I had my hair cut last week.  It’s a big event as it happens about twice per year.  While there I always get into political conversations with the lady cutting my hair.  This time, as often it was the economy.  Her position still is that the individual citizens collecting welfare are effecting her income.  We’ve discussed this before.  So, I used my simple math of $100 dollars and 100 people and 9% to the 1 person and the remaining 99 splitting what remains.  I then note the current split of 24% to the 1 and the 99 splitting what is left.  Easy?

Unfortunately, it did not resolve the issue.  Her question was: You don’t think the welfare people are effecting this?  So, I asked her to explain to me just how someone collecting welfare (we are not talking corporate welfare) could be the cause of her lack of share of the overall income?  This is not a laughing matter.  It shows just how strongly the conflation has been made of associating the indigent population as the cause of ones financial condition, namely the money in their pocket.

This got me thinking.  Maybe numbers are just not enough.  Maybe using 100 dollars and the fact that after the 1 gets about $9 as of 1978 the other 99 get $0.92.  Shift the split and it’s $24 vs $0.77.   How is that relative to a median income of today?  And here I’ve been thinking I was keeping it simple.

So, I have upped the numbers.  $10 million.  100 people.  This produces the following:

That is quite the shift of the 1′s income.  In fact it is a 166.7% increase simply due to changing how the pie is cut.  The rest of the people, the 99 get 16.5% less.  No one worked harder, no one worked less.  We just cut the pie differently.

It is that simple.  It is that fundamental.

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I finally figured out a simple way to explain my confusion (and that of many others, including many economists) with the whole Saving issue. I may also have figured out a useful solution to that confusion, which I present at the bottom here for my gentle readers’ delectation and denunciation.

Econ profs: I’m really curious. Do you think this post would help your intro students understand this stuff?

First: The accounting’s fine. Of course. But for some not-crazy reasons, the definition of “Saving” changes in the course of the accounting.

Thinking of the “real” sector for the moment, for simplicity and clarity. For each of the economic units at the bottom level of that sector (households and nonfinancial businesses), Saving means money saving:

(1) Saving = Income – Expenditure

But at the top, the level of “sectoral” saving, Saving means saving of real goods:

(2) Saving = Income - Consumption Expenditures

Or in words that more aptly describe what’s being depicted:

(3) Saving = Production – Consumption

(Reminder: Consumption Spending + Investment Spending = Expenditures = Income = Production)

Explanatory aside: There’s Gross or Net Saving, depending on whether Consumption just includes Consumption Spending (on goods that are bought and consumed within the period), or also includes Consumption of Fixed Assets — the very real “depreciation” of those assets. Gross is long-lived goods produced; Net is long-lived goods added, above and beyond what’s “consumed.”

Back to identities: Unlike every other measure in the national accounts, if you sum up the money Saving of all the bottom-level units, it doesn’t equal Saving for the sector. Rather:

(4) Sectoral Saving = Units’ Combined Money Saving + Investment Spending*

Investment spending, of course, causes the creation of real, long-lived goods. But this is the thing that has confused me from the get-go: Saving is (savings are) some combination of money and real goods? Aren’t financial assets supposed to be representative of, proxies for, the real assets? (Equally confusing: economists’ insistence on talking about “capital” as if it were some undifferentiated, homogeneous or vaguely contiguous lump of real and financial capital.)

Here’s what you need to know to sort that out: You know that money saving? It’s zero.

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Lifted from Robert Waldmann’s Stochastic Thoughts:

In the post below, I vigorously criticize IMF staff and Ryan Avent for claiming that central banks adopted low inflation targets in the early 80s without noting that the Fed did not adopt an inflation target until January 25 2012.  I have now read Avent’s post as patiently as I can (meaning I skipped ahead).
 
Avent wrote “That the disinflation of the 1980s has generated a flattening of the Phillips curve is precisely what the IMF demonstrates:”

This claim is illustrated by a figure which does not show that.  Even if a curve hasn’t changed at all, the slope depends on where you are (that is the curve is not a straight line).  The figure does suggest that  the IMF staff are willing to assume that the Phillips curve is a straight line, or rather that they are willing to support their argument by presenting a graph which tends to convince people willing to make that assumption.

