Relevant and even prescient commentary on news, politics and the economy.

…exceeding $3 million in such accounts is not very difficult for an individual

Greg Mankiw suggests a part of the new budget proposed by President Obama affects 401k and IRA accounts. Some comment in general retirement accounts from AB starts here.

Apparently, President Obama’s budget is going to include some kind of penalty for people who have accumulated more than $3 million in retirement accounts.  The details are not yet known, but I think we know enough to say that this is a terrible idea. A sizable body of work in public finance suggests that consumption taxes are preferable to income taxes.  Completely replacing our tax system with a better one is, however, hard.  Retirement accounts, such as IRAs and 401k plans, are one way our tax code has gradually evolved from an income tax toward a consumption tax.  The use of these accounts should be encouraged, not discouraged.

By the way, exceeding $3 million in such accounts is not very difficult for an individual who is financially successful and frugal.  Under current law, a self-employed person can put about $50,000 a year in a SEP-IRA.  If he does that every year for 40 years, and his savings earn a return of 5 percent per year, he will retire with about $6 million.

 Pro Growth Liberal notes another aspect of Greg Mankiw’s outlook:

Greg explains by noting some folks can readily put away $50,000 a year. The median worker, however, cannot. But there may be something else afoot here as Brian Beutler explains: 

One way experts believe financial managers avoid the current annual contribution limit to IRAs is by using IRAs to participate in investments and assigning those investment interests a nominal value vastly below fair market. 

Brian cites as an example some clever tax planning done by a chap named Mitt Romney.

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Margaret Thatcher, Polarizing Right-Winger

Margaret Thatcher, Polarizing Right-Winger

The major news media celebrated Margaret Thatcher upon her death.  They seem to praise her stubbornness and ability to move the UK to support her very conservative anti-union, pro-deregulation and privatization policies and talk of her impact on the UK.  David Brooks, a typical voice on the right who saw Thatcher as a hero of conservative politics, has this to say in his op-ed in the New York Times today, The Vigorous Virtues, New York Times (Apr. 9, 2013).

Margaret Thatcher was a world historical figure for the obvious reasons.  Before Thatcher, history seemed to be moving in the direction of Swedish social democracy. After Thatcher, it wasn’t. 


She lionized the self-made striver. …She championed a certain sort of individual …: “upright, self-sufficient, energetic, adventurous, indepedent-minded, loyal to friends and robust against foes.” (quoting Shirley Letwin)
… 

Today, bourgeois virtues like industry, competitiveness, ambition and personal responsibility are once again widely admired …. Today, technology is central to our world and tech moguls are celebrated.  Tony Blari and Bill clinton embraced and ratified her policy shifts.  Millions more have been influenced by her idea of what makes an admirable individual.

A.C. Grayling presents a much more realistic–and somber–view of Thatcher’s “contribution” to the UK in his op-ed, Thatcher’s Divided Isle, New York Times (Apr. 9, 2013).

It is hard to think of a more divisive figure in British politics than Margaret Thatcher. 

 … 

Her admirers laud her for breaking Britain’s once-powerful trade unions, and liberalizing the City of London’s financial services industry; these acts, they say, halted the country’s economic decline.  Her detractors blame her for destroying much of the country’s manufacturing base by refusing to aid struggling industries and effectively annihilating the mining sector by emasculating the National Union of Miners.  Her premiership will always be remembered for the bloody battles between workers and the police, and the high unemployment and sudden appearance of industrial wastelands that followed.  

Mrs. Thatcher left behind a changed and divided Britain.  She dismantled local government structures
 …
which meant that urban decay and the effects of unemployment were not adequately countered.  …..[S]he did little to advance the cause of women generally. …She was also unfriendly towards homosexuals. … 

She began the deregulation of banking that led ultimately to Britain’s contribution to the global financial crisis of 2008.  She reversed the trend of greater social integration and diminishing of the wealth gap that had characterized Britain in the three decades after 1945.  Postwar convergences in class and wealth disappeared and former divisions resurfaced as consumerism and social incivility followed quickly on her brusque reorganization of British society. …

