Krugman started it, in response to Lucas. Everyone piles on. Plutocracy Files has the list of links. (Plus don't miss Nick Rowe's, which includes a long comment thread.)

Here's what wows me: all these world-classical economists are accusing each other of contradicting "textbook economics," and circling through extraordinary contortions in their efforts to reconcile that school of economics with some version of reality.

There is no consensus. None.

Every one of these folks is bought into classical assumptions, or at least into the Keynesian/classical "synthesis" that's embodied in the IS-LM model (a model that was created explicitly to render Keynes classical, i.e. without the the Keynes, and was later disavowed by its own creator, John Hicks, as nothing more than a "classroom gadget").

And they're all trying to do intergenerational macro in their heads, as a bunch of stylized and simplified thought experiments.

I just finished re-reading Lucretius, and the methodological similarities are striking.

Given that several of the world's most notable "textbook" economists can't agree on how to define what in physics would be the equivalent of angular momentum, some of us have to wonder if the whole discipline as taught today offers any useful macro-level insight or modeling utility at all.

I think it's significant that an authoritative MMT voice has yet to weigh in (I think they all probably think it's silly -- or would be if it didn't reveal such dysfunction), aside from a passing shot by Mike Norman.

Cross-posted at Asymptosis.

Uwe Reinhardt at Economix sums up health care policy proposals over the last decades(hat tip save the rustbelt)

To describe the unifying theme running through these past variants, it is helpful to enumerate the major economic functions any health system must perform:

1. Producing health-care goods and services.
2. Financing health care, which involves extracting money from households (which ultimately pay for all of health care) and funneling it to the producers of health care, usually through the books of private or public health insurers.
3. Risk pooling by private or public insurers to protect individuals from the financial inroads of high medical bills through insurance policies.
4. In most modern societies, assuring that every member of society has timely access to a defined set of health-care benefits.
5. Purchasing medical treatments from the producers of health care, which includes determining the prices to be paid, claims processing for insured patients and controlling overall spending and the quality of that care with various forms of controls lumped together under the generic label “managed care.”
6. Regulating the behavior of the various participants in the system to preserve the integrity of health care markets and the safety of health-care products and services.

Most of the debate over health policy in this country has been over two questions.

First, to what extent should healthier or wealthier members of society be asked to subsidize the health care received by their poorer or sicker fellow Americans? Second, influenced by the answer to the first question, who should perform the functions listed above: government, private nonprofit entities or for-profit entities?

Bloomberg notes:

Fed’s Once-Secret Data Released to Public By editor
Bloomberg News today released spreadsheets showing daily borrowing totals for 407 banks and companies that tapped Federal Reserve emergency programs during the 2007 to 2009 financial crisis. It’s the first time such data have been publicly available in this form.
To download a zip file of the spreadsheets, go to http://bit.ly/Bloomberg-Fed-Data. For an explanation of the files, see the one labeled “1a Fed Data Roadmap.”
The day-by-day, bank-by-bank numbers, culled from about 50,000 transactions the U.S. central bank made through seven facilities, formed the basis of a series of Bloomberg News articles this year about the largest financial bailout in history.
“Scholars can now examine the data and continue the analysis of the Fed’s crisis management,” said Allan H. Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh and the author of three books on the history of the U.S. central bank.

Via National memo comes a review of a book on the 'Tea Party'.

One might imagine the changes that worry Tea Partiers to be primarily economic. But Tea Party members rarely emphasize economic concerns. The nightmare of societal decline is usually painted in cultural hues, and the villains in the picture are freeloading social groups, liberal politicians, bossy professionals, big government and the news media. Forces conspire, Arizona retiree Stella Fisher says, “to the breaking down of conservative society.” Kids today, she says, think “it’s not so important that you get married, even if you have a baby with somebody.” Members of the Tea Party peer out at a fast-changing society and worry. The public image of the Tea Party is one of anger. But in our experience, the more typical emotion is fear. (Theda Skocpol is a professor of government and sociology at Harvard University. Vanessa Williamson is a doctoral candidate in government and social policy at Harvard. This is an excerpt from their forthcoming book, The Tea Party and the Remaking of Republican Conservatism to be published Jan. 2 by Oxford University Press.)

What's a person to do? or 'Motivated avoidance'

 From the American Psychological Association comes two studies here and here.

Individuals are often confronted with information that they do not know how to comprehend or evaluate, even though this information can be of critical importance to the self (or society as a whole). In the case of energy, nearly 40% of respondents in a Public Agenda (2009) survey could not identify a fossil fuel. Nearly one third could not identify a renewable energy source and incorrectly believed that solar energy contributes to global warming. This lack of knowledge should be of concern to these individuals, as 89% of respondents worry about increasing fuel costs, and 71% worry about global warming.
 
The economy serves as another example.

More below the fold...

by Tom aka Rusty Rustbelt


Health Care Thoughts: Regulatory Bumbling

The people who daily manage health care services (and their advisers) have been shocked at the inability of the Obama administration to manage the administrative regs roll out process. The 2009 stimulus act contained multi-year funding for adopting electronic medical records (EMR/EHR) systems.

The funding required "meaningful use" and the published regulations were and are nearly incomprehensible, especially at the physician practice level. EMR/EHRs are making progress but it is largely due to the integration of physician practices into integrated delivery systems.

 Then there is PPACA. The first major regulatory effort were the SSP accountable care organization (ACO) regulations, and that was a disaster. Even the administration's allies ran for the hills. The administration has spent the last half of 2011 creating new ACO sub programs and revising regulations, and has finally convinced some providers to jump on board the pioneer ACO program.

More below the fold...

by reader ilsm
The Campaign to Preserve Pentagon Waste is in High Gear:

From Forbes, Defense Advocate Loren Thompson:
 
How To Waste $100 Billion: Weapons That Didn't Work Out

One of the most unsettling facets of federal finance is the way the government devalues past investments. The political system is so focused on the next budget — and the next election — that it ignores sunk costs. Thus, every program termination is considered “savings,” without regard to the money that was spent to get the project in question to its current state.”
“This fiscal myopia is especially pronounced in the defense budget, where the government makes most of its capital investments. Cancellation of weapons systems that have been in development for a decade or longer is typically greeted as evidence that policymakers have made “hard choices” and had the courage to stand up to the “military-industrial complex.” The fact that previous administrations may have spent billions of dollars trying to satisfy a valid military requirement is barely mentioned — as is the fact that future administrations will have to spend additional money starting over on a replacement project.

Thompson is not an economist. More here.

More below the fold...

by Linda Beale

  Ian Ayres on the Brandeis Tax

I've often argued here that vast inequality is harmful to democracy, and that the kind of unequal society that we have today, reflected the Gilded Age of yore, is especially worrisome.  Much of what is happening in this country that threatens freedom and economic suffering for many is related to the vastly unequal incomes and wealth of the top 1% compared to the rest of us.  Oligarchy finds it easy to flourish in such a society, and democracy struggles to keep its head above water.  The corporatist agenda that favors big business (and its owners) facilitates the capture of the state for the benefit of the rich--lobbyists swarm legislators, and campaign funding by corporations floods the airwaves with repetitive (and hence believed even if untrue) messages favoring corporatist allies.

