Reader Jazzbumpa suggests taking a look at Yves Smith's Journey into a Libertarian Future series as part of Mike's thought experiment on the subject here. A very good read.

He also offers one of his own posts on the matter at Retirement Blues
Brute economics of slavery.

And opines at the end of his e-mail "It really makes me think about the 13th century".

In comments at Mike's post is an interesting discussion in real terms using the development of the electricity industry as an example of interaction of government and private enterprise.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Her post in the NYT Economix begins:

The Occupy Wall Street movement, displaced from some key geographic locations, now enjoys a small but significant encampment among economists.

Concerns about the impact of growing economic inequality fit neatly into a larger critique of mainstream economic theory and its deep faith in the efficiency of markets.

Many unbelievers (including me) insist that we inhabit a global capitalist system rather than an efficient market. Willingness to use the C-word (capitalism) often signals concerns about a concentration of economic power that unfairly limits individual choices, undermines political democracy, generates financial and ecological crises and limits access to alternative economic ideas.

We can’t address these concerns effectively without a wider discussion of them.

Via Reuters comes David Cay Johnston's musing on Closing Wall Street’s casino:

A superb example of a sound rule in law and economics that needs reviving, because it can halt the rampant speculation in derivatives, is the ancient legal principle that gambling debts are not enforceable through court action.

Not so long ago — before casinos, currency and commodities speculation, and credit default swaps became big business — U.S. courts would not enforce gambling debts.

Restoring this principle offers a simple way to shrink the rampant speculation in derivatives that was central to the 2008 meltdown on Wall Street.

Professor Lynn Stout, a deeply principled Republican capitalist who teaches corporate law at the University of California, Los Angeles, raised this issue at a conference where we both spoke about the 2008 Wall Street meltdown.

“Derivatives are gambling,” she said, referring to credit default swaps, at the University of Missouri-Kansas City law school conference on the financial crisis. “They are a zero-sum game in which one side loses the bet and one side wins,” Stout said.

Actually they are worse than that, since the hefty fees Wall Street pockets for arranging the bets result in a less-than-zero-sum game.

As Wall Street fights meaningful financial regulations, and draft regulations remind us how complex and unfathomable regulations can be, this is a good time to remember the basic principles that served society so well until Chicago School theorists, and casino corporations, together with commodities and currency traders convinced us we were too modern to need them.

byMike Kimel

Barry Ritholtz points us to a Bloomberg article showing, once again, that when it came to measures to prop up the economy in 2008, some animals are more equal than others:

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.

The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.

There's no evidence that they did so after the meeting; tracking firm-specific short stock sales isn't possible using public documents.

And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.

The article goes on:

At the time Paulson privately addressed the fund managers at Eton Park, he had given the market some positive signals -- and the GSEs' shares were rallying, with Fannie Mae's nearly doubling in four days.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers.

"You just never ever do that as a government regulator -- transmit nonpublic market information to market participants," says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. "There were no legitimate reasons for those disclosures."

Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern.

"What is this but crony capitalism?" she asks. "Most people have had their fill of it."

The Bloomberg article is worth reading in its entirety.

byMike Kimel [edited to make authorship clearer]

Libertarians come in many flavors, but I think most of them would agree that in an ideal world, the government would be very small and have limited powers - essentially, the government would control national defense and perhaps adjudicate over property rights disputes (i.e., maintain police and/or the courts). Otherwise, people would be free to engage in whatever activities they wished provided the specific purpose of that activity was to harm a third party. Based on conversations with libertarians, I believe negative externalities, or inadvertent harm to third parties is OK. I have yet to have a discussion with a libertarian and come away thinking: now this is a person who views negative externalities as an intrusion on someone else's private property requiring government intervention to halt. (If I am incorrect about this, I'll be happy to stand corrected... but it has little effect on the rest of this post.)

Now, one of the side effects of a very small, laissez-faire government is that tax rates will be very low. This means that the accumulation of wealth will be faster for those with a comparative advantage at creating goods and services other people want to buy. (I'm ignoring this effect, which is easy to verify empirically, but then libertarians believe lower taxes result in faster economic growth and I want to focus on their assumptions here.)

Furthermore, without an inheritance tax or estate tax (I think it is fair to say most, perhaps even all libertarians are against these types of taxes), fortunes would pass on more intact from one generation to the next than we see happening today. In such a world, the accumulation wealth over two or more generations could allow a person or family to accumulate a greater percent of a given area's wealth than we see happening today.

But... the libertarian world is one without public infrastructure. So who would build or own the roads in a given area? Well, it won't be folks who don't have any money, that much is evident. Presumably those who otherwise have accumulated significant resources... such as a person or a family that controls a sizable piece of the wealth in that area.

Now, a lot of types of infrastructure, such as roads, electric grids, and the like, have significant first mover advantages. There may be a lot of traffic on a road from A to B, or an electric grid serving the area, and monopoly rents could easily be extracted. If a second mover built a duplicate road or electric grid, it would harm the first mover... but it also wouldn't happen, because the second mover knows the price war would make it impossible for it to profit as well.

This, by the way, isn't pie in the sky theorizing or guesswork. We've seen precisely that in the real world. For example, in the years following the 1996 Telecom Act, incumbent phone companies were deathly afraid that their network would be duplicated... and except for a few BLECs in big cities (most of which promptly went under even so) there was no replication of the last mile. Similarly, you don't see replication of the last mile in the electricity industry, which I mention because when it comes to deregulation, the electricity industry is where telecom was in the late 1990s. (Yes, it is not a perfect analogy, but electricity and phone calls aren't the same thing.)

We do, occasionally, see the private provision of toll roads, but usually after the owner of that toll road extracts a promise from the government to reduce maintenance of any competing publicly owned road. Which means... in any given area, there isn't going to be competition in the provision of roads and other infrastructure.

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by Mike Kimel

This one comes via Yves Smith.

It seems some companies, er, "salvage" moldy and otherwise defective food, repackage it, and sell it.

(Elizabeth Warren has hired a campaign manager and has thousands of volunteers signing up for her campaign for the Senate seat in MA that Senator Scott Brown currently occupies. He has a lot of work to do for this election.)

Guess who wrote this op-ed??

The moment you threaten to strip politicians of their legal graft, they'll moan that they can't govern effectively without it. Perhaps they'll gravitate toward reform, but often their idea of reform is to limit the right of "We the people" to exercise our freedom of speech in the political process.

I've learned from local, state and national political experience that the only solution to entrenched corruption is sudden and relentless reform. Sudden because our permanent political class is adept at changing the subject to divert the public's attention—and we can no longer afford to be indifferent to this system of graft when our country is going bankrupt. Reform must be relentless because fighting corruption is like a game of whack-a-mole. You knock it down in one area only to see it pop up in another.

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[update: Links fixed 11/30.]

by Stormy

Why did the English equivalent of Occupy Wallstreet pick St Paul’s as the place to protest?

Because St. Paul’s is hand in glove with the City of London Corporation, the place where democracy and light “goes to die,” the place where there is no accountability or transparency for the powerful 1%.

An overview by George Monbiot

A comment by the protesters: Why are they there, in that spot of London?

An attempt to shed light on the dark heart of capitalism, the City of London Corporation.

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Hale Stewart of BondDad blog discusses jobs...and jobs...

