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Cato Disinformation

By Spencer

The New Republic recently published an article by Jim Powell called
Not-So-Great Depression How Warren G. Harding got us out of it.

Jim Powell wrote:

Which U.S. president ranks as America’s greatest depression fighter?

America’s greatest depression fighter was Warren Gamaliel Harding….

Harding inherited Wilson’s mess — in particular, a post–World War I depression that was almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit. The estimated gross national product plunged 24 percent from $91.5 billion in 1920 to $69.6 billion in 1921. The number of unemployed people jumped from 2.1 million to 4.9 million.

If there had been another 20th century recession nearly as severe as the 1930s Great Contraction I’m sure I would have hear of it. But this is written strangely, isn’t it. It is almost as if Powell did not want you to see data you could put in perspective.

First, the 24% plunge in GDP he cites is nominal GDP, not real GDP. The drop in real GDP was about 5%, as compared to the 26% drop in 1929-33. Second, what does 4.9 million unemployed people mean to you the reader. Are you able to put it in perspective and compare it to other recessions? In 1922 the 4.9 unemployed people worked out to an unemployment rate of 11.7% as compared to the 25% rate FDR inherited in 1933 and the 10.8% rate at the end of 1982 – the peak post WW II unemployment rate. Finally, the 1920-21 recession lasted 18 months versus 43 months in 1929-33 and 16 months in 1981-82.

As you can see on the chart, the 1920-21 recession was hardly comparable to the 1929-33 economic collapse. It was a severe one, but hardly almost as severe as the 1929-33 recession as Powell would have you believe. It was more like the 1974 or the 1981-82 recessions. But the way Powell wrote his article you would be hard pressed to know this.

As many of you know I’m a semi-retired business economist and began my professional career as a CIA economist back in the old cold war days. In those days the CIA and KGB engaged in a practice called disinformation, where the intelligence agencies would plant distorted and/or false article in the press as propaganda or to mislead others. But this is exactly what this and other Cato article are, pure disinformation. Maybe we would be a lot better off if all these Cato authors were employed by the CIA to spread disinformation about al-Qaeda and bin Laden rather than by wealthy conservatives to spread disinformation about the United States.

What really surprises me about this and other Cato studies is not that they publish such dishonest analysis. After all, that is what they are paid to do. What really surprises me is how such fellow travelers as the libertarians uncritically accept these findings without a second though. They really appear to have no intellectual integrity. But remember what Lenin called fellow travelers, useful fools.

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Bacchus , Bilious, and Friedman

by reader Noni Mausa

What You Mean “We”, Rich Man?

From Thomas Friedman’s op-ed today (Elvis Has Left the Mountain, February 1, 2009) he discusses the loss of trust in the whole financial world. Davos is worried, the banks that were previously rock solid turn out to be papier mache, Madoff in his depradations curiously was not restrained by the social censure of his … well essentially his entire world of social and buainess contacts. Alas, things have all gone pear-shaped.

Then at the end of the piece, he writes:

[Restoring confidence] may be President Obama’s most important bailout task: to educate the country that there is no easy escape here, except taking our medicine, getting our fundamentals right again and working our way out of this, brick by brick, by getting back to making money — what was that old Smith Barney ad? — “the old-fashioned way” — by earning it.

Who are these “we” of whom you speak, Tom? The people I know have all been dancing as fast as they can for the last fifteen years, swallowing the shaming conventional wisdom that they just had to work harder. What have they gotten for that? Vanished pensions, jobs and families, scanty social supports, crumbling infrastructure, and an international rep that has them sewing Canadian flags to their backpacks when they travel.

Telling Americans to buckle down and work harder is not a winning storyline, Tom. They’ve been in a race to the bottom, a freefall of income and security. They didn’t win it, but only because other nations had a head start.

Obama can do without advisors like Friedman. What I would like to see in banking is a “race to the marble”, a competition to prove their holdings honest and safe by embracing regulation and going beyond the legal requirements to further prove their trust. Ditto to the ratings industry and, essentially, everyone else who plays with our money. They “made money” all right — our money.

