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

Globalization….lifted from comments

I lifted these comments by rl love concerning a way to look at our current discussion about jobs from Linda Beale’s post on Tax Foundation analysis:

Rl love writes on the nature of trade for the US:

Stiglitz: ” … the export of T-bills is different from the export of cars or computers or almost anything else: it does not create jobs. That is why countries whose currency is being used as a reserve, and exporting T-bills rather than goods, often face an insufficiency of aggregate demand.”
Now, if this ‘insufficiency’ is combined with the increasing reliance in the US on financial services, and on gains via the trans-national corporations, it becomes much easier to understand the logic of the ‘trickle-down’ theory in the context of Globalization. I am not advocating ‘trickle down’ here, but it does make our mess easier to understand. Stiglitz again:”…note that the world’s economies hold more than 4.5 trillion of reserves,increasing at a rate of about 17% a year. In other words, every year some $750 billion dollars of purchasing power is removed from the global economy, money that is effectively buried in the ground.”
The point then is that efforts to create jobs, such as Bush’s tax cuts, or such as those that are part of the stimulus attempts, are not possible to analyze with traditional criteria. Tax cuts for example do nothing to increase global demand for US goods, and, the additional US debt decreases global demand by locking up global purchasing power. Essentially, it has become almost pointless to evaluate the US economy as if it might be understood without the global implications, but that is mostly what economists in the US do, and largely as a result of denial. The simple truth is that the presumption that developing nations ‘should’, share ‘their’ demographic dividend with the developed nations was folly from the start, and based on a faulty premise that ignores the negative externalities in the economies of scale computations, and, additional layers of presumption regarding energy and all labor costs. So, the question is, does anyone actually believe that tweaking the US economy might solve our problems?
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More from Stiglitz:” the Uruguay Round made an unlevel playing field less level. Developed countries impose far higher—on average four times higher—tariffs against developing countries than against developed ones. A poor country like Angola pays as much in tariffs to the US as does rich Belgium; Guatemala pays as much as New Zealand. And this discrimination exists even after the developed countries have granted so-called preferences to developing countries. Rich countries have cost poor countries three times more in trade restrictions than they give in total development aid.”
And some economists in the US argue that tax cuts will solve our aggregate demand problems, as if the US role in the global economy has no consequences. Others claim that ending the alleged dependence on ‘foreign oil’ is the end all solution as if this has nothing to do with the global demand for US goods. As if Uncle Sam might just thumb his nose at the oil producing nations that we owe a couple of trillion to, as if. ~ray
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It is too bad that this subject matter is not more popular. Corporate taxes could be raised for instance, in say the G8 or so, and this could provide the much needed revenues to address some of the global demand issues such as those regarding the exploitive trade practices etc. An ‘exploitation reparations fund’ could also improve two other problems as well. 1) A higher corporate tax could cause shareholders to apply pressure to Executives in order to bring down compensation levels at the management level. 2) An institutional wealth transfer aimed at raising global aggregate demand would bring balance to the very imbalances that have caused the economies of Japan and the US to be overwhelmed with investment capital.
The lack of ‘popularity’ though in these types of solutions is indicative of just how protective the citizens of the developed nations have become. At some point, “to conserve’, is the monkey with his hand stuck in the proverbial jar. And it is interesting how populations with roughly half of their voters who see themselves as ‘progressives’, when combined into a collective form, they ‘seem’ to transform in regards to global policies into power concentrations that are essentially fascist or ultra-conservative. Is it possible that the acceptance of selfish behaviors, over a long period of time, have caused a new form of collective mental illness, of a collective delusion? ~ray

(Making Globalization Work, 2007, pg.78)
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Topical thread Feb.3 2010 Pop. density and idealogy

reader sammy submits this question:

Population Density and Ideology

Sammy compared the famous Red/Blue electoral map (by county) with a map of Population Density

and found pretty strong correlation. Areas with high population density vote Democratic, while areas with low population density vote Republican.

