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

OMG – Obama is a Liberal?

Bloomberg reports on the GOP’s attacks on Senator Obama:

Republicans plan to paint Obama as a liberal who is out of step with mainstream Americans on abortion, crime and health care, the same label used against failed Democratic candidates George McGovern and John Kerry. “For someone who’s been in office as little as Barack Obama, the guy has a record that defines the word liberal,” said Chris LaCivita, a Republican media adviser to the Swift Boat veterans who assailed Kerry’s Vietnam War record during the Massachusetts senator’s 2004 presidential bid.

Obama’s a liberal? He should be shot! Oh wait, I’m a liberal. I think Stephanie Cutter has the right take on this crap from LaCivita:

The Republicans’ attack is “the same playbook they use every four years,” said Stephanie Cutter, Kerry’s communications chief in 2004. “Whoever the nominee is, they will allege that person is too liberal.”

This is the 2008 election not the 2004 election. Obama should wear the badge liberal with pride!

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FactCheck Attacks DNC Attacks on McCain

Can someone tell the clowns at FactCheck to please change their name?

The Democratic National Committee has produced two TV ads against McCain, hoping to soften him up while the party figures out who its own presidential nominee will be. One ad shows selected portions of McCain’s comments that a 100-year U.S. presence in Iraq would be “fine with me.” The ad uses dramatic images of war and violence, and omits any mention that McCain was speaking of a peaceful presence like that in Japan or Korea. An earlier ad attacks McCain for saying the nation’s economy is “prosperous” and “better off overall” than eight years ago. The ad uses a couple of incorrect statistics to argue otherwise. It says the country has lost 1.8 million jobs when, in fact, it has gained nearly 5.4 million, and it says gasoline prices have risen 200 percent, when the actual figure is 139 percent.

FactCheck notes that McCain also said the following:

That would be fine with me, as long as Americans, as long as Americans are not being injured or harmed or wounded or killed. It’s fine with me and I hope it would be fine with you if we maintain a presence in a very volatile part of the world.

Yes – the DNC did not mention the part about Americans not being harmed. Bit if we maintain our troops in this “very volatile part of the world”, the chances that they will not be harmed are about zero.

FactCheck notes that payroll employment has increased by almost 5.4 million since January 2001, which they tout as an indication that McCain’s statement that we are better off than we were eight years ago (closer to seven, I guess) is correct. But a modest absolute increase in employment is a really stupid metric for an economy that has had population growth. Jeff Frankel recently posted on how we should be looking at the employment to population ratio, see let’s do that. It was 64.4% as of January 2001 but was only 62.6% last month. That sounds like we are worse off. But to be fair, the FactCheck crowd did end with this:

But it doesn’t mean that many jobs were lost, it means that the job gain didn’t keep pace with the number of persons who are seeking work. The ad would have been correct to say that there are “1.8 million more unemployed.” That stark statistic doesn’t contradict McCain’s statement that lots of jobs were created, however. It means not enough were created to satisfy the need.

On the gasoline price issue, FactCheck notes:

The price of regular gasoline at the pump has gone from $1.47 per gallon the week Bush was sworn in to $3.51 the week the ad appeared, according to the Energy Information Administration. That’s an increase of $2.04 per gallon, which is 139 percent of the starting price. The DNC picked the week ending Dec. 3, 2001, as its starting point – long after Bush took office. By that time the price of regular had dipped to $1.11 as Americans curtailed travel in the weeks following the terrorist attacks of September 11, 2001. Using that figure does produce a 200 percent increase, but that’s not the change that has occurred since Bush was sworn in.

If you wish to see gasoline prices by month, check this source. Ten years ago, the price of a gallon of gasoline was only $1.03. It seems FactCheck forgot to tell us that their starting point was a period where gasoline prices were seen as quite high by the public at the time.

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Weakest Real GDP Growth Since When?

Via Kevin Drum comes the attempt by Howard Schneider and Neil Irwin to put into perspective the bad news from BEA. The WaPo writers claim:

The U.S. economy grew — but just barely — over the first three months of the year, confirming impressions of sluggish growth but leaving open whether the country has actually slipped into recession. In its latest report on gross domestic product, the Bureau of Economic Analysis reported today that the economy grew 0.6 percent over the first quarter of the year — the same rate as in the prior three months and the weakest growth since 2002.

Kevin replies:

I’m surprised. I would have guessed lower than that, so in some weird sense I suppose this counts as good news.

Kevin’s instincts are about right. Let’s consult table 1.1.1 from BEA’s NIPA tables to check on real GDP growth by quarter from 2001 to 2003. Real GDP growth (annualized) was only 0.2% for 2002QIV but that was preceded by a 2.4% figure for 2002QIII and followed by a 1.2% figure for 2003 QI. So the last six months were worse than even the six months from 2002IV to 2003QI. One has to go back to 2001 to see a two-quarter period than was lower than the last two quarters.

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I feel better already!