The main defenses that a society has against such developments are twofold:  1) a strong sense of community that incentivizes the uberrich to give a good bit of their wealth away to help the community and 2) a strong tax system--especially estate taxes and other taxes that fall primarily or exclusively on the uberrich as a way of skimming off the excess rents they have acquired because of their status and unrelated to genuine merit or hard work.  {As Elizabeth Warren said, nobody can claim to have earned all they earn without the help of the state, and the wealthy in particular depend on the state to protect their property and even their status.)  Hence I talk here of democratic egalitarianism and my view that equilibrium is not a realistic state so redistribution is always occuring.  Most redistribution will be 'upwards' for the benefit of those at the top, unless democratic institutions push for a rebalancing redistribution 'downwards' to assist those in the middle and lower income groups.

Ian Ayres has a series of postings on a proposed "Brandeis" tax intended to impose limitations on the inequality gap.   
Don't tax the rich, tax inequality itself, New York Times, Op-Ed, Dec. 18, 2011.

In 1980, the wealthiest 1 percent of Americans made 9.1 percent of our nation’s pre-tax income; by 2006 that share had risen to 18.8 percent — slightly higher than when Brandeis joined the Supreme Court in 1916.

More below the fold...

Update: Mike Konczal also takes a  look at this question in Who are the one percent and what do they do for a living.


Update 2: Another source for historical trends on inequality is at The Center for Budget and Policy Priorities


by Taryn Hart 
    
Taryn Hart publishes at her blog Plutocracy files and has interviewed John Quiggen, Bill Black, Larry Mishal to name three economists

Guest post:    Who Are the 1%?

A week or so back, Dan from Angry Bear passed along this Boston Globe article. On its face, the article bemoans rising inequality through a comparison of two Massachusetts neighborhoods: Sherborn, the State’s wealthiest neighborhood and Springfield, a former working-class neighborhood that now resembles a globalized ghost town. Although the article quotes a Sherborn resident disavowing his status as a one percenter, the piece clearly implies that the upscale Sherbornites are one percenters.

However, as Dan correctly pointed out, Sherbonites are not the one percent: The median income of Sherborn is $190,000 per year; not peanuts, I know, but the lowest paid one percenters make $500,000 per year (even using a significantly narrower definition of income, one percenters make in excess of $330,000 per year). Moreover, the biggest gains over the past thirty-odd years have gone to the top .1%.

When Occupy Wall Street identifies its opposition as the 1%, it’s not talking about people who live in posh neighborhoods with great schools; it’s talking about people who can hire teams of lobbyists who live in posh neighborhoods with great schools. As Gordon Gekko put it:

I'm not talking a $400,000 a year working Wall Street stiff flying first class and being comfortable, I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player, or nothing.

And keep in mind, that’s 1980s dollars. Given the scandalous increases that have gone to the top 1% since then, the amount required to be a player these days is several times that amount. And the problem with that kind of concentration of wealth is that it inevitably undermines the incentive for collective action required for social well being.

More below the fold...

by Linda Beale
 

More on Romney's Privileged Roots

The New York Times ran a story on Rmoney on Sunday but with quite a different take than the Journal's interview by Paul Gigot that I reported on yesterday.  See, At Harvard, A Master's in Problem Solving, New York Times, Dec. 25, 2011, at A1.  The story extols Romney's steady, hardworking, pragmatic, data-driven, parent-in-school approach to a concurrent Harvard business and law school education. 

There were a few paragraphs that grabbed my attention for the additional perspective they provide on Romney's Harvard time and on the way class connections facilitate success in America today.

1.  It's who you know that counts

Unlike George W. Bush, who was a year behind [Romney] in business school and was immortalized in the yearbook blowing a huge bubble of gum, Mr. Romney had limited interest in socializing.  (The two barely met, but if Mr. Romney had known where Mr. Bush 'was gonna go, I would have been on him like white on rice,' he later told The Atlantic.)  Id. (emphasis added).

As I noted in yesterday's posting, those who are well-off enjoy a ready-made network of connections that will serve them well all through their lives, from family friends and business partners to influential schoolmates at the most prestigious schools to which they are admitted as much through "legacy" practices as through their own merit.  The quote from The Atlantic demonstrates Romney's keen awareness that a big part of being at Harvard Law or Harvard Business is getting to know the people that you will be glad you got to know later.  Sally Smith at Podunk Community College isn't likely to have that opportunity.....

More below the fold...

Based on the notions of economic efficiency that I laid out here, if I could do whatever I wanted I would make the following changes over a ten-year period. (Some faster, some slower, some phased in, some implemented instantly on a given date.) The appropriate amounts in each case require a better calculator than I have access to.

Tax All Corporate Profits Like S-Corps, and Eradicate Taxes on Corporations, Dividends, and Capital Gains. Credit for the idea goes to Milton Friedman (Capitalism and Freedom, page 174 in my edition). Shareholders pay taxes on the year's corporate profits (at normal earned-income rates or higher), whether or not they're distributed. No more double taxation, but no more preferencing over earned and interest income, or indefinite/eternal deferral.

Eradicate Tax Deductions for Interest Payments -- Personal and Corporate. Mortgage- and corporate-interest deductions are terribly distortionary; they encourage borrowing -- debt financing -- over equity- and self-financing. And they're regressive.

Eradicate Business Deductions for Employee Health Care/Insurance. Destroy the distortionary historical artifact of employer-based health care coverage. Stop discouraging self-employment and personal choice of health-insurance options. (Having been self-employed for decades, I take this very personally. It's cost me many tens of thousands of dollars.)

More below the fold...

Romney's Wall St. J. Interview with Gigot--Protecting the Rich

[edited to rephrase and correct typos 12/26/11 5 pm]

Joseph Rago and Paul Gigot interviewed Mitt Romney on his 'vision' for America--"On Taxes, 'Modeling', and the Vision Thing", Wall St. J. Dec. 23-24, 2011, at A13.  In it, Romney reveals the way patrician wealth has affected his values, casting President Obama as a "European social democrat" and suggesting that contrasts with his own belief in a "merit-based opportunity society--where people earn their rewards based upon their education, their work, their willingness to take risks and their dreams."  

Now everybody likes the idea of people being able to advance based on merit, rather than on crony capitalism, improper influence or whatever.   The problem with suggesting that America is a 'merit-based opportunity society' is that it isn't much of one anymore: America in this second Gilded Age is primarily a wealth-and-status-based opportunity society. 

