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The Rude Pundit Has a Brilliant Suggestion. OWS didn't expect to be in Zucotti Park for more than two months. It looks as if they'll be there a lot longer.
UPDATE: Michael Swanwick shows how easy it can be:It's Halloween! So Marianne and I went down to City Hall to donate a case of water, a box of granola bars, and some M&Ms (for the seasonality) to the Occupy Philadelphia people.
by Linda Beale
crony capitalism and casino capitalism--bad flavors for right or left, per Kristof and Stiglitz
The Occupy Wall Street focus on "we are the 99 percent" juxtaposed with the CBO's recent report on the growing inequality in America (see here) come at a time when the American right is pushing hard for policies, like Perry's so-called "Flat Tax" and Cain's so-called "FairTax", that will exacerbate that inequality in a winner-take-all economic system that rewards the speculators and fat cats to the detriment of ordinary society. Hopefully those first two items will cause ordinary folk to think twice before supporting that exacerbating trend on the right. The right likes to disguise them as 'folksy' 'down-home' populism. They aren't. They are wolves disguised in sheep's clothing.
A challenge for monetary authorities in a liquidity trap is that it is hard convince people that they won't reverse expansionary policies as soon as the economy leaves the liquidity trap. The other problem is that they can't do much other than affect expectations while the economy is in a liquidity trap. This suggests that they can't do much at all. This argument assumes model consistent expectations (aka rational expectations) but that doesn't mean it is totally wrong.
My view has been that the key word is "Much" and that the monetary authority can also bear risk. In particular, I think that the Fed can and should bear mortgage default risk by buying mortgage backed securities.
The disadvantage of this approach is that, if house prices and/or GDP tank, then the Fed's balance sheet won't balance. It would not be possible for the Fed to retire as much of its obligations as it might choose, because they are worth more than its assets.
Yves points us to #OccupyWallStreet Alternative Banking Working Group Meeting in NYC Sunday @ 3 PM -
The New York City General Assembly website has a section for a recently-formed Alternative Banking group, which has started meeting on Sundays from 3:00 to 5:00 PM. You can read the notes from last week’s session here. Despite the title, this is NOT about moving your money. An alternative economics committee had already started on that effort and the alternative banking committee agreed to let them run with that ball. Although this group is still in the process of deciding what it is about, it appears to be moving towards making fundamental, wide-ranging critiques and proposals.Reader rjs suggest that "Anyone is welcome, and the group would particularly benefit from the input of people with capital markets, regulatory, and wholesale banking expertise. The group already has some members with relevant experience (SEC, major hedge fund, investment banking) but more depth would be of great benefit. Please sign up at the NYCAG webpage to find the meeting location. There is also a dial in number if you are not in NYC and would still like to take part."
This from today's Times.
http://www.nytimes.com/2011/10/29/opinion/blow-americas-exploding-pipe-dream.html?_r=1&ref=opinion
We sold ourselves a pipe dream that everyone could get rich and no one would get hurt — a pipe dream that exploded like a pipe bomb when the already-rich grabbed for all the gold; when they used their fortunes to influence government and gain favors and protection; when everyone else was left to scrounge around their ankles in hopes that a few coins would fall.
by Linda Beale
Perry's Flat Tax and other "bold reform" ideas in context of the richer 1%
The hard right candidates of the GOP are competing to set forth plans that demonstrate their utter and complete loyalty to the right's "make the rich richer and make businesses less accountable" economic program.
This program involves the tired and failed policies of Reaganomics, just magnified:
The Flat Tax is Back
Moderated by Laura Knoy on Wednesday, October 26, 2011
(follow link)
Quote:
"In past presidential cycles, the idea of fixing the tax code by charging everyone the same rate has caught on like wildfire, only to die out later. This Presidential election season, candidates Herman Cain Rick Perry, and Newt Gingrich are promoting flat tax plans. We’ll look at this concept…why it remains popular…and why it hasn't yet become law."
Guests
Linda Beale - associate professor at Wayne State University Law School. She contributes to the economics and finance blog, Angry Bear.
Chris Edwards - director of tax policy studies at the Cato Institute and editor of the website, downsizinggovernment.org
(loonyhiker< /a>via Flickr/Creative Commons)
Of course Linda's thoughts on the matter appear in more detail at Angry Bear and ataxingmatter
Yes, I'm working with the null set again, but Peter Bockvar, chez Ritholtz, raises the most common objection to the Greek restructuring's likely effect on the CDS market:
[I]t will...potentially destroy [the sovereign CDS] market to the point where it will go away. The unintended consequence of what will be next will be those looking to hedge sovereign exposure, mostly banks, will then have to short sovereign debt or outright cut credit to the region. EU officials better be careful what they wish for the holders of Greek CDS.
by Linda Beal
The Atlantic has a good summary article contrasting Perry's Flat Tax proposal (an alternative choice to the income tax, that is modeled after Steve Forbe's flat tax, which will result in much lower taxes for the wealthy because of the deductions it retains along with the zero taxation of capital income) and Cain's 9-9-9 intermediary proposal as well as Cain's ultimate goal of the so-called "FAIR tax" --a national sales tax at a tax-inclusive rate of 23%--both of which will result in much lower taes for the wealthy because of zero taxation of capital income. Of course, along the way to his purported "FairTax", Cain will put us through his wacky 9-9-9 plan that includes a VAT (but one that has solely a wage base), an individual Flat Tax (but one whose provisions to benefit the poor are uncertain--some kind of poverty exemption and impoverished district exemption, without much information about how it works or how much it helps), and a FairTax (without any relief from the lumpiness of the tax that causes it to be particularly unfair to the poorest of the poor). See Derek Thompson, Perry Tax, Flat Tax, Fair Tax, VAT (Tax): What's the Difference?, The Atlantic (Oct. 25, 2011).
None of these proposals are revenue neutral (they will raise less revenues than raised under the current tax system). Either the rates would have to be increased or the government would be forced to operate in deficits (as it was pushed into doing with the Bush tax cuts where the $1.2 trillion cost over ten years of the 2001 bill moved the nation from surplus to deficit in one fell swoop).
None of them are distributionally fair--they shift the tax burden (to whatever extent the federal government is allowed to exist) down to the middle class and maybe the poor, while giving the rich extraordinary tax reductions through complete exemption of their main type of income.