The graph does not demonstrate any change at all in the Phillips curve (I’m not saying it didn’t change just that the question can’t be answered with the graph).  You can’t see if different points lie on the same curve by plotting changes on changes, because the slope of a curve isn’t constant.

In particular, inflation is much lower now than it was in the early 80s.  It is possible that the slope of the Phillips curve is lower now, because the Phillips curve is a curve.  The pattern from 2007 on is clearly different from the pattern in the 1930s.   It is not clear that it is different from what would have happened from 1980 to 1994 if inflation had been around 2% in 1980.  

Oh and the 30s were different. In most developed countries, the unemployed don’t risk starvation any more.  The welfare state was quite different back when high unemployment caused sharp deflation.

I swear that this post has been edited to make it less rude.  You don’t want to read the first draft.
Also I deleted a draft conclusion to the update to the post below, because it was too inflammatory.  I am trying to be as polite as I possibly can without actually lying.

update:  Now I am going to make some graphs.  They are totally unlabeled only partly because I am lazy but also because I want the reader/graph eyeballed to try to guess what they are.  They are US analogs of the IMF graph with the change in core inflation on the y axis and the change the civilian unemployment rate on the x axis.  All graph 17 data points (as in the green series from the IMF).  Two  show data from after the Fed flattened the Phillips curve in the “early 80s”.  Which two show the new flat Phillips curve?

Figure 1 (chosen from three figures at random by the eyes closed point and click method)

Figure 2 (not chosen at random)

Figure 3

Don’t peek 

Come on it’s more fun if you guess than look ?

OK the answer is that figures 1 and 3 show the new flat post early 80s Phillips curve which is due to inflation targeting.  

Did you guess without peeking ?

Figure 1 shows 17 quarterly inflation changes from 1985q1 minus 1984q4 on.  They are the first data which came undeniably after the early 80s.  Figure 3 shows the most recent 17 quarterly changes.   It is not markedly different from figure 1 because of auto scaling (not “not *just* because I am lazy” does not imply “I am not lazy”) but it is much flatter (the range of unemployment changes is 4 times as large and the range of core inflation changes is about the same).

Figure 2 is the first 17 available quarters from Fred from 1958q2 – 1958q1 (when the core CPI series starts).  The first of those data were collected before Phillips published his famous scatter (with labeled axises even) .  The last in the first quarter of 1962 rather before the modern advances in monetary theory.  It is very flat indeed.  If Phillips had relied on FRED, he wouldn’t have gotten published at all.  Inflation bounced around way back then, but there is almost no relationship between the change in inflation and the change in unemployment.

This is what Phillips saw for extremely low inflation rates.  The rediscovery of the fact that the Phillips curve has a low slope at inflation rates near zero is not path breaking progress.

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It’s history lesson time again.

In 1993, Bill Clinton enacted an economic program centered around some public investment, coupled with deficit reduction with higher taxes on the rich. Boskin was very, very sure it would fail. In a Journal op-ed entered into the Congressional Record by grateful Republicans, he accused Clinton’s administration of “fundamental distrust of free enterprise.” He made a series of predictions: “The new spending programs will grow more than projected, revenue growth will be disappointing, the economy will slow, and the program will reduce the deficit much less than expected.”

Boskin repeated his prophecies of doom in a summerlong media blitz. Boskin labeled Clinton’s plan “clearly contractionary,” insisted the projected revenue would only raise 30 percent as much as forecast by dampening the incentive of the rich, insisted it would “take an economy that might have grown at 3 or 4 percent and cause it to grow more slowly,” and insisted anybody who believed in it would “Flunk Economics 101.”

In the early 1990s, Senator Patrick Moynihan from New York warned his fellow legislators about rising social security commitments. Then the worm crawled out of his hole, so to speak. Federal Reserve Chairman Alan Greenspan testified before the Senate and House Budget Committee on January 10, 1995. He told the Committee the inflation rate was probably overestimated by 0.5% to 1.5%.

If Greenspan was correct, this was a godsend. Social security payments are increased each year at an inflation rate calculated by the federal government: the change in the Consumer Price Index (CPI). If the CPI could be increased at a lower rate in the future, benefits would rise more slowly, without Congressional action. This would reduce government spending and delight politicians, who knew of the looming crisis in social security but did not want to imperil their careers by reducing benefits, or, in this case, by cutting the rate at which social security benefits were raised each year.

