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

Your solution is…

Lifted from comments at Naked Capitalism

MC
So your solution includes taking money from those who saved and invested, and re-distribute it to those who spent everything they earned? As someone in the “saved and invested” category, I find that plan to be a non-starter.
When I was setting aside 15% of my income for savings and investments, paying extra on my mortgage, and driving older cars, I have friends who (at the same income level as my wife and I) literally spent everything they earned. They had lots of fun, and lots of new stuff that I didn’t.
Fast forward 30+ years, and now – in my late 50’s – I’m planning my retirement (before my 60th birthday). My friends? None of them are even thinking of retiring, and one couple has said they will need to work into their 70’s.
We made different choices, and ended up in different places – but that doesn’t obligate me to hand them what I have.

Yves
What a bunch of total nonsense.
If you’ve been able to work on a consistent basis at decent enough paying jobs that you could save, it is substantially due to luck: being born into a stable middle to upper middle class family, being white and male, being born at a time when there was enough growth in the economy that you could land good jobs early in your career, which is critical for your lifetime earnings trajectory. Oh, and not having you or a spouse or a child get a costly medical ailment that drained your savings. And not winding up in a job where you were being ethically compromised and stood up against it, resulting in career and earnings damage.
Did you miss that college grads had a worse time that high school grads and even dropouts in landing jobs in 2008-2010? And getting no or crap jobs then set them back permanently? And this includes graduates in the supposedly more “serious” STEM fields, where contrary to DC urban legend, there aren’t a lot of entry level jobs. You do well if you find employment, but save in a few niches like petroleum engineering, the unemployment rate is actually worse for STEM college grads overall than liberal arts grads.
……………..
…inflation is created in the real economy due to any of commodities inflation (cost-push inflation), wage-pull inflation (created by too much demand, or in MMT terms, too much net government spending) and more recently and not sufficiently acknowledged, by monopolies and oligopolies (see pricing of cable services and drugs, which have monopolies via patents) . Interest rates are a different matter and are controlled by the central bank. We’ve had risk-free interest rates below the inflation rate for years now thanks to the ministrations of the Fed.
Central banks have the power to kill the economy (raising interest rates so high that it induces inflation) but not much/any power to stimulate (save goosing asset prices, which only trickles down a bit to the real economy). The cliche is “pushing on a string”.

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What is the secret to joining the rich country club

Steve Roth writes What is the secret to joining the rich country club at Evonomics:

By Steve Roth

There’s a curious fact about the wealth and growth of nations that you rarely see mentioned: No country has ever joined the modern, high-productivity, rich-country club without massive doses of redistribution, and universal government programs for social support and financial security. Not one. Ever.

You can get a rough feel for the scale of those programs here (the OECD countries pretty much constitute the “rich-country club”):

graph

There are a zillion other measures you could plot, but they paint roughly the same picture. In this measure, the richest countries all devote fifteen to thirty percent of GDP to social spending. As Bruce Bartlett pointed out recently, Germany — a darned “conservative” country that is thriving today, and which rode out our recent economic Great Whatever better than almost any other country — started building its welfare state more than 150 years ago.

Now contrast these countries to all the countries that have eschewed those freedom-sapping, serf-ifying government programs, and that have emerged as thriving, prosperous utopias of liberty.

Name one.

Why hasn’t it happened? Not even once.

If countries like that were in fact so economically efficient, shouldn’t we expect to have seen at least one of them emerge, and surge ahead of all the rest — outcompeting all the others, in a very Darwinian sense? Isn’t that the prediction that libertarians and conservatives are making? How can we explain the complete and abject failure of those predictions?

An explanation is perhaps not far to find. Market capitalism — especially modern “holding-company capitalism,” in which corporations own corporations which own corporations, ad infinitum — inevitably concentrates wealth and income into fewer and fewer hands. It’s just the nature of the beast. Along with its immense, world-changing, manifest benefits, market capitalism labors under that inescapable burden.

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DID MAYA MACGUINEAS of CRFB LIE on TIME magazine website OR WAS SHE JUST FOOLIN’ AND DID ANYONE NOTICE

by Dale Coberly

 

DID MAYA MACGUINEAS of CRFB

LIE on TIME magazine website

OR WAS SHE JUST FOOLIN’

AND DID ANYONE NOTICE

 

Maya MacGuineas is president of the Committee for a Responsible Federal Budget (CRFB) which reliably confuses the Federal Budget with the Social Security program.   CRFB claims to want to cut government spending to balance the Budget,  but it spends most of its time arguing for the need to cut Social Security.

