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

A Tale of Two Countries

The great thing about Accounting Identities is that they must be true.

The bad thing about Accounting Identities is that their truth is often trivial.

Tim Duy notes the reality: We can’t all be net exporters

The Greek crisis…is a reminder that global imbalances are still with us – and, if not corrected, will eventually threaten the sustainability of the global recovery. Indeed, how sustainable can any recovery be if the vast majority of nations are pursuing an export oriented growth strategy? After all, clearly that is not a game all can play – there needs to be a net importer to offset the net exports. Who wants to fill that role? If the US is pushed into filling that role, we have simply come full circle over the past three years.

There is an obvious nominee, as D-Squared noted today:

If you put Oliver Wendell Holmes (“the First Amendment does not protect the right to shout ‘fire’ in a crowded theatre”) and JM Keynes (describing Treasury anti-inflation policy in the 30s as “crying ‘fire, fire’ in Noah’s flood”) together, does that mean that German politicians talking about the inflationary consequences of a Greek bailout are shouting “Fire!” in a flooded theatre?

And follows that by telling the truth and shaming the Devil:

[T]he main issue the ratings agencies have is the Greek pension liability, and the main component of the austerity measures will end up being a reform of the pension system. The sovereign bond market is a curious place, where “He’s willing to cheat his own grandmother, that one”, can be a mark of the utmost probity.

One of these days, economists will admit that it’s life-cycle theory, not just Modigliani-Miller, that has destroyed the profession’s foundations.  Apparently, planning for the future and accepting deferred compensation is A Bad Idea.

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Price elasticity, taxes and wages: Or, why I don’t take wingnut economics seriously

by Bruce Webb

It is I think a truism that in any economic enterprise all costs ultimately have to come out of price, that in the end ‘the customer pays’. But what is not true is that price is infinitely elastic, at some point price in and of itself will restrain demand, and while you can prop up demand through some things like advertising and marketing (the ‘gotta have it factor’), at some point the ancient principle ‘what the market can bear’ will kick in. This principle is so obvious as to hardly be worth stating yet many on the Right simply turn it off and on as needed.

This was highlighted in what Kevin Drum aptly called a checkbo9ok tax:

The Democrats supporting the current legislation have assured an anxious electorate that whatever funds are used to create whatever regulatory scheme created will come from the banks, not the taxpayers. Let me emphasize that so that even casual readers will catch it: the Democrats promise that you won’t pay for their legislation, banks will.

Really?

Since when have corporations ever paid taxes, fees or penalties? Employees end up paying in the form of lower salaries and benefits. Customers end up paying in the form of higher costs.

And in this case, every account holder will be forced to pay higher fees on their checking account and savings account. That’s you, my friendly reader. Can you say “checkbook tax”? I can, and I think lots of candidates will be saying it come November.

Yes, just as the entire Republican membership of the Senate is repeating Luntz’s last gem: “Taxpayer funded bailout”. But it is crap economics.

In wingnuttia, prices are entirely elastic in regards to taxes, they just flow through to customers. Yet they are sticky in regards to anything else, for example increases in minimum wage just cost jobs. Nowhere in the argument is the real claim revealed, that taxes squeeze profits, and that managers and owners are simply looking out for their own interests.

The argument that corporate taxes somehow are just double taxation because ultimately all cost has to come out of price is just bullshit, it is the internal division of the proceeds from that sale that make all the difference, and ultimately the sales price is disconnected from simple cost. Yet the Frank Luntz’s of this world trot this same ‘elastic for thee but not for me’ argument time and time again. And it WORKS! They can always sell just about anything by pretending that the main concern of the commercial operation is jobs on the one hand and low prices on the other when the reality is that the suits could give a crap about either, if they can boost profits by closing a plant here and boosting a price there they will. Everyone knows this yet somehow the Frank Luntz’s of this world can still sell this message with a straight face.

I just don’t get it.

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Uncertain tax postions

by Linda Beale

The IRS released its draft schedule and instructions for the new initiative (announced late in January by Commissioner Shulman and set forth in Ann. 2010-9) for disclosure on new Schedule UTP on uncertain tax positions for taxpayers with assets of $10 million or more. The release, Ann. 2010-30 [Download Ann.2010-30. uncertain tax positions], invites comments and indicates that these draft forms and instruvtions will not be finalized until after the comment deadling of June 1, 2010, and after the IRS has had time to review all of the comments on the proposal and the documents. REITs, RICs, partnerships and tax exempt organizations are not required yet to file Schedule UTP.