None of these proposals are "simple" in any meaningful way.
The Euro Area Precedent for Policy Failure
Last weekend, a leaked Troika report (Troika = ECB + EC + IMF) revealed that European policy makers now comprehend that the Greek policy prescription is not working (bold by yours truly):
The growth and fiscal policy adjustments assumed under the program individually have precedent in other countries’ experience, but experience to date under the program suggests that Greece will not be able to set a new precedent by realizing at the same time and from very weak initial conditions a large internal devaluation, fiscal adjustment, and privatization program.
Rob Parenteau and Marshall Auerback sum up the implications of this point (1 A.):
On the first page of the document is not only a pretty open and blatant admission that expansionary fiscal consolidation (EFC) has proven to be a contradiction in terms, at least in Greece, but there is also a serious policy incompatibility problem, at least over the intermediate term horizon, with efforts at internal devaluation (ID) – that is, attempting nominal domestic private income deflation in order to improve trade prospects when one has a fixed exchange rate constraint.
I agree with Rob and Marshall – the grand plan does not work. Greece will (of course) not be able to set a new precedent of public sector and private sector deleveraging amid weakening external demand and a fixed exchange rate. However, I’d like to focus here on the ‘precedent in other countries’ experience’. What precedent?
And not in a good way, when he says:
I understand that Republicans are just playing the culture war game here, trying to link Warren and the loony left. I don’t know how that will play in, er, Massachusetts. And the world has moved on from the Hard Hat riots and the 1972 campaign. The hard hats have been brutalized just as much as the rest of us in this economy.
Note especially that having all those English Literature and Anthropology majors with degrees hasn't hurt.
*The data only breaks down from 1992 onward, so you'll have to wait for my tribute to the 1986 "tax reform" act.
cross-posted from Skippy, the Bush Kangaroo
by >Mike Kimel
I've been writing about the relationship between tax rates and growth since I started blogging in 2006. A lot of those posts have focused on the quadratic relationship between tax rates and growth. That is, it turns out that if you take US data going back to when the BEA started keeping track, 1929, you can easily build a model of the following form:
% change in real GDP from t to t+1 = a + b*Top Marginal Tax Rate at time t
+ c* Top Marginal Tax Rate squared at time t
I have modestly referred to that as the Kimel curve. Now, it turns out that for most variations on that theme I've come up with, b is positive, c is negative, and both are significant at the 5% or 10% level. That allows you to find a top marginal tax rate that maximizes growth... which turns out to be somewhere between 60% and 70% depending on how the model is specified.
In this post I want to address a few criticisms by running two additional regressions with more or less the form. Parts of this may get a bit wonky but I'm going to keep it so that even if you've never done any statistical analysis, hopefully you'll be able to follow the outcomes.
In the first regression, I'm going to account for a few additional facts:
1. By going with every single observation the BEA produces, I've been accused of "cherry picking." So I'm going to throw in a dummy variable for Hoover.
2. I've been told the only reason growth was so quick during the New Deal was that there was a bounceback effect from the Great Depression... so I'm throwing in a dummy variable for FDR's peacetime years (i.e., 33-41).
3. I've been told WW2 biases the results.... so there's a third dummy for 1942-1944, the fast growing years in WW2.
4. I've also included two demographic variables: the percentage of Americans 35 to 44 and the percentage of Americans 45 - 54. The latter group tends to be the highest income group these days, but in an earlier era more focused on manual labor, those 35 to 44 might have been higher paid.
5. For grins, I threw in a dummy variable which is equal to 1 if the President is a Republican and 0 otherwise.
So... here's what it looks like:
So what does it all mean? Well, this set of variables explains about 43% of the observed variation in growth rates over the period for which we have data (see the adjusted R2). There's obviously room to improve the model, variables I'm not accounting for, etc.
The percentage of Americans 35 to 44 has a positive coefficient and is almost significant at 10%. We're almost at the point where we'd be comfortable saying as that percentage increases, growth increases. The percentage of Americans 45 - 54 has a negative coefficient, but isn't close to being significant.
Not surprisingly, the Hoover dummy is associated with economic shrinkage, FDR's peacetime period is associated with positive growth, and 1942 - 1944 is associated with even faster economic growth.
The Republican dummy is not significant - any difference in the growth rate observed between the two parties can be explained by other factors. Which other factors?
Well, the top marginal tax rate and the top marginal tax rate squared are both significant - the former is positive and the latter is negative, which means they trace out the desired upside-down-U shape.
Oh... and the top of the curve happens when tax rates are at 64%. That is, the fastest growth rates seem to occur when the top marginal tax rate is around 64%. Now, I've had post after post on this topic, and the top of the curve always seems to occur in more or less in the same place. It isn't a coincidence folks.
I'll post results of the second regression in my next post in the series. That regression will focus on the period since Reagan took office and thus will only include data from 1981 to the present. What does it say? Well, a hint: if you don't like the results shown in this post, you won't be happy about that one either. But remember, I'm just the messenger. The data is what the data is, and if it isn't showing what you think it should, its up to you figure out what's wrong with the analysis or with the data, to pontificate wisely and inaccurately, to ignore the evidence, or to change your mind.
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If anyone has a line on a good inequality series with annual data that goes back to 1929, please let me know. I'd like to drop it into the model. I'd also love a good proxy for regulation. Don't be afraid to offer other suggestions for data to drop into the mix are welcome too. I'm like a DJ, I take requests, but it helps if you can point to whatever data you want me to use.
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As always, if you want my spreadsheets drop me a line at "mike" period "kimel" (note - one m only in my last name!!!!) at gmail.com.
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Thanks to Bill McBride for pointing toward the demographic data and m. jed for suggesting its use.
Charles Pierce sums up the true issue:
It is on days like this that I don't envy political economists. They're the ones that are going to have to take this Message from Goobertown seriously. They're going to have to score it. They're going to have to do the math, such as it is, and try to find a coherent formation in this unwieldy parade of hackneyed talking points (Kill the Estate Tax and Save the Family Farm!) and tired applause lines (The Job Creators Are Uncertain!). They're the ones who are going to have to find a way to square the utter abandonment of the progressive income tax, a balanced-budget amendment to the Constitution, a return to explosively inflationary health-care costs, an unchained and undoubtedly newly amok financial-services industry, and the partial privatization of Social Security, all of which Goodhair has managed to wedge into "Cap, Balance, and Grow (!)."