The Boskin Commission was duly formed. Michael Boskin was the right man for the job. He had served as chairman of the President’s Council of Economic Advisers (CEA) from 1989 to 1993, a post previously held by such government functionaries as Arthur Burns and Alan Greenspan.

The commission is itself a delicious example of such bias: All its members were on record prior to the establishment of the commission as believing the CPI to be overstated. At the same time, the commission took no evidence from such well-known economists as Janet Norwood, a former head of the Bureau of Labor Statistics, and Dean Baker, of the Economic Policy Institute, who believe that the CPI provides a reasonable reading of inflation. In effect, the commission took account of all the evidence of overstatement of inflation by the CPI and downplayed the evidence of potential understatement.

If cost-of-living inflation has been overstated, then the growth of the economy and real wages has been much higher than previously reported. The commission has thus solved the problem of stagnating wages, which is now revealed to be a mere fiction. Far from experiencing a “silent depression,” the commission implicitly claims, American families have never had it so good.

If inflation, wages, and income have all been misstated, years of research have been conducted using incorrect data. Thus much of this research, which purportedly confirmed the profession’s theoretical claims, is no longer valid.

Lowering the CPI inflation rate would therefore affect income-tax exemptions and push many middle-class families into higher tax brackets. Adopting the Boskin Commission’s findings would be tantamount to imposing a tax hike that would particularly affect lower- and middle-income families.

Both Democrats and Republicans have been keen to see its recommendations adopted, because they provide a potentially uncontroversial way to achieve deficit reduction. Raising taxes is unpopular, and little discretionary government spending is left to be cut. Restating the CPI as a measure of cost-of-living inflation offers an easy way to lower Social Security payments through reduced COLAs and raise tax revenues through reduced exemptions. The hope is that the CPI can be presented as an apolitical and boring technical issue that voters won’t notice.

Revising the CPI would get the Republicans off the hook of deficit reduction, while simultaneously advancing the interests of business. This, however, would occur at the expense of working Americans and the elderly. Revising the CPI would get the Democrats off the same hook, but at the cost of another shameful desertion of the constituencies they claim to represent.

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by Linda Beale

Big Business believes in taxpayer subsidies, not “free markets”

David Cay Johnston, former NY Times reporter and now Syracuse professor, writes about the thing that most journalists don’t bother to (or are told not to) write about–the way that Big Business successfully lobbies legislators and regulatory agencies to write the rules to favor Big Business, at the expense of ordinary Americans, all under the false claim that they are pushing de-regulation for the good of competition and ordinary consumers.  Johnston, Missing the Story, American Journalism Review (March 2013).

Johnston describes a number of ways that state legislatures, Congress and state and federal regulatory agencies have made life easy-street for Big Business at the cost of ordinary consumers.  He notes it is often discussed as “deregulation” but that “is a misnomer because, literally, no such thing exists in commerce….Everything in business is regulated in some fashion, and has been since long before the first nearly full set of laws we have….  [Thus, d]eregulation typically means reregulation under new rules that favor business interests.”  Id.

Businesses claim that the ‘deregulation’ they seek is just another step towards their ideal of “free markets” to help competitiveness.  Not so, Johnston replies.  The regulatory climate that results is almost always one that creates “moats” making competition much harder for small businesses and allowing duopolies or monopolies to arise that can set prices as high as they wish. And often the captured regulatory agencies allow the most absurd subsidies imaginable.

The Bush Treasury did that in spades.  One example is the changes the pro-business Treasury under Paulsen made in the regulations under section 368 governing corporate reorganizations, in which the Bush Treasury (many officials of whom are still part of the Obama Treasury) promulgated rules that provide, for the first time, the possibility of a loss recognition by shareholders in the nonrecognition reorg exchange.  Settled law at the time said no such loss could be recognized.  And the Bush Treasury also did it in setting up (through regulations) yet  another tax subsidy of Big Oil (as an add-on to an already ridiculous subsidy enacted by Congress when it allowed Big Oil to operate as limited partnerships).

Here’s how Johnston describes this.

The simple story is that Congress in 1986 exempted monopoly pipelines from the corporate income tax if they organized themselves as Master Limited partnerships. The George W. Bush administration then let these pipelines include the nonexistent tax in the rates they charge.

The cost of this fake tax is both tiny and huge.