1. V shaped real retail sales and industrial production recoveries vs. jobs:

...Comparing those with private jobs (red) and total payrolls (green), we can see that the percentage losses in sales and production were steeper, and have made up nearly or more than all of their ground compared with jobs. Meanwhile, private jobs have regained only slightly over 30% of their losses. When government employment is added for the total jobs picture, fewer than 25% of the losses have been regained.

2. Comparing improvements in aggregate hours and jobs:

...Another point I have frequently made is that aggregate hours worked are recovering faster than new jobs. Since more hours were lost than jobs during the recession, if past was prologue then we would have to wait for aggregate hours to regain their lost comparative ground before job growth would match the growth in hours....

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The House Appropriations Committee recently offered up a bill that would cut students' Pell Grants - the cornerstone of the student aid system - by $44 billion over 10 years. The bill, if passed, would slash millions of students' Pell Grants: completely eliminating grants for more than 550,000 students next year and for more than 1 million students in 2017, and reducing grants for millions more.

The statistics can't be ignored: though the unemployment rate for recent college graduates was 9.1 percent in 2010, that's still less than half the unemployment rate for young adults with only a high school diploma. A recent bipartisan poll showed that young adults of all backgrounds and across the political spectrum oppose cutting access to Pell Grants.

by Mike Kimel

Herman Cain and the Defense of Marriage

This isn't my usual beat, but I was fascinated to read this statement by Herman Cain's attorney:

Rather, this appears to be an accusation of private, alleged consensual conduct between adults - a subject matter which is not a proper subject of inquiry by the media or the public. No individual, whether a private citizen, a candidate for public office or a public official, should be questioned about his or her private sexual life. The public's right to know and the media's right to report has boundaries and most certainly those boundaries end outside of one's bedroom door.

This is an odd position given that Cain supports a ban on gay marriage. After all, supporters of gay marriage have long argued that what two consenting adults do in their bedroom should be nobody else's business. I wonder if Cain or his supporters will change their position on gay marriage.

Paul Caron at Taxprof blog points us to capital gains

Is Capital Gains Tax Law Biased Against Low Income Investors?

Min Dai (National University of Singapore, Department of Mathematics), Hong Liu (Washington University, Olin Business School) & Yifei Zhong (University of Oxford, Mathematical Institute), Is Capital Gains Tax Law Biased Against Low Income Investors?:

The current capital gains tax law stipulates that the tax rate for short-term investment (gains and losses) and long-term losses is equal to an investor's marginal ordinary income tax rate, which implies that this rate for low income investors can be significantly lower than that for high income investors. In an optimal consumption and investment model with asymmetric long-term/short-term tax rates, we show that even though capital gains tax rates for low income investors are always lower than those for high income investors, the current capital gains tax law is significantly biased against low income investors in the sense that these investors are willing to pay a substantial fraction of their initial wealth to gain the same capital gains tax treatment as high income investors have.

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Mark Thoma responds to the meme that the social safety net encourages bad behavior overall:

The idea that the unemployment problem is due to lack of effort on behalf of the unemployed rather than a lack of demand is convenient for the moralists, but inconsistent with the facts. The problem is lack of demand, not the means through which we smooth the negative consequences of recessions.

But what really irks me is the implicit moralizing, the idea that people deserve to be thrown into poverty. Someone who gets up every day and goes to a job day after day, often a job they don't like very much, to support their families can suddenly become unemployed in a recession through no fault of their own. They did nothing wrong -- it's not their fault the economy went into a recession and they certainly couldn't be expected to foresee a recession that experts such as Casey Mulligan missed entirely.

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By Jazzbumpa at Retirement Blues comes this re-posting that runs parallel to Dan Becker's post here.

Federal Government Tax Receipts

Where do you think they come from?  I'll just give it away:  Personal Income Taxes, Corporate Income Taxes and FICA (the payroll tax: you know that hyper-regressive flat tax - nominally for Social Security and Medicare - with a ceiling, and from which there are no exemptions nor deductions.)  Note: Other sources of income - excise taxes, and other miscellaneous revenues are not included in this analysis, and are excluded form the totals.
OK.  That was easy.  This one is not.  How much of Federal Taxes do you think comes from each source?
Oooh.  Toughie.  I suspect you will be surprised.  I sure was  

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NYT Robert Reich calls our attention to post election 2012 life and political realities:

Looking Beyond Election Day

By Robert Reich, Robert Reich's Blog

Most political analysis of America’s awful economy focuses on whether it will doom President Obama’s reelection or cause Congress to turn toward one party or the other. These are important questions, but we should really be looking at the deeper problems with which whoever wins in 2012 will have to deal.

Not to depress you, but our economic troubles are likely to continue for many years - a decade or more. At the current rate of job growth (averaging 90,000 new jobs per month over the last six months), 14 million Americans will remain permanently unemployed. The consensus estimate is that at least 90,000 new jobs are needed just to keep up with the growth of the labor force. Even if we get back to a normal rate of 200,000 new jobs per month, unemployment will stay high for at least ten years. Years of high unemployment will likely result in a vicious cycle, as relatively lower spending by the middle-class further slows job growth.

I am late to the news on this one from yesterday, but want to make sure the provisions are noted and up for discussion.

Link to Thomas for S.1867.

Benjamin Wittes from Brookings has commentary worth reading. I have only included language used in the bill here.

Senate NDAA Thought #1 by Benjamin Wittes

The Senate’s NDAA language on detainee matters, about which I have previously written here and here, is now available. I have two additional thoughts on the Senate language–the first of which I will lay out in this post. It concerns Section 1032, the mandatory military detention provision I described–and bewailed–in my earlier post. I want to give a good faith effort in this post to imagine how this provision, if enacted, would function in practice. I think the most likely answer is that it would be an unmitigated disaster at an operational level. But there’s a slight wrinkle. Depending on the Executive Branch’s bureaucratic response to it, there is a vague possibility that it would have almost no impact at all.

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Lifted from comments by reader and contributor Run 75441 on Peak life expectancy:

We do wear out after a period of time. I suspect how quickly we wear out could be based upon life style, income, and diet. To answer your first statement, obesity in the is generation of children has led to an expected lowering of longevity in the US. This is the first time that one US generation will not out live the preceding generation. Diabetes is one of the fastest growing disorder plaguing the population of the US. Why???

Saletan at Slate had argued against the a law being passed in LA which had restricted the numbers of fast food restaurants in one section of the city. Never mind there was a fast food restaurant within walking distance for the residents of this particular section of LA or that there was one fast food restaurant for every 1300 residents. Cheaper, fattier, and less healthier foods are more readily available today and/or in lower income areas than ever before and this trend is growing overseas as well. The convenience of fast food impacts not only low income; but, it has also becomes a matter of convenience for high income as as well. Quality of food and the availability of quality food are issues.

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Krugman highlights but provides no link to Nouriel Roubini's address to the 2006 Davos meeting (direct link to Economonitors here).

What I would say is that this incident exemplified something that was going on all along the march to the eurodebacle. Serious discussion of the risks and possible downsides was simply not allowed. If you were an independent economist expressing even mild concerns about the project, you were labeled an enemy and shut out of the discussion.

and in the same op ed It’s Not About Welfare States (via truthout) reviews election rhetoric and disinformation on the economic crisis in Europe being mainly welfare oriented countries:

Whenever a disaster happens, people rush to claim it as vindication for whatever they believed before. And so it is with the euro.

