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

How Amazon’s Accounting Makes Rich People’s Income Invisible

By Steve Roth (reposted)

How Amazon’s Accounting Makes Rich People’s Income Invisible

Increasingly, businesses don’t generate profits. They generate capital gains. It’s fiendishly clever.

Image you’re Jeff Bezos, circa 1998. You’re building a company (Amazon) that stands to make you and your compatriots vastly rich.

But looking forward, you see a problem: if your company makes profits, it will have to pay taxes on them. (At least nominally, in theory, 35%!) Then you and your investors will have to pay taxes on them again when they’re distributed to you as dividends. (Though yes, at a far lower 20% rate than what high earners pay on earned income.) Add those two up over many years, and you’re talking tens, hundreds of billions of dollars in taxes.

You’re a very smart guy. How are you going to avoid that?

Simple: don’t show any profits (or, hence, distribute them as dividends). Consistently set prices so you constantly break even. This has at least three effects:

1. You undercut all your competitors’ prices, driving them out of business. Nobody who’s trying to make a profit can possibly compete.

2. You control more and more market share.

3. You build a bigger and bigger business.

Number 3 is how you monetize this, personally. The value of the company (its share price/market cap) rises steadily. Obviously, a business with $136 billion in revenues (2016) is going to be worth more than one with $10 or $50 billion in revenues — even if it never shows a “profit.” You take your profits in capital gains.

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After the Global Financial Crisis: Are We Safe Now?

by Joseph Joyce

After the Global Financial Crisis: Are We Safe Now?

A decade after the global financial crisis the global economy seems (finally) to be enjoying a robust recovery. Economic growth is widespread and includes increased expenditures on investment, a sign that business firms expect continuing demand for their products. With the crisis finally behind us, we can revisit it to reassess its causes and the response. We can also ask whether our ability to respond to another crisis is adequate.

Reappraisals of the roots of the crisis have focused on the fragility of the financial sector, and the consequences of inadequate capital and liquidity shortfalls. Low interest rates due in part to foreign savings contributed to a rise in housing prices in the U.S., and the extension of mortgage loans to borrowers who sought to profit from further price increases. Bankers were willing to extend credit in part because they could pass along any risk through the sale of mortgage-backed securities, in some cases to financial firms in Europe. Credit booms in the housing sector also occurred in other countries, most notably Ireland and Spain.

But by 2007 as interest rates and the price of servicing the debt rose, housing prices stalled and mortgage borrowers who expected capital gains began to exit the market. The mortgage-backed securities lost their value, which led to a chain of liquidations of positions that pushed their prices further down. In the summer of 2008 the federal government was forced to take over the government-sponsored agencies, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), that were active in the secondary market for mortgage securities. The failure of Lehman Brothers in September 2008 signaled a financial collapse that quickly spread to Europe.

In the aftermath of the crisis there was a wave of new rules in the financial sector. National bank regulators acting together at the Basel Committee on Banking Supervision revised capital adequacy ratios. In the U.S. the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted to overhaul and update our regulatory rules and institutions. The bill consolidated government supervisory agencies, extended their reach and introduced new tools, including a mechanism to allow the orderly closure of financial companies that have failed. The Consumer Financial Protection Bureau (CFPB) was established to prevent the predatory mortgage and other lending practices that had contributed to the crisis.

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Democrats Are Silent Again

I do not understand the silence of the Democrats when it comes to dealing with the issues of this country such as student debt, the attacks by Trump and Republicans on the ACA, the Republican and Trump tax reform plan giving $billions to the 1% of the taxpayers making greater than $500,000 annually, the more recent plan allowing states to invoke job requirements and premiums upon those on Medicaid, etc.

Then there is the latest utterance from the White House, an attack on black and brown immigrants from countries such as Haiti and El Savador.