Social Security is not funded by the federal budget.  It is paid for entirely by the people who will get the benefits.

In MacGuineas op-ed on TIME magazine’s website

https://act.myngp.com/el/826676200205584384/2618988919232268288

she says a number of things reasonable people could agree with.  This is not surprising,  a  technique of expert liars is often to draw you in with reasonable, and true, statements and then lead you to false, and dangerous conclusions.  MacGuineas does lead you to false conclusions without necessarily “lying,”  and I will get to those.  But I’d like to begin with a statement which she made that is not true which I find particularly egregious.

“My goal would be to both ensure that those who depend on the program are protected, while also balancing the growing cost of Social Security with other pressing priorities — from programs for children, the vulnerable, public investments, and shoring up our education and worker retraining systems”.

While it may be doubted that MacGuineas is sincere in her concern for “programs for children, the vulnerable, public investments, and shoring up our education and worker retraining systems,”  Social Security has nothing to do with funding for any of these programs.  Social Security is paid for entirely by the workers who will get the benefits.  It subtracts not one dime from the federal budget. Except, of course, when the Congress is obligated to REPAY the money it BORROWED FROM Social Security.

MacGuineas could no doubt find funds for her favorite programs by taking a gun and demanding your wallet.  This would be exactly the same as cutting Social Security to find the money to pay for someone else’s favorite program. Taking money from SS and using it to pay for other programs would not cut your “taxes” one dime.  Neither would it cut “the budget.” All it would do would to leave you “busted, dead broke”  when time came for you to retire.   This is a shell game”  “Lookee!  We’re going to cut SS in order to spend on other programs.  This will save you money, see!” The reason the SS tax was created as dedicated funding with a separate trust fund,  was to make sure the money collected for Social Security was not confused…is not fungible…with other government money.

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Non competes

Via Alternet, Thom Hartmann writes:

…This type of labor system has been the dream of conservative/corporatists, particularly since the “Reagan Revolution” kicked off a major federal war on the right of workers to organize for their own protection from corporate abuse.Unions represented almost a third of American workers when Reagan came into office (and, since union jobs set local labor standards, for every union job there was typically an identically-compensated non-union job, meaning about two-thirds of America had the benefits and pay associated with union jobs pre-Reagan).Thanks to Reagan’s war on labor, today unions represent about 6 percent of the non-government workforce.

But that wasn’t enough for the acolytes of Ayn Rand, Ronald Reagan and Milton Friedman. They didn’t just want workers to lose their right to collectively bargain; they wanted employers to functionally own their employees.Prior to the current Reaganomics era, non-compete agreements were pretty much limited to senior executives and scientists/engineers.If you were a CEO or an engineer for a giant company, knowing all their processes, secrets and future plans, that knowledge had significant and consequential value—company value worth protecting with a contract that said you couldn’t just take that stuff to a competitor without either a massive payment to the left-behind company or a flat-out lawsuit.

But should a guy who digs holes with a shovel or works on a drilling rig be forced to sign a non-compete? What about a person who flips burgers or waits tables in a restaurant? Or the few factory workers we have left, since neoliberal trade policies have moved the jobs of tens of thousands of companies overseas?Turns out corporations are using non-competes to prevent even these types of employees from moving to newer or better jobs.America today has the lowest minimum wage in nearly 50 years, adjusted for inflation. As a result, people are often looking for better jobs. But according to the New York Times, about 1 in 5 American workers is now locked in with a non-compete clause (bolding mine) in an employment contract.Before Reaganomics, employers didn’t keep their employees by threatening them with lawsuits; instead, they offered them benefits like insurance, paid vacations and decent wages.

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Not business but finance models

Financialized business models sticks to faith based “Market knows best” rule.

…The number of MBAs graduating from America’s business schools has skyrocketed since the 1980s. But over that time, the health of American business has decreased by many metrics: corporate R&D spending, new business creation, productivity, and the level of public trust in business in general.