As an aside, the interesting thing about the introduction of the euro from a political point of view is the way it cut across the ideological spectrum. It was hailed by the Wall Street Journal crowd, who saw it as a sort of milestone on the way back to gold, and by many on the British left, who saw it as a way to create an alliance of social democracies. It was criticized by Thatcherites, who wanted to be free to move Britain in an American direction, and by American liberals, who believed in the importance of discretionary monetary and fiscal policy.

But now that the thing is in trouble, people on the right are spinning this as a demonstration that … strong welfare states can’t work.

by Mike Kimel

Barry Ritholtz looks at the Big Lie.

The big lie of the financial crisis, of course, is that troubling technique used to try to change the narrative history and shift blame from the bad ideas and terrible policies that created it.

In particular, Barry is interested in this:

Take for example New York Mayor Michael Bloomberg’s statement that it was Congress that forced banks to make ill-advised loans to people who could not afford them and defaulted in large numbers. He and others claim that caused the crisis. Others have suggested these were to blame: the home mortgage interest deduction, the Community Reinvestment Act of 1977, the 1994 Housing and Urban Development memo, Fannie Mae and Freddie Mac, Rep. Barney Frank (D-Mass.) and homeownership targets set by both the Clinton and Bush administrations.

He then goes on to a very exhaustive look at the evidence. Read the whole thing at Barry's place.

Yves Smith points us to a MacroBusiness post on declining peak life expectancy which points to the Institute for Health Metrics and Evaluation (this link is to an array of articles, as the link in MacroBusiness appears to stop at the gateway). Yves states:

This post from MacroBusiness points to a development that has (predictably) gone largely unreported in America, namely, that life expectancy is declining. The article discusses some of the probable causes and implications. It interestingly omits rising income disparity as a culprit. We quoted Michael Prowse on this topic in early 2007:

...

By Cameron Murray, a professional economist with a background in property development, environmental economics research and economic regulation. Cross posted from MacroBusiness

Life expectancy has peaked in some US States according to recent research. This follows research published in 2005 that suggests current living children may not outlive their parents, and that peak life expectancy in the US may be reached between 2030 and 2040. Mostly, this is attributed to the massive spike in childhood obesity which typically results in lifelong obesity and associated health problems.

Reader Sock Puppet points us to several other sources for discussion:

Slide show obesity with time by state

County data maps life expectancy pretty well
CDC sourcing.

Food stamp map tracks well too

When I left this series in September, I had introduced the idea of looking at past tax tables as a means of understanding how We the People define rich. One specific note from history was a surcharge on top of themarginal tax rates to pay for the Great One (WWII). Obviously, that aspect of our moral character has gone right out the window.

Also for a brief period (1936 to 1943,on 6 occasions) business paid more of the income tax revenue collected than did people. I also noted that 1983 and 2009 the corporate share of income tax revenue was just over 6% of the totalrevenues (FICA included). Its lowest points. Reagan/Bush II. However, interestingly enough, Bush II did manage to get thecorporate tax collections as a percentage of personal collections(excluding FICA) up to 33.9%! Clinton only managed 26.6% in 1995. The last time we saw a ratio where corporate collections were in the30% range was 1979. In 1959 it was 47.1%. 1980 heralded the new standard of the mid to low 20% range. Of course Reagan wins thispersonal verses corporate relationship with a corporate total that is only 12.8% of the personal in 1983.

One other very interesting aspect ofour tax history using the same table is that from 1934 to 1983 when tax revenue from personal collections became less than the year prior, this was only for one year with the exception of 1945/46. Corporate revenue follows the same pattern except for 3 periods where there was a decline for 2 years running: 1946/47, 1958/59 and1961/62. From 1983 until 2001 the personal revenue is more every year than the year prior. It's like a switch was thrown after 1983. The corporate revenue declines twice for 1 year each in this 1983 –2001 span; 1990 and 1999. Starting in 2001, the decline in revenuecollections for both personal and corporate last for 3 years running;2001 to 2003 and 2008 to 2010. Someone threw a double pole switchhere. We'll have to wait to see for 2011.

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by Rebecca Wilder

EA BoP Guide: CA and KA – EA too Dependent on Portfolio Inflows?

This is part two of my multi-post commentary on the Euro area Balance of Payments (BoP). Yesterday, in part one, I compared the EA current account balance to its country-level cross section. Today’s post will be more instructive in nature, as I dig into the components of the EA current account (CA) and capital account (KA) balances.

My general conclusion is that the EA is highly dependent on foreign demand for EA assets in the identity of its international accounts.

As a note: remember the standard international finance identity: CA + KA + errors and omissions = 0, where CA + KA is generally referred to as the Balance of Payments. An international guide to the BoP can be found at the IMF website . Generally, the EA BoP statistics adhere to the IMF definitions.

The Current Account

The chart below illustrates the 3-month accumulated current account balance as the sum of its components: the goods balance (exports minus imports of goods), the service balance (exports minus imports of services), net foreign income, and unilateral transfers. The goods, services, and income balance is € 16.2 for the three months ending in September, which is more than offset by the unilateral transfer balance, -€ 28.1 billion.

The transfer debits are generally to and from other EU institutions and other non-EU and non G7 countries (see section 7.3, table 9), which reflects subsidies from the EA to EU budgets, remittance payments, and aid to developing economies. Given the stability in these outflows, this should be no cause for concern at this time. Of note, the goods balance shrunk spanning 2003 to current, while the service balance improved. In Q3 2011, the goods balance was just €1 billion, while the services balance was €15.

The trade and income balances balances generally fund the transfer outflows. However, recently the transfer balance has picked up (-€28.1 bn in the three months ending in September, which is up from -€19 or -€20 bn in the same month of 2004 and 2005). Given the dropoff in the trade and income balance, something is funding these unilateral outflows: the capital account.

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To all our readers..

by Mike Kimel


Peter Diamond, Emmanuel Saez, Paul Krugman and Me!! Looking at Optimal Tax Rates

Via Paul Krugman, I learned of this paper by Peter Diamond and Emmanuel Saez. Diamond, of course, is a Nobel Laureate. I will be shocked if Saez isn't one too in ten or fifteen years.

Long story made very short, Diamond and Saez jump through a lot of hoops and find that the optimal top marginal income tax rate (all in, that is, including federal, state and local), which they define as maximizing social welfare, is about 73%.

Now, long time readers may recall I've been doing this sort of analysis for years, though of course I've been looking at tax rates that maximize real GDP growth. Simply put, you cannot maximize long run social welfare if you aren't maximizing economic growth.

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by Mike Kimel

In this post, I will show that during the New Deal era, changes in the real economic growth rate can be explained almost entirely by the earlier changes in federal government's non-defense spending. There are going to be a lot of words at first - but if you're the impatient type, feel free to jump ahead to the graphs. There are three of them.

The story I'm going to tell is a very Keynesian story. In broad strokes, when the Great Depression began in 1929, aggregate demand dropped a lot. People stopped buying things leading companies to reduce production and stop hiring, which in turn reduced how much people could buy and so on and so forth in a vicious cycle. Keynes' approach, and one that FDR bought into, was that somebody had to step in and start buying stuff, and if nobody else would do it, the government would.

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The comments section (js kit) is not registering correctly at the comment label but are actually being left...please click on comments to take you to the whole post page and leave them. If you have noticed missing comments let me know via angrybearblog at gmail.