This much is quite clear:  Thatcher wanted to break unions, privatize public resources, and deregulate industries.  She pushed the same ideological conservative manifesto that Ronald Reagan did in the USA. Reagan’s legacy (and Thatcher’s) regretably lives on today as we face daunting inequalities of opportunity and resources, inequalities that underlie a host of other problems in society.  It traces back to the use of Friedman’s Chicago School “free market” theories to push lower taxes for the wealthy, expanded use of more regressive taxation and less supportive social insurance programs (the calls for a VAT or national sales tax to replace income taxation, the demands for Social Security cuts and Medicare premium increases, etc.), treating government as “the problem” rather than an essential part of the solution, unquestioning admiration of the wealthy few as “responsible” “job creators”  and an accompanying trend to treat the poor and lower income (Romney’s “47%”)  as irresponsible bums living off so-called “entitlements”.  The result is the expansion of harmful extremes of inequality from coupling regressive tax policies  with wealthy corporatists’ capture of elective officials (think Citizen’s United) and hence of legislative policies.

cross posted with   ataxingmatter

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Employment Situation

The headline numbers in the employment report were very weak as  payroll employment rose by only 88,000  and the household survey reported a -206,000 drop in employment while the labor force fell by -496,000.  The futures markets are reacting very badly.  But the workweek expanded and aggregrate hours worked increased 0.3% as compared to 0.5% last month.

Private payrolls grew  96,000  and government employment fell 7,000 implying that the sequester is not yet having a significant impact.

After falling to  below trend last year hours worked is now back on the 0.2% trend displayed earlier in the cycle.   So basically it looks like the headline numbers are overstating the weakness.


Interestingly, my bond valuation model still says that the 10 year T Bond yield should be about 1.5%.
 The model still has fed funds in it, but  nothing else to capture other measure of fed policy..

Average hourly earnings were essentially unchanged last month, but the smoothed data still implies that wage gains have bottomed.

Average weekly earnings also still looks like it has  bottomed.

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Employment Situation

This was one of the better employment reports of this cycle.  Private payroll employment grew 246,00
while  government employment fell about 10,000 for a net gian of of 236,000.  The household survey also showed a nice gain of 170,000.

 

On a year over year change basis both series are showing nice gains.




You would never know it to listen to the news, but employment in this cycle continues to better than in the previous   cycle.

The workweek also increased 0.1% and the index of aggregate hours worked grew 0.5% of all workers and 0.9% for production workers.  The index is now back to the trend established early in the cycle.

Average hourly earnings growth has bottomed and are starting to move up very nicely.


And this is leading to an improvement in weekly earnings.


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$1 trillion to be spent on direct hiring…that’s the ticket!

With all this stalemate posturing in Washington, today Chris Hayes has come up with the best idea I have heard yet to move the players. And, in my opinion actually solve our economic depression.

 
One trillion dollars to be spent on direct hiring by the government along with debt forgiveness.  A solution right out of the New Deal program. Unfortunately for Chris, Obama does not have the language within his vocabulary to recognize such an approach and thus in Obama’s own words: “…put us on a fundamentally different path because the country was ready for it.”
 
In fact, not only does he not have the language within his vocabulary to recognize a solution from history, he thinks the 60’s and 70’s were full of excesses (while noting Kennedy moved the nation in a new direction…right into the excesses of the 60’s?)*
 

Visit NBCNews.com for breaking news, world news, and news about the economy 
 
 
Do you think anyone who remembers what it meant to be a leader in the Democratic Party was watching?  
 
*“I do think that, for example, the 1980 election was different. I think Ronald Reagan changed the trajectory of America in a way that, you know, Richard Nixon did not and in a way that Bill Clinton did not.”
“He put us on a fundamentally different path because the country was ready for it. I think they felt like, you know, with all the excesses of the 60s and the 70s, and government had grown and grown, but there wasn’t much sense of accountability in terms of how it was operating. I think people just tapped into — he tapped into what people were already feeling, which was, we want clarity, we want optimism, we want a return to that sense of dynamism and entrepreneurship that had been missing.”  
 
Don’t get me going on the people wanting “clarity” (security state that even the congress can’t get info on) and “optimism” (the audacity!).

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Dr. Richard Wolff on the Sequester

I watched  Dr. Wolff (Professor emeritus, UMass) on this past week  episode with Bill Moyers.   At the end of this show, Mr. Moyers invited the viewers to submit questions to Dr. Wolf who has agreed to return in a couple of weeks to answer them.

Here is he with an interview by Julianna Forlano of Absurdity Today report.  If you are not familiar with Julianna, she does a very funny short news broadcast on the issues of the moment.  I am a subscriber.  It’s is worth your time for sure.

This is the first part of 4.  It is about 12 minutes.  I want to say, at the end, Dr. Wolff is also pointing out that the cuts do not come all at once.
    

I figure this video is also posted in response to the video rjs linked to in comments to Bev’s post.

