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

Deficits Do Matter, But Not the Way You Think

Dan here…a reminder about our federal deficit.

Deficits Do Matter, But Not the Way You Think
07.20.10    Roosevelt institute  L. Randall Wray

In recent months, a form of mass hysteria has swept the country as fear of “unsustainable” budget deficits replaced the earlier concern about the financial crisis, job loss, and collapsing home prices. What is most troubling is that this shift in focus comes even as the government’s stimulus package winds down and as its temporary hires for the census are let go. Worse, the economy is still — likely — years away from a full recovery. To be sure, at least some of the hysteria has been manufactured by Pete Peterson’s well-funded public relations campaign, fronted by President Obama’s National Commission on Fiscal Responsibility and Reform — a group that supposedly draws members from across the political spectrum, yet are all committed to the belief that the current fiscal stance puts the nation on a path to ruinous indebtedness. But even deficit doves like Paul Krugman, who favor more stimulus now, are fretting about “structural deficits” in the future. They insist that even if we do not need to balance the budget today, we will have to get the “fiscal house” in order when the economy recovers.

In fact, MMT-ers NEVER have said any such thing. Our claim is that a sovereign government cannot be forced into involuntary default. We have never claimed that sovereign currencies are free from inflation. We have never claimed that currencies on a floating exchange rate regime are free from exchange rate fluctuations. Indeed, we have always said that if government tries to increase its spending beyond full employment, this can be inflationary; we have also discussed ways in which government can cause inflation even before full employment. We have always advocated floating exchange rates — in which exchange rates will, well, “float”. While we have rejected any simple relation between budget deficits and exchange rate depreciation, we have admitted that currency depreciation is a possible outcome of using government policy to stimulate the economy.

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Hurricane adjusted initial claims for week of Sept. 2: 239,000

Hurricane adjusted initial claims for week of Sept. 2: 239,000

Last week I promised I would repeat an exercise I first undertook in 2012 when Superstorm Sandy disrupted the initial claims data: estimating what the initial jobless claims would have been, but for the hurricane.

In 2012 I created that adjustment by backing out the affected states (NY and NJ) from the non-seasonally adjusted data.  That gave me the number of initial claims filed in the other 48 states.  I compared that with the same metric one year earlier, and multiplied by the seasonal adjustment.

What that does is give me the number if the affected states had the same relative number of claims during the given week, as all of the unaffected states.  In 2012, it showed that Sandy was not masking any underlying weakness in the economy.

The state by state data is released with a one week delay.  So what follows is the analysis for the week of September 2, the number for which was reported one week ago. This week I only had to back out Texas.  Next week I will undoubtedly have to back out Florida as well.

Here is the table for the Week of September 3 in 2016 vs. September 2 this year:

Metric                              2016                   2017

Seasonally adjusted:       257,000              298,000

Adjustment for total:       1.18%                1.19%

Not seasonally adjusted: 217,715              250,621

Texas claims:                     15,707                63,788

NSA claims ex-TX           202,008              186,833

TX as % of total:              7.2%                   n/a

2017 w/ TX adjustment:  n/a                      201,405

If we use the 2016 weekly seasonal adjustment of 1.18% for the adjusted 201,405 total, this gives us ~238,000.

If we use the 2017 weekly seasonal adjustment of 1.19% for the adjusted 201,405 total, this gives us ~240,000.

Thus the hurricane-adjusted initial jobless claims number for the week of September 2, 2017 is 239,000.

The underlying national trend in initial jobless claims remains very positive.

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Republicans Think They Can Pull It Off with the ACA and the Budget

On September 7, I pointed out Republicans are preparing Another Assault on the PPACA/ACA in 2017. Republican senators Lindsey Graham S.C. and Bill Cassidy LA are making a last stand in an effort to repeal and replace the ACA by “proposing legislation doing away with many of the subsidies and mandates of the 2010 law. Instead, the Graham – Cassidy Bill would provide block grants to the states to help individuals pay for health coverage.