(By now, I figure the political economists are going to be hopelessly drunk and firing rubber bands at each other.)
They're the ones who are going to have to tell the family of the sad-eyed young intern in the corner that their son, a Wharton grad with a brilliant future, studied this plan for a couple of hours and then screamed, "But it doesn't make sense!" prior to trying to feed himself into the fax machine in a vain attempt to get as far as possible from any place where this nonsense is taken seriously.
Governor Rick Perry (R-TX) proposed his tax reform plan today and wrote this Wall Street Journal op-ed. Unfortunately, it's just a slapdash of slogans. If this plan were enacted as proposed, it would lose a lot of revenue, reward the rich, and complicate filing for most taxpayers.
Giving taxpayers the option would also mean that only those who pay less would opt in, guaranteeing significant revenue loss. [OPENING QUOTE ADDED, sans original links; go read the whole thing]
And now we have another version of the flat tax, as if the crushing irrelevance of Steve Forbes to the primaries in 1996 and 2000 were not an indication of how unproductive the discussion will ultimately be. What are the prospects that a Republican President would actually be able to implement such a change if elected? They are equal to the chance that Republicans will both retain control of the House and secure a filibuster-proof majority in the Senate in 2012. In other words, absolutely zero.
Regular readers will recall that I have been very skeptical of claims that the Fed can cause a large reduction in unemployment by declaring a nominal GDP target and/or buying long term Treasuries. Joe Gagnon is very prominent advocate of unconventional policy, so I was surprised to find that I so strongly agreed with so much of what he wrote in this post. After the jump I will quote him and ask readers if the statements are familiar, because they are what I regularly write.
By Mike Kimel Hi. I'm looking for the US population aged 35 to 44 and 45 to 54 from 1929 to the present. I'm having a great deal of trouble extracting it from the Census. Does anyone have that data, ideally from a publicly available source? If so, please drop me a line at "mike" period "kimel" (one m only) at gmail.com Thanks.
This Is What You Get When Policy Makers Become Complacent
The prospects for domestic demand in the US are not bright. The labor market barely generates jobs and fiscal policy is a drag. Americans are consuming; but there’s unlikely sufficient nominal income growth to stabilize consumption expenditure growth at current levels.We’ve seen years where consumption growth outpaced income growth; but those periods of consumption were financed through leverage build – with financial conditions tight, the possibility of financing consumption outside the labor market is deteriorating (see the Banking and Finance section of the latest Fed Beige Book, not encouraging).
by Michael Halasy
Cato has truly shocked me….stupefied really.
Those who have followed me at Angry Bear will recall my series on tort reform that I wrote this past year. In particular, I wrote a piece on the possible safety risks that patients would be exposed to, with a 0.02% increase in patient mortality with a 10% reduction in medical malpractice liability costs…
Well, just the other day, I received an update from Cato. Now, Michael Cannon is a good guy, and while he and I simply don’t agree on ... well much of anything from a health policy perspective, his colleague, Shirley Svorny, wrote this:
More broadly, patients derive protection from an interdependent system of physician evaluation, penalties, and oversight that includes hospital and health maintenance organization credentialing and privileging activities, specialty boards, and the medical malpractice insurance industry. Underlying nearly all of these activities is the threat of legal liability for negligent injuries. Reducing physician liability for negligent care by capping court awards, all else equal, will reduce the resources allocated to medical professional liability underwriting and oversight and make many patients worse off. Legislators who see mandatory liability caps as a cost-containment tool should look elsewhere.
Health Care Thoughts: Accountable Care Part II
Accountable care organizations (ACOs) are the keystone of PPACA (Obamacare) as far as restraining costs and improving quality.
Early this year there was great excitement about ACOs in the provider community, but the publication of the (first phase) Medicare ACO rules threw cold water on everything.
The rules were at best complicated and convoluted and providers ran for the hills. The administration tried calming the fleeing providers with fast track and modified programs, without much success.
On October 20th the Obama administration published revised Medicare ACO rules. Most of us are still reading and analyzing, but the early response seems more favorable. A more detailed analysis will follow soon.
The administration finally got smarter and announced modifications to antitrust policy so Obama's DOJ would not be wrecking the work of Obama's DHHS.
Bad news though, employers and insurers see the possibility of intense ACO activity as anti-competitive.
Tom aka Rusty Rustbelt
Noted for the record: author Piaw Na reviews Mike Kimel's Presimetrics at Piaw's Blog:
This is a great book to read if you've got a statistical bent and are willing to follow the data rather than your pre-conceived notions....Many people like to say that they're data-driven, but most people actually have prejudices that lead them to believe what they believe, as opposed to actually looking into data and correlations. This book goes a long way towards providing those who want data the actual data with which to base their beliefs on....This is the kind of book that deserves to sell better than it does. Highly Recommended.
by Mike Kimel
People always talk about the Laffer curve, but have you ever seen it estimated? Have you ever wondered why you don't? If you're a quant guy, you know the answer to that. Because if you're a quant guy, at some point curiosity must have gotten the best of you. That means you pulled out some data and you plugged it into whatever piece of software happened to be handy. What happened next depends on what sort of a quant guy you are. If you're the sort that let's the numbers do the talking, you spotted the joke and probably left it at that. If you have a strong ideological leaning in a certain direction, on the other hand, you might have tried to "fix" it. You tried a few times, failed, and kind of just left it there as something to get back to some time, but no hurry because your ideology tells you what the answer should be.
Today, by coincidence, I got two e-mails asking me about the Laffer curve. And it occurred to me... maybe someone should let non-quant people into the joke. Because the only people really discussing it are those who are driven by ideology, whereas it should be afforded the Hauser's law treatment.
So here's how it works.