One of the issues the IRS is considering is the extent to which the new form for uncertain tax positions ( Schedule UTP [Download Schedule UTP form]) duplicates information required through other disclosure initiatives (such as the reportable transaction rules and Schedule M-3, the revised form for reconciling financial statement (book) and tax differences).

(Of course, the recent financial accounting changes set forth in “Fin 48” have also led to revelations through financial accounting that are relevant for tax consideration. See, e.g., expedited resolution of uncertain tax positions-LMSB intiative to address certain implications of Fin 48.”)

The rules generally require taxpayers to report positions if they made a decision to record a reserve 60 days or more before the filing of the return (or a decision not to record a reserved because of an expectation of litigation or in reliance on an IRS administrative practice). Although the reporting requirement is supposed to apply to current and prior year tax positions, the IRS instituted a particularly taxpayer friendly transition rule by providing that prior years’ tax positions need not be reported in the first year of the new reporting requirement. In other words, prior year’s uncertainties are essentially “grandfathered”. See Schedule UTP draft instructions released today [Download Schedule UTP Draft Instructions].

Why would practitioners and corporations object to a new disclosure requirement? Primarily because it will further eliminate the uneven playing field in which insiders have the scoop on the taxpayer’s positions and how aggressive the taxpayer has been in filing the return, while the IRS has to try to figure everything out from afar. For the IRS, it’s like trying to pinpoint the burrow of a mole from outerspace–without sufficient disaggregated information about the taxpayer’s transactions and positions taken in respect of those transactions, the chance of finding items on audit is significantly reduced. Corporate taxpayers with aggressive positions like it that way, of course, since it gives even frequently audited companies a version of the audit lottery–not whether there will be an audit, but whether the audit will be able to uncover the most aggressive tax positions taken and understand what it has discovered if it does. I have argued that the pre-return tax advice should be considered business advice–accountants engage in those advising services as much as lawyers so it should not be eligible for attorney-client privilege. Workproduct protection shouldn’t be available, because anything prepared at this stage is prepared for inclusion on the return (directly, or as background information for what is included directly) and that business and regulatory use precludes the litigation focus that underlies work product protection. The reporting of uncertain tax positions makes sense in this context.

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John McWhorter on James Patterson and Some Odd Numbers on Black Childhood Poverty

by cactus

John McWhorter on James Patterson and Some Odd Numbers on Black Childhood Poverty

I’m kinda in the home stretch for the fact checking on my book – we’ve revised and rewritten and rechecked so many times I’m ready to plotz, but even so, I’m willing to bet some mistakes will creep in. Its inevitable in a book as data driven as this one. But I don’t like mistakes, so I recheck again…

Which brings me to this review of James Patterson’s new book by John McWhorter in the New Republic. The point of the book seems to be that welfare was bad for Black families. The review cites some interesting, er, facts, which presumably come from the book being reviewed.

For instance, after a few paragraphs about how welfare destroyed the Black American family, we’re told this:

As such, the refashioning of AFDC in 1996 into a five-year program with required job training was the most important event in black American history between the Voting Rights Act of 1965 and the election of Barack Obama. In that light, Patterson is too saturnine about the Moynihan’s report’s legacy. By 2004 the welfare rolls had gone down by two-thirds, and contrary to fears that people off the rolls would starve or languish in squalor (Moynihan was among those who thought they would), black childhood poverty went down to 30 percent from 41 percent, and ex-recipients have regularly reported greater self-esteem and are thankful for the new regime.

Well, if the 1996 refashioning yada yada yada “was the most important event in black American history between the Voting Rights Act of 1965 and the election of Barack Obama,” its something worth a look. Since I don’t have a clue where to find data on self-esteem and thankfulness, let’s have us a look at the bit about how, by 2004, “black childhood poverty went down to 30 percent from 41 percent.” We can check out data on Black childhood poverty from this table at the Census.

First, an aside – as of 2002, the Census started differentiating between two definitions of “Black” which is self-evident from the key to the graph above. Other things evident from the graph…. if something in ’96 caused a big drop in Black childhood poverty, it was powerful enough for its effect to work its way back in time all the way to ’93, which is the year Black childhood poverty began its decline. That drop did reach a bottom of 30.2%, but in 2001, not in 2004. In fact, unfortunately, the rate of Black children in poverty rose since then. And when the real facts are placed on a simple graph, its extremely difficult for a rational person to reach so and so’s conclusion.