What, if anything, explains this correlation?

Sammy’s theory is:

1) People living in high-density areas have a stronger need for government services and control, as everyone’s actions have a greater effect on others, simply du to proximity. This need/desire expresses itself by pulling the (D) lever.

2) Higher population densities result in stronger peer pressure, which enhances a (D) majority.
Before you offer your own theory,  you might want to test it against the exit polls here.

(My own thought is in comments)

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The Top Five Tax Accounting Blogs…our own Linda Beale’s ataxingmatter

FINS from the Wall Street Journal names Linda Beale and ataxingmatter in Top Five:

Sharp analysis and blunt delivery make this academic take on taxes work. The blogger Linda Beale writes entries that don’t shy away from tearing down or giving props to fellow tax bloggers. It is no wonder that Beale, as a law professor and former corporate tax attorney with a Ph.D. in linguistics, is expert in strong argument.

The WSJ writes:

Poring through tax documents at peak season can become so, well, taxing. Industry blogs, with their pithy analysis, can be a great to way make sense of regulatory changes and acronyms. Think of them as the IRS Tax Manual with more personality. Some even have a healthy dose of skepticism. Here is a roundup of some blogs worth visiting to stay on top of industry news.

1. TaxProf Blog: Penned by Paul Caron, a law professor at the University of Cincinnati, this blog offers a diverse menu of industry news, event updates from coast to coast, and stories worth a second glance. And Caron isn’t above devoting entries to celebrities. You’ll find links to such goodies as a Steven Colbert video on estate-tax repeal and a recent write-up about the Arizona Cardinals’ Antrel Rolle’s IRS woes. And, like most professors, the TaxProf provides plenty of supplementary reads at the end of most entries.

2. Tax Policy Blog: Don’t be deterred by the bland name. The Tax Foundation, a nonpartisan tax-research group based in Washington, presents changing tax policy on the federal, state and local levels in a digestible style. Though they highlight the work of scholars, the posts are written to appeal to a neophyte. The site recently, for example, waded through the reactions of experts and columnists to the tax proposals mentioned in President Obama’s State of the Union Address. Prior to the speech, the site also posted questions to ponder in anticipation of Obama’s proposals on middle-class taxes, replete with current tax stats, of course.

3. Don’t Mess With Taxes: Though tax professionals hardly need tax advice, the colorful news items and perspective dispensed by Kay Bell, a self-proclaimed tax geek and native Texan, makes this site worth the visit. The blog’s roundup of humorous and wonky industry news items is a refreshing take on an otherwise dry business. Sprinkled in are tips on how to make the work less tedious. For a straight-talk approach, Bell has a second blog, Eyes on the IRS.

4. Tax Watch: Run by the folks at Thomson Reuters, Tax Watch is a great resource to get up-to-the-minute tax news. This site would be particularly useful for those who like to monitor all things taxes on Capitol Hill.

5. A Taxing Matter: Sharp analysis and blunt delivery make this academic take on taxes work. The blogger Linda Beale writes entries that don’t shy away from tearing down or giving props to fellow tax bloggers. It is no wonder that Beale, as a law professor and former corporate tax attorney with a Ph.D. in linguistics, is expert in strong argument.

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Another View of the Data

While I applaud the cautious optimism of Spencer and Tom, I’m more inclined to quote Joseph Brusuelas:

[T]he January payrolls added a dollop of Zen like logic to a recovery that is shaping up like no other. An additional 111,000 workers entered the labor force, yet the unemployment rate fell to 9.7% while private sector employment continued to contract. Hours worked, demand for temporary workers and the hiring in the service sector all improved. However, without the benchmark revisions, the unemployment rate would have increased to 10.6% which better captures the condition of an economy that has seen 8.4 million workers displaced during the recession.

The bump in manufacturing was more than balanced by the drop in the Service Sector, as more and more flower shops cut staff in the face of slack demand and unavailable credit.