The error appears to be in the permalink code and needs repair. On it but am learning a new set of function and lines.

Dan

The Federal Reserve Bank of St. Louis, without whose FRED database and Excel Add-in Economics Bloggers (and Matt Yglesias) would be Even More Boring, has been running a series of Discussions explaining why the Fed is incompetent—er, Why They Don't Follow Their Dual Mandate—er, well, something about how They're Doing The Best They Can.*

The Federal Reserve Bank of St. Louis will offer a live webcast of the finale of its fall evening discussion series for the general public, "Dialogue with the Fed: Beyond Today’s Financial Headlines," on Monday, Nov. 21, 2011.

The dialogue will be streamed live from the St. Louis Fed's Gateway Conference Center beginning at 7 p.m. CT/8 p.m. ET. It can be viewed at www.stlouisfed.org/live. No registration is necessary.

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by Rebecca Wilder

EA Balance of Payments: the Current Account

I’ve been doing quite a bit of research on the balance of payments flows within the Euro Area (EA). Given the complexity of the balance of payments, there are too many angles to tackle in one post. Therefore, spanning the next week I will dedicate my commentary to the EA balance of payments. In this post, we start with square one: the current account.

The Euro area (EA) current account

Often times I hear comparison of the EA sovereign debt crisis to past emerging market balance of payments crises. This is not correct, since the EA runs only mild current account deficits, -0.9% of total EA GDP as of Q2 2011 (Q3 data reported in December). There’s no need for a sharp revaluation of the euro to drive the balance of payments to its identity – remember, the current account (CA) + capital account (KA) + official reserves + errors/ommissions = 0.

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by Beverly Mann

Judge Brett Kavanaugh’s Strange Political Prediction—And Other Recent ACA-Litigation Events

Well, as you all probably know by now, there have been two major developments in the courts within the last two weeks on the litigation challenging the constitutionality of the Patient Protection and Affordable Care Act (the ACA, a.k.a., “Obamacare). On November 8, a three-judge panel of the federal appeals court for Washington, D.C. issued its ruling in a case challenging the constitutionality of the so-called individual mandate requiring everyone who can afford healthcare insurance to purchase it, upon penalty of payment of a regulatory fee. That, of course, is the issue that has gotten almost all of the news media attention, thanks to loud Tea Party/Republican-pol/rightwing-talk-show-personalities cries that the mandate unconstitutionally violates individual liberty and therefore is beyond Congress’s authority under the Constitution’s Commerce Clause.

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by run 75441

In response to Newt Gingrich's comments on failing schools, work, and rising bootstraps,

Peter Dorman at Econospeak replies in: Education with a Twist—An Oliver Twist"

"why take it out on the janitors? If the school was failing it wasn’t their fault. According to Gingrich, it’s the teachers who can’t make the grade. So why not put the kids to work following lesson plans, going over last year’s standardized tests, etc.? There would be as much pride in this as in cleaning toilets."

Usually when we focus on schools, the focus is on the failing city school model, teachers, and then the students themselves. One commenter draws the following conclusion:

"I spent weekend pass time as an English conversation resource person at a high school in Taejon. I was able to have a first-hand look at how education was done in what was at that time a very poor country with big ambitions. Most villages at that time were without running water or electricity and people still wore the traditional clothing, both men and women. There was no doubt that we were in a foreign country.
Because there was not enough money to provide free public education to everyone, students had to pass examinations starting with what we would call middle school if they were to be allowed to continue. Same for high school and, of course, post-secondary education.

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by Mike Kimel

Bank of America, Kafka, and I - A Continuing Relationship

A year and a half ago I wrote a post about how Countrywide, by then a division of Bank of America, had filed to foreclose on our home, apparently on the basis that someone with a similar name to the previous owner of the home owed them money. Needless to say, we were surprised given that a) we had no relationship with B of A, b) we had made a point to always pay more than was due on our mortgage each month, c) nobody with the name of the person they were trying to collect from had ever owned the home (I've seen the property records going back to when the house was built) and d) as surreal and the whole thing was, we had to hire an attorney to make the whole mess go away.

In part because of that experience, some time after that my wife and I closed out all of our B of A accounts. Or so I thought. In the process of closing out my account, our account balance by definition became zero. This is important because when one's balance is below $2,500, one is charged a monthly service fee. Apparently, we have been assessing monthly service fees since the point where we thought we closed our accounts. It seems that now we are carrying a negative balance that happens to equal a multiple of the service fee on an account that I closed a while ago.

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op ed by run75441

Think Progress offers a look at relevant parts of the 'jobs bill'. In the US, the winds of Washington Politics don't blow, they suck.

Gerrymandering the Jobs Bill:

"The piece of the jobs bill Republicans will pass would end a requirement that the government withhold three percent of the cost of projects contracted out to private companies, to assure tax compliance. It’s a rule that Congress adopted during the Bush administration to cut down on tax cheating by government contractors."

The proposals would incorporate a permanent repeal of the withholding which today saves $10 billion in lost taxes. To counter the revenue loss the Republicans have a solution (as paid for by Medicaid/SS recipients):

"all legislation other than permanent tax cuts for wealthy people must be paid for — typically with cuts to federal programs. So Republicans have selected a provision from Obama’s deficit reduction recommendations that would limit Medicaid eligibility for people who also receive Social Security benefits.

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All You Need to Know about Newt

The Gingrich health center’s support for such a mandate was part of an “Insure All Americans” plan that appears to have disappeared from the center’s Web site Thursday.

See that there is nothing here
http://www.healthtransformation.net/cs/insure_all_americans

But it is still here

Key quote

Require that anyone who earns more than $50,000 a year must purchase health insurance or post a bond.

I know that Gingrich is a psychopath, but he likes to pretend that he is smart and techno savvy. It seems that no one who knows about the wayback machine is willing to work for him.

Nothing could be more pointless than a screen shot of a waybackmachine page, so here it is.

By Mike Kimel

The Gold Index, April 1933 - February 1934, Courtesy of Scott Sumner

I've been having a bit of a back and forth with Scott Sumner of The Money Illusion over the degree to which monetary policy, in particular the devaluation of the dollar, affected the economy in 1933. (My most recent post on the issue is here.)

In private correspondence, Sumner provided me with the draft for three chapters of a manuscript he is working on. I can safely say that whether or not I agree with his findings, Sumner has done his homework - the draft is meticulously researched and abounds with details corroborating his findings. Of particular interest to me was a Table 8.2, which shows weekly figures for a number of series from April 15, 1933 to the first week of February, 1934. Sumner has graciously agreed to let me post that table. I don't want to freeride on his efforts to much, so I'm only reproducing the first few columns.

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Think Progress points us to a study by Citizens for Tax Justice on what industries receive tax subsidies by amount and percentage, with pages of how data was compiled at the end.

Clifford Clark's post at ataxingmatter* is worth a more complete look. This also brings to mind Steve Keen's work on private debt and the economy on his blog Debt Watch as well as Lane Kenworthy's exploration of poverty and severe poverty at Consider the Evidence, and Angry Bear Robert Waldmann's recent posts here and here.

Comments on Inequality, Leverage, and Crises--Kumhof & Ranciere Nov 2010 IMF working paper

[guest post by Clifford D. Clark]

Michael Kumhof's and Romain Ranciere's November 2010 paper relates income inequality to national economic crises, particularly those experienced as the Great Depression and the Great Recession. They conclude that increases in income inequality --comparing the top 5% of households to the bottom 95%--in the years leading up to the two crises exerted a determining influence on the economy.