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The rest of the dinner table deficit/debt discussion: Equity

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…

 
“Dear, I’m getting nervous. We seem to keep adding to how much money we owe and our income hasn’t changed for the better. What can we do?”
 
At this point of the conversation, the conservative ideology (Republican and Democratic Parties) suggests and encourages you to believe that the answer is something like: “Well Honey, as I look over the horizon I see no possibility for improving our current position. The only thing we can do is cut back on our spending. We have to stop spending on anything we don’t need to live. If we are willing to sacrifice then eventually we’ll have savings that we can then use to invest such that we have more income.”
 
Now, for most Americans at this moment in the euphemistically labeled “business cycle” Honey’s response would be: “But I don’t know where else we can cut!” Of course to the conservative there is always something that money is being spent on that is in actuality an indulgence for which one should repent and thus cut from their spending if said spending is greater than one’s income. This is true because no righteous individual would ever let the devil of consumption tempt them from the path to wealth heaven. Redeem one’s self through the power of restraint of consumption urges.

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Rep Marsha Blackburn’s snow job. Explains how Social Security money flows

I was watching C span Washington Journal this morning.  Rep Marsha Blackburn was the guest.  I got to listen to her explanation of how the Social Security funds flow and just had to post the clip.   Copied from the transcript of the clip:

THEIRS MONEY THAT GOES TO MEDICARE AND SOCIAL SECURITY AND I THINK IT IS JUST IS SO INAPPROPRIATE THAT THE FEDERAL GOVERNMENT DOES NOT USE THAT AS A TRUST FUND BUT THEY MOVE IMMEDIATELY TO THE GENERAL FUND AND STACK UP IOU’S THAT ARE SITTING IN A CABINET IN WEST VIRGINIA.

What she says should not be allowed to stand and if C-span were half of what it used to be, she would not have had the following go uncorrected.  Thus I leave it to the Angry Bears to correct her here and thus document her ignorance of the subject. 

I have not watched this lady before.  I could not help but think she is just a more polished version of Sarah Palin. She is totally capable of pulling off what we used to call a “snow job” when writing their essay.

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The employment situation

This was another tepid employment report not much different than the reports in 2012.

Payroll employment rose 168,000 and the household survey showed a gain of only 17,000

 

Private payrolls expanded 168,000 while government employment fell 9,000.

 Perhaps more importantly the year over year change in employment is showing significant signs of weakness,  Both the household survey and payroll data show that the year over year gain in employment has peaked.


 Moreover, this weakness is appearing despite the fact that the annual benchmark revisions showed stronger employment growth in 2012 than originally reported.

 The revisions also significantly changed the pattern of hours worked in 2012.  Originally, hours worked fell well below trend in mid-2012 and were strengthening back to trend at year-end.  Now
it appears that hours worked were not as weak as originally reported. But with the average workweek unchanged in January, the January hours worked fell 0.2%.

 

 On the other hand the apparent bottoming of average hourly earnings growth  is still intact and was actually strengthening in January. 

 
 The growth in average weekly earnings fell back to only 1.2%  versus 1.7% in December and the low of 1.0% in October.  It is going to be very hard for consumer to absorb the increase in payroll and income taxes in early 2013.  Prospects for consumer spending in early 2013 do not appear promising.

 

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Hagel for Defense Secretary

I’m actually agnostic on this choice.  The always excellent Charles Pierce makes a good case for Hagel, but why should Obama go for any Republican?  This just continues to promote the canard that Republicans are somehow stronger or more capable on defense issues than Democrats.

The irony here is that the greatest opposition is coming from Republicans, some of whom have gone so far as to call him an anti-Semite*  because he has spoken openly and honestly about the excessive influence the pro-Israel lobby has on American foreign policy.   When we consider the pros and cons of any individual for any position, we ought to do it on the basis of real qualifications and real disqualifications, not make-believe nonsense put forward by neocons and the cadre of rabid right-wingers whose policies have done such great and possibly irreparable damage to the world in this century.
 
I rarely agree with Mish on anything political, and to find myself agreeing in principle with him when he’s agreeing in principle with Patrick Buchanan has my stomach turning and my head spinning. 

Vertigo, nausea and angular momentum aside, this appointment is the president’s decision, and I want to see the debate procede along substantive rather than ideological, illogical or untruthful  lines.   And I most particularly don’t want to see him get Riced.

Now, where do I pick up my pony?

__________________________

* On 1/07 I heard Eliot Abrams do exactly that in an NPR interview.  Abrams was an Iran-Contra cohort of Paul Wolfowitz and Oliver North.

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