The pipelines raise prices to cover the cost of the tax, which in turn means they have to raise prices even more to cover the taxes on the extra earnings, known as “grossing up.” A 42 percent tax on profits, grossed up, means a pipeline gets to earn its profit plus 75 percent for taxes. These higher costs are then built into prices people pay for gasoline and natural gas to heat homes. Paying this fake tax costs each American less than three cents per day, about $10 per year, I calculate. That is the tiny part. The huge part is that collecting just a penny a day from everyone in America adds up to $1.1 billion in a year — or $3.3 billion at three cents per day per American. Id.

 (emphasis added).

Note, folks.  That’s an unnecessary $3.3 billion subsidy provided to already-profitable businesses that comes entirely at the cost of ordinary Americans.  It is a subsidy put into law entirely through Big-Busienss-friendly tax administrators in ways that most Americans do not see it–or, if they see it, they believe it is a “real” tax cost of the businesses rather than just another theft subsidy.

This is another aspect of the problem of the way the media treats any discussion of “free markets.” The fundamentalist approach to free markets (that I have sometimes labeled “free marketarianism” or “friedmania”) claims to believe that deregulation helps people by increasing competition and opening up markets.  In fact, it is usually the opposite.  Deregulation helps Big Business by decreasing competition and allowing the development of powerful oligarchs and powerful monopolies or near-monopolies.  Brute capitalism, that is, allows those who hold capital to hold power, and those who hold power act against the interests of ordinary people in order to consolidate their power.  Another blog addressed this well:

A free market requires that everybody plays nice and follows the rules. Guess what. There’s always someone who will do whatever evil they think is required to make money. Once you realize that, you know there can be no such thing as the free market.

***

That’s one of the primary reasons that uncontrolled capitalism has been such a gross failure since the Reagan/Thatcher “revolution”, leaving us with record inequality and damaged democracy, and bringing the world economy to the brink of total collapse that simply evaporated trillions of dollars. Random Notes from the Exasperation File, Class War In America.

I have often noted that the media treat the daily ups and downs of the stock market as though it is an accurate reflection of the entire economy.  It is not.  When the stock market is up, it is likely that one or another segment of Big Business is doing well or exceptionally well.  That means the affluent–those in the top 30% who own most of the financial assets of this country, including Big Business’s CEOs and board members, are doing well.  So as the stock market has resurged after the 2007 financial crisis brought on by the excess of Big Financial Businesses, the wealthy who run and own those Big Businesses are doing mighty well indeed.

This is corporatism at its worst–the takeover of the economy and all of its institutions by a corporate mindset that favors the wealthy and the managers/owners of Big Business over ordinary people, leaving ordinary people’s views unheard.  It often is associated with class warfare, wherein the rich ensure that their money buys laws and regulations written by, for, and of the rich.  Corporations pay less in taxes and ordinary workers pay more–either in direct taxes or in the indirect tax of wage and benefit loss that is a tax subsidy for the wealthy.

Those at the bottom of the economic distribution are of course the ones most hurt by the decline and by the class warfare policies of the rich.  They are most likely still doing poorly or just barely getting by, mostly because those big profits at Big Business are taken at their expense–through constantly rising prices not reflected in increased quality or costs of production, or through increasingly unfair worker wages and benefits that have been cut in order to increase the rents to the owners/managers.  And usually with the assistance of legislators and regulators.

Take a friend of mine, who was laid off from an auto parts manufacturer for almost three years and has been struggling to make a full-time living at it since he was reinstated–at a much lower salary then before the crash (conveniently for the company but not so good for the workers).  He bought a new truck about a year before the financial crash.  The payments were supposed to be around 250 a month.  In the first months of the layoff he couldn’t find any substitute work, and he fell behind in payments on the truck (his family depends on him as the sole breadwinner; his family has almost no assets and no liquid assets; he depends on the truck to allow him to take odd jobs when his job at the factory is on hiatus–often landscaping, mowing, etc.).  The interest rate on the loan went up to 32% almost immediately.   That would once have been treated as illegal usury.