Trump’s comments do not go unverified by those on both sides of the political spectrum who attended this meeting on immigration between Senators, Representatives, and the President. “Why are we having all these people from shithole countries come here?” The comment made by Trump is also being denied by his supporters.

The real “why” to this issue is the silence of the Democrats when it comes to active and verbally expressed racism by a US President. Democrats who wanted and depended upon support by minorities to put a Democrat in office in Alabama. Democrats who are depending on minorities to turn the corner on Republicans and to reverse everything wrong done to date by this president and the Republicans who hide behind him.

Civil Rights icon and US Representative Elijah Cummings called Trump’s comments the words of expressed bigotry. Others such as Dr. G.S. Potter labeled such words as unsettling stating “bigotry” as used to describe the Trump comment as being too “interpersonal and anyone can be a bigot. Racism is structural. It is structural in the context of white supremacy and racism is white.” Trump’s comment are the words of a racist.

It is time to confront Trump for his words and confront Republicans who knowingly cover up for Trump’s racism and divisiveness and hide behind him. When Trump is gone, the same Republicans; McConnell, Ryan, Pence, Cotton, etc. and the Republican agenda will still exist.

The Democratic party has stood silent against the blatant white nationalism coming out of the White House for too long (Dr. GS Potter). They have continually sought bipartisanship with neo-Confederates and Nazis instead of seeking solidarity with people of color as we fight for our lives against them. The Democrats have continued to use us as bargaining chips, rhetorical talking points, and last-minute voting blocs rather than stand up for their largest and most loyal constituent groups against the GOP.

Their refusal to take a stand against Trump’s most recent racist comments cannot go unchallenged.

This needs to be a turning point for Democrats as voters and as a party. If our leaders can’t say the word “racism,” then they can’t fight it. If they can’t fight racism, they are worthless in a national battle against a network of politically shrewd white supremacists. If they are worthless in battle against white supremacists, they are worthless in battle against Trump and the GOP.

And over the past year, the white-led Democratic party has done nothing if not prove that they are worthless.

The Democrats are depending on black and brown voters to hand them Senate seats in 2018, while blatantly refusing to defend us from the GOP and its attacks on our communities. We can’t afford another term of white Democratic leadership. We can’t afford Senators that use us as bargaining chips for the white middle class. We can’t afford to give our votes to people that refuse to say the word “racist” let alone dig in and do the work necessary to stop racism.

This is a moment for all people of color to stand together and demand that the Democrats, in unity, acknowledge that the President is a racist. It is time that they collectively refuse to seek bipartisanship with neo-Confederates and Nazis. It is time that the party as a whole begins actively fighting the GOP and the Trump administration. And if the white leadership in the party refuses to do that, it is time for them to go.

Democrats Refuse to Call Trump’s Shithole Statement ‘Racist’“, Dr. GS Potter, January 12, 2018

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Minority unemployment: progress vs. prejudice

Minority unemployment: progress vs. prejudice

On this Martin Luther King Day, let’s take a look at minority unemployment. This got a little attention earlier this month when the December jobs report showed the smallest gap ever between the unemployment rates of blacks and whites.
So let’s start by confirming the good news.  Indeed last month saw the smallest gap ever between the unemployment rates of the two groups:

The secular trend over the last 40 years has been very slow progress, as the relative low in unemployment from the early 1970s was superseded in the 1990s, which in turn was superseded by that of the 2000s, and now that too has been eclipsed.  But of course, the black unemployment rate has for that entire time been higher than that for whites.

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Are Voters In Nations With A Poland Problem Especially Sophisticated?

Are Voters In Nations With A Poland Problem Especially Sophisticated?

 The argument here is that a nation with a Poland problem has a disconnect between its economic conditions and its political  outcomes.  It could be argued that in such a case the voters of that nation may realize that elected leaders (especially presidents in the US) have much less control over economic outcomes than voters in most nations give them credit or blame for.  So they vote on other issues.