Matt (Dalton, Harvard) Yglesias, via Aaron Carroll's note that he should move into another line of work), accidentally gives the Education game away:
the Dread Evil Neoliberal School Reformer Barack Obama And His Lackeys At The Center For American Progress
Emanuel's predecessor as mayor, Richard Daley, also placed an emphasis on reforming Chicago's schools. From 2001 to 2009 he installed Arne Duncan, currently President Obama's Secretary of Education, as head of the Chicago school system. If Friedman and Emanuel's complaints about the current state of Chicago's schools are accurate, this would imply that Duncan must not have been very successful in his tenure even though he was widely acclaimed as a reformer at the time.
by Linda Beale
Perry Proposes (no surprise) a flat tax....
Rick Perry, one night after what has been termed an 'invigorated' debate performance, has climbed on the flat-tax bandwagon (presumably meaning a flat-rate consumption tax a la the national retail sales tax idea). See Tumulty, Rick Perry to Announce Flat Tax as Part of Economic Plan, Washington Post (Oct. 19, 2011).
See prior posting on ataxingmatter regarding Cain's 9-9-9 plan and generally about the flat tax, here and here and here and here and here and here and here and here and here and here.....
Put briefly, having as the sole source of revenue for the federal government's environmental protection, disease control, anti-trust, bank regulation, securities regulation, tax enforcement, consumer protection, military and defense functions a regressive national sales tax that would stifle the consumerism that accounts for about 70% of our economy would likely be quite harmful to the U.S. economy and to the overwhelming majority of Americans who earn less than $100,000 a year.
by Rebecca Wilder
German industry is plugging away. Ending in August, the 3-month average of the seasonally- and calendar-day adjusted volume of industrial production (excluding construction) maintained a quick 8.3% annualized pace. Even if this core measure of industrial activity falls another 1% in September, the Q3 quarterly annualized pace would be 10.5% - a robust acceleration from Q2 (6.3%). This suggests that the German economy quickened in Q3 – does that mean it’s all clear for the Euro area?
I think not.
According to The Wilder View Leading Economic Indicator (TWV-LEI), the annual pace of German manufacturing is set to slow quickly, if not contract, by the end of this year. (I constructed my own indicator since the OECD indicators are generally lagged by two months.) In September, five of the seven components that drive the index confirm a sharp deterioration in economic activity (the final two indicators have not been released yet). This downward trend in TWV-LEI for Germany has been in play since August 2010 and is yet to be fully reflected in industrial production (IP); that will change.
The chart above illustrates The Wilder View’s leading indicator for Germany (TWV-LEI, Germany).
"Just when I thought I was out... they pull me back in" I tried to resist asking "what does "Nominal GDP targeting even mean." I managed, but now Krugman is burying the hatchet and I am digging it up.
So what is the proposal ? That the Fed have a target for 2012 nominal GDP or first quarter of 2012 nominal GDP ? Even if it isn't measured, the Fed could try to get the November 2011 nominal GDP it wants. As far as I know, advocates of nominal GDP targetting don't even acknowledge this question.
I have some longer and more substantive thoughts below.
update: spelling of title corrected. I thank Brad DeLong
Mauldin believes America still has time to figure out a path out of what he says is the big problem worldwide: "We've over committed public monies and we don't have them." While some what sympathetic to the protestors' frustrations, Mauldin says their anger is misdirected."My message to the 'Occupy Wall Street' guys: if they really want to If they really want to go after the source of the problem, they should go occupy Congress,"Instead of focusing on Wall Street,Washington and the protests should be focusing on reducing regulation and making it easier for new businesses to start, Mauldin says. To that end, he offers a new slogan I somehow doubt will showup at any Occupy Wall Street protest anytime soon: "Up with Entrepreneurs"
Via Lindsay Beyerstein on Twitter, The Onion should now go out of business:
AIG knows a thing or two about bad publicity. Now, a subsidiary of the bailed-out insurer is offering a new type of coverage to defray the cost of bringing in outside experts when a company faces a potential public-relations crisis.
by Mike Kimel
Thanks to Linda Beale, I headed over here:
The George W. Bush Institute announced today that Amity Shlaes has been named director of the 4% Growth Project, a key part of the Institute’s focus on economic growth. Miss Shlaes will open the project's office in New York. The aim of the project is to illuminate ideas and reforms that can yield faster, higher quality growth in the United States, and to underscore the importance of growth in America's future. Part of that work involves finding ways to make growth and economics generally accessible to more Americans, especially younger Americans. The program will conduct and sponsor research on all aspects of economic growth, host conferences, as well as partner with other institutions in such endeavors.
OK. I lied. The graph is actually missing something. See, we only have official data going back to 1929. And the Great Depression began very, very early in Hoover's term. And Hoover had been a cabinet secretary under Coolidge, and ran for office under a platform which essentially called for continuing Coolidge's policies. And Shlaes' forthcoming book is in praise of Calvin Coolidge. It should be noted that the economy was in recession during over 38% of the months in which Coolidge took office, which makes much of the Coolidge era a dry run (so to speak) for the monster that would come in 1929.
Put another way... Shlaes is part of a movement to praise policies responsible for a lousy economy culminating in the Great Depression (i.e., those of Coolidge and Hoover). Shlaes is also part of a movement to praise the policies responsible for a lousy economy culminating in the start of the Great Recession and the mess we're in today. (Yes, the Great Recession started in 2007, and no, Obama hasn't made any substantial changes on taxes or regulation from the way GW Bush ran the country.) Conversely, Shlaes is a well-known critic of the policies that produced the fastest period of peace time economic growth this country has seen.
To me this feature of economics is kind of odd. For some reason, policies that have failed spectacularly over and over continue to have adherents. Policies that have worked spectacularly have critics. Debating the merits of a cavalry charge into the teeth of an armored column was barely excusable in August of 1939, but at least that debate was put to a rest by the German blitzkrieg. Its been generations since anyone argued that horsemen can go toe to toe with tanks.
Which leads me to a hypothetical. Say we lived in a parallel universe where Shlaes was a quisling, a real villain whose goal was to harm this country as much as she could by convincing the nation to commit economic suicide. How would the graph above and the two paragraphs that followed it look any different?
This piece offers an understandable comparison between wages and dividend income and neatly summarizes the cost to wage earners. (h/t Mike Kimel)
by Peter S. Meyers
Myers Urbatsch PC
A Warm Wind At the Backs of Some, Generated Off the Backs of Others Yesterday, I learned in this Mother Jones article that workers have increased their contribution to government revenue disproportionately since 1980. In other words, payroll tax (paid by workers) is a larger portion of government revenue than it used to be. That's a macroeconomic analysis, which still doesn't answer the question of whether rich people are being treated "unfairly" by the current tax system.