Steve Benen at The Carpetbagger Report comments on the President’s reassurances at a White House press conference today, keeping his tax cuts as a way out of the slowdown.

In all seriousness, how many people who are worried about their
families’ finances right now are going to say, “I’ve been really
worried, but now that I know my tax rate will remain the same in 2011 as
it is 2010, I’m feeling better again”? That, in essence, is what the
president argued with a straight face this morning. The answer for
economic angst now is maintenance of existing tax cuts three years from now.

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The Long-Run Consequences of Reagan-Bush-McCain Fiscal Policy

Brad DeLong makes two basic points. The first is that Republicans over the past generation have abandoned fiscal responsibility:

Back in 1981, America’s Republican Party gave up all belief that the government’s budget ought to be balanced. The idea took hold that tax cuts should be undertaken all the time, at every opportunity, because reducing taxes supposedly raised revenue. Irving Kristol, sometime editor of the magazine The Public Interest and one of the intellectual midwives of this idea, later wrote that he was interested not in whether it was true, but in whether it was useful. Years later, he spoke of his “own rather cavalier attitude toward the budget deficit and other monetary or fiscal problems. The task…was to create a new…conservative… Republican majority – so political effectiveness was the priority, not the accounting deficiencies of government…” Now it has become clear that John McCain – who once criticised George W Bush’s tax cuts as imprudent and refused to vote for them – has succumbed to this potion. He appears to be proposing further tax cuts that promise to cost the US Treasury some $300bn a year, to “offset” them with cuts in earmarked spending accounted for at $3bn a year, and somehow to balance the budget. We know the consequences: McCain’s fiscal policy is likely to be standard Republican fiscal policy – and since 1981, standard Republican fiscal policy has increased the ratio of gross federal debt to GDP by nearly 2% per year. By contrast, a typical post-WWII Democratic administration has reduced the debt-to-GDP ratio by more than 1% per year. This is one of the issues at stake in this year’s presidential election.

But wasn’t there some prominent economist who once said “deficits don’t matter”. Oh wait, Dick Cheney is not an economist so let’s return the microphone back to an economist who will explain the long-run consequences of fiscal irresponsibility:

A growing debt-to-GDP ratio would, in the first instance, crowd out investment, as resources that would otherwise go to fund productive investment instead support private or public consumption.
Since 1981, the US has been lucky in that inflows of capital from abroad financed the growth of government debt. At some point, this will stop, and increases in deficits will trigger capital flight from the US. Suppose that over the next eight years larger deficits trigger neither extra capital inflows nor capital outflows, and suppose that a lower-investment America is a poorer America, with a gross social return on investment of 15% per year. By 2016, America’s productive potential would be smaller by an amount that would reduce real GDP by 3.6% – $500bn real dollars, or roughly $3,000 per worker. In a poorer America, fewer businesses would find it worthwhile to entice secondary workers from families into the labor force, and perhaps 500,000 net jobs would disappear. In getting from here to there over the next eight years, a higher-debt America would see productivity growth slow by perhaps a third of a percentage point per year. Average unemployment would then have to rise in order to keep workers’ demands for real wage increases at a level warranted by productivity growth. The gross correlations between productivity growth and average unemployment found in the 1970’s, 1980’s, 1990’s, and 2000’s would increase the economy’s natural rate of unemployment by about one-fifth of a percentage point, costing an additional 500,000 jobs. And a higher-debt America is one in which savers and lenders would have a justified greater fear that the government would resort to inflation in order to repudiate part of its outstanding debt. The Federal Reserve would then have to fight inflation – putting upward pressure on unemployment – in order to reassure savers and lenders of its willingness to guard price stability. There are not even crude gross correlation-based estimates of the size of this effect, but economists believe that it is very real. Would it cost a negligible number of jobs? A quarter-million? A million? Add it all up, and you can reckon on an America that in 2016 that will be much poorer if McCain rather than Barack Obama or Hillary Rodham Clinton is elected president.

We hear from those pseudo-economists that call themselves supply-siders that tax cuts encourage investment and long-term growth. But don’t they political masters such as George W. Bush argue that tax cuts encourage households to consume more. With private consumption increases but no reduction in government purchases (sure McCain talks about cutting government spending but so did Reagan and they did not happen), national savings declines, which leads to the crowding-out of investment and/or net exports. In all long-run growth models that I am aware of, a reduction in national savings lowers long-term growth. Then again – John McCain admits that he does not understand economics.

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A Word About Counterfeit Affiliations

By Noni Mausa

In the film Monty Python and the Holy Grail, King Arthur and his companions come to a cave which is guarded by a terrible monster. The king and his men scoff when they see that the monster has every resemblance to an ordinary white rabbit. But as they approach the cave, the “white rabbit” shows itself to be a formidable killer, and in the end they have to use the Holy Hand Grenade to destroy it.

Things are not always what they appear, to state the obvious. Sometimes a spouse, or financial adviser, or police officer you are dealing with turns out to be acting not within that role, but instead as something entirely different — while claiming the status and privileges of that role. I call this situation “counterfeit affiliation”.

