dip?

There's a lot of talk about a double dip recession these days. I don't think there's a precise definition of a double dip recession, but I think if there was it would be something like this: "a recession, followed by a recovery which doesn't last very long, leading into another recession." Given the official end of the recession occurred in June of 2009, if the current slow down is (or results in) a recession which gets labeled a double dip, that would imply a double dip recession is one that occurs no more than about two years after the previous recession ended.

More below the fold...

by Mike Kimel

An excellent post by Simon Johnson.

The managing director of the IMF is the impresario of any bailout. The big decisions must be negotiated with all significant stakeholders but this still leaves enormous scope for discretion.

If Ms. Lagarde becomes managing director she can directly influence the terms of IMF involvement – and based on her negotiating position to date within the eurozone, we can presume she will lean towards more money, easier terms, and above all no losses for the banks that made foolish loans.

More below the fold...

by Linda Beale

Congressional Progressive Caucus People's Budget beats Ryan's corporatist budget by a long shot, but doesn't get media coverage

FAIR has a good point on the way the media have covered the US budget debates.

Fact is, the radical right wing budget proposed by radical right Ryan gets lots of coverage. FAIR noted that he was on Meet the Press 4/10, Face the Nation 4/17, ABC'sThis Week 5/1, PBS News Hour (one on one) 5/1, ABC Good Morning America 4/13, and he's been profiled personally, showing that he has learned the key to Reagan's success--you can say the most absurd things that are ultimately extraordinarily dangerous for ordinary people, and get ordinary people to think you are great, just by smiling and coming across as "genuine" and acting like you believe the lies you are spreading. Be a good actor, that is, and you can move the corporatist agenda forward at huge cost to ordinary Americans, because they will (regrettably) trust in your (fake) genuineness that you will do right by them. The budget plan has been covered in nightly news shows many times--though not with the kind of piercing analysis that would expose its corporatist bones for what it is. Instead, in the segments I've watched, it is almost always treated as though it is what it claims to be, an attempt to put the US on sound fiscal footing. That's simply bullshit. It's an attempt to eliminate the New Deal and move the US back to the pre-New Deal period when regulators were weak-kneed and Business could pretty much do whatever it wanted, and the military would serve Big Business interests around the globe.

More below the fold...

Health Care Thoughts: Non-Compliant Patients

Ask physicians and nurses about their biggest clinical problems and non-compliant patients will likely be near the top of the list.

And why should we care? Because non-compliant patients are huge cost drivers.

Ezekiel Emanuel (MD, PhD, NIH) estimates that one-third of U.S. health care costs are driven by diabetes, and we know a lot about controlling diabetes, but it is very dependent on the patient being compliant with diet and medications. We don't do so well on this.

Is there something about Americans that make us less compliant than we should be? Is our consumer culture a bad place to promote health? Is there not enough information? Are we stressed into non-compliance?

Whatever the reason, it is very costly for all of us.


Tom aka Rusty Rustbelt

1. Buce has been on fire recently, so I'll probably have to do a post about why this post is so off-target, though his conclusion is correct (short version: he's been misled).
   
   
2. If I'm reading this morning's SIFMA Brief correctly, Moody's—whose rating skills Robert has discussed at length—(1) may downgrade US debt if we spend too much and (2) will downgrade US banks unless we spend too much on them. Oh, and the banks object to regulation because it would "artificially" reduce asset values (presumably, many of the same ones Moody's wants protected).
   
   
3. Relatedly, James Salt (probably h/t Felix) notes that "generous" UK banks are playing reporting games. (The US version is to deny the rework and leave the asset marked at unsustainable levels.)
   
   
4. That this is spot-on would make me sadder if I thought we still lived in anything resembling a meritocracy, or even a developing economy.
   
   
5. If we needed further evidence of that, the state with the best secondary eduction system in the country is pushing forward with privatize-the-gains.
   
   
6. I'm more and more convinced that China "is different," but very much not certain the differences will make an ultimate difference. Daniel Gross is inclined to think not. More on this as I finally finish my review of BoomBustOlogy, which you should expect to see some time before the apocalypse.
   
   
7. I assume everyone has already seen this. Just in case, check out the facts, stylised or not.
   
   
8. Oh, and Felix is wrong here. But that's a post that will probably never be written by me. Someone else want to send it in?

by Mike Kimel

I am not a Libertarian Because I Believe in Freedom and Property Rights, And I'd Like to Minimize Government Coercion, Part 2

This is a follow-up to my previous post on libertarian philosophy, the aftermath of which was a surprising amount of, well, let's just call it assorted vigorously uncomplementary communication. (Shows what I get for making myself easy to find, eh?) But I also got some more interesting comments from libertarians which have led me to think further, and perhaps they can help me refine my thoughts.