• Education:  Even Romney admitted (obviously unintentionally) that wealth makes a real difference, since he noted that rewards depend in part on education.  People with wealth receive the finest educations from pre-K through post-graduate, getting preferences at the best children's academies in Manhattan and at the highest ranked universities like Harvard and Yale.  People without wealth lose out from the very beginning, with inferior schools that are no longer fully supported by the public, as charter and for-profit schools take over offering inferior educations that no patrician family would ever accept.  The poor and middle class take on enormous loans and work loads to finance even their public university educations, since state support has slipped down to a mere 20-30% of the cost of that education.  That makes study and grades and success much more difficult for them. 

More below the fold...

Joseph Stiglitz in an op-ed in Vanity Fair tells us about a more basic set of problems we face than actually discussed in public media. It is very long.

The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. It was absurd to think that fixing the banking system could by itself restore the economy to health. Bringing the economy back to “where it was” does nothing to address the underlying problems.

Casey Mulligan is curious: what could have caused the big uptick in the uptake on unemployment insurance in recent years?



It's a mystery.

Or, maybe not:



Sorry, the JOLTS data only goes back to 2001.

Which directly addresses Mulligan's basic assertion: People are lazy. They don't like to work.

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Dr. Black has already embedded one of the few worthwhile modern Xmas songs.* And I usually leave re-posting this story to Brad DeLong, but he appears to have gone all-in for Latin and skipped it this year. So, without further ado, Mark Evanier:

I arrived, headed for my favorite barbecue stand and, en route, noticed that Mel Torme was seated at one of the tables.

Mel Torme. My favorite singer. Just sitting there, sipping a cup of coffee, munching on an English Muffin, reading The New York Times. Mel Torme.

I had never met Mel Torme. Alas, I still haven't and now I never will. He looked like he was engrossed in the paper that day so I didn't stop and say, "Excuse me, I just wanted to tell you how much I've enjoyed all your records." I wish I had....

I waved the leader of the chorale over and directed his attention to Mr. Torme, seated about twenty yards from me.

"That's Mel Torme down there. Do you know who he is?"

The singer was about 25 so it didn't horrify me that he said, "No."

I asked, "Do you know 'The Christmas Song?'"

Again, a "No."

I said, "That's the one that starts, 'Chestnuts roasting on an open fire...'"

More below the fold...

Poking a little bit of fun at his own traditions and perhaps a bit also at the 'war on Christmas' that is becoming a tradition in our politics, my minister offered this 'sermonette' to his congregation last Sunday.  I thought to put it up in a more prose form to remind us also to remember our roots and the founding fathers, invoked so often to lay claim to authority.   (Our church was really popular back then.)   Dan


“How Unitarians Saved Christmas (and why we celebrate the Solstice)” 

by Rev. Nathan Detering

We are going to begin by ask us a few questions. Are we ready? How many of us asked, or heard it asked – Do Unitarian Universalists celebrate Christmas?  How many of us have been or will be here on Christmas Eve where we tell the story of the birth of Jesus, and the nativity, and there is the pageant and the familiar carols?

And, with those two questions in mind, do we ever wonder what happened to the good old days, when ‘the holidays’ were not a euphemism for Christmas and Hanukkah? When the Christmas tree was trimmed with simple homemade ornaments and we would exchange simple gifts and where there wasn’t all this commercialism and shopping, and the true spiritual meaning of these holidays was first and foremost?

If you wonder any of these things, then we’ve got news! This kind of Christmas – the true Christmas that was only about Jesus or only about spiritual matters – never really existed. I hope this is freeing news for us! You don’t have to feel guilty! Because in fact, Christmas over the centuries has always been a hodge-podge of celebration, merriment, giving presents, getting together with family and friends, buying frivolous decorations (anyone seen the giant inflatable Santa’s?), and religious story. And – this is probably not news - many of the Christmas traditions we celebrate have their origins in the celebrations of the winter solstice.

More below the fold...

Dan Crawford

Mike Kimel
Steve Roth
Rebecca Wilder
Linda Beale
Dan Becker
Holly Nelson
Bruce Webb
Ken Houghton
Tom Bozzo
Spencer England
Maggie Mahar
Robert Waldmann
Beverly Mann

and the rest of The AB Community

by Mike Kimel

A Random Observation About the 1970s... and the 1980s

People often point to the stagnation of the 1970s, and the Reagan administration that followed, as evidence that cutting taxes leads to faster economic growth. But the same folks rarely look at the flip-side of things, and when they do, they don't reach consistent conclusions. Here's an example of what I mean. Real GDP grew 14.5% from the first quarter of 2003 to the last quarter of 2007. That is a 20 quarter period. I started with 2003 because that's the year that tax rates dropped to 35%, and it was also more than a full year after the 2001 recession. I picked the last quarter of 2007 as the end point because the economy peaked in that quarter.

What followed, of course, was the Great Recession. 2003 Q1 to 2007 Q4 were the years of the Greenspan Put, and the real estate bubble. If it isn't clear, I am cherry-picking, purposely selecting a period that best showcases the the 35% top marginal income tax rate era.

More below the fold...

by Rebecca Wilder 

  Merry Christmas!

Here’s a nice little model I discussed in 2007: The Economics of Christmas! Hope that you enjoy; I do. (This commentary was written in my more ‘academic days’ when I was inundated with models of theoretical macro.  As you have no doubt noticed, I’ve gone the applied financial route since then.)

 

The economic model of Santa delivering presents and spreading the Christmas joy – Santa is a social planner!

In advanced economic theory, there are two types of models: the social planner model (very much like its political connotation) and the competitive equilibrium model (again, very much like its market connotation). The social planner seeks to maximize the welfare (happiness) of all agents in the economy. The competitive equilibrium model allows for markets (households + firms + government) to determine the allocation of goods and resources. In theory, and if certain conditions hold, both models yield the highest and same amount of welfare.

From a theoretical point of view, the economic representation of Santa Claus delivering gifts at Christmas is that of a social planner problem. See, Santa Claus is in charge of gift giving and not the markets. He allocates goods (presents and coal) according to who has been good and who has been bad in order to maximize the welfare of all children jointly. Those who have been good are blessed with many presents, while those who have been bad are given coal. The economy of Christmas is full of many individual economic agents (the children). Each child writes Santa Claus a note indicating the presents that he/she desires; the presents that give each child joy. This represents a utility function in economics, where utility (joy) is dependent on the consumption of goods and services (each child’s choice of presents). Finally, the total welfare of Christmas is the spread of Christmas joy.

Santa’s economic problem below the fold:

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A couple of days ago, James Bianco, chez Ritholtz, noted a WSJ article entitled "Dividend Stocks Become the Heroes":

This year, the 100 stocks in the Standard & Poor’s 500-stock index with the highest dividend yields are up an average of 3.7% before dividend payouts, according to Birinyi Associates. The 100 lowest-yielding stocks are down an average of 10%.

Is this a good idea? I understand the move to dividend-paying stocks—companies that admit they don't know what to do with their excess cash are almost by definition better-run than those that hoard it without announcing future plans for its use (hi, MSFT!). And some companies have a lot of excess cash right now.