Graham taking it out of context what Obama said on keeping company healthcare insurance, rolls out his own version of the same except it is mocking Obama. “You can keep the ACA;” however, Republican legislation would make it virtually impossible for dozens of states to continue operating Obamacare without large amounts of state funding. In the short term, the law is designed to penalize states who embraced the ACA and reward states not expanding Medicaid. The legislation stops all of the ACA by repealing the subsidies and substituting their own budgetary subsidies as required under Reconciliation. As Slate’s Jordan Weissmann says, “it’s a bit like walking into somebody’s house, lighting the whole ground floor on fire and telling them, Hey, you can keep living here — if you like it.” It is political revenge being vent on constituents the same as Republicans blocking the Risk Corridor Programs and Trump’s threats to block CSR subsidies applied to premiums by healthcare insurance companies. Some detail on the Republican plan and the impact:

• The new plan favors poorer, older, and less populated parts of the country utilizing its own formula for block grants instead of using the ACA formula to fund the grants. The Graham – Cassidy plan shifts spending to the large states which expanded Medicaid (California and New York) to less populated states refusing to expand Medicaid (Mississippi and Alabama). Some non-expansion states like North Carolina and Florida would also will see less funding as much of the population benefited from premium subsidies. As a whole, the Republican Graham-Cassidy plan punishes states getting more of their residents insured through the ACA.

• The 2% inflation planned increases of block grants would be far less than the inflationary cost of healthcare or insurance. The impact either leaves states to back fill or constituents to make up the difference. The Center on Budget and Policy Priorities states the block grants would result in a 34 percent spending cut in comparison to the ACA by 2026. Nine states; California, Connecticut, Delaware, Florida, Massachusetts, New Jersey, New York, North Carolina, and Virginia would see their federal health-care funding cut in half under the block grant system when compared to the funding received from Obamacare’s Medicaid expansion and increased subsidy spending.

• Graham – Cassidy also implements a capita cap which cuts Medicaid expansion state funding by $180 billion over 10 years. The resulting cuts would increase each year reaching $41 billion annually by 2026. A 9 percent cut to total federal Medicaid spending for seniors, people with disabilities, families with children, and other adults (outside of the ACA’s Medicaid expansion) comes into play by 2026. The per capita spending cuts are expected to grow from a 26% cut to Medicaid funding in 2026 to 35% in 2036 according to CBO calculations.

• States will may also be able to eliminate such benefits as maternity and mental healthcare from their plans, impose annual and lifetime limits, and dramatically raise deductibles and other out-of-pocket costs. According to the CBO, states having approximately 50% of the population would take up these damaging waivers. As if this is not enough, Graham and Cassidy are also considering the “Cruz amendment,” which allows insurers to sharply increase premiums to people with pre-existing conditions or deny them coverage altogether. Now whether or not these addition benefit eliminations are budget related and qualify under Reconciliation is something I would wonder about as they do not appear to be budget related.

There is enough time for Republicans to change the ACA and also achieve a new budget going in 2018 (October 1) with Reconciliation instructions for Tax Reform. The Republicans might burn some midnight oil and have short weekends; but, it can be done if they wish to further deny President Obama a legacy and support Trump’s skewed views on race and Obama.

As far as McCain? “Sen. John McCain told the Hill on September 6th, he would support a plan offered by Sens. Lindsey Graham (R-SC) and Bill Cassidy (R-LA) to repeal the Affordable Care Act. And McCain later released a statement clarifying his support for the bill in concept, but hasn’t seen a final product.

“While I support the concept of the Graham-Cassidy proposal, I want to see the final legislation and understand its impact on the state of Arizona before taking a position,”

As far as Pelosi and Schumer offering up a solution to the national debt and making it easy for Trump to offer hurricane Harvey Relief. The Democrat relief gesture was humane; however, McConnell says he has a counter measure to the maneuver by Democrats to renegotiate the National Debt in December. Republicans are planning to stick it to Democrats and “all” constituents with a repeal of the ACA and by killing a large percentage of the subsidies. In the end if the repeal does happen, Pelosi and Schumer’s kind hearted display of bi-partisanship will be recognized as the dumbest move Democrats have ever made. They should have waited a week or so to extend the help.

Dan’s comment in an email: “We will see soon enough…I hope you are not prescient.” I hope I am wrong. It is too close to call.

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Price Gouging

by Peter Dorman  (originally published at Econospeak)

Price Gouging

Whenever there’s a natural disaster, a famine or some other such crisis, people zero in on price gouging.  Are grain merchants jacking up prices to take advantage of a food shortage?  What about airlines raising fares to cash in on desperate attempts to flee an impending hurricane, or stores that double or triple the price on bottled water?  And generators that suddenly only the rich can afford?

Most think this type of exploitation is unjust and even wicked, but Econ 101 says the opposite: it’s a rational, socially desirably market response to a change in supply and demand.  Higher prices for goods made scarce and valuable by a disaster encourage both more provision and greater care in use, exactly what you would want in such a situation.  For details, see the writeup in today’s New York Times.