Not now, since “deregulation” has allowed financial firms to rip off their customers coming and going for their own profits.   Now his payments are around $400 a month and he owes as much on the truck as he did several years ago in spite of all the payments he has worked hard to make since then.  This Thursday he missed the payment again, after keeping up for most of the year.  He missed it because his company began selectively laying off workers for a week or 3 days at a time during the winter, and he didn’t work for about ten days of the month before the payment was due.  On Wednesday he talked to his adviser at the financial firm that gave him the loan.  It was a new “adviser”. They replaced a more understanding one with one who was considerably harsher.  The adviser told him on Wednesday that he would give him til Friday to make the next payment.  On Thursday, however, he sent a repo man who took the truck.  Friday my friend got a paycheck and could have made the payment (as he’d told the adviser on Wednesday).  Instead, when he went to make the payment thinking he could get the truck back that day, the financial firm advised him that he now had to pay off the truck in full–as well as a bunch of additional charges due to the repossession.

What would that be, he asked?  He assumed he owed about $3500, in his calculations the amount still due on the original loan.  Oh, no, the finance guy told him.  You will have to pay $4975 on Monday, and that amount will increase by $25 a day for every day you do not pay.  It’s that much because of all the late fees we added on the bill.  Oh, and we are charging you $400 for repo-ing the vehicle on Thursday (even though we had promised we would not do so)…..
Again, deregulation of financial institutions has made these rent-seeking add-on charges customary for anyone in the lower part of the income distribution.  Big Business sells it as competitive services for the underprivileged but it is really deregulated excess profits for the financial firms for acting like modern equivalents of plantation owners with a captive workforce unable to ever build up financial assets and always dependent on the firms’ calculations as to what they owe or are owed.

How is my friend (who happens to be an African American) supposed to ever advance beyond the near-serfdom in which he currently exists?   Lucky for him, we are willing to offer him a personal loan at market-rate interest so that he can finally pay off his overseer and begin to dig himself out of the hole that our deregulated, GOP-ideology-driven state puts most Detroit low-income residents in.   Mass transit hardly operating and not permitted to expand as it should to permit low-income residents to commute easily to work in the region.  White suburbs that cannot be annexed into the city, so continue their oblivious lives exploiting Detroit’s assets while pitying the poor black residents that just can’t seem to do anything right.  Businesses that charge white folks in the suburbs less than black folks in the city.  Insurance companies that rip off their Detroit clients.  And on and on.

This is all happening in a world where white folks with money set all the rules and now, in Michigan, have made it very hard for any union to form and exert some worker-power on behalf of the employees. Michigan’s new, so-called “right-to-work” law that the religiously right-wing Republican party of Michigan passed with no input at all from the people and with misinformation galore–all of the newspaper coverage talked about workers being “forced” to join a union unless you have “right-to-work” and how “right-to-work” would free them not to have to pay for the union and encourage more economic growth and more jobs.  None of the newspaper articles or the legislators reported the fact that right-to-work states tend to have lower wages for their workers, less good jobs, and poorer economies.  Of course, the information was wrong to start with–no one was forced to join a union without right-to-work laws–they were merely required to pay some amount (less than union dues) for the services that the union provides.  Now, they can demand the same services and pay nothing.  No Republican business would provide services on that basis, but Republican legislators serving their oligarchic base ensure that no true freedom exists for anybody without money.

Michigan, of course, has also just taken over the City of Detroit, with Gov. Snyder’s appointment of an emergency manager.  This is as undemocratic as it gets, given the state vote rejecting the last EM law and the fact that the EM will have dictatorial power to ignore the Mayor, the City Council and all other elected officials.  Snyder is a right-wing tool, in office backed by a majority-GOP legislature that reflects the racism of most of the “upstate” part of Michigan and blames Detroit’s problems on its predominately black residents.  The legislature passed right-to-work to retaliate against unions for trying to get protection for workers’ rights in the constitution.  Apparently, the GOP thinks the constitution should only protect the wealthy, as it does by prescribing a flat tax, ensuring that the wealthy in Michigan get to choose what they support but are hardly taxed at all by the State. The rabid right in this state forget that what condemned Detroit was the “white flight” to the suburbs and Michigan’s foolish state constitution which does not allow Detroit to take the suburbs into the city.  So Royal Oak’s mayor a few years ago could refuse to fund metropolitan buses because he didn’t want Detroit’s black population able to cross the border into Royal Oak and pollute the city by taking jobs there.  And the wealthy residents of the 90% white suburbs of 80% black Detroit come into the city for its amenities–opera, plays, sports, museums–and its work, but take their pay out of the city to maintain their schools and shops and amenities while complaining about how awful Detroit is.  We Detroit residents are very worried that the GOP’s takeover of the Democratically elected city government will result in the rape of the city’s assets–Belle Isle is a jewel in Detroit’s crown that the state covets; Detroit’s water system is another asset that the state–and the white suburbs–covet and want to control.  The EM will be pressured by Snyder and the rest of the upstate Detroit haters to take over those assets and make Detroit pay for being a center of unionism and Democratic voters.