But there is a difference between paying a dividend because it's the best use of funds for your investors and having a high dividend yield. Don't believe me? Ask Bank of America shareholders ($2.56 Annual Dividend, just under an 8% yield) ca. 2008:

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Randall Wray made a fascinating observation a while back:

Since 1776 there have been six periods of substantial budget surpluses and significant reduction of the debt. ... The United States has also experienced six periods of depression. The depressions began in 1819, 1837, 1857, 1873, 1893, and 1929.

And I confirmed it (graphs):

Every depression in U.S. history was preceded by a big drop in nominal Federal debt.

Except this one. (Assuming that it would have been a depression absent herculean efforts by the Fed et al.)



There was that dip in the 90s, but if we want to posit that, based on history, it was an at-least-necessary cause of the crash, we have to ask: why, in this case, did it take almost a decade to have its effect?

A lot of things have changed since 1929.

More below the fold...

There's such fun in disastering.
When you've won the mastering.
Of the u-ni-verse!

Hat tip to RJ Sigmund:



Lyrics by Marcy Shaffer

(Dan here ... lyrics under the fold)

More below the fold...

This Credit Suisse graph posted by Cardiff Garcia on December 5 has been getting some serious attention in wonkier sections of the econoblogosphere:



And Angry Bear's own Rebecca Wilder gave us this on December 21:

2007-2011 in charts: moving down in quality

More below the fold...

The Corporations That Occupy Congress

 by David Cay Johnston via taxprofblog and Reuters

Some of the biggest companies in the United States have been firing workers and in some cases lobbying for rules that depress wages at the very time that jobs are needed, pay is low, and the federal budget suffers from a lack of revenue.
Last month Citizens for Tax Justice and an affiliate issued Corporate Taxpayers and Corporate Tax Dodgers 2008-10. It showed that 30 brand-name companies paid a federal income tax rate of minus 6.7% on $160 billion of profit from 2008 through 2010 compared to a going corporate tax rate of 35%. All but one of those 30 companies reported lobbying expenses in Washington. Another report, by Public Campaign, shows that 29 of those companies spent nearly half a billion dollars over those three years lobbying in Washington for laws and rules that favor their interests. ... The report – “For Hire: Lobbyists or the 99 percent” – says that while shedding jobs, the 30 companies are “spending millions of dollars on Washington lobbyists to stave off higher taxes or regulations.”
….
Company reports to shareholders show that among the 30 companies in the Public Campaign report, the 10 firms that spent the most on lobbying during the same three-year period fired more than 93,000 American workers. ...

Worth reading the whole piece.

by Linda Beale

Essential Health Benefits and cost benefit analysis: can we maintain doctors' incomes and provide decent care for all?

 So we thought we had finally created a national system of health insurance that would permit near-universal coverage for essential health benefits to every American.

But the Obama administration says it is not going to write rules regulating exactly what benefits must be covered.  Again bowing his head to the GOP personal responsibility/states' rights mantras, the president is willing to let states "experiment" like they do with Medicaid.  Question whether this amounts to allowing right-wing states to shift benefits to private profits and away from care for Americans?
This goes back to the recommendation from a panel at The National Academic of Sciences, which said that the federal government should take cost into consideration in deciding what's essential to be provided by health insurance plans under the reform act and that new benefits should be 'offset' by cost cutting elsewhere. Robert Pear, Panel Says U.S. Should Weigh Cost in Deciding 'Essential Health Benefits'", New York Times, Oct. 7, 2011, A14.
 
But a primary problem with cost-benefit analysis as typically understood is that it favors the status quo because any new benefit for which money must be expended will cost compared to the current system, and the benefit is much harder to turn into a quantitative number that will prove that the cost is worth it.  It is very hard to do truly 'dynamic' cost-benefit analysis--the assumptions used tend to be a one-size-fits-all and it is hard to calculate the way that the immediate benefit builds even more substantial long-term benefits and then result in much lower costs down the road,

More below the fold...

A boom in shale gas? Credit the feds.

 By Michael Shellenberger and Ted Nordhaus (hat tip to Barry Ritholtz)

Since the high-profile bankruptcy of Solyndra, the solar company that received $535 million in federal loan guarantees, many have concluded that government efforts to promote energy technologies are doomed to fail. Critics cite the abandoned synthetic fuels program, attempts to capture carbon pollution from coal plants and next-generation nuclear reactors as further proof of this conclusion.
Many often point to the shale gas revolution as evidence that the private sector, in response to market forces, is better than government bureaucrats at picking technological winners. It’s a compelling story, one that pits inventive entrepreneurs against slow-moving technocrats and self-dealing politicians.
The problem is, it isn’t true.
…..
While details vary, the story is basically the same for nuclear power, natural gas turbines, solar panels, and wind turbines — pretty much every significant energy technology since World War II. That’s because the private sector alone cannot sustain the kind of long-term investments necessary for big technological breakthroughs in the midst of volatile energy markets and short-term pressure to produce profits.
No doubt, government energy innovation investments could be made more efficiently and effectively. But it would be a mistake to imagine that we’d be better off without them.

by Rebecca Wilder

The Broad Sovereign Downgrade

Recently I’ve spent time thinking about global bond investors, especially those conservative investors that stick with the high-quality sovereigns. I’ve got news for them: the share of high-quality investment grade sovereigns – BBB- and above is investment grade - is shrinking. Some bullet points comparing ratings in December 2007 to December 2011:

• From a sample of 76 emerging market (EM) and developed market (DM) economies, 23 sovereigns have been upgraded by S&P (I use S&P specifically, but the agencies usually move in lockstep at a lag). These upgrades span both EM and DM markets, but EM dominated with 19 upgrades overall..
• The number of high-quality investment grade sovereigns – A- and above – fell by 6.
• The AAA universe shrank by 2 economies – more is to come with imminent downgrades in Europe.

2007-2011 in charts: moving down in quality
2007…

More below the fold...

by Linda Beale

  Madoff and Mankiw and Inequality--the corporatist ideology at work

There are two letters to the editor in the Times today that are worth noting--as usual, the 'real' analysis is hidden in the interior pages, positioned next to a huge ad (for an investment adviser, no less).
Chris Cannon from San Francisco notes that treating Madoff as the iconic symbol of the financial disruption caused by the credit bubble is problematic.

"Everyone agrees that Mr. Madoff broke the rules.  But the damage done by those acting as allowed by our ineffective rules cost the public much more.  'Our troubled financial times' are the product of a bubble economy fueled by cheap money, an abject failure by rating agencies, regulatory agencies that have been hamstrung by regulations written by financial lobbyists, and a laserlike focus by some bank leaders on yearly bonuses."  Letters, New York Times, Dec. 18, 2011, at BU 7.

Steven Conn, Yellow Springs Ohio, notes that Greg Mankiw (economic adviser to Republicans, and specifically to Mitt Romney) misses the boat on understanding the way that economics is burdened with ideology.