To quote something I noted in the last post below the fold:

More below the fold...

A post of mine on May 17 titled The Difference Between Defending DOMA and Defending Neo-Nazis and the ACA discussed a post on the Blog of Legal Times that summarized part of a lengthy article published that day on Daily Report Online. These websites and their respective hard-copy publications, Legal Times, based in New Jersey, and Daily Report, based in Atlanta, are part of American Law Media, which publishes The National Law Journal and several local law journals around the country. The Daily Report Online article is titled “Inside K&S's DOMA debacle.”

K&S is Atlanta-based mega law firm King & Spalding. DOMA is the Defense of Marriage Act. King & Spalding’s debacle is that … well … read my earlier post.

Or, better yet, read the full Daily Report Online article, by Daily Report reporter Meredith Hobbs. The Blog of Legal Times article, which, as I said, summarized only part of the article—a small part, it turns out—provided an, um, password-protected link to the source article, useful for all you folks who subscribe to the Daily Report. For those of you who don’t and are interested in the DOMA litigation or in this particular controversy, here it is (republished with permission):

Her full article is below:

Fulton County Daily Report

Wednesday, May 11, 2011
Inside K&S's DOMA debacle
Firm's Washington chief says review process wasn't followed due to an 'unfortunate misunderstanding'
By Meredith Hobbs, Staff Reporter

Following a barrage of criticism over King & Spalding's withdrawal from defending the Defense of Marriage Act two weeks ago, the Washington office managing partner broke the firm's official silence and made a statement to the Daily Report accepting responsibility for the "unfortunate misunderstanding" and "breakdown in communications" that led former partner Paul D. Clement to contract with the U.S. House of Representatives to defend the law.

More below the fold...

The employment report came in much as the ADP report had suggested it would. Payroll employment was little changed at 54,000. This is considerably weaker than over the last few months and is in line with other data that suggest the economy has weakened significantly.

The household survey reported that employment rose by 105,000 while the civilian labor force grew by some 272,000. Consequently the unemployment rate ticked back up to 9.1% from 9,0%.


Even with the uptick in the unemployment rate my fed policy index is still calling for a fed funds rate of 1.0%. This implies that the Fed should not renew QE II as the current easing ends.


The workweek was unchanged at 34.4 hours. So with the small gain in employment aggregate hours worked was only up 0.1%

Average hourly earnings rose by 0.3%, but the year over year gain in average hourly earnings is only 1.8% -- a near record low.



With weak hourly earnings and only a 0.1% gain in hours worked average weekly wages are only up 2.7 % from a year ago. With the CPI at 3.1% as of April it should be no surprise that the economy is weak.

More below the fold...

The stock market is adjusting to weaker 2011
economic and earnings growth. Business executives,
analysts and economists have yet to reduce their 2011
estimates, So the important question is how much of the lower
growth is already discounted. The consensus had been for
double digit earnings gains in 2011. But now it appears that
earnings growth will be less than nominal GDP growth --
the low single digits.

The revised first quarter GDP deflator of 1.9% appears to be
weaker than what other measures of inflation are reporting.

It is low. Within the report the deflators for both gross domestic purchases
and the personal consumption expenditures ( PCE) rose at a 3.8% rate.

The low GDP deflator stems from the way GDP is calculated.
GDP subtracts imports from final demand to indirectly estimate
production. When you buy an imported car it is reported in PCE.
But GDP measures production, not consumption. To go from
consumption to production that imported car has to be backed out
of the data by subtracting imports. So subtracting imports is the right way
to calculate GDP.

But when import prices surge -- in the last quarter they rose at a 21.8% rate --
this methodology tends to distort the GDP deflator and causes it to understate
inflation. It happens every time oil prices spike.

So the reported low 1.9% inflation rate should be taken with a grain of salt
and viewed as a data distortion.

If the inflation rate is really 3.8%, not I.9 % it strongly implies that the dominant
cause of the economic and stock market weakness is higher inflation,
not supply chain disruptions.

This analysis strongly reinforces my belief that as long as wage gains are as
weak as they are, the economy can not sustain higher inflation. If and when
inflation accelerates it generates weaker economic growth, not a self reinforcing
inflationary spiral.

Moreover, unit labor cost is now rising faster than the non-farm business deflator.
Last year strong productivity and falling labor cost meant that firms could absorb
higher commodity prices and still report strong earnings growth. That is no longer
true. Firms now need to try to pass these cost increases through and the revised first
quarter data implies that business executives, economists and analysts are still
too optimistic about firms ability to raise prices.

More below the fold...