...

First, income inequality grew in similar ways in the years before the depression and the recent deep recession. .... The authors find a link between the two phenomena: income inequality increased at a greater rate than consumption expenditures in the years before the two crises. The public was spending at rates greater than increases in their income.

...

Second, in the years before the recent downturn the growth in household debt was due almost entirely to the bottom 95%. Real hourly wages of the top 10% of households increased by an accumulated 70% between 1967 and 2003, while the median households decreased by 5% and wages at the bottom 10% decreased by about 25%. ... That represents a clear switch: whereas in 1983 the top wealth group was more indebted than the bottom 95%, by 2007 the reverse was true. By then the bottom 95% had debts equal to 140 % of income, nearly twice that of the top 5%. They conclude that almost all of the change in the debt to income ratio in aggregate was due to the bottom 95%.

...

Third, an increase in debt requires and increased need for financial intermediation: accordingly, the size of the financial sector between 1980 and 2007 increased considerably. Measured by the ratio of private credit of deposit banks and other financial institutions to GDP, that quantity increased from 90% in 1981 to 210% in 2007...

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by Linda Beale

The Hill reports on "supercommittee

Alexander Bolton reports that "With Supercommittee Deadlocked, leaders Reid and Boehner meet", The Hill (Nov. 15, 2011).  Reid (Dem) and Boehner (GOP) met Tuesday, but aides told The Hill that "They're not about to dive in" to the negotiations.  But as the committee seems to be at an impasse close to the 11/23 deadline, the leaders must be discussing what is likely to be the next step.  The arrangements for the group (in case no bipartisan deal could be reached) called for across-the-board cuts that impose reasonable cuts on Defense but limited cuts for social safety net/earned benefit programs (medicare limited to 2% cuts to insurance companies and health care providers/Social Security and Medicaid exempt).

The GOP members, of course, are casting it as a Dem problem. For example, Hensarling (a very far right member of the group, from Texas) blamed the Dems for not accepting the Toomey proposal for a piddling $300 billion in new tax revenue.  With Supercommittee Deadlocked, leaders Reid and Boehner meet.

The across-the-board cuts would cut Defense by $500 billion.  Various GOP members of Congress have said they want to change the deal to avoid the cuts to the military.  Tea Party favorite and radical right-winger Jim DeMint has essentially admitted that he never intended to stick with the sequester deal, saying that the GOP has "until next election to fix this thing."  GOP stalwarts want the US to maintain its exorbitant spending as "the world's only military superpower" even while being willing to cut health care and pensions to the vulnerable and even while the country's infrastructure--essential for business--crumbles in ruins.  McCain and Graham urged the Senate to reject the sequester of military funds, fearful it would "set off a swift decline of the United States as the world's leading military power." Dems gain upper hand in deficit talks, The Hill (Nov. 16, 2011). 

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by Mike Kimel

Scaling to New Depths* with Scott Sumner

I've been having a bit of back and forth with Scott Sumner. Here is his latest post, helpfully entitled: "A suggestion for Mike Kimel."

His key suggestion:

"Please take a close look at the data from the Great Depression, before doing more posts claiming I don’t know the facts."

He then goes on to point out he's been studying the 1933 period for 20 years. From there he goes on to explain my first mistake:

He insists that FDR’s dollar depreciation program began in October 1933, even though all economic historians agree in began in mid-April 1933, when the exchange rate for the dollar began declining (against gold and against other currencies.) He insists prices began rising before FDR took office off, which is not true. He presents a graph that he claims shows prices rising before FDR took office, but his graph shows inflation rates, not the price level. In fact, the graph actually supports my argument that inflation didn’t turn positive until after FDR took office. There’s a difference between the rate of inflation and the price level.

OK. Let's redo the graph showing not inflation but rather the price level. And I'll keep it very simple... I will limit it to two points. Well, three, though the third is not exactly on the curve so to speak. As before, I'm still using PPI because its the publicly available source most closely related to the prices Sumner seems to be discussing, and I'll use the graphics tool at the Federal Reserve Economic Database (FRED)

Figure 1.

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The Washington Post points us to a study on the overall impact of regulations and jobs:

The critique of regulations fits into a broader conservative narrative about government overreach. But it also comes after a string of disasters in recent years that were tied to government regulators falling short, including the financial crisis of 2008, the BP oil spill and the West Virginia mining accident last year.

Data from the Bureau of Labor Statistics show that very few layoffs are caused principally by tougher rules.

Whenever a firm lays off workers, the bureau asks executives the biggest reason for the job cuts.

In 2010, 0.3 percent of the people who lost their jobs in layoffs were let go because of “government regulations/intervention.” By comparison, 25 percent were laid off because of a drop in business demand.

Yves Smith provides an overnight look at OWS Zucotti Park 'cleaning' by NYPD. The post has frequent updates and is very long, so a visit is in order if interested.

by Linda Beale

GOP two-step approach problematic

Discussion continued apace yesterday about the "supercommittee" and the idea of agreeing to agree someday on some revenue increases while going ahead with cuts.

This approach is a terrible one since it gives the obstructionist GOP members just another setting in which to refuse to go ahead with tax increases and to "negotiate" yet again over just what counts as a revenue increase.  Like the gimmicks that became so overused in the 2001, 2003, 2004 Bush tax bills, this "deal" is just another gimmick for the radical right to get its way--cuts to Social Security and Medicare, cuts to all programs intended to help the vulnerable, no cuts to military programs, and no tax increases--especially not for the rich.

Republicans on the right are already arguing for applying "dynamic analysis" which tends, in their versions, to be rosy scenarios of increased growth due to tax cuts: 

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by Mike Kimel

Scott Sumner Digs Deeper

Scott Sumner criticizes my most recent post in which I indicate that Keynesian theory explains growth rates during the New Deal era better than theories proposed by monetarists.

He starts by criticizing this, which I wrote in my earlier post.

Aggregate demand was very slack when FDR took office.

FDR showed up in Washington with a plan to start spending a lot of money and thus boost aggregate demand.

The immediate effect was to convince factories they'd be running down their inventories. That boosted producer prices. It had a much smaller effect on consumer prices because everyone knew the gubmint was going to buy a heck of a lot more producer goods than consumer goods. (The government did buy some consumer goods for the various programs, plus there was a spillover effect, but as the graph clearly shows, the action was on the producer side.)

After a bit of time, the public realized FDR wasn't planning just a one-off, but rather a sustained program of purchases of industrial items. That led them to start using some of their idle capacity, which meant not just selling the fixed amount that was in inventory. The rate of price increases thus dropped.

GDP increased the fastest rate in the United States peacetime history since data has been kept. There was a big hiccup, of course, in 1937 when the government cut back on spending for a while.

Sumner's most important point:

Prices didn’t start rising when FDR came to Washington with spending plans; they started rising when he began depreciating the dollar. Furthermore, the weekly rise in the WPI index was highly correlated with weekly increases in the dollar price of gold (i.e. currency depreciation.) And those changes (in gold prices) were caused by explicit statements and actions by FDR. Not by fiscal stimulus, which would be expected to appreciate the dollar.

OK. Using the cool graphical tool from FRED, the Federal Reserve Economic Database, I generated this graph of the series that from what I can tell seems to be Sumner's favorite price index when discussing the period:

Figure 1.