"He seems not to understand that economists aren't really objective and dispassionate scientists.  Economics is merely a set of tools with which we build the kind of society we want to live in.  Defining what that means is, of course, an ideological proposition, and thus all economic 'theory' is freighted with ideological baggage."  Letters, New York Times, Dec. 18, 2011, at BU 7.

These two ideas are related.

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Real Reasons Bankers Don’t Like Basel’s Rules: Clive Crook - Bloomberg. Why bankers' whining about higher equity requirements is just that:

A much-cited paper by Stanford’s Anat Admati and colleagues -- “Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity Is Not Expensive” -- should have ended this debate once and for all. It dismantles the banks’ position step by painstaking step.

The study makes the crucial distinction between the interests of bank managers, bank shareholders and the public at large. Managers are being disingenuous. They do have reasons, valid after a fashion, for opposing higher capital requirements, just not reasons they can admit. The one they emphasize -- cost of funding and its effect on future lending -- is fit for public use, but bogus.

What might their real reasons be? If banks sell more shares, it’s true that the return on equity will fall. If managers’ pay is tied to return on equity (as it often is), they will be worse off. Shareholders, on the other hand, shouldn’t mind, because the risk of their investment is reduced in proportion. Taxpayers, of course, would be better off -- less likely to be stuck at some point with the cost of bailing out the bank. 

The paper is here.

Cross-posted at Asymptosis.

I've gone on about this elsewhere, but thought I should bring it up front and center here.

While everyone hyperventilates about government debt, they don't seem to be aware of the massively greater load of private debt, and its spectacular runup compared to government debt:



This from Steve Keen's latest. (It's not very long. There are lots of pictures. It makes every kind of sense. Read the whole thing.) The blue line is publicly held debt -- not including money the government owes itself (on the consolidated budget) for Social Security and Medicare.*† The red line is debt of 1. households and nonprofits, 2. nonfinancial businesses, and 3. financial businesses.

Here's how those sectors break out:

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by Mike Kimel


A Modest Forecast: The Average Real Growth in Ireland will Exceed 10% a Year From 2012 to 2014

 You read the title correctly: the Irish economy will grow by more than 10% next year. Now, hearing that, you might be asking yourself: "Is this guy for real? He must be nuts."

 Because I've looked around and nobody is predicting that sort of growth for Ireland for the next few years. So let me lay out ten facts that should make it obvious to just about everyone:

1. According to the Central Statistics Office of Ireland, real GDP (measured in 2009 Euros) peaked at 45,583 million Euros in the fourth quarter of 2007. It bottomed out in the fourth quarter of 2010 at 39,403 million Euros. That is, real GDP fell by 13.5%. Since then, GDP has barely budged. So its safe to call 2011, four years after the peak, as a year when the bottom out process was ongoing.

2. According to the OECD, Ireland's all in top marginal tax rates are about 52.1%.

3. According to the BEA, real GDP (measured in 2005 dollars) was 976.1 billion in 1929. It reached a nadir of 715.8 billion in 1933, amounting to a drop of 26.6%. Note that while growth was negative in 1933 (four years after the peak), it was just a small drop. The bulk of the decrease occurred from 1929 to 1932. 

4. According to the IRS, the top Federal marginal tax rate was 63% in 1934, and it rose to 79% in 1936. Note that this wasn't an "all in" rate.

5. According to the BEA, real economic growth in the US in 1934, 1935 and 1936 was 10.9%, 8.9% and 13.1%. The annualized rate of growth from 1933 to 1938, years which I'm cherry-picking to show some relatively poor growth, was 6.7% a year.

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I'm stealing this headline directly from Sandwichman. He sez:

No it doesn’t. It almost never is. To pay back government debt, you have to run a budget surplus, and while there may be modest surpluses from time to time, they don’t add up to more than a minuscule fraction of all the accumulated debt. But don’t take it from me, look at the record.

Here's a longer-term view of nominal debt, zoomed in on successive times slices so you can see the changes:

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My Economics Professor in MBA School, Peter Klein, lectured fondly of the Indian (as in subcontinent, not AmerInd) "entrepreneurs" who risked life and limb going through rubbish heaps looking for scrap metal and other items that could be sold. Despite the risk—I'm not writing metaphorically when I say "risked life and limb"—it was the best opportunity they had of making a better life for themselves.

Apparently, that Indian entrepreneurial spirit (or, as Newt Gingrich might call it, "work ethic") is being mirrored these days in Cleveland. But now a former county treasurer wants to put a stop to it:

[Former Cuyahoga County Treasurer] Jim Rokakis: We're looking at a neighborhood that has almost as many vacant houses awaiting demolition as there are houses with people living in them. We have one here. One here. One here. One there.

[Narration?] Rokakis is leading the effort to tear down thousands of abandoned homes because they're rotting their neighborhoods from the inside out. It often starts, he told us, when a vacant house becomes an open house to thieves.

[TV Correspondent] Scott Pelley: It's a nice house from the roof to about here. And then down here it's been ripped to pieces. What's goin' on?

Rokakis: Well this is typical because this is as high as they could reach without using ladders. They ripped off the aluminum siding, which you'll see on most of these houses. The aluminum and the vinyl siding comes off. It's getting' about a buck a pound.

Pelley: Essentially foreclosure scavengers have been through here?

Rokakis: The thieves have gone high tech. They know when evictions are occurring 'cause they're posted online. And they will follow the sheriff. They're usually there that afternoon or that evening.

Rokakis: So, in here, what you're gonna see, well. I guess they took everything including the proverbial kitchen sink, right? The sink is gone. The plumbing is gone in this house. All the copper. Anything metal that had value is gone. The furnace is gone.

Pelley: The light fixture--

Rokakis: Light fixture came out--

Pelley: Is gone. How often is this happening in Cleveland?

Rokakis: This happens every day. And the foreclosure crisis creates this spiral, because as a result of this people are now more likely to leave neighborhoods like this. And as they leave, the scavengers come in and do the same thing to the house next door or across the street.

Apparently, Mr. Rokakis objects that houses are starting to look like Bruce Willis's after the opening scenes of RED. Maybe someone will set the former treasurer straight that the employment of "reuse, reduce, and recycle" techniques in the service of entrepreneurial activities is an Economic Virtue.

(Though, speaking strictly for me, I'm glad that my wife and eldest daughter are willing to delay their hoped-for move to Cleveland for at least the next few years.)

In the midst of an essay on Louis C.K., Bob Lefsetz (chez Ritholtz) explains what the Lemieuxes and (now, sadly) Mannions of the world keep ignoring:

One of the reasons artists have lost power is they no longer lead.
It’s kind of like our President. He’s so busy appeasing people that
even his natural constituency is turned off.

There are other things that, at best, don't help. But President Clinton survived "welfare reform"—even though the inevitable consequences were well-noted at the time—because he vetoed bills that were worse than doing nothing.