Very few bunny rabbits are capable of the sort of attack seen in the Python film, although I must say I have been attacked by a female Dutch rabbit whose technique was very similar to the rabbit in the film.

Human beings have a lot more scope when it comes to blurring the outlines of the roles they inhabit. In fact, there are probably few people aside from professionally trained butlers who can consistently stay solely within the bounds of a role.

However, when someone returns to their ostensible role only for the sake of establishing their cover identity, it’s reasonable to say that they are exhibiting counterfeit affiliation.

Of course this is far from a new insight. It’s such a grotty old chestnut that I wouldn’t even write about it, except that like most old scams and cons it lives today, fresh and vigorous, and needs to be spoken of.

The “Duck Standard” can be useful to distinguish a counterfeit from a real affiliate. No one attempting to establish the bona fides of a suspect duck is going to stop with listening for the quack and checking a feather. They will also watch the behavior of the duck, check for swimming and diving, hang around waiting for a few eggs, etc.

If, after a couple of weeks, you notice that there are no eggs, the duck is making late night phone calls to eastern Europe, all your ice cream (and your furniture!) is missing and your duck suddenly seems to have a lot of cash, you can assume you do not actually have a duck — you have a smalltime con artist sleeping on your sofa.

So, if a bank begins offering mortgages of around $1 million with no security and little documentation of the buyer’s ability to repay, and immediately turns around and sells these mortgages in an unrecognizable form to other people, it may look like a bank duck and dress in bank duck pinstripes, but I would call it some sort of a con artist, and not expect to see any eggs anytime soon. More stripes, yes, wider probably, but no eggs.

This post by Noni Mausa

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In Iraq, they call the behavioral health center ‘the pink house.’

“Leaders. In Iraq, they call the behavioral health center ‘the pink house.’ Commanders tell soldiers to get on down to the pink house.”

Quoted from a report by Penny Coleman, wife of a veteran who committed suicide two years ago, about the Department of Defense’s sixth annual Suicide Prevention Conference. Finally in January 2008 the creation of the Defense Center of Excellence for Psychological Health and Traumatic Brain Injury provided official recognition of the seriousness of the issue.

That’s 12,000 veterans a year — VA patients — trying to kill themselves. On top of that, of the 6,570 who on average succeed each year, 1,825 of them are also patients at the VA. How is possible not to mention that kind of news at a conference on military suicides?

This must have been a challenging week for the conference organizers. How to deal with the Katz e-mails and the new RAND Corporation report, which is devastating in its description of DoD and VA failures. And the RAND report can’t be blown off as the ravings of a bunch of leftists with an anti war agenda; RAND conducts research and analysis for the Office of the Secretary of Defense, the Joint Staff, the Unified Commands, the defense agencies, the Department of the Navy, and the U.S. intelligence community.

The Rand report is worth reading. When I find more ‘neutral’ reports I will post. So much of the material is redacted there is no public way of addressing the issue ‘neutrally’ to the best of my knowledge. Perhaps others have found some. National Guardsmen have even a worse time of it…anybody hear anything in the presidential goings on?

Posted in acknowledgement that many readers are veterans.

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Multinational Sales v. GDP: Drum v. Drezner

I almost never disagree with Kevin Drum but Daniel Drezner has a point:

One of the more invidious comparisons analysts like to make is to compare the size of something with a country’s gross domestic product. An old warhorse of political economy/anti-corporate types, for example, is to say that the sales of multinational corporations exceeds many countries GDP. This is true but irrelevant — GDP measures the value-added that an economy generates per year, so the proper and correct comparison is between a firm’s profits and GDP. When using that metric, corporations suddenly don’t look so big.

Kevin replies:

Hold on a second. This isn’t true, is it? Leaving aside trade deficits, GDP is basically consumption plus investment. If I buy a Ford Taurus for $20,000, that adds $20,000 to GDP even though Ford makes a net profit per car of about $3 these days. (In a good quarter, that is.) I don’t know if sales revenue is precisely comparable to GDP, but it’s pretty close. Right?

But what if Ford imported most of the components from Mexico? For a dramatic example of what Daniel is talking about, considering the sales of Mitsui, Mitsubishi, Itochu, Sumitomo, and Marubeni – which as the five largest Sogo Shoshas (Japanese trading companies). Their combined sales sum to 12 percent of Japan’s GDP but the gross profits of these companies are often less than 5 percent of their sales as reported by “turnover”. In other words, these companies buy and resell products internationally with very little value-added. Then again – US GAAP under EITF 99-19 might require that these companies report as revenues what is reported as gross profits under Japanese GAAP. So what do we mean by sales in the first place?

Dan, however, is not quite right with profits capturing value-added if he means operating profits. One would have to add back the value of domestic labor. Of course, gross profits only captures value-added when cost of goods sold is exclusively cost of purchasing intermediate goods. But GAAP does not exactly do this the way economists might like.

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