The bank situation reminds me of a character from Terry Pratchett’s Discworld — Bilious, the God of hangovers. While Bacchus carouses all night and drinks big fruit drinks with umbrellas in them, Bilious gets the thumping headaches and the nausea.

Sound familiar?
by reader Noni Mausa

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Results of the Pick your Pork Wonkathon

by Bruce Webb

Disappointing from the point of view of participation, yet not unexpected. Because I just don’t think they have the numbers on their side.

On Friday I invited AB readers, and particularly those critical of HR.1 aka the House Stimulus Bill, to dig into the numbers and develop lists of spending items that could clearly be described as pork or shown to be scheduled too late to have real impact. Pick your Pork: an Open Invitation The implicit challenge was to see whether their opposition to the plan was actually data driven by a concern that the money was being targeted in wasteful ways in too long of time frames or whether like Mankiw’s linking to (without actually endorsing) every blog critical of the stimulus package or the Wall Street Journal’s editorial’s incredibly lazy piece that Dan directed us to in Saturday Browsing was really being driven by free market fundamentalist ideology or worse by simple partisanship. Well lets just say it wasn’t data driven. Results and discussion under the fold.

First participation was poor and relatively non-specific. The most helpful input was provided by Kolohe who suggested that likely cubbyholes of pork would be found in Title 4 Defense, Title 7 Homeland Security, and Title 11 State Department. Which seems reasonable enough, time lines for defense spending are often long, homeland security would seem to be pretty much staffed, and the State Department mostly works overseas. The odds that all of the spending in these categories would be focused on American job creating infrastructure did not a priori seem likely. So I took a look at all three.

Title 4 Defense $4.8 billion or .5% of the package. Going in I figured this was likely to be mostly boosts in spending for medical care for returning soldiers from Iraq. Well it turned out that indeed $454 million was being directed to the “Defense Health Program”. But another $350 million was going to “Energy Research and Development” intended to increase energy efficiency at military installations and in military vehicles. The remainder of this spending category was “Operations and Maintenence” which I assumed was to repair and maintain equipment coming back from Iraq. This was confirmed by reader 2slugbaits who it turns out worked on this section as a consultant to the Pentagon. He further explained that most of it would go to extending the contract for civilian workers in military depots who make sure that machinery destroying desert sand is fully cleaned out.

So we have medical care for soldiers coming back from Iraq, maintenance of their equipment, and a military contribution to our national goal of energy independence. No apparent pork chops here.

Title 7 Homeland Security $1.1 billion or .134% of the package.
(And this is a point I will return to. As Noni reminded us there is a hell of a lot of difference between million, billion, and trillion. Which doesn’t mean we can just throw unlimited numbers of $100 million dollar bills around. As a senator once pointed out years ago ‘A billion here and a billion there and soon it adds up to real money’. On the other hand obsessing about a $1 million earmark for a NY museum is kind of silly.)
$100 million “Customs and Border Protection: non-intrusive detection technology for sea ports of entry”
$150 million ‘Construct and repair inspection facilities at land border ports of entry’
$500 million “Transportation Security Administration: purchase and installation of explosive detection systems”
$150 million “Coast Guard: Alteration or removal of obstructive bridges”
$200 million “FEMA: Emergency Food and Shelter”

So we have $600 million for high tech equipment for sea port and airport security which may not all be delivered and installed in two years but should create some manufacturing jobs in the interim. $350 million for bridge alteration and for construction at border installations. And $200 million in funding for natural disasters. Not a lot of bacon strips here, most all of this money will be out the door in short order and/or enhance our defenses against terrorists.

Title 11 State Department $500 million or .06% of the package.
For Hilary haters this would seem to be fertile ground, surely she stuck something in even though she really didn’t get much of the package as a whole, after all most of here operation is overseas. Sorry friends, this looks to be pretty clean.
That $500 million is split between:
$224 million “National Boundary and Water Comm, US and Mexico: Construction” $224 million for ‘immediate repair and rehabilitation requirements’. It turns out that certain water projects on the Mexican border fall under State and require some labor intensive repair work.
$276 million “Capital Investment Fund” $276 million of which
‘Backup information management facility’ $120 million
‘responsibilities under the Comprehensive National Cybersecurity Initiative’ $98 million.