If the bank bailout was to bailout the banks—defibrillating them to kick-start the economy’s heart, as it were—then it appears to be time to admit that that program was too small. Or to stop the other programs that are making it more advantageous for banks to hold funds than lend them. Any way you look at it, the optimistic view that declining unemployment has started doesn’t appear to be the way to bet.

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Senator Shelby of Alabama Puts France and Airbus Ahead of America and Boeing

by Bruce Webb

Would that have been a fair headline for the following story: Richard Shelby Puts Hold On President Obama’s Nomineesl? Because the facts are pretty clear, Shelby placed these holds mainly because of concerns over as Politico delicately puts it “Pentagon’s bidding process for air-to-air refueling tankers”. We can put that a little more starkly. The Pentagon wants to buy a replacement of much of its KC-135 Air Tanker fleet. You can read the background in this Wiki article KC-X but it really comes down to the following question. Are we going to buy these planes from Boeing or from a consortium of AEDS/Lockheed where AEDS is better known to Americans as AirBus? In other words American Boeing 767 or Old Europe Airbus A-330?

Now the actual question is deeper than that. Boeing outsources a lot of its work overseas and the Airbus tankers would be assembled in Alabama, hence Shelby’s interest but my question is this. If in 2007 Senator Barbara Boxer had stepped in and put a hold on every single Bush nominee in the interest of keeping a slice of the profits in the hands of California based Lockheed would Fox News and the Republican noise machine just have let it go? Or would the airways be full of screams and cries about how ‘San Francisco liberal’ Barbara Boxer was simply selling out America in favor of a bunch of Cheese Eating Surrender Monkeys?

Shelby single-handedly decided to hold the Federal Government hostage so that a U.S. military contract would be awarded to a foreign country, worse yet that country is France. But don’t expect that to be the lead at Fox, even the stories in the rest of the MSM seem oddly resistant to putting the words “European” or “Airbus” into their stories. Might make a Republican look bad or something, maybe even unpatriotic. Have the Teabaggers caught wind of this yet?

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EMPLOYMENT REPORT

With the unemployment rate falling from 10.0 to 9.7 the employment report implies that the economy is in a transition phase.
The period of widespread layoff and job cuts is over. So if you still have a job the odds of
your losing it have roughly returned to normal. This change is reflected in the improvement in
personal confidence. But firms have not yet begin widespread hiring. So if you are still looking
for a job it is going to be rough.

During this transition phase the things that normally happen are occurring about as normal.
Firms are hiring temporary workers and hours worked are expanding.

Average hourly earnings are still weakening as the recent labor compensation reports showed when they reported that labor compensation growth was running at record lows.

But the combination of weak wages and expanding hours is generating a nice acceleration in weekly earnings.

The gains in weekly wages imply that the recent pick-up in nominal personal income should continue and may actually improve. In recent months average hourly earnings has been running at about a 4% rate, a sharp improvement over that in 2009. In 2009 nominal personal income growth turned negative for the first time since 1938. But with nominal personal income only growing in the low single digit rates the threat of accelerating inflation remains remote. Remember, before the 2009 surge in bank reserves can show up in inflation it has to first generate a pick up in money supply growth and nominal income and neither of those appear to be on the immediate horizon.

The cycle is running its course and it should not be long until we can start showing charts of presidential comparisons like this table. the interesting comparison will be between Obama and Reagan. Of course the Reagan administration was during the era of low productivity growth when a given gain in real GDP growth generated a larger increase in employment than should be expected in the current environment of very strong productivity. But the real message in this table is that those who thought Bush did a good job and want to repeat his policies sure have some explaining to do. Even Carter created some five times as many jobs as Bush in only four years.

Correction of first sentence made. Thanks.