The Michigan passage of the so-called “right-to-work” law and the renewal of the emergency manager law AFTER it was defeated by the people in November are perfect illustrations of the contempt that the current Republican party shows for ordinary people when it is in power in a state.  And it also illustrates well the capture of legislators and agencies by oligarchs, monopolies and duopolies.  This is, as Johnston notes, a sad state of affairs that will only get worse unless the press reinvigorates itself to inform rather than kiss Big Business’s ass.

cross posted with ataxingmatter

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Richard Eskow  points us to a trend with liberals media types and Social Security:

A President Who’ll Cut Social Security — And Liberals Who Love Him Too Much

The spectacle of a supposedly liberal president repeatedly and needlessly trying to cut Social Security is enough to bring a reasonable, economically literate person to the point of existential despair. To see leading liberal lights like Rachel Maddow and Ezra Klein chuckle indulgently at those foolish Republicans in Congress over the subject — Don’t they know he’s already giving them what they want? – is to risk plunging into the depths of that despair.

This week the president hosted a dinner for Republicans leaders where he worked to sell his budget proposal, including his harmful plan to cut benefits through the “chained CPI.” National Security was the main course and Social Security was the dessert. And guess who wasn’t coming to dinner: The elderly, the disabled, or any policy experts who understand the disastrous implications of the chained CPI.

The Maddow/Klein exchange (which we’ll bring to you as soon as a transcript is available) is the crest of a building wave in pro-Democratic Party commentary which says, as Klein puts it, that “what we have here is a failure to communicate.” Klein says that at least “some of the gridlock (in Washington) is due to poor information.” Jonathan Chait bemoans the fact that Republicans “won’t acknowledge [Obama's] actual offer, which includes large cuts to retirement programs.”

…

But Democrats like Maddow, Klein, and Chait know better. They know exactly what Obama’s been trying to do. And their only complaint seems to be that he’s not doing effectively enough. We’re not hearing much from the ‘left’ side of the debate about the profound flaws, biases, and inherent cynicism behind both the President’s policy and his rhetoric.

Here are the facts:
1.Research suggests that Social Security cost-of-living increases are already inadequate. (See studies on “CPI-E” for more details on the best ways to increase them.)

2.Obama’s proposed chained-CPI cut would typically reduce benefits for 3 percent, and by as much as 6 percent for some recipients.

3.The White House’s decision to label this cut the “superlative CPI” is grotesque. It suggests that elderly women who receive an average of $950 or so per month are receiving “superlative” benefit increases each year.

4.The administration’s insistence on speaking of “entitlement reform,” mixing Medicare (which has a real cost problem because of our for-profit health system) with Social Security, is a cheap trick first devised by Republican consultants.

(hat tip Nancy Ortiz)

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Good lord.  So much ado about one high-profile journalist’s (deliberate or inadvertent; I can’t tell which) semantics ploy.  

Stellar New York Times White House correspondent Jackie Calmes, in a lengthy article on the provenance of the sequester, explains the controversy:

Woodward’s piece is labeled opinion.  But it is in fact not opinion; it is bald representation of fact.  In other words, it is standard journalism reportage.  Except for the fact that the key representation of fact is patently false, and false in a respect that not only is extremely easy to refute with tangible facts, as Calmes does, but also false in a manner that is flagrant to anyone who recalls last year’s campaign.  Specifically, Obama built his entire campaign last year primarily around the promise to raise income tax rates to Clinton-era levels for people with incomes above $250,000; to close tax loopholes for the wealthy and corporations; and to protect basic social safety net programs such as Social Security, Medicare and Medicaid as much as possible while increasing spending on certain other targeted programs.  