There are many reasons for this, but one key factor is that the basic training that future business leaders in this country receive is dictated not by the needs of Main Street but by those of Wall Street. With very few exceptions, MBA education today is basically an education in finance, not business—a major distinction. So it’s no wonder that business leaders make many of the finance-friendly decisions. MBA programs don’t churn out innovators well prepared to cope with a fast-changing world, or leaders who can stand up to the Street and put the long-term health of their company (not to mention their customers) first; they churn out followers who learn how to run firms by the numbers. Despite the financial crisis of 2008, most top MBA programs in the United States still teach standard “markets know best” efficiency theory and preach that share price is the best representation of a firm’s underlying value, glossing over the fact that the markets tend to brutalize firms for long-term investment and reward them for short-term paybacks to investors. (Consider that the year Apple debuted the iPod, its stock price fell roughly 25 percent, yet it rises every time the company hands cash back to shareholders.)

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R and D

Angry Bear has over the years described the Pharma industry and its spending on Rand D and stock buybacks, among other developments in comparing US health outcomes to other countries.

Via New York Times discussing this study at Ineteconomics.

US Pharma’s Financialized Business Model
JUL 2017 |

Price gouging in the US pharmaceutical drug industry goes back more than three decades. In 1985 US Representative Henry Waxman, chair of the House Subcommittee on Health and the Environment, accused the pharmaceutical industry of “gouging the American public” with “outrageous” price increases, driven by “greed on a massive scale.” Even in the wake of the many Congressional inquiries that have taken place since the 1980s, including one inspired by the extortionate prices that Gilead Sciences has placed on its Hepatitis-C drugs Sovaldi since 2013 and Harvoni since 2014, the US government has not seen fit to regulate drug prices. UK Prescription Price Regulation Scheme data for 1996 through 2010 show that, while drug prices in other advanced nations were close to the UK’s regulated prices, those in the United States were between 74 percent and 181 percent higher. Médecins Sans Frontières (MSF) has produced abundant evidence that US drug prices are by far the highest in the world.

The US pharmaceutical industry’s invariable response to demands for price regulation has been that it will kill innovation. US drug companies claim that they need higher prices than those that prevail elsewhere so that the extra profits can be used to augment R&D spending. The result, they contend, is more drug innovation that benefits the United States, and indeed the whole world. It is a compelling argument, until one looks at how major US pharmaceutical companies actually use the profits that high drug prices generate. In the name of “maximizing shareholder value” (MSV), pharmaceutical companies allocate the profits generated from high drug prices to massive repurchases, or buybacks, of their own corporate stock for the sole purpose of giving manipulative boosts to their stock prices. Incentivizing these buybacks is stock-based compensation that rewards senior executives for stock-price “performance.”

Like no other sector, the pharmaceutical industry puts a spotlight on how the political economy of science is a matter of life and death. In this paper, we invoke “the theory of innovative enterprise” to explain how and why high drug prices restrict access to medicines and undermine medical innovation. An innovative enterprise seeks to develop a high-quality product that it can sell to the largest possible market at the most affordable price. In sharp contrast, the MSV-obsessed companies that dominate the US drug industry have become monopolies that restrict output and raise price. These companies need to be regulated.

“The key cause of high drug prices, restricted access to medicines and stifled innovation, we submit, is a social disease called ‘maximizing shareholder value,’” the study’s authors concluded.

This concept, the authors said, is actually “an ideology of value extraction.” And chief among the beneficiaries of the extraction are drug company executives, whose pay packages, based in part on stock prices, are among the lushest in corporate America.

“There’s no shortage of spending on R&D in the U.S. economy, and no shortage of spending on life sciences, even though it has declined somewhat in real terms,” one of the authors, William Lazonick, a professor of economics at the University of Massachusetts, Lowell, said in an interview. “But there really is very little drug development going on in companies showing the highest profits and capturing much of the gains.”

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Trump: the endgame (op-ed)

Trump: the endgame

There was some economic news last week which is important for the long term, and I’ll try to post about it later today or tomorrow, but in the meantime …
I’m as interested in the latest Trump-Russia tidbit as the next person, but really, don’t we all already know the endgame?