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Back to Zero

by Tom Bozzo

The unexpected drop in the unemployment rate for January made me more than usually curious about the household survey results, and things there actually look OK for a change. The flat unemployment rate between November and December ’09 was the less-than-virtuous result of declining labor force participation pacing the decline in employment. This month’s decline in the unemployment rate reflects increasing labor-force participation and employment-to-population ratios; unemployment levels and underemployment rates [1] are also down. The unemployment decline appears to be statistically significant based on the BLS’s (inexact) guidance on sampling variability in household survey estimates.

The headline employment figure, in contrast, is not a statistically (or qualitatively) significant result, hence the summary’s “essentially unchanged” language. The everlovin’ net birth-death model is subtracting more jobs this month than it did in January ’09 — -427,000 jobs vs. -356,000 a year ago — so if we’re actually at a turning point expect this adjustment to be a drag on measured employment. The mild upturn in manufacturing employment follows other strong data from that sector, and it’s also not unexpected to see temporary employment accounting for the measured service sector growth.

Brad DeLong has been scratching his head over seasonal adjustment to the unemployment claims series; I’m wondering about what’s showing up as a December employment dip. The not-seasonally-adjusted data usually features a small November-to-December drop. Last year’s -538,000 was less than in ’08 (around -1 million) but more than previous years. A December dip after a strong November doesn’t feel right, so go figure.

Calculated Risk and Spencer have graphs and much more discussion.

[1] I expect the last paragraph of the Times story to be revised later to reflect this.

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The Tax Foundation–at it again with bunk about overtaxed

by Linda Beale

The Tax Foundation–at it again with bunk about overtaxed corporations

Ok, I’m tired of it. Aren’t you? The Tax Foundation–an organization that claims bipartisanship but these days seems to be a shill for corporate managers and owners–is at it again, claiming that US businesses “are paying the second-highest corporate tax rate in the world.” That’s misleading at best, and maybe just downright hypocritical.

The Tax Foundation knows that the US statutory tax rates (set at 35% for the biggest corporations, but at much lower rates for the majority of corporations that have less than $10 million in assets) are not paid on the full amount of income by corporations, and in fact the effective tax rates (amount of tax paid as a percentage of income earned) are much much lower–enough lower so that the US counts as a tax haven on the tax rates scale.

Further, the US taxes for US businesses are plenty competitive. Taxes are most likely not the reason they go abroad: it seems to be much more likely that they do so to get away with paying their workers near slave-labor wages rather than enough for a decent standard of living. And even that isn’t passed on to customers–it provides the moolah to pay managers ridiculously high salaries and pay rent dividends to shareholders.

Moreover, tax cuts for corporations don’t really create jobs. If they did, we wouldn’t have had the great recession, since the Bush tax bills included a whole smorgasboard of tax cuts for businesses, including the infamous “American Jobs Creation Act of 2004” that cut corporate rates (almost tax-free repatriation of foreign-earned income, manufacturing deduction that lowered the corporate rate for most US industries, all kinds of tax expenditures for extractive industries, various changes to subpart F that favored corporate taxpayers, bonus depreciation, etc.). If tax cuts for businesses worked, those bills should have resulted in millions upon millions of new jobs. Instead, it looks like most of the benefit of the low-taxed repatriation of profits went to stock buybacks and other manager/owner-friendly provisions, not job creation. IN fact, as pointed out in earlier postings, many of the corporations employing the low-taxed repatriation laid off workers! So much for tax cuts as a way to create jobs…..

But the organization continues putting out one press release after another claiming that our business tax system is “out of line with the rest of the industrialized world” or that we don’t have jobs because of a too-high corporate tax rate.

Bunk. Hoopla. Exaggeration.

The Tax Foundation press release then goes on to commit even worse sins. It complains about “playing one class against another” in setting tax policy. Fact is, the wealthy class has been engaging in class warfare in this country for decades. Talking about appropriate distributive policies is the right thing to do. We need to address the growing problem of income inequality and the resulting diminishing standards of living for many in a country that is extraordinarily wealthy in the aggregate.
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crossposted with ataxingmatter

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