So to elaborate a little, let's take two people who make exactly the same amount: $100,000 in taxable income (after the standard deduction - let's not get complicated). "Worker Taxpayer" earns her money by working (getting compensation by way of a W2) and "Investor Taxpayer" earns her money from dividends in a $4 million stock portfolio she holds (its about 2.5% in yield - about right). Let's say they are both unmarried. Investor taxpayer does not work and has no compensation income. They are otherwise "equal," right? (except that investor taxpayer fits the description of those who vituperate about lazy welfare recipients who sit on the couch all day and watch TV, right?) I'll keep the rhetoric down, because the facts are outrageous enough to speak for themselves.
by Linda Beale
Herman Cain, funded by Koch Bros, Says "Let the Little Guys Pay Taxes (not the uber-rich)
The New York Times' "Room for Debate" ran a 'mini-op-ed' segment on Herman Cain's 9-9-9 tax plan, called "What's So Bad About a Flat Tax?" New York Times (Oct. 14, 2011) (with the subtitle: Isn't Herman Cain's '9-9-9' plan essentially what fiscal conservatives and good government advocates have always wanted?). Yours Truly was one of those invited to participate: others include Kotlikoff, Ulbrich, and Gale.
I wrote, in A Plan for the Uber-Rich, that "there's a lot wrong with flat taxes" (a term used to cover both the flat rate income tax and the flat-rate national sales tax ideas).
William Keller who until recently was executive editor of The New York Times asserts that Venezuela is a neighbor of Peru. A screenshot and a geography lesson are after the jump.
I am following Glenn Greenwald, via Brad DeLong and was scooped on breaking geography news by Tim Dickonson and DeLong commenter GvaGuy
The explanation is that this howler is the result of a hasty correction of another howler. As Keller explains
This article has been revised to reflect the following correction:
Correction: October 17, 2011
An earlier version of my column incorrectly referred to Brazil as one of the countries where leaders “have been flamboyantly consolidating their own power.” I meant Venezuela.
UPDATE NOTE: The following isn't complete. Many of my notes from the latter part of today's interview can be found on Twitter, hashtagged #Immelt. At the moment, I both (1) don't have easy access to them and (2) have other things that need to be done. Feel free to look there, and/or mention anything you want discussed here.)
The fake "news" of the day will be Immelt's disparaging of America and Americans.
The semi-real news of the day will be that Immelt threw President Obama under the bus four or five times before finally saying that he "respects the President and respects the Presidency." While this is progress from Jack Welch thinking that Buying George W. Bush the office meant that his firm would be exempted from cleaning up the PCBs GE dropped into the Hudson River (it did result in a nine-year delay and the likelihood that taxpayers, not GE, will foot the large majority of the bill), it's not exactly a ringing endorsement of the man who gave us the Unforced Error of Simpson-Bowles.
Jeff Immelt, unlike Henry Aaron, believes that Simpson-Bowles is what we need for "growth."
Jeff Immelt admits that, while the Board of Directors has some input, CEO pay is all about "getting what you believe you deserve."
Jeff Immelt declares that if unemployment gets back down to 6%, no one will care about his being paid $21.5 million last year (about 40% of which appears to be an increase in his pension benefits; other GE pension contributors haven't been so fortunate) to continue running GE into the ground to a standstill.
Jeff Immelt says that the US is 25th in math and 26th in science. (He's wrong on the latter; we're 17th.) He then spewed some horseshit about the "crisis" of Germans believing that it's easier to find skilled workers in Mexico than it is in the United States.
Why do I call this horseshit? Well, let's look at the two countries compared by Immeltian standards (link is PDF):
There are two three possibly-reasonable explanations. Either (1) there are a lot of Stupid Germans or (2) the places where Germans trying to hire are Significant Laggard or "Business Friendly, School Crappy" States.
Oops, or (3) the Germans pwnd Jeff Immelt, who then didn't check the data.
And that's without noting that, if you adjust for demographic issues such as poverty or consider racial inequalities, the U.S. is right at the top, no matter what Jeff Immelt says.
Otherwise, mostly, Jeff Immelt lies through his teeth, and Chrystia Freeland—who was tougher on George Soros last year—lets him get away with saying it.
It is left as an exercise whether this is because her boss openly declaring this was going to be a powder-puff interview ("I'm a big fan" of a man who has lost 60% of shareholder value for his investors over the past ten years) or because she decided to let Immelt hang himself. (I know which way I'm betting.)
By Michael Halasy
Super Committee and GME funding
SO, about that super committee. Surely you remember, the gang of 12 that was created by the showdown over the debt ceiling this summer. Well, they’re hard at work but among the proposals out there, is one that is causing some grave concerns.
As a health workforce researcher, I understand implicitly the difficulties that lie ahead and the underlying shortage of physicians that will worsen dramatically by 2025. Current estimates suggest a shortage of over a 130,000 physicians by that time. Many, if not most, do not realize that physician training, at least the post graduate residency phase, is paid for by CMS (Center for Medicare Services).
Currently, as we all know, if the super committee does nothing, there will be an across the board 2% cut to all federal discretionary spending. Some of the other proposals are a little more concerning. In 2010, direct GME expenses totaled 9.5 billion. IME or Indirect Medical Education expenses totaled an additional 6 billion.
IME represents an additional 5.5 % payment to teaching hospitals, as it is understood that they not only teach other health professionals, but that there may be extra costs associated with education. Current proposals are to cut that rate in half (first proposed by Simpson-Bowles) to 2.2%. Among other proposals which include Home Health Co-Pays, SNF (skilled nursing facility) shared payments, raising Medicare eligibility to the age of 67, lies a proposal by the House Ways and Means Committee to cut GME funding by 15 billion over the next ten years, or a 15.7% cut. It is unknown at this time if the Committee will pursue this, but this is problematic.
An op-ed in the Washington Post points to an idea worth exploring:
For all the talk of populist foment – the Tea Party on the right and the new Occupy Wall Street movement on the left – business interests remain firmly in control. Forced to choose between their voters and their donors, lawmakers don’t hesitate before choosing the latter.