Remember during the campaign, no matter what devastating gaffes Trump made, he always rebounded into the low 40%’s? Well, about the same thing has been true for the last 5 months.  No matter what the news, Trump’s approval rating is 38% +/-3%:

So here, as a public service, to save you all the sturm und drang of the next 3 years, I present you in narrative form with the endgame:

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It’s the Debt, Stupid

Dan here…another post by Steve

Why Tyler Cowen Doesn’t Understand the Economy: It’s the Debt, Stupid

Steve Roth | November 16, 2015

In a recent post Tyler Cowen makes an admirable effort to lay out his overarching approach to thinking about macroeconomics, revealing the assumptions underlying his understanding of how economies work. (Even more salutary, this has prompted others to do likewise: Nick Rowe, Ryan Avent.)

Cowen’s first assertion:

In world history, 99% of all business cycles are real business cycles.

This may be true, but it is almost certainly immaterial to the operations of modern, financialized monetary economies. He acknowledges as much in his second assertion:

In the more recent segment of world history, a lot of cycles have been caused by negative nominal shocks.  I consider the Christina and David Romer “shock identification” paper (pdf, and note the name order) to be one of the very best pieces of research in all of macroeconomics.

That paper, which revisits and revises Friedman and Schwartz’s Monetary History, is clearly foundational to Cowen’s understanding of how economies work, so it bears examination — in particular, its foundational assumptions. The Romers state one of those assumptions explicitly on page 134 (emphasis mine):

…an assumption that trend inflation by itself does not affect the dynamics of real output. We find this assumption reasonable: there appears to be no plausible channel other than policy through which trend inflation could cause large short-run output swings.

This will (or should) raise many eyebrows; it certainly did mine. Because: it completely ignores the effects of inflation on debt relationships.

It’s as if Irving Fisher and Hyman Minsky had never written.

Assuming “inflation” means roughly equivalent wage and price increases, at least over the medium/long term (yes, an iffy assumption given recent decades, but…), inflation increases nominal incomes without increasing nominal expenditures for existing debt service. (Yes, with some exceptions for inflation-indexed debt contracts.) Deflation, the reverse. Nominal debt-service expenditures are (very) sticky. Or described differently: inflation constitutes a massive ongoing transfer of real buying power from creditors to debtors — and again, deflation the reverse.

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Nation “Too Broke” for Universal Healthcare to Spend $406 Billion More on F-35


Nation “Too Broke” for Universal Healthcare to Spend $406 Billion More on F-35

f-35_
(Photo: Forsvarsdepartementet/flickr/cc)

The nation’s most expensive weapons program isn’t done showing U.S. taxpayers how much it will ultimately cost them, with Bloomberg reporting Monday that the F-35 fighter jet budget is now predicted to jump by a cool $27 billion.

“Think about [F-35’s] $405 billion price tag when a family member dies of a preventable disease. Get angry.”

Though the estimated future cost of the program had previously hovered at a mind-boggling $379 billion, an updated draft that could be submitted to Congress as early as today will reportedly exceed $406 billion—a nearly 7 percent increase.

The new cost increases may come as a hit to President Donald Trump, who has bragged about his ability to get weapons manufacturers to offer the Pentagon “better deals.”

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How do households build wealth

Dan here….Steve Roth in 2014

How Do Households Build Wealth? Probably Not the Way You Think. Three Graphs

Steve Roth | October 28, 2014 12:52 pm

US/GLOBAL ECONOMICS

Work hard. Save your money. Spend less than you earn. That’s how you become wealthy, right?

That’s not totally wrong, but if you think that’s the whole story — or even a large part of the story – you may be surprised by this graph:

Screen shot 2014-10-28 at 8.45.12 AM

(Note: these are not realized capital gains, which really only matter for tax purposes. If the value of your stock portfolio or house goes up for twenty or thirty years, you’ve made cap gains even if you haven’t “realized” them by selling.)

Household “saving” — households spending less than they “earn” – contributes a remarkably small amount to increasing household net worth. And that contribution has shrunk a lot since the 90s.

Screen shot 2014-10-28 at 9.00.09 AM
The accounting explanation is simple: “Income” doesn’t include capital gains; it comprises all household income except capital gains. So capital gains are also absent from “Saving” — Income minus (Consumption) Expenditures. (This is why HouseholdSavings1 + HouseholdSaving ≠ HouseholdSavings2 — not even vaguely close.)

The capital gains mechanism appears to dominate the ultimate, net delivery of rewards to household economic actors. Earning more and spending less is weak beer by comparison.

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