According to the Times, the main flaw in the free market argument is that it allows the poor to be completely priced out.  This is an application of the argument, made by many social theorists, that distinguishes between essential goods, which should be rationed more or less equally among all, and inessentials, which can be left to the market.  There’s a lot to be said in its favor, and I won’t dispute it.

But the Times and most commentators miss a second point, which is about the same issue of social utility as the case for markets.  Societies depend on a general willingness to share, volunteer and reciprocate, especially in desperate times.  When a hurricane or earthquake strikes, or when war or some other spasm of human destructiveness occurs, we depend on friends and strangers to help locate survivors, pick up the rubble, share their homes and meals and generally pitch in.  There have been a number of stories, for instance, about ordinary people from other parts of the country who, hearing about Harvey’s devastation of Houston, made their way their to help out however they could.  Most of us won’t drop everything and head to Texas, but it’s safe to say that Houston won’t recover, or at least not so much or so quickly, unless hundreds of thousands in Texas and elsewhere lend a hand.

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Let the Punishment Fit the Crime, Identity Theft Edition

With the the recent Equifax data theft fiasco, I thought of a post I wrote 10 years ago:

Based on a conversation I had with reader Debbie, I was thinking about identity theft for the last day or so. I also had a discussion with the Ex-GF (for new readers, that’s my wife) about this; she was the victim of identity theft at one point. Its a big deal in this society, and I think I have a potential solution…
If someone steals someone else’s identity, their intention is to benefit from the reputation and credit rating and so forth that derive from the way their victim has conducted him/herself. Perhaps then they should also be required to, well, suffer the consequences for the way their victim conducted him/herself.

For example… the Ex-GF had a big pile of student loans at the time her identity was stolen. Why not make the thief responsible for paying those loans – not directly, of course… perhaps the thief would have to send the Ex-GF in the amount of the payment due every month. Alternatively, the thief would have to send the government an amount equal to that payment every month to compensate society for the losses of that identity theft; the government could then reduce the tax burden on everyone else by the same amount.

Similarly, if the victim of identity theft was proven to be the perpetrator of some crime, such as homicide, the person committing the identity theft could be required to serve part of the time, or perhaps a concurrent sentence.

Such a structure would would add some serious disincentive to those considering committing identity theft. Such a disincentive is really needed… the Ex-GF was able to quickly determine who had stolen her identity, and provided all the necessary evidence to the police. However, because the amount stolen was small, the police declined to do anything. But the time and effort she went through to fix the problem was pretty substantial.

Ten years later, I would kill the paragraph that begins with “For example…” I would also modify the second to last paragraph to read:

If the victim of identity theft was proven to be the perpetrator of some crime, such as homicide, the person committing the identity theft would be required to serve an identical sentence. Ditto those who steal the data in the first place.

Otherwise, I agree with myself.

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Who owns the Wealth in Tax Havens?

WHO OWNS THE WEALTH IN TAX HAVENS?, an NBER working paper, points to following the money:

Drawing on newly published macroeconomic statistics, this paper estimates the amount of household wealth owned by each country in offshore tax havens. The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity—from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. We use these estimates to construct revised seriesof top wealth shares in ten countries, which account for close to half of world GDP. Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore. These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world.

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It Is Monday, And WaPo Bashes Social Security Again

It Is Monday, And WaPo Bashes Social Security Again

What a surprise, the Washington Post is at it again, and it is the usual culprit, Robert J. Samuelson. Of course he has his attack buried under a title that appears to point more broadly, “The deficit is everybody’s fault,” although not if “everybody” includes people who die before they become eligible for Social Security and Medicare (and those parts of Medicaid that go to old people).  He even has further cover in that the new numbers come from the “left-leaning” Center on Budget and Policy Priorities in a report issued on Sept. 6 written by Paul van der Water, and I grant that the numbers he shows do come from that report, which makes projections out to 2035, the year when the adjustment for baby boomers going onto elderly entitlement programs will have been largely completed.

While in fact the report shows a slightly lower budget deficit as percent of GDP in 2035 than now (3.0% to 3.1%), that does involve a tax increase of 2.7% of GDP, along with cuts in spending on numerous categories of the budget.  These are in place to offset increases on four items: Social Security at the top of the list with an increase of 1.3% of GDP (from 4.9% to 6.2%), followed by Medicare with an increase of 1.2% (from 3.2% to 4.4%), interest on the national debt of 1.1% (from 1.3% to 2.4%), followed by “other health” (mostly Medicaid) of 0.5% (from 2.3% to 2.8%).  With maybe 60% of the latter not being due to more old people, and interest payments also not due to them, that leaves those aging baby boomers responsible for about 2.7%, just equal to the amount of the tax increase assumed to have the budget deficit decline by 0.1% of GDP, and although it is implied otherwise, some of that tax increase presumably would be paid by those elderly.