There is little doubt about where the Tea Party faithful stands on free trade. A year ago, a Wall Street Journal-NBC News poll found that 61 percent of Tea Party supporters thought free-trade agreements had hurt the country, compared to 53 percent of Americans overall who held that view. Shortly after that, a Pew Research Center poll found that only 24 percent of Tea Party supporters thought free-trade agreements were good for America.
The cause of that "small tax bill":
Immelt said a small tax bill for 2010 was due to more than $30 billion in losses related to GE's financial services business during the financial crisis. In 2009, GE Capital's losses were so large that it company overall lost money on its U.S. operations.
GE's federal taxes, Immelt said, would rise as the performance of its financial arm improves. [emphasis mine]
GE stock performance under Jeff Immelt, with market indices:
More later...
by Dale Coberly
WHAT KOTLIKOFF (REALLY) SAID
Larry Kotlikoff responded to my post in comments (Social Security: It’s Just Math). by saying that I (coberly) “wrote quite a lot about something I [Kotlikoff] didn't really say.” He has a point. I based my speculations about where he obtained his misleading numbers on an NPR summary of their interview with him. Kotlikoff says my speculations were wrong. He actually got his misleading numbers by including “Medicare plus Medicaid plus Social Security expenditures per adult.”
I still don’t know exactly how he derived his numbers, but I remain quite certain that talking about SocialSecurityMedicareandMedicaid in one mouthful is grossly misleading. Social Security has nothing to do with any deficits as it is paid for by the people who will get the benefits. IF those people are going to want higher benefits in the future to keep up with their longer life expectancy and higher standard of living, they would have to raise their own payroll tax about one half of one tenth of one percent, about 40 cents per week in today’s terms, each year while their incomes are projected to be rising over one full percent per year, or eight dollars per week per year in today’s terms. These numbers are derived directly from the SSA Trustees Report, and CBO options numbers two and three.
Medicare and Medicaid, by contrast, depend on the cost of medical care. Costs which we are going to have to pay, if we want the medical care, even if we cut Medicare and Medicaid to zero. We would just end up paying through private insurance, which would tend to mean that the old and poor would not get medical care... not because “we” were not paying for “their” care, but because we were not allowed to pay in advance for our own care using a system that protects our money from loss due to inflation, including “medical inflation.”
Medicare is NOT the young paying for the old. It is the young paying for their own expected costs in old age while they are young and healthy and are making money.
As part of my continuing series of Analogies that Should Be on the SAT, this is what Famous Entrepreneurs do (h/t Brad DeLong):
In the IBM PC era, Steve drove innovation forward with the Macintosh. This, like the Apple II, was squarely aimed at expanding the use of PCs to everyone, the "computer for the rest of us." Everyone now knows that this was innovating too fast, and that cheaper, duller IBM machines running Microsoft’s dull clone of an earlier operating system would become the standard. But do you know how Steve changed when he realized that "the rest of us" were not going to buy the Mac? He learned that the most important early customers for Macs were corporate marketing departments (those graphics!) and worked hard to create, as he told me not long after, "the best computer company for those corporate marketers we can."
As Thomas J. Sargent, one of the leading proponents of the Rational Expectations Hypothesis recounted, "after about five years of doing [standard statistical tests] on rational expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models.
Your intrepid if somewhat tardy correspondent confirms the number one story at www.washingtonpost.com. The OWS demonstration in Rome provided cover for people who like to smash and burn things (the black block). This is the line of Rome's right wing mayor and the right wing minister of the interior.
Being late, as usual, I missed the demonstration and the violence, but I do have photos of the damage and a spent tear gas canister.
update: I went to Pzza San Giovanni to demonstrate but got there when more punctual demonstrators were already leaving.
Also typo corrected.
update II: In my post and in my comment I spoke ironically of the left's standard line that the vandals were infiltrators and clearly separate from decent protesters like us (note I am a member of the left and was mocking myself). However, the evidence is very strong that the smashers and burners were clearly a different group than the mass of ordinary protesters. You should note I didn't say "nonviolent protesters" as it seems that some ordinary protesters used violence, against the black block vandals
"quella cinquantina di "neri" che, per altro, il corteo ha isolato e, in qualche caso, anche aggredito a bottigliate." -- Carlo Bonini that is "those 50 or so black clad hooligans who, by the way, the crowd isolated and, in a few cases, attacked with thrown bottles." As I reported last night, I missed the action (late as usual) but video shows the same all black costumes, covered faces and helmets as the gangs which did massive property damage in Genoa during a G-8 meeting some years ago. It's hard to figure out what these guys think they are doing, but their symbol is the A in a circle of punk/anarchy not the hammer and sickle which is still the symbol of the Italian far left.
Needless to say Carlo Bonini doesn't claim that all the damage was done by 50 or so hooligans (they would have to be super hooligans). His line is that not so hard core violent kids joined in the fun. He is a very leading Italian investigative journalist. He is also not so slightly left of center and clearly determined to blame the police/caribinieri -- in this case for being soft on anarcho-hooliganism. But his claims of fact are reliable and confirmed by video.
The fairly famous burnt paddy wagon 
A dumpster barricade
OMB Watch points us to the idea that:
Financial Taxes Can Raise Revenues, May Help Stabilize Markets
The congressional Super Committee, tasked with forging a $1.2 trillion deficit reduction package by Thanksgiving, is currently deliberating on which revenues — if any — to raise and to include in its plan. With Wall Street at the center of the 2008 economic collapse, the committee should look to a pair of revenue options that would fulfill the dual roles of addressing risks to the economy posed by Wall Street and raising much needed revenue: a financial speculation tax and a financial crisis responsibility fee on large financial institutions.
The Italian prime minister just won a vote of confidence in Parliament. It surprises almost no one who lives in Italy that investors weren't pleased. The associated Press has a great quote
The best signal that Italy could have sent to the markets would have been to boot Mr. Berlusconi out, but it has failed to do so, said Sony Kapoor, managing director of Re-Define an Economic Think Tank.
Reuters posted (and has since updated) an article on alleged financial connections between George Soros and Occupy Wall Street (OWS). The article illustrates much of what is wrong with English language journalism.