But it’s also obvious that it’s false because, well, why in heaven’s name would Obama agree to not demand tax increases to replace a sequester that he was proposing precisely because he was not willing to agree to spending cuts without revenue increases? Why wouldn’t he just have agreed to the Republicans’ demands in Aug. 2011 instead of agreeing to agree to those demands at the expiration of the sequester?

Obama wouldn’t, of course.  So the next question is: Why in heaven’s name would this journalist claim Obama did?

Part of the answer is clear to me, upon reading the last several paragraphs of Woodward’s article–where the bizarre claim is made. Here are the paragraphs:

Ah.  Reread the second- and third-last paragraphs there, the paragraphs just be the denouement:

Yes, Mr. Woodward.  Lew testified during his confirmation hearing that the Republicans would not go along with new revenue in the portion of the deficit-reduction plan that became the sequester.  Yes, the sequester was an option the White house was forced to take because the Republicans would not do tax increases.

And, yes, Mr. Woodward, the final deal reached between Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.) in 2011 included an agreement that there would be no tax increases in the sequester in exchange for what the president was insisting on: an agreement that the nation’s debt ceiling would be increased for 18 months, so Obama would not have to go through another such negotiation in 2012, when he was running for reelection.

And the the final deal reached between Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.) in 2011 included an agreement that there would be no tax increases in the sequester in exchange for what the president was insisting on: an agreement that the nation’s debt ceiling would be increased for 18 months, so Obama would not have to go through another such negotiation in 2012, when he was running for reelection.  It did not, of course, include an agreement that there would be no tax increases in the final agreement to replace sequester 18 months later.

If Bob Woodward really believes that Obama agreed in Aug. 2011 to cut the federal budget deficit by about $3 trillion (or whatever the figure is) almost entirely through cuts to (near-elimination of large parts of) the social safety net and other non-defense “discretionary” spending–and that is exactly what Woodward is claiming–then I want to offer to sell him a quitclaim deed to the Brooklyn Bridge.  

My real estate agent moonlights as a Republican congressional staffer–the one who just sold Woodward a bill of goods. Woodward probably will have to get a mortgage, though.  He’s probably out of liquid assets at the moment.

There is, of course, a serious matter here, but it’s not the substance of the agreement between Obama and the congressional Republicans on how to avoid default on the United States’ incurred debt obligations.  It’s why this journalist’s longtime employer, the Washington Post, has given him carte blanche to use it as a forum to disseminate obviously false representations of fact.  And, to borrow a phrase from Woodward, why does it matter?

These are not rhetorical questions, but the Post surely won’t answer the first one, and the second one, though not rhetorical, does answer itself.  At least under any journalistic standards worth having, it does.

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I was wrong.  It turns out that National Journal editorial director Ron Fournier wasn’t out sick the day his eighth-grade civics class learned about the separation of powers between the three branches of the federal government, after all.  He was present and learned about it.  But he missed a class a few weeks later explaining that the president lacks the authority to order a military invasion of the House of Representatives and sequestration–the literal kind, not the budgetary kind.  

I know, I know; the president is the commander in chief. But it’s Congress that must formally declare war, and Congress probably wouldn’t declare war on itself. One house might declare war on the other, but that wouldn’t meet the Constitution’s requirement that both houses vote to declare war on the same target.

There is, of course, the option of CIA renditions.  Which, after reading Fournier’s new blog post [h/t Greg Sargent] responding to the critics of a blog post in which he blamed Obama for the sequester because in “any enterprise, the chief executive is ultimately accountable for success and failure”–any enterprise, even one in which the chief executive isn’t actually the chief executive, but instead is the chief of the executive branch–I’m presuming is what Fournier has in mind.

Originally, I’d thought he meant that he wanted Obama to simply capitulate to the House Republicans and let them gut discretionary spending, Social Security, Medicare, Medicaid.  In other words, delegate federal fiscal policy to the Tea Party.  Others thought that, too, among them an unidentified senior White House official, who wrote to Fournier to complain.  But Fournier says he doesn’t understand what he calls this defensive reaction.*  He quotes part of the defensive reaction:

But Fournier says the White House official misunderstood him.  Fournier explains:

Actually, though, the White House official’s description was exactly what Fournier was saying,  Because although Fournier wants the president to act like a CEO, he knows that in this particular enterprise there is no CEO, and one branch of the enterprise is controlled by the Tea Party.