OK, I agree that old people will increase as a percentage of the population.  The number that appears in the CBPP report shows them rising as a percentage of the population from 15% today to about 20% in 2035, an increase of a third, or 33 and 1/3%.  But the increase in Social Security spending is only a 26% increase, not as much as the increase in the share of old people in the population. The underlying report notes that indeed cuts in Social Security spending already passed will be responsible for this gap, but Samuelson somehow does not note this, and calls for more cuts.  It is the one item he specifically mentions.

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“If you tax investment income what will people do? Stuff their money in the mattress?”

“If you tax investment income what will people do? Stuff their money in the mattress?”

Steve Roth | October 15, 2012 9:25 pm

Richard Thaler asks exactly the right question. This from the latest IGM Forum poll of big-name economists, on the effects of taxing income from “capital.”

I’ve been over this multiple times before, but it’s nice to see the thinking validated by a real economist. If you’ve got money, there is no (practicable) alternative to “investing” it. (Those are irony quotes: referring to “buying financial assets,” as opposed to “buying/creating real [fixed] assets,” which is the technical meaning of “investing” in national-account-speak.)

Or actually — there is one alternative to “investing” your money: spending it.

Are the neoclassicals really going to argue that if we tax returns on financial assets at a higher rate — so “investors” have less after-tax income — they’re going to spend more? I don’t think I have to cite sources to prove that they consistently argue exactly the opposite.

But just for grins, let’s say they will spend more. That would be great! They’d increase the volume of private money circulation (P*T, or M*V, your choice) — boosting demand for real goods and services, stimulating production, and goosing GDP.

And if we’re lucky, they’ll use it for investment spending instead of consumption spending. They get to write off those real investment expenditures against their taxes, after all. Not true with consumption expenditures, much less purchases of financial assets.

In which case — this seems kind of obvious when you think about it — taxing “investment” income will increase investment (while reducing the federal deficit). What’s not to like?

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Let the Punishment Fit the Crime, Even if the Crime is Imaginary

This can’t be healthy:

Matthew Halls was removed as artistic director of the Oregon Bach Festival following an incident in which he imitated a southern American accent while talking to his longstanding friend, the African-American classical singer Reginald Mobley.

It is understood a white woman who overheard the joke reported it to officials at the University of Oregon, which runs the festival, claiming it amounted to a racial slur.

Here are the mechanics of the process:

But Mobley maintains that while racism should be challenged and ethnic groups made aware of each other’s sensitivities, his friend has been the victim of misunderstanding and overreaction.

Halls and Mobley had been chatting at a reception held last month during this year’s Oregon Bach Festival, when the subject turned to a concert in London in which Mobley had performed.

The singer, who was born and raised in the southern state of Florida, said the concert had an “antebellum” feel to it, of the sort associated with Gone With the Wind and other rose-tinted representations of the pre-Civil War south.

In response Mobley says that Halls “apologised on behalf of England”, before putting on an exaggerated southern accent and joking: “Do you want some grits?”, in a reference to the ground corn dish popular in the south.

“I’m from the deep south and Matthew often makes fun of the southern accent just as I often make fun of his British accent,” said Mobley. “Race was not an issue. He was imitating a southern accent, not putting on a black accent, and there was nothing racist or malicious about it.”

But the singer suspects that a white woman who overheard their conversation and spoke to him moments later went on to report it to the university, alleging Halls had made a racist joke.

An internal inquiry into the incident is understood to have been held as a result of the complaint.

However, Mobley was not invited to give evidence and he says there is a deep irony in the fact the authorities appear to have assumed on his behalf that he would have objected to the joke.

“I’m the subject of a falsified story, without having the chance to have my say,” he said. “My voice has been taken away in a conversation about race that involved me, and technically that’s racist.”

Fortunately, the process is clear and transparent:

Responding to the claims a spokesman for Oregon Bach Festival, said: “The University considers many factors when deciding whether to continue a contract. Regarding Reggie Mobley, it doesn’t appear he was involved in the University’s decision. Having said that, it would be inappropriate for the University to disclose details about a personnel matter.

“While I anticipate that more information will be available soon, I’m afraid that’s all I can say on the matter right now.”

This is reminiscent of the college student who got suspended for rape, despite the fact that the supposed victim kept insisting no rape had occurred.

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