Sharp eyes will notice that the two specific projects add up to just $218 million. Leaving $58 million unaccounted for. An examination of the bill shows that Secretary Clinton has 90 days to submit a detailed spending plan for that money. So if it turns to pork it will be transparent pork and in any event only .012% of the whole package.

Once again we are not talking about a lot of money in context here. And most of that spending is clearly focused on infrastructure repair and construction on projects that can be contracted out in pretty rapid fashion.

So these three potential pigpens of pork end up delivering on three different national priorities: job creation in building infrastructure, counter terrorism, and energy independence. Arguments that some of this adds up to pork anyway are welcome in comments.
On a somewhat different note reader Sammy challenged me as follows

Are you are just looking at the title of the spending line ie. “Energy Efficiency and Renewable Energy” Budget Authority = $18,500M (which is on top of what is already budgeted for 2009) and concluding that it is necessary, or not pork??????

Note first that he never actually checked the line items, he just assumed I looked at the title and said ‘Okay’. Well up to that point I hadn’t looked at this category at all so I browsed on over to HR.1. Details of the breakdown are available on the previous comment thread but what I found that was very interesting is that just about half of the spending in this category was authorized by energy bills passed in 2005 and 2007, time periods during which the Republicans either had full control or had blocking power via the filibuster and/or the veto. That is if this authorized spending was pork it was largely Republican pork. And as it turns out not actually budgeted for to start with. For the House Republicans to now say that the whole package is a waste and should be replaced by tax cuts you have to wonder ‘Why did you allow this to go through the first time?’

As I get time I’ll poke around in some of the other categories like Arts, Science and Education where the relation between spending and economic stimulus are not immediately apparent. But as far as I am concerned opponents of this package seem driven much, much more by considerations of future partisan advantage and anti-government ideology than by any kind of rational, numbers based examination of the proposed spending. All I see is them falling in behind their Once and Future King Limbaugh and hoping that Obama and the Democratic Party fail. Which begs the question ‘Who is the anti-American in this picture’.

Of course anyone is free to prove me to be just a hyper-partisan here. All you need to do is to come up with a clear list of proposed projects that are just wasted pork and or come up with a numerically backed argument to support this claim by Sammy.

If we have $815B to play with here to get the economy back on track, there are so many better ways to spend it if you want to spur the private sector back to life, which is the real engine of wealth. How about a corporate tax cut?

Well how about it? But in order to be convincing it needs to come with some numbers attached. Otherwise it is just another talking point. Bring it on!

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More KISSing the income inequality

by Divorced one like Bush

So, I’m listening to Saturday Night Fish Fry as I’m composing. It’s the blues, though the station is a jazz and folk station. Public broadcasting at it’s best! Maybe if the economy sinks enough, we’ll return to the big bands and swing. No more solo acts of Rockband. And, maybe I’ll be supplementing my income playing rent parties.

You have all heard about the IRS release of the top 400 income earners (pdf) stats? Yup, $105.2 billion combined taxable income.

In the first posting, I showed that, all things being equal, as income share goes down for 99% of the population, there is overall less greenbacks (great tune)in the hands of the Many. The astute AB readers said: What about the fact that there is more water in the pool over time? Yes there is. But is it not six to one, half dozen to the other? Did not every numerical factor that acted to raise the pool of greenbacks in the income pool also act on everything else? Well, of course it would be foolish to think the force of economic nature rains equally on all species of greenbacks.

Just a little aside with the band (stepping aside, laying down the Les Paul, black with a maple finger board for those interested), we (Angry Bear) recently discussed velocity as a factor in giving the thumbs up or down to the stimulus package. I forgot about this money concept. It is part of what I’m trying to relay in my model to the average voter. Being that velocity has to do with how many hands a greenback moves through in a given unit of time or over time, I thought with showing that less greenbacks in the hands of the Many over time, the effect would become evident. I mean, how is it we can be talking about the effectiveness of a stimulus package in terms of it’s multiplier effect which jams with velocity and miss that the chance of increasing how fast money moves and/or how much money will move and/or how many times it moves increases when you have more people moving more money than when you have more people moving less money? Why are we talking about giving tax cuts to the greatest number of people instead of the fewest this time as part of the stimulus? Why did we give everyone $600 last year?