Fournier titles his new post, “Why You Don’t Want Me to Be President.”  The answer to that question is that he has no idea how the president could get the House to compromise.  But Fournier reminds that, unlike Obama, he didn’t run for president in 2008 promising to lead.  And Fournier says he wants the president to lead.  

Except that actually he makes clear that what he wants the president to do is follow.  

The subtitle of his post is “The White House is waving the white flag on working with a hardheaded GOP.”  It should read “The White House should wave the white flag on working with a hardheaded GOP.”  That would be an accurate description of the contents of the post.  

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*This post is an edited version of one I posted at about 6 p.m. on Friday.  The asterisked sentence is one of three that I edited.  I’ve also added the final two sentences.  The post is a followup to a post from earlier Friday. I’ve also created an additional label: mainstream-journalism gimmickry. I’ve left the original rather than delete it, because of the comments posted to that post.

Tags: Greg Sargent, mainstream-journalism gimmickry, Ron Fournier, The National Journal, the sequester Comments (1) | Digg Facebook Twitter |

by Mike Kimel

Markets Need Regulators – Food Edition

Back in college, I had a chat with one of my more libertarian economics professors about the need for regulation. He thought regulation was completely un-necessary.

“But what about mislabeled food?” I asked, “How do we even know that what is labeled on the side of the box or the can is what is inside?”

His reply was one I’ve heard, in one variation or another, many times since, “A company that sells customers something than they ordered will quickly go out of business.”

I’ve known it was BS every time I heard that, but it is interesting and unfortunate to see validation lately.

In the US, we have mislabeledfish:

Chicago diners who think they are eating red snapper may actually be munching on goldbanded jobfish.

Those who order Alaskan cod may really be tucking into a threadfin slickhead. And fans of yellowtail could just be getting a fish tale.

These are some of the findings of a Chicago fish fraud investigation to be released Thursday by conservancy group Oceana.

After its troubling seafood fraud investigations in East and West Coast cities over the last two years, the group expanded its testing to other cities, including Chicago. Thirty of 93 fish samples taken from Chicago restaurants, retail chains and sushi bars were mislabeled, mirroring percentages found in other cities.

Eight of nine Chicago red snapper samples tested by Oceana turned out to be different fish, the report said. And none of the three
yellowtail samples tested was actually yellowtail. Single samples sold as corvina, jack, mackerel and even perch did not match those descriptions, according to Oceana’s DNA tests.

The ocean conservancy organization does not list the names of the restaurants or stores where it bought the fish because “we didn’t know where, along the supply chain, the mislabeling first occurred,” said Beth Lowell Oceana’s seafood fraud campaign director.”So we didn’t want to call out businesses that may not have known their fish was mislabeled.”

This comes in the heel of the horsemeat (and occasionally donkey meat) sold as beef scandal in Europe.

What is interesting is that a) these behaviors have been going on for a long time and b) they were either spotted by a shrunken regulator (in Europe) or a non-profit (in the US). The market’s incentives didn’t stop any of the players involved.

Now, one could respond that “this didn’t actually harm anyone’s health.” That may be true, but it is fraud. Lack of damage isn’t true of all cases. We’ve all read about cases where adulterated food products did kill, where mechanical components that didn’t meet stated standards caused deadly accidents, or pharmaceuticals that weren’t as stated caused tremendous harm. Different fields have different stories. Decades ago, I knew people who worked with blood banks, buying and selling blood products for use in medical and pharmaceutical tests and manufacturing. Apparently it wasn’t uncommon for low quality, poorly tested, and badly identified blood from East Germany to be surreptitiously mislabeled as its high quality, tested-to-the-nines West German equivalent, and with a wink and a nod, enter the bloodstream so to speak. Who knows how many people were harmed by that? More familiar to most Americans these days is the mislabeling of financial products – there were an awful lot of risky financial products mislabeled as being AAA safe.

For commerce to work, confidence in the products being sold needs to exist. But the marketplace by itself can’t provide that – the financial incentive apparently is just a bit too strong for some of the players.

Tags: market, Mike Kimel, regulators Comments (19) | Digg Facebook Twitter |

I promise, there are numbers here, but lets have some fun first and write a screen play to set up the point. It is long, but…

Tags: #spendingstheproblem, assets, budget deficits, conservative thought, debt, economic growth, equity, income Comments (3) | Digg Facebook Twitter |