Clinton's immediate successor threatened to veto bills that were not to his liking, and went five and one-half years before having to veto one.

Barack Obama often threatens to veto legislation, but no one takes that claim seriously. Indeed, he has done it twice so far, one a procedural play, the other (much to his credit) the Bottom-Fishing and Robo-Signing Retroactive Legality Act of 2010.

A record like makes it rather difficult to run on a "they're keeping me from doing good things" platform.

UPDATE: Mark Thoma sums up the effect of the Obama negotiation/"leadership" strategy on voters:

I really don't like that my choices in the upcoming election will be between one candidate who will betray the things I believe in, civil liberties, progressive taxation, etc., etc., etc., and a crazy person from the other side (take your pick) who will be even worse.

A couple of our gentle Bears have suggested that I repost this over here. Ask and ye shall receive. It's a good complement to and demonstration of the point I tried to make in my last post.

From Mike Konczal:



Their model is obviously telling them that whatever (non-)actions they're taking at the moment will solve the problem.

And their model is obviously, consistently, and wildly wrong -- and always wrong in the same direction.

Altering that model to accurately predict unemployment, of course, would require that they allow more inflation in order to address both of their mandates.

And higher inflation utterly slams the real wealth of creditors.

And the Fed is run by creditors.

Comparing the Federal Reserve’s Reaction to the Financial Crisis Versus the Unemployment Crisis | Rortybomb.

Let's start with the basics:

Increased inflation results in (in a sense, is) a wealth transfer from creditors to debtors.

Debtors get to pay off their loans in less-valuable dollars -- dollars that can't buy as much real-world stuff, stuff that humans can consume, that they value.

If you're holding a hundred million dollars in bonds -- you've lent out hundred million dollars -- and bananas are going for a dollar apiece, an extra percent of inflation means that a year from now, you can only buy 99 million bananas. The people who borrowed the money from you get the other million bananas. If inflation stays up and the loan remains outstanding, they get another million bananas next year. You don't.

You can start to see why creditors might be inflation-averse.

How big is this wealth-transfer effect? Here's a quite conservative back-of-the-envelope calc.

Figure that there are somewhere north of $50 trillion dollars in private "credit market instruments" out there in the U.S. as of Q3 2011 ($120 trillion in total liabilities).

Do the math: 1% of $50 trillion is 500 billion dollars. One extra point of inflation transfers that much wealth -- buying power -- from creditors to debtors. Every year.

This is probably an overstatement -- many people/businesses are both creditors and debtors, so part of the transfer is from them to themselves. But still: let's cut the number in half. An extra point of inflation transfers a quarter of a trillion dollars per year in buying power -- real wealth -- from creditors to debtors.

Because this effect impacts the huge existing stock of financial assets, 1. it is a permanent , and 2. its scale utterly dwarfs the relatively measly (and multidirectional) effects on flows -- often second- or third-order effects -- that (neoclassical) economists tend to go on about when discussing inflation. ("Money illusion," "neutrality of money," etc.)

And there are far fewer creditors than there are debtors. The effects of the transfer are concentrated on one side, diffused on the other. (See: Mancur Olson).

I'll have a lot more to say about this in future posts, but keeping this short, I'll bring it back to the the title of this post:

The Fed is run by creditors. And I've heard it said that financial incentives matter. The Fed governors have a huge incentive to keep inflation low, and ignore the other side of their dual mandate: employment.

We tend to talk in very big numbers these days, but a quarter of a trillion dollars a year seems like it's still enough to get people's attention.

Cross-posted at Asymptosis.

Dylan Ratigan interviews Yves Smith on  where the money goes (h/t rjs):

Smith: Investors Are Afraid of Suing the Big Banks for Fear the Government Will Retaliate


On this episode of Greedy Bastards Antidote, we’re covering a new term from our upcoming book. This week, we’re focusing on extractionism. Joining us to discuss it is Yves Smith of nakedcapitalism.com. She is author of ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism.


This week, I talk with Yves Smith, and she opened my eyes to some radical stuff going on in the capital markets. Big Banks are extracting capital for themselves with such power that investors are actually afraid to go to the courts for redress.

Yves said that one prominent securities lawyer told her “he knows investors who he said if Jamie Dimon came into somebody’s house and killed the children of these people, he said they would be afraid to call the police.” That’s how bad the extraction has gotten. And that’s not capitalism.

But first, what is extraction, and how is it the opposite of capitalism? How can extractionist systems have all the characteristics of capitalism, while hiding the elimination of productive resources over time?

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Often  participating in econoblogging is done by an older crowd.  I  receive requests by younger potential econobloggers to read some of their posts, but often such posts are lacking in enough documentation and thoroughness of understanding for publication here.  My hope is that this young woman becomes the exception.  Re-posted with authors permission   Dan

by Taryn Hart at Plutocracy files

Guest post:  Occupied Media: Interview With Professor William K. Black

So, this video took far too long to post due to technical difficulties (and we ultimately ended up posting without video). However, the content is amazing. The interview is with esteemed law professor Bill Black who has been a tireless advocate for reform of the financial system and prosecution of the fraudsters that brought our economy to its knees. The title of his book really says it all: The Best Way to Rob a Bank is to Own One.
 
Professor Black is an Associate Professor of Economics and Law at the University of Missouri, Kansas City, a white-collar criminologist and a former financial regulator. He blogs at New Economic Perspectives and tweets at @WilliamKBlack. Professor Black has been an advocate of the Occupy Wall Street Movement and he has been remarkably generous with his time.



A huge thanks to video editor Paul Shockey for getting this interview out despite the numerous technical problems.

by Linda Beale

  House passes spending bill


While the Senate was wrangling over what of the noxious provisions in HR 3630 they would have to keep in order to get expanded unemployment compensation and a payroll tax cut, the House passed a spending bill 296-121 (with 147 Republicans and 149 Democrats in favor) to carry the government through September 2012.  Steinhauer & Pear, Senate Leaders Agree to a Two Month Extension of the Payroll Tax Cut, New York Times (Dec. 16, 2011).

The GOP strategy is to obstruct and demand--one right-wing idea after another is inserted into every bill, just so the Dems will think they have won something when they give the Republicans ten things instead of 100!

As wrangling over the tax has continued, Republican leaders have sought to build support for the measure by adding conservative policy provisions, which have replaced earmarks as the legislative sweetener for Republican lawmakers in a Congress where fundamental differences about the role of government in American life deeply divide the parties.
That conflict, which mirrors the broader political dynamic across the country, is unlikely to ebb in the second session, as Republicans labor to make life more difficult for President Obama and Democrats struggle to hold the White House and the Senate.  Id.

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In this must read post Ezra Klein asked Ron Wyden and Paul Ryan for evidence that forcing the CMS (Medicare/Medicade) to compete more with private insurers can be used to reduce health care spending. The logic must be that the private sector is better able to control costs so private insurers can insure for less, and, if they must compete, will do so.