Of course in many such cases, notably the US and Poland itself, those issues seem to revolve heavily around hatred of immigrants and asserting a racist nationalism of an extreme variety.  What is more this has often involved making exaggerated, if not downright incorrect, claims about the impact of immigrants on national economies.  This becomes especially unsophisticated when those making these appeals outright lie about the state of the economy, declaring that the economy is in much worse shape than it is and then blaming the supposed terrible shape on the immigrants.

Thus in the US we had Trump claiming that improving employment numbers were fake news, and that the BLS was engaging in fraudulent and inaccurate measuring and reporting of the improving employment numbers.  Then, of course, the supposedly much worse employment situation in the US that we really had according to him was mostly due to immigrants coming in and taking jobs (he was more accurate in his complaints that in Midwestern rust belt loss of manufacturing jobs was partly due to imports).  Then the minute he got in office and the employment situation continued to improve at about the rate it had been doing so, well, all of a sudden the BLS was accurate, and the improving employment situation was all due to him, as was the rising stock market he had previously ignored was suddenly the most important thing around.

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(88% of a Sample of) Republicans Helpfully Make it Clear That They Don’t Care About Accuracy

Jason Schwartz buries the lede in this genuinely alarming article in Politico “Study: Americans view media negatively, can’t agree on meaning of ‘fake news'”

I attempt to excavate it.

The study — the 2017 Gallup/Knight Foundation Survey on Trust, Media and Democracy, based on mailed-in responses from more than 19,000 Americans age 18 or older — asked people to rate whether four categories of information were “Always,” “Sometimes” or “Never” fake news.

[skip]

Asked to rate “Accurate news stories casting a politician or political group in a negative light,” Democrats said 26 percent always, 50 percent sometimes, 22 percent never, while Republicans replied 42 percent always, 46 percent sometimes, 10 percent never.

10% of Republicans agree that news stories can’t be both “accurate” and “fake”. I admit the views of Democrats are also alarming, but, as a resident of the rest of the world outside of the USA I sure am glad those US Republicans don’t control nukes.

Uh-oh.

Also Orwell had a bit to say about the political goals achieved through the destruction of language. Unlike this post
Politics and the English Language
and
1984
are worth reading.

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Real wages in 2017

Real wages in 2017

Now that we have the report on consumer prices for December, let’s take a look at what happened with real wages in 2017.

Consumer prices increased +0.1% in December, and wages for non-managerial workers rose 0.3%,  This for that month the average worker earned 0.2% more.

For the year, the nominal wages of non-managerial workers rose 2.4%, while prices increased 2.1%, meaning that for the entire year workers saw a whopping 0.3% increase in real pay:

Here’s a close-up of the last 5 years:

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Interview with Jamie Galbraith

Via Marketwatch Jamie Galbraith states his thoughts on a how the current US economy functions.  Here are a few snippets:

University of Texas economist Galbraith, the son of the famous Harvard economist John Kenneth Galbraith, believes mainstream economists and the Federal Reserve are too wedded to old ideas to see what is really going on in the economy. Specifically, Galbraith is worried that the consumer is the only game in town — and that can’t last.

Galbraith used his latest book “The End of Normal” to lay out his case that the 2007-08 financial crisis wasn’t just a brief interruption in the life of an otherwise healthy economy but instead the latest crisis for an economy that lost its footing back in the 1980s.

At the American Economic Association meeting in Philadelphia, MarketWatch asked Galbraith to share his views on the economic landscape.

(On inflation and labor) There is no Phillips Curve, and there hasn’t been for decades. The supply of labor is not a constraint. If you wish to pay people higher wages, you could lure people back out of retirement. Net immigration has basically stopped. If you needed more workers, it would start up again. So we don’t have a real labor-force constraint. We are not going to get inflationary pressure from the labor markets. It has been 40 years. Economists are slow learners, and central bankers are a slow-learning subset. They should recognize that things did change in the 1980s.

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