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In the New York Times today:

The Supreme Court on Monday agreed to hear a challenge to the 2010 health care overhaul law, President Obama’s signature legislative achievement. The development set the stage for oral arguments by March and a decision in late June, in the midst of the 2012 presidential campaign…

…

Appeals from three courts had been vying for the justices’ attention, presenting an array of issues beyond the central one of whether Congress has the constitutional power to require people to purchase health insurance or face a penalty through the so-called individual mandate.

The Supreme Court agreed to hear appeals from just one decision, from the United States Court of Appeals for the 11th Circuit, in Atlanta,

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by Linda Beale

Super-Congress wants to have its cake and eat it too

So the Democrats and Republicans on the so-called "Super-Committee" that is supposed to find $1.2 trillion in budget reductions/increased revenues within a week now thinks it has a solution--let the regular tax committees (Finance and Ways & Means) come up with the tax revenues, while the Super-Committee will go on and specify the spending cuts.  See Deficit Panel Seeks to Defer Details on Raising Taxes, New York Times (Nov. 14, 2011).

The proposal doesn't sound like anything that the Dems on the panel should accept.  For a piddling reduction in some of the deductions available to the most affluent individuals, the GOP is willing to lower the rate on those individuals to 28%!  Just more enriching the rich.  The Dems shouldn't agree to that.  Especially since Grover Norquist thinks that any such agreement would be undone immediately, while any stupid agreement the Dems make to "reforming" (i.e., cutting benefits from) the earned benefits programs will be allowed to take place.

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Mother Jones points us to a Stimson Center study, titled What We Bought: Defense Procurement From FY01 to FY10 (PDF), (via Reader Supported News).

From the report

Procurement funding grew from $62.6B in FY01 to as much as $135.8B throughout the decade.3 In constant dollars, base procurement funding in FY10 increased by 41 percent from FY01.4 Increases also were augmented by the use of supplemental war funding. In FY02, only $1.4B was appropriated for procurement in supplemental war funding. That increased every year until $65.9B was appropriated in FY08. FY08 ended up as the high water mark, but the following three years have all seen procurement funding of about $30B included in war funding.5 In all, $232.8B or 22 percent of total procurement funding in the last decade came from supplemental war funding. Although procurement funding increased in the base budget, supplemental war funding significantly enhanced the resources available.

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Rumors suggest that Italy is so desperate for money that it will try the full Monti*.

Mario Monti is about to be asked to try to form a government. Of course the actual negotiations have begun, except it doesn't seem that Prof. Monti is inclined to negotiate. His position seems to be that Italian politicians totally blew it (correct) so they will let him try to fix things (good luck with that).

The rumored position of the Berlusconi has moved from the prime minister should be one of his guys, to he should name half of the cabinet to he should name at least someone (who would be Gianni Letta his Rove) to OK just don't take away my TV (spoiled kids are that way).

Monti has already semi-officially announced that the new economics minister with be Guido Tabellini who is widely considered to be the most eminent Italian economist in Italy**. He is known for his work on how politicians do not serve the public interest (kids this was an original approach when he started -- really).

The justice minister is likely to be a judge***. Monti is alleged to have specifically refused to negotiate with Berlusconi about any reforms to the Justice system (which has been repeatedly reformed in ways which keep Berlusconi out of jail).

The bit about TV is, sadly, not a joke. Monti is rumored to have agreed that he won't change the regulation of TV. He also is rumored to have agreed not to change the horrible electoral law. I am summarizing Italian newspapers which report rumors.

I don't know how it will turn out, but it seems to be a rather radical shift. The logic seems to be that members of parliament who know they will never be re-elected will do anything to avoid early elections (their salary is actually fairly high by Italian standards and Berlusconi supporters come cheap).

Both Monti and Tabellini are definitely right of center. The aim seems to be to reassure investors.

footnotes after the jump

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Quote by from San Francisco Chronicle via Reader Supported News on the Berkley OWS

"The individuals who linked arms and actively resisted, that in itself is an act of violence," UC police Capt. Margo Bennett said. "I understand that many students may not think that, but linking arms in a human chain when ordered to step aside is not a nonviolent protest."

And another push is planned by the City Council in Oakland.

by Linda Beale

GOP wants to repeal Dodd-Frank: instead they should listen to Nassim Taleb

Nassim Taleb, the author of the book on long-tail events, suggests in a Nov. 6, 2011 op-ed in the New York Times that "it is only a matter of time before private risktaking leads to another giant bailout like the ones the United States was forced to provide in 2008."

That's pretty strong language, and should be cause for worry among those GOP debaters who have been in a pissing contest over how much legislation they can suggest for repeal, like Dodd-Frank, health care reform, and environmental protection.  Instead of defending big banks, the GOP should start thinking about how to break them up.  Instead of suggesting that we need to repeal Dodd-Frank and end regulation of banks, Taleb says we do need  regulation but can't depend on it alone: "Supervision, regulation, and other forms of monitoring are necessary, but insufficient."

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by Dale Coberly

SOCIAL SECURITY AIN'T BROKE

A Reply to Linda Beale

I want to take advantage of Linda Beale's essay "Social Security: It Ain't Broke Unless China is too" to make some points of my own. I want to be clear at the outset that I am grateful to Linda for her essay. She is essentially right. My comments are secondary. It's not a case of my disagreeing with Linda, but of having something to say that I hope will help people understand the Social Security "question" a little better.

I am going to assume the reader has Linda's essay in front of him.

First, I don't agree with Krugman: you CANNOT think of Social Security as "part of the budget." I don't know how the government talks to itself about this, but they sure went to a lot of effort to segregate Social Security funds from the budget with a payroll tax and a Trust Fund. . You don't have a "trust fund" if the money is fungible.

We once had a reader at Angry Bear point to a CBO "paper" that said because SS funds come into the Treasury like other taxes, they cannot be regarded as separate from those other taxes. The money is not "marked" so you can tell SS money from other money. This is a lie. The government is quite capable of keeping track of where the money comes from and where it is dedicated by law to go. So be warned, there are experts, even in the heart of CBO who are quite willing to lie to you if they think they can get away with it.

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by Linda Beale

The right's smoke and mirrors scam about Social Security--it ain't broke (unless China is too)

We've noted in these postings the growing inequality between rich and the rest of us in America, and that is the appropriate backdrop against which to investigate further the right's smoke-and-mirrors scams about tax policy and earned benefits.  Let me remind you with Kevin Drum's Mother Jones article on The Price of Plutocracy: "For all practical purposes, every year about $700 billion in income is being sucked directly out of the hands of the poor and the middle class and shoveled into the hands of the rich." (That sentence is illustrated with a great chart, with data drawn from Joseph Hacker of Yale and Paul Pierson of Berkeley, the authors of Winner-Take-All Politics, a book I highly recommend.)

The national debate about deficits has been part of a relentless push by the right to reduce as much as possible the New Deal earned benefit programs of Social Security and Medicare. The right twists the facts to suit the arguments it wants to make.  Krugman hones in on this issue, noting Dean Baker's similar anger at the Washington Post's inconsistency in considering Social Security in a recent article by Post writer Lori Montgomery, who seems to be miming for the hard right, anti-New Deal crowd in Washington .  See Krugman, Social Security, Bait and Switch, a Continuing Series, New York Times (Oct. 30, 2011).