They answered* pointing to competition in the Federal Employee Benefits Program. Klein counters noting that costs have risen as fast for the FEBP as for employee health insurance plan which don't ask employees to chose between competing offers. Note those other plans, the ones without competition, are mainly used by private profit maximizing firms.

To support their claim that private firms are better at controlling costs than the Federal Government, they pointed to a Federal Government program, and just assumed that it is more efficient than the approach taken by profit maximizing firms. So the proof that the private sector can do it better than the Federal Government is based on the assumption that the Federal Government must be doing it better than the private sector.

It pained me to type Wyden in the title, because I think he is responsible for the best contribution to the national policy debate since Martin Luther King had a dream



OK so he really sincerely hates employer provided health insurance, but the evidence does not support him, and the guy licking the cake was under 65 and not stuck with Medicare. Also what Albert Einstein said about Medicare Advantage and Ryan-Wyden (and Ryan-Rivlin -- who has ever fit his definition of craziness better than Ron Wyden ?).

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by Rebecca Wilder

EA Infernal Devaluation Progressing

The EU answer to rebalancing portfolio and trade flows within the Euro area (EA) without currency devaluation is recession and deflation. They call this ‘internal devaluation’ – shifting relative prices by reducing domestic demand in the debtor countries, thereby shifting the terms of trade. Marshall Auerback calls it ‘infernaldevaluation’. Marshall’s right.

Today we got more evidence that infernal devaluation is progressing. EA unit labor costs (ULC) – average cost of labour per hour workers – increased 0.2% in the third quarter, slowing the annual pace from 3.1% to 2.7%. While the slowdown was to be expected, given the deterioration of domestic demand, the elevated level of growth in ULC suggests that wages in Europe are stickier than what is needed to effectively drive the terms of trade via internal devaluation. Better put: downward pressure in European wages moves more like molasses than water; it will take severe recessions in some of the debtor countries to drive relative prices down sufficient enough to feasibly shift the terms of trade.

The table below lists the average annual ULC gains/losses relative to the EA overall. Germany’s moving on par with the EA, averaging -0.05% (rounded to 0 in the Table) annual relative ULC growth. Germany should be seeing relative appreciation. Spain and Italy are seeing average annual relative depreciation, -0.6% and -0.3%, respectively, per quarter. This is consistent with what is ‘supposed to happen’ in Italy and Spain to shift relative capital and trade flows. However, Netherlands and Finland are matching pace, big exporters that theoretically should be turning importers. France is seeing relative appreciation, +2.2% average annual relative ULC gains; but they were already running CA deficits. Austria and Belgium experienced relative annual price gains, +0.65% and 0.99%, respectively; but they’re too small to matter. Greece and Ireland (Greek data is truncated at Q2 2011) successfully devalued. But at what cost? Their unemployment rates that are now multiples of what they were before the crisis.

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by Linda Beale 


Payroll Tax Cut -Keystone vote up Saturday at 9 in Senate


Apparently, Senate leaders on Friday ironed out the difficulty between the GOP and the Democratic party.  The GOP got most everything it wanted, and the Dems got just barely more than nothing.  That's the way "negotiating" seems to go in the Congress these days.  The right demands and demands and demands and gets most of it by obfuscating and obstructing.

This time the Dems were worried about not getting a spending bill.  So while the House passed a spending bill to carry the Federal Government through September 2012, the Senate caved on all the things they'd said they wouldn't cave on--like the ridiculous provision for expedited approval of the Keystone Pipeline.  All to get just a 2-month extension of the payroll tax cut and expanded unemployment benefits--which the GOP knew it could not afford not to pass, no matter what.  And Obama has already flipped on his earlier looks-like-he's-finally-figured-out-how-to-stand-tall position that he would veto any bill that carried the expedited Keystone approval provision.  See Steinhaur & Pear, Senate Agrees to a Two-Month Extension of the Tax Cut, New York Times (Dec. 16, 2011).

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by Dale Coberly 


Social Security...Hearts and Minds

Tom Margenau wrote an essay about the payroll tax holiday in The National Memo Is Your Tax Holiday Gift A Lump of Coal? His essay seemed to me to illustrate one of the problems with the Social Security "debate" as it has been constructed.

Margenau  describes himself as "not very good with numbers," but someone who has been accused of being "a bleeding heart liberal." "But," he says, "this is one liberal who gives the Republicans credit... at least they are willing to talk about it." The trouble with all this is that Margenau does not understand the numbers, so he is giving the Republicans credit for being willing to talk about a problem that does not exist.

This is exactly what "liberals" have been doing: searching, searching for a way to ease their bleeding hearts by solving the huge, terrible problem that only looks huge when you don't understand the numbers.

Margenau cites the famous "in less than 20 years there will be only two workers supporting each retiree." And he proposes "relatively modest changes... bumping up the retirement age.."

You may read his full essay at the place cited. Easiest for me to simply reprint here the reply I sent to him.

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Let's start with two basic facts:

• Governments in all thriving, prosperous countries tax/spend 25–50% of those countries' GDP (averaging around 40%).

• Governments in non-prosperous countries -- those that haven't suffered a recent crash in the numerator/GDP -- are all below that range.

There is not a single thriving, prosperous country that does not tax at these levels, or engage in massive quantities of redistribution. Not one.

For me, this raises the conundrum:

If policies eschewing such redistribution are so economically efficient -- as claimed by libertarians/conservatives/Republicans/neoclassical economists -- one would expect at least one country to have emerged that eschews those policies, and to see that country surge ahead of all the rest.

It hasn't happened. Not once.

So it's easy to jump to the post hoc ergo propter hoc conclusion:

Redistribution is necessary for a prosperous country to emerge and thrive. It is at least a necessary (though of course not necessarily sufficient) cause of that prosperity.

But of course you can argue the opposite causation:

Prosperity causes bigger government.

I see two possibilities there:

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by Linda Beale

Should reinsurance using foreign affiliates be deductible to US corporations?

Foreign-owned US insurance companies frequently reinsure through their foreign affiliates and then claim a deduction under section 832(b)(4)(A) for the reinsurance premium paid to the affiliate to reduce the US tax liability of the US company.

Rep. Richard Neal (D-Ma) introduced a bill on October 12 that has been referred to the House Ways & Means Committee, where it now languishes unattended by the Republican chair, David Camp of Michigan.  H.R. 3157 amends the Internal Revenue Code to create a new section 849, which disallows the deduction for certain reinsurance premiums and related amounts paid to non-taxed foreign affiliates, defined as members of a controlled group, with 50% rather than the usual 80% used to define a control relationship.

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In my first post here as an official Bear, I want to start by thanking Dan Crawford and the rest of the Clan of the Angry Bear for inviting me to join the party. I've been a regular lurker and occasional commenter for years, and have learned a huge amount from the experts here. I'm looking forward to contributing more regularly.