Felix Salmon wrote a devastating critique (just click the link and read it)
Felix Salmon works for Reuters. To me the news is that someone somewhere is willing to publicly criticize his employer without flinching or trying to find excuses.
I even suspect that Salmon's post had an effect on the News division of Thomson/Reuters, since the headline of the article has been changed
Update: After a rather confusing series of events, the old version of the story is still online, while a recast version is here. Both of them now carry the headline “Soros: not a funder of Wall Street protests”. Which is an improvement.
by Linda Beale
Barney Frank and the need for a risk-based bank fee
That post about the McCain-Paul environmental devastation and revenue decimation bill (somehow mistakenly given the label of a "jobs bill" by the misguided pair ) suggests the unprecedented extent to which our Congressional reps now believe they can use and abuse national resources for the benefit of crony capitalism.
At least there still seem to be some who are interested in directing their firepower at those who have caused the recession and job losses and whose activities could well cause further harm. Barney Frank has written a letter to the so-called 'supercommittee' asking that they include the risk-based bank fee assessible against 'too big to fail' banks as part of the deficit reduction package. See Letter. Given that the very existence of too big to fail banks implies that the government will again have to come to their aid, it seems entirely appropriate to have these banks pay into the Treasury to recognize the guarantee they are being provided. Further, banks have made good profits since the crisis because of their ability to borrow money extraordinarily cheaply from the Fed, and they have nonetheless continued to demand fairly steep returns for their lending and other activities. Having them return part of that largesse through a risk-based fee is a reasonable approach that should also help to discourage the excessive speculative risk-taking in which they engaged.
Update: By Dale Coberly (was inadvertently omitted as author, although regulars know and the label names him)
SOCIAL SECURITY:
IT’S JUST MATH
or how to lie with numbers
"Math doesn't lie" seems to be the new focus group tested mantra about Social Security that Congressmen and their journalists are so proud to repeat. What it really means is "we put a lot of money into finding ways to make the numbers sound big enough to scare the children."
Here is a recent example, which I found in http://www.slate.com/articles/news_and_politics/intelligence_squared/2011/09/stop_obsessing_over_entitlement_reform.single.html
"Slate:Of course, old people today are no longer poor because of Social Security. But recently, GOP presidential contender and Texas Gov. Rick Perry called it a "Ponzi scheme." And last month, the economist Laurence Kotlikoff said this in an interview with NPR: "We've got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000–you're talking about more than $3 trillion a year just to give to a portion of the population. That's an enormous bill overhanging our heads, and Congress isn't focused on it." But you've written that Social Security will be only a small contributor to the future budget gap. Are Kotlikoff's worries unfounded?
by Linda Beale
Senators Levin and Isakson: millionaire surtax vs corporate repatriation subsidy
The PBS News Hour last night interviewed Senators Levin and Isakson on the jobs bill (video and transcript available here).
Isakson was first off. He sounded like a right wing sound bite machine: we're overregulating businesses so we need a "time out" on regulation. And we need to pass a repatriation tax holiday so businesses can get the money they need to invest and create jobs.
Levin was asked what he thought about that. He didn't even comment on the repatriation sound-bite--after all, he has a report just out that investigates the idea of repatriation and concludes it was a losing proposition. See Repatriating Offshore Funds: 2004 Tax Windfall for Select Multinationals, Permanent Committee on Investigations Majority Staff Report, Senate (Oct. 11, 2011) (listing a series of findings showing that repatriation failed to accomplish its goals).**
But Levin did respond to the "it's regulations and taxes that are killing job creation" GOP mantra. A recent poll of small business owners showed that small business owners aren't worried about regulations or taxes. They just need customers. So you can help things out by helping small businesses and helping people become customers.
by Mike Kimel
Hi folks. I have to go on a bit of a hiatus. I have some work-related things that need taking care of that will require a lot of time for the foreseeable future. But I thought I'd leave you with a link to a post by Megan McArdle that I actually agree with 100% and recommend reading. I know!!!
Well, off to the salt mines. Toodle-oo.
Via Rusty, Centura Health uses Xtra Normal To Explain It All to You:
And, therefore, ripping off its (at least European) advertisers:
The Guardian has just broken a new story about News International: Wall Street Journal circulation scam claims senior Murdoch executive: Andrew Langhoff resigns as European publishing chief after exposure of secret channels of cash to help boost sales figures.
To quote a little bit of the extensive — and hair-raising — article:One of Rupert Murdoch's most senior European executives has resigned following Guardian inquiries about a circulation scam at News Corporation's flagship newspaper, the Wall Street Journal.
The Guardian found evidence that the Journal had been channelling money through European companies in order to secretly buy thousands of copies of its own paper at a knock-down rate, misleading readers and advertisers about the Journal's true circulation.
[A]udited circulation figures are the bedrock on which advertising revenue is based — the higher the ABC figures, the more the publisher can charge advertisers per inch of paper. Note that for many newspapers or periodicals, advertising accounts for up to 80-90% of revenue; you, the reader, are merely there as a draw for the real customers, the advertisers, who will pay more for pages that are seen by more eyeballs.
This kind of circulation ramping looks like bare-faced fraud.
And while the large corporate advertisers might be willing to put up with dirty tricks aimed at the readers, this is something else. (I expect a collapse in NewsCo's advertising revenue, not to mention an imminent FBI investigation ...)
Via Doctor Black, who printed the answer but not the question:
PIGNAL: This is actually the second bailout for Dexia. In 2008, it had to be bailed out after exceptionally imprudent investing, including in U.S. subprime mortgages. This time around, it was basically dealing with the legacy of the past, and it was trying to do what it could to get back into safer waters. But with the Eurozone debt crisis in the past year, it basically ran out of time.
SIEGEL: Yeah, that was the past. This is now. And if the 12th most secure bank in Europe just collapsed, does that mean that several more bank collapses are in store? [idiocy emphasized by me]
by Dale Coberly
ARITHMETIC MATTERS
I was thinking that someone could fault my essay the other day about the “Intelligence Squared” debate. I said that Howard Dean’s side did not really help anyone understand why, or what, or how to “save the program.” I hope I helped explain the why and what, but I probably wasn’t any more clear than Dean about how.