Social Security is a program that is part of the federal budget, but is by law supported by a dedicated source of revenue. This means that there are two ways to look at the program’s finances: in legal terms, or as part of the broader budget picture.

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On this Armistice Veteran's Day, let's try to do a counterfactual and Make Brad DeLong Happy.*

Let's assume that the Gramm-Leach-Bliley—commonly referred to, incorrectly, as "the repeal of Glass_Steagall"—is A Good Thing. Well, I won't go that far. An Inevitable Thing. [Many sentences about Larry Summers omitted here.] After all, anyone who was paying attention knew that Glass-Steagall had already been shivved several times by 1999, and that letting Citi buy Travelers banks buy insurance companies (and vice versa) was only a matter of time.

(If you tell me that's a good thing, I'm going to point out that the risks of banks and the risks of insurance companies are the same, that combining them in no way makes the financial system safer or improves risk management, and that, therefore, you're an idiot. But pointing something so fundamental out to a Summers or a Bob Rubin would be like telling your two-year-old not to pull the cat's tail; the only question is who ends up getting stitches.)

Let's assume that commercial banks, investment banks, and insurance companies are essentially fungible entities. What will we see?:

1. Commercial banks will be able to outcompete investment banks, due to Gresham's Law. They have more money, and can afford to make mistakes.
   
2. As a result of this, investment banks, with less capital and therefore less room for mistakes, will become more likely to fail as independent entities. (You would have to be stupid, or McMegan, to assume the brunt of the damage would go the other way.)
   Results:
   
   1. Morgan Stanley Dean Witter, which occurred two years earlier, will serve as a warning sign that will be ignored by the banks, which "know" that the acquisition was backwards
      
   2. J.P. Morgan will be acquired by Manny HannyChase,
      
   3. Goldman Sachs has to go public to acquire capital; Jon Corzine is forced out because he realizes (having seen Bear and Merrill and Morgan Stanley do it before) that it will fundamentally destroy the incentive structure and culture of the firm.
      
   4. Investors working on the Greater Fool Theory will decide that Investment Banks might win the battle, and will bid up the BSCs and LEHs of the world, figuring that either (a) they will be acquired (JPM) or (b) they will grow on their own (GS, MS). This will be temporarily self-fulfilling, until it isn't.
   
   
3. Insurance companies will move more into banking services (as their subsidiaries have for years) in search of more cash to search for more yield and more long-term investments and short-term arbitrage. Since they do much of this now, the only additional risk will be if there is a flurry of mergers. Or a rogue insurance company. And that would never happen in insurance, just as it would never happen in energy.
   
4. There will be very little demand from banks to buy insurance companies outright, since (a) there are very few Sandy Weill's in the market and (b) even Citigroup used to be able to admit mistakes.

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A commenter at Steve Benen's Washington Monthly blog was grousing (correctly, as spencer notes in comments) that Benen had allocated all of the 2009 change (read:drop) in private-sector jobs to Obama, while GWB was in office for the first 19.5 daysduring the time the employment data for January was gathered.

Turns out that there were 841,000 private-sector jobs lost in January of 2009—the most in any month in the 2000s—so it might have made a difference.*

I assumed that, since the population continually increases, that was probably the largest monthly job loss since the data was first recorded in January of 1939.

I was wrong. By a wide margin. The Top 30 single-month drops in U.S. Private Sector employment history since February of 1939:

The highlighted months are since the beginning of NBER's declaration of the Great Recession. But it appears that V-J Day also signalled an end to employment for more than 1.75 million people.

*Note, by the way, that November and December of 2008 are also in the Top Ten, so calling the January, 2009, layoffs part of the normal post-Xmas letdown appears dubious.

I wanted to look at the WSJ job database, suspecting what I might find, but currently lack the bandwidth in a major way.

Fortunately, Noah took some (more) time from his thesis ("distraction from productive activity") and did the dirty work. Apparently, being a STEM undergraduate isn't the path to Nirvana:*

I went through the Wall Street Journal database that Phil cites, and found the following unemployment rates:

Genetics: 7.4% unemployed

Biochemical Sciences: 7.1% unemployed

Neuroscience: 7.2% unemployed

Materials Engineering and Materials Science: 7.5% unemployed

Computer Engineering: 7.0% unemployed

Biomedical Engineering: 5.9% unemployed

General Engineering: 5.9% unemployed

Engineering Mechanics Physics and Science: 6.5% unemployed

Chemistry: 5.1% unemployed

Electrical Engineering: 5.0% unemployed

Molecular Biology: 5.3% unemployed

Mechanical Engineering and Related Technologies: 6.6% unemployed

Compare these with a 5.0% unemployment rate for all bachelor's degree holders in 2010.

And why do those Astronomy and Astrophysics people** have jobs?

Earth to [Phil Plait of] Bad Astronomy: your short-list of fully-employed science majors is totally cherry-picked....And all those astronomers who have plenty of jobs? Guess what: they're employed because they work for the government. Yep, that's right, the same government whose ability to provide employment Phil laughs at.

*Raise your hand if you're surprised by this. Mine is not up.

**Full disclosure: I speak as someone whose wife's cousin, with a Ph.D. in Astronomy & Astrophysics, currently has a Fellowship in the Astronomy department at DeLongville.

By Rebecca Wilder

European Policy Makers Don’t Understand But Markets Do

So here we are: the Italian yield curve is flat at above 7%; the government institution is in question; and the ECB is using its SMP purchase program as a carrot to drive austerity implementation in and Berlusconi out. Some would argue that the ‘market is irrational’ – Italy faces a liquidity not solvency crisis. That’s the IMF’s line, and I don’t buy it.

See Italy’s situation is simple: given the Italian debt profile and initial conditions, the Italian sovereign should be able to stabilize its debt levels - even at 8% interest rate (borrowing costs) – PROVIDED (1) it grows, and (2) the sovereign increases its primary surplus (Italy is 1 of just 2 G7 countries expected to run a primary surplus in 2011, according to the IMF). The problem is, that (1) Italy’s contracting, and (2) a higher primary surplus is more likely than not going to aggravate the recession. Something has to change to break the link – this is where I encourage you to read Nouriel Roubini’s latest.

In my view, the market is behaving very rationally. The Troika (ECB+EU+IMF) adapted the standard IMF model to the European sovereign debt crisis as a means to regain market confidence amid a sovereign liquidity crisis. The plan is to enhance fiscal discipline and become more ‘competitive’ (usually that means coincident with currency devaluation).

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Brad DeLong has two posts, one from Ezra "I'm a liberal who is safe for the Washington Post" Klein and one from Mike "I actually looked at the data" Konczal.

Brad deals with Ezra's folly:

I think a B+ is too high a grade--largely because one big task of 2009 was to set up the situation so that you could still make policy in 2010 and 2011 if it turned out that you needed to.

And that's without mentioning that the Administration violated the first law of Presidencies; the one George Effing W. Bush knew well: give your base something early, so they know you didn't just come to them for their votes. Bush gave his "faith-based initiatives." Obama—who campaigned on card check, principal reduction, and his father being Jor-El—only went for big-ticket items.

Mike goes in detail over the ground I discussed here: the idiocy that is the 2010 State of the Union Address, delivered 27 January 2010. With contemporaneous detail. Go Read the Whole Thing.

It's not just bad economics, it's bad politics. Which brings me back to Matt's lazy first graphic, which means I'm going to beat the dead horse again. Below the fold.