For my inaugural post, I'm going to break with my tradition and rather than inflicting data on you, I'm instead going to frame much of what I write in some big-picture ideology and theory.

I think this thinking does much to explain what Mike Kimel in particular has made so clear here over many years (with occasional help from moi): that based on the long-term historical record, by pretty much any economic measure it's progressive policies that deliver superior growth, prosperity, fiscal responsibility, opportunity, individual liberty, and a vibrant, robust economy and society.

How can that be? Aren't Republicans "the party of growth"?

That question cuts straight to the reason I started blogging back in 2004. Back then I generally and rather unthinkingly accepted (at least provisionally) the dominant meme of Reaganomics -- that larger government hurts economic growth. But I've always been a curious fellow (yes, in both senses...), so I started pulling data and crunching it to see for myself. (I am from Missouri, after all.)

I was pretty astounded at the time to find that the dominant meme just wasn't true. Run the numbers various ways yourself, or do a review of the professional literature, and you get the same results: in prosperous countries, government size has basically no correlation with long-term economic growth (even though government sizes vary hugely -- from well under 30% of GDP up to 50%+). Go figger.

And that means that all the rhetoric, ideology, and theory supporting that meme has a problem. The more I thought about it, the more I realized that it was in fact wrong by a 180 degrees.

That's how I came to what I'm giving you here -- a reprise, revision, and reworking of thinking I wrote up a couple of years ago:

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Health Care thoughts: PPACA Employer Mandate Part 1

So I am trying to put together a template for evaluating the employer health insurance mandate under PPACA....

Some preliminary thoughts:

50 employees does not mean 50 employees, there as a Full Time Equivalent (FTE) calculation that is certain to confuse employers because it is different than any other FTE calculation we have ever seen.

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Dan here...Linda Beale writes on the intent and passage of these bills. Whether the use of the payroll tax has political and budget consequences for people's perceptions of Social Security and its future remains a question previously discussed at Angry Bear here.

by Linda Beale

(Update from Linda: Payroll Tax Extension Passes)

GOP's payroll tax cut bill (with a lot of other stuff) up for vote on Tuesday

[edited 2 pm 12/13 to provide additional links to news coverage of some of the changes]

Congress has been playing politics as usual over the few policies that are on the table that have a real chance of assisting, to some degree, the plight of ordinary Americans and perhaps even the slow recovery that is still trying to gain steam--extension of the reduction in payroll taxes (from 6.2% to 4.2%) and extension of unemployment compensation.

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Steve Roth is a serial entrepreneur whose businesses have ranged from book and magazine publishing to high-tech professional conferences to corporate services.

Steve's publications include "Capital in the American Economy Since 1930: Kuznets Revisited," an appendix to James Livingston's Against Thrift: Why Consumer Culture is Good for the Economy, the Environment, and Your Soul. That appendix and supporting data are available here. Steve has been blogging at Asymptosis since 2004.

Steve is data driven in approach and has been helpful to Angry Bear and Mike Kimel especially.  Now we get to sample the range of topics and posts directly.

The number of newly reported drug shortages (mostly generic) has been growing:

• There were 74 newly reported drug shortages in 2005.
• The number dipped slightly to 70 in 2006, then rose to 129 in 2007, 149 in 2008, 166 in 2009, and 211 in 2010.
• In mid-2011 there were about 246 shortages.

NPR had a special on this about a month ago, but increasing numbers of people in Boston area report inability to easily fill prescriptions is on the rise, and hospitals report shortages that affect their abilities to deliver services, even surgery.

Barry Ritholz keeps us abreast of retail spending:

Last month, I published a post on the nonsense that is Black Friday sales (No, Black Friday Sales Were Not Up 16% (not even 6%). That evolved into a Washington Post article, Did Black Friday save the season? Beware the retail hype.

Today, we learn that many breathless forecasts from NRF to ShopperTrak were so much hot air and empty hype: Sales were flat to up only modestly. Total U.S. retail sales in November gained only 0.2%, following a 0.6% October. Even that month was revised downwards.

Retailers themselves may pay the price for their massive discounting: Not only might their quarterly earnings be affected by the margin pressure, but they continually train investors shoppers to hunt for discounts. Retail therapy and sport shopping are being replaced by extreme couponing and sites like Living Social and Groupon.

…

See also:
Retail Sales in U.S. Climbed Less Than Forecast (Bloomberg)

U.S. retail sales rise slightly in November (Marketwatch)

by Linda Beale

Gingrich tax 'plan' starves government, feeds the wealthy, rests on flawed assumptions

In case you hadn't heard about it, Gingrich would offer taxpayers a choice to pay tax under current policy or at a 15% rate, with zero taxation of capital gains, dividends and interest that accrues mostly to the rich and uberrich, while corporate tax rate would be reduced to a mere 12.5%.  For the rich, the 15% rate on their ordinary income and the 0% rate on their predominant form of income (capital gains and income from capital) would be a windfall.  For corporations, it would practically amount to the elimination of the corporate tax.  It should be no surprise that tax revenues would decline substantially: the Tax Policy Center study of Gingrich's planestimates by $1.3 trillion over a decade.  While the lower two quintiles would get an average tax cut of about $440, the top 1% (starting at incomes of about $629,000) would get an average $344,000 cut and the top 0.1% (starting at incomes of about 2.868 million) an average $1.9 million cut.  Id.

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By Rebecca Wilder 

EA Spreads: Why Should the Trend Change?

They changed the title; but originally the NY Times reported “Euro Zone Agrees to Reinforce Maastricht Rules“.  That’s exactly what EA policy makers agreed to last week – not much to bring home.

The real shift in policy came from the ECB. Ambrose Evans-Pritchard highlights the ECB’s actions as ensuring some sort of bank profitability, while at the same time defining the buyer of EA sovereign bonds. The banks will access funding from the ECB for up to 3 years at a very low and variable rate - currently the policy rate is 1% – and earn a higher return on their holdings of government debt (This morning, Italian 2-yr debt is trading at 6.05% – not bad). The banks will be ‘encouraged’ to buy government debt, thereby ensuring a funding source for the sovereigns. But this is not a business model, neither for the banks nor for the sovereigns.

Europe is headed toward recession – in fact, it’s probably already contracting – and EU policy makers agreed to explicitly enforce contractionary policy. Kevin O’Rourke calls it a Summit of Death, while Paul Krugman argues the impossibility of the grand internal devaluation experiment. I call it economic oppression coupled with zombie bank deleveraging – it is absolutely not in Spain’s best interest to be pushing sharp fiscal contraction while the private sector is itself deleveraging.

But alas, they’ve decided to put off the only credible solution, fiscal union, for another time. I suspect that global investors are going to see right through this simple fact. External investors will grow tired of the zombie deleveraging and recession, of which more selling will cheapen bonds further. Regarding bond spreads, why should this Summit lead to any different outcome than the ones before it? It shouldn’t.

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