This will attempt to address that. Recall the original article about the debate
Arithmetic still matters," Zuckerman began. "Medicaid now pays for both health and long term care for roughly 55 million Americans. It finances more than one third of all births in the United States, and pays the cost of almost two thirds of the people in nursing homes. The federal government underwrites 50 to 77 percent of the cost, depending on the income level of each state. Even so, Medicaid is the second biggest and fastest growing category of state spending. Costs are up more than 60 percent in the last five years and are expected to exceed $450 billion this year and to keep growing by about eight percent annually for the next decade. In the next -- by the mid-2030s, the 65 and over population will nearly double, and health care costs, which have been rising far faster than worker productivity since the end of World War II, may be completely out of control, resulting in a tidal wave of federal spending.
H/t Mike Kimel
Via Economist's View
This is from Jialan Wang:
Benford's Law and the Decreasing Reliability of Accounting Data for US Firms, by Jialan Wang: ...[T]here are more numbers in the universe that begin with the digit 1 than 2, or 3, or 4, or 5, or 6, or 7, or 8, or 9. And more numbers that begin with 2 than 3, or 4, and so on. This relationship holds for the lengths of rivers, the populations of cities, molecular weights of chemicals, and any number of other categories. ...This numerical regularity is known as Benford's Law, and specifically, it says that the probability of the first digit from a set of numbers is d is given by
by Linda Beale
GOP Representative moves to increase deficit--and aid the investor class
The GOP has made lots of fusses lately about the deficit. According to the party line, earned benefits that Americans rely on for health care and retirement income just "have" to be reduced, no matter how painful it is to the GOP-controlled House to do it, because of the unrelenting deficits that are destroying the US economy.
How then can any GOP member of the House think it is reasonable to introduce legislation that institutes a permanent tax cut that will cost the government billions will benefitting primarily the very rich investors in corporate stock?
By Jeff McCord is a former US Senate staffer, Securities Investor Protection Corp (SIPC) executive and has been a free-lance journalist for Dow Jones publications. His academic background in economics includes post-graduate work at the London School of Economics and George Washington University.
THE THIRD BATTLE OF MANASSAS AND WHAT WALL STREET PROTESTORS SHOULD ASK FOR
Although the mainstream media has widely reported the photogenic and growing Wall Street protest movement, and many bloggers have cheered on the demonstrators, no one can explain what these idealists hope to achieve. Yes, they’ve drawn attention to pervasive greed among elites, growing income inequality and widespread unemployment, among other ills. And, the protestors chose Wall Street as the appropriate point of departure for an evolving national movement. So, it is fitting that their goals be directed toward Wall Street and its allies on both ends of Pennsylvania Avenue.
So, what should the demonstrators demand? And what do Civil War battles fought near the Virginia town of Manassas have to do with it? History can wait. Let’s first make a list of demands. To do so, consider the views of people with the gray hair, financial experience, academic credentials and real world orientation to know of what they speak.
Demand Return of Old Time Religion
As readers of Ron Susskind’s “Confidence Men” and daily newspapers are aware, some of the problems we now face stem from tragic changes and lapses in the financial regulatory system. With that in mind, here’s stab at a laundry list of changes -- including a return to that old time religion that worked well for the sixty years between the Great Depression and President Clinton’s signing of the Gramm Bliley Act on November 12, 1999 that deregulated much of banking:
Those are my top-of-the-head ones. What are yours?
Who are the 53% ?
Erick Erickson claims that they are the 53% who pay positive income taxes which, he suggests, are the same people who disagree completely with the occupiers of Wall Street
The Bloomberg poll says they are the fraction of self identified Republicans who support raising taxes on family income over $250000 to reduce the deficit
"While none of the Republican presidential candidates has backed a tax increase on households with more than $250,000 in annual income, 53 percent of self-identified Republicans said they would support such a measure to bring down the deficit."
But, of course, the Bloomberg poll is commissioned by Bloomberg an anti-capitalist fan of Occupy Wall Street.
Obama is playing to the base -- the Republican base.
Expect Neither ‘Sustainable’ nor ‘Comprehensive’ From Euro Area Leaders
On Sunday, Merkel and Sarkozy promised a “sustainable and comprehensive” solution to the euro debt crisis ahead of the November 3-4 G20 meeting. Along with this rather grand announcement are absolutely no details on their plan. However, Van Rompuy today pushed back the European Summit, which convenes now on October 23, to ‘finalise our comprehensive strategy on the Euro area sovereign debt criris’. Perhaps a real plan is in the works. I think not.
In the back of my mind, I have 5 necessary conditions that must be satisfied in order to achieve a ‘comprehensive and sustainable’ policy response to the Euro area debt crisis. None of these conditions will be satisfied in full, critical conditions not even partially (namely 3. and 4. below). I can only conclude that any response/strategy negotiated at the October Summit will be neither ‘comprehensive’ nor ‘sustainable’.
by Linda Beale
More on Repatriation--WIN America corporatist lobbying group's strike back on Heritage
In a recent posting, I commented further on the lack of arguments supporting the corporatist lobbying drive for another "repatriation tax holiday" for multinational corporations that have stashed more than a trillion abroad (often through gimmicky transfers of intangible property such as rights to patents developed in the United States). See Repatriation Holiday Lobbying--Money Speaks (Oct. 3, 2011).
The reasons are manifold. Corporations today are not cash-strapped--they've got lots of cash in the US too. And even if they need cash that is currently offshore, they can borrow against that cash at exceptionally low rates today. So they aren't investing in expansion that would create new jobs for lack of cash--they are not investing in expansion for lack of customers. The middle class is collapsing, after four decades of reaganomics have steadily worked to erode unions and the empowerment they offer workers, leaving worker wages in decline while their bosses roll into the ranks of the superrich on their newfound ability to take an undue share of the companies' productivity gains. Even when money is actually brought back (rather than already resting in US bank accounts), it is most likely to be used to pay even higher performance bonuses to top managers and to pay for dividends and share buybacks for shareholders. And those shareholders are most likely merely to use it to make new secondary market share purchases--resulting merely in a net change in their portfolios--not direct funding of new enterprises. Much of those secondary market investments are likely to be in emerging markets rather than in the United States.