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I believe Robert Reich points us in the right direct when he suggests in The Occupiers’ Responsive Chord:

A combination of police crackdowns and bad weather are testing the young Occupy movement. But rumors of its demise are premature, to say the least. Although numbers are hard to come by, anecdotal evidence suggests the movement is growing.

As importantly, the movement has already changed the public debate in America.

Consider, for example, last week’s Congressional Budget Office report on widening disparities of income in America. It was hardly news – it’s already well known that the top 1 percent now gets 20 percent of the nation’s income, up from 9 percent in the late 1970s.

But it’s the first time such news made the front page of the nation’s major newspapers.

Why? Because for the first time in more than half a century, a broad cross-section of the American public is talking about the concentration of income, wealth, and political power at the top.

Score a big one for the Occupiers.

I have noticed in the burbs small group meetings (20-30) comprised of some 'younger' people but also a range of support from small business people in town, successful traders and financial people, increasing church participation (ie. Vespas at Dexter Park), teachers...people who are setting up ways to be part time supporters for what are to planned to be long term discussion/education but as importantly also are for active and participatory support (showing up to be counted).

By Linda Beale

Infrastructure gamesmanship puts wealthy ahead of jobs, good bridges, and country

For those who are paying attention to the House and Senate these days, it seems like a frustrating exercise.  Mostly it is one of watching the "do-nothing" Republicans find excuses for never requiring millionaires and billionaires to pay their fair share of taxes while making up excuses for not doing anything of the varied real approaches to stimulating the economy in ways that will create jobs for ordinary Americans.

Take the vote on the infrastructure bills.  The Senate leadership asked the Senate to vote for funding $60 billion of much needed infrastructure projects (just a tip of the iceberg of everything that is needed to bring this country's infrastructure into nonembarassment).  The GOP refused, because it was funded by a de minimis tax on millionaires.

There's no end to things that can be said about this further evidence of the craven state of the GOP in the US today.  Political advantage for the wealthy class is to be given primary importance, no matter what happens to the vast majority of Americans and the country we all love.  Jim Maule has it right, in The Tax and Spending Stalemate: Can It Destroy the Nation?, MauledAgain (Nov. 7, 2011).

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If you are an investor the good news is that productivity growth improved sharply. Unit labor cost fell in the third quarter and the spread between pricing and labor cost widened nicely. This implies that earnings growth is accelerating and that my earlier fears that earnings expectations were too high is no longer a problem.

The bad news is that with strong productivity, hours worked and income growth weakened. In the third quarter, nominal personal income expanded at under a 1% annual rate, a sharp slowing from the roughly 5% growth over the past year. Moreover, average hourly earnings growth continues to slow. Now at 1.56%, it is approaching an all time record low.

The recent improvement in consumer spending did not stem from improved real incomes. Rather it was financed by a drawing down of savings. While the headlines are dominated by Europe’s problems and the market is reacting strongly to these headlines, SEER continues to believe that the biggest market-economic threat is the extremely weak income growth.

With such weak income growth, it will be difficult for the consumer to sustain the stronger consumption growth of recent months. Yet increased personal consumption expenditures accounted for 1.72 % of the 2.5% growth in third quarter real GDP. This is especially true if the lower social security tax is not renewed for 2012 and/or if oil prices continue to rebound. SEER’s real retail sales model implies that real retail sales growth should be approaching zero.

Capacity utilization at 77.4 seems to indicate that manufacturing has significant excess capacity. But over time, capacity utilization has trended down and it is now at the long term trend line. This implies that maybe the economy does not have as much slack as generally believed.

Interestingly, while everyone seems to be worried about the impact of Europe’s problems on US financial institutions, quality spreads actually improved last month. This implies that at least the bond market is not expecting too severe an impact.

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Yves Smith provides a snapshot of her perception of at least public thoughts from mortgage industry conference participants. It is worth a read.

Denial in the Mortgage Industrial Complex

I just came back from the AmeriCatalyst conference in Austin, which was a packed two days focused on the state of the housing and securitization market. The panels were very informative, and it was also good to see some of the people I’ve read or heard about, in particular the leading analyst, Laurie Goodman of Amherst Securities. She gave a talk that where she went through a very persuasive (and conservative) analysis that there are 8.3 to 10.3 million more foreclosures baked give how underwater borrowers are. And she had some striking bits of information. One is if you take out the homes where no one has made a mortgage payment in a year or more, homeownership in the US is 61%. In addition, Judge Annette Rizzo discussed a successful program she had developed in Philadelphia to do remediation. The success rate on modifications that come out of her court is 85% after 18 months.

I had quite a few people come and commend me on my comments. I think the main reason was that the viewpoint presented on this blog, that there are deep seated problems resulting from chain of title issues, and that servicers have engaged in a lot of abuses, was sorely underrepresented. I don’t blame the organizer,

Talking Points Memo reminds us that there are still ongoing legal issues regarding our healthcare system:

A three-judge panel on the D.C. Circuit Court of Appeals — comprised of two judges appointed by Republican presidents and one by a Democrat — upheld the constitutionality of a key section of President Obama’s health care law in a ruling released Tuesday.

Senior Judge Laurence Silberman and Judge Harry Edwards ruled to uphold the law — specifically the mandate that requires Americans to purchase health insurance — on the merits. Judge Brett Kavanaugh dissented from their ruling, but he, too, would have ruled against the plaintiffs seeking to overturn the mandate. His opinion argued that federal courts lack jurisdiction to enjoin the mandate, which functions similarly to a tax.

View Decision

Update: See Mark Thoma's article on Why we need an individual mandate for health insurance.

by Mike Kimel

I was searching for some information and I stumbled on a post Scott Sumner wrote last year about Robert Skidelsky's biography of John Maynard Keynes. I haven't read Skidelsky's book, nor do I know Skidelsky, and its been awful long time since I read Keynes, but this seems an odd complaint:

I’m afraid that his analysis is both misleading and inaccurate. The US gradually depreciated the dollar between April 1933 and February 1934. During that period unemployment was nearly 25% and T-bill yields were close to zero. Keynes argued that monetary stimulus would not be effective under those circumstances, and Skidelsky seems to accept his interpretation (which was published in the NYT during December 1933.)

[Note that Keynes certainly did believe in the "pushing on a string" theory--I frequently get commenters insisting that Keynes didn't believe in liquidity traps.]

Unfortunately, Keynes and Skidelsky are wrong.

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by Linda Beale

Nader Argues for a Financial Transactions Tax

Ralph Nader provided an op-ed on the question of a financial transaction tax, "Time for a Tax on Speculation," Wall St. Journal, A17 (Nov. 2, 2011).  He ties the need for the tax as a curb to speculation to the growing concern among ordinary Americans about corporate power and Wall Street excesses.

A financial transactions tax would impose a small charge on the value of stock, bond and derivatives transactions--probably somewhere around 0.25% to 0.5% (the latter is the figure pushed by Nader and groups like National Nurses United). Such a tax would raise a considerable amount of money and at the same time serve another important function--curbing speculative and high-frequency trading.

[This tax] has the potential to curb risky speculative trading that contributes little real economic value.  The Capital Institute's John Fullerton has stated that a financial speculation tax could have a significant impact on the high-frequency trading and other 'quant' trading strategies that now comprise an astonishing 70% of vastly bloated equity-trading volume. 

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