Ok, the LP is slung and the Ampeg is cranked.

All things being equal is not so much. From 1976 (the low point of the top 1% share of income) to 2005 the disposable income increased by a factor of 6.94. The $1000 in the model is $6940 in 2005. Unfortunately the per capita income (how much for each person) only increased by a factor of 5.13. So people, we just plain have less to begin with. Thus, the $1000 to be true to my model of a never increasing population of 100 is now $5130 in 2005. What do you think this does for velocity? I bet it explains the “historically” low inflation thus “historically low” interest rates.

Let me keep playing. In 2005 using a constant income, the One gets $230, (23%) the 99 get $7.77 each. It is a ratio of 29.6 to 1. But income increased. I’m going to use the increase that mattered, per capita. Per capita income in 2005 is $5130. The One has $1179.90. The Many get to share $3950.10 for a per capita of $39.90. 99people get to have $39.90 each. 5.13 times more than my constant income model. A ratio of 29.6 to 1. How about that! The only thing not equal in my constant income model is the population.

The drums are pounding a driving blues now. If the income share percentages had remained constant to what they were in 1976 the One would have $446.31 (2.6 X less) and the Many would share $4683.69 for an amount of $47.31 each (1.2 X more).

What do you think works better as a jam for velocity and multiplier effects, 99 people sharing $3950.10 or $4683.69?

Solo time.
From the Center for Housing Policy 2006 report (pdf) I learned that 62.9% of income for all families based on 28 metropolitan areas is spent on housing, transportation, food and medical. Now what would help velocity more, 62.9% of $3950.10 leaving $1465.55 for everything else or $2199.14 for everything else because the 99 had more income? (The $2199.14 is assuming people did not just spend more on housing, transportation, food and medical because they had more.) Or hold the expenditure percentage constant to the income increase, you still have more extra greenbacks to riff with. $272.14 to be exact. In the same report, those earning $20,000 to $50,000 are spending 80.1% of their income on housing, transportation, food and medical. Your turn to solo with the numbers.

Ending riff of tax cut squeals.
Using actual, nominal numbers, the dollar amount that would need to be made up to play a tune as in 1976 by a tax cut to the 99 in 2005 is: $1,493,418,800,000. (1.2 of the nominal 2005 99% income – 2005 99% nominal) One trillion, four hundred ninety three billion, four hundred eighteen million, eight hundred thousand dollars. All in one year (not many are into the long 1/2 hour jams any more). Still thinking the stimulus is just right or too big or not enough tax cuts?
Who played that sour tax cut note? Get them out of the band!

Next time, we’ll play some jazz and see what various inflation factors do to the Many.

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Five functions of the Federal Health Board

by STR

Tom Daschle’s health care book – Part III

Five functions of the Federal Health Board

1. set rules for the expanded Federal Employee Health Benefits Program

2. promote “high value” medical care, i.e., recommending coverage of drugs and procedures backed by solid evidence, and ranking services and therapies

(how we gather this evidence for new drugs and procedures is not exactly clear)

3. align incentives with high-quality care

4. increase transparency

5. play a role in nationalizing (his words) our health-care infrastructure (although he then proceeds to discuss resource allocation rather than infrastructure)

Solid proposal or cliche’ fest? Discuss.

Pages 171-178 (Critical: What We Can do About the Health-Care Crisis – Daschle, Greenberger, Lambrew, Thomas Dunne Books, St. Martin’s Press, 2008 )

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Davos 2009..zzzzzzzzzz.


I did not post this item as a reminder to those following world trade or wanting to learn more.

NYT reporting will make for springboards for further discussion on the US and trade deficit in relation to Japan and China and the Asian rim countries.

Luckily I did not. So far they predict a turnaround in 2010. See this article for reading and irrelevancy…more links later to world news and charts.

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