Now, if this seems like someone was trying to bamboozle, there’s all sorts of “facts” like this in the review. Perhaps the one that is most frighteningly wrong is this one:

That momentous factor is this: After the 1960s, the percentage of black children with one parent exploded from a quarter to—by the 1990s—nearly three-fourths, vastly out of step with the availability of work, the prevalence of racism, or equivalent single-parentage figures for any other race.

Now, I should graph this, but I’m in kinda a hurry, so I’ll just let you know… data on the percentage of Black children’s living arrangements can be found at yet another table at the Census. One of the columns in that table gives you the total number of Black children, and another gives you the total number of Black children living with one parent. Using some of that fancy learnin’, I divide one column by the other and discover that….

1. 54.7% of Black children lived with a single parent in 1990.
2. That rate peaked (for the 90s) in ’96, at 57.4%, and then dropped to 53.3% in 2000.

Now, the ’96 peak might help make Patterson’s point… but if he made that point, its not in the review. (Of course, ignoring the ludicrous “three quarters” number isn’t an outright invention, giving Patterson the benefit of the doubt, what we would conclude is that he might be right about Black children living with one parent, but clearly not about Black children in poverty.)

Anyway, if McWhorter’s review is remotely accurate, call this an “unrecommendation” for Patterson’s book. And a suggestion to McWhorter – if the book cites facts that seem obviously false, check those facts. Because if the key points in a book are ludicrously inaccurate, that’s a big problem that should be mentioned in a book review. And agreeing with stuff that is just plain wrong makes no sense at all.

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HOW MUCH MONEY DOES A MAN NEED

by Dale Coberly

HOW MUCH MONEY DOES A MAN NEED

A morality tale

Leo Tolstoy tells a story about a Russian peasant who makes a deal with the Devil. The devil will give the man as much land as he can walk around in one day. But, the devil warns him (the devil always tells the objective truth) if he does not come back to the place where he started from by the time the sun sets, all the land will spill out of the gap and he will get nothing.

So the man starts out on his walk very early in the morning with modest intentions. But he sees a bit of nice land he’d like to add to his estate, and then another, and another, so he keeps walking just a little further than he intended. Suddenly he notices that the sun is going down, and he is nowhere near the place where he started. So he runs for it. And he runs. And he runs.

I won’t spoil the story for those who can’t see how it ends, but I believe Tolstoy called it “How Much Land Does A Man Need?”

I was thinking about this after a futile argument with some people who think they are friends of Social Security, while I was recalculating the “returns on investment” at a given percent with a constant input. I knew the answer was something like “you double your money in about 40 years at about 3%. and double it in about 30 years at about 4%. There is a reason for the “about.”

What I see people do is calculate the exact amount to the penny without regard for what they are actually doing. It seems to me that if you wait forty years to cash out, you have waited too long. And after about 30 years you would have about 86% as much money at 3% as you would have gotten at 4%. Aside from the problem of whether what you will want to buy when you are 60 or 70 is the same as, or “worth” the same as, what you want to buy when you are 30, there is the question of whether there is more safety in that 3% investment, and whether getting “only” 86% of what you “could have” gotten is going to be such a hardship.

It is easy for me to imagine a man working hard and saving harder and reaching the age of 65… or 67 is it now? and going to be 69 soon? you don’t say. Reaching this age with an extra million dollars in the bank and dying before he can enjoy it. Or realizing that he has already lost his life by working so hard so long and thinking only about money. Or reaching old age and having a million dollars squeezed out of the work of others. Or reaching the age when he would really like to quit, and seeing his millions disappear as the market changes.

I knew a man this happened to. He invested in a business that became obsolete. So all he was left with was his Social Security. And the old guy kept telling us that Social Security was a fraud and a theft. And “if only” he had kept his Social Security taxes he “could have” invested it in something that “would have” made him rich. Some people really do never learn.

Another way to look at this would be, suppose the Devil offers you a bet. You can have a thousand dollars a month to live on, or he can toss a coin. If it comes up heads you get a million dollars: if it comes up tails, you get nothing. Now the thing is, the devil can use an honest coin and still win the bet.

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Healthcare Reform Myths and Countering Facts

by run75441

Portions of this post originally appeared in HealthBeat Blog as written by Maggie Mahar; Myths & Facts About HealthCare Reform: Who Wins & Who Loses? and Myths & Facts about Health Care Reform Part 2: Doctors Who Take Medicare

Healthcare Reform Myths and Countering Facts

The media has fun chumming the airwaves with misinformation on the passed Healthcare Reform Legislation and what it means for most doctors, hospitals, patients, Medicare and Advantage recipients, and also state budgets. It sells news and attracts readers.

Myth 1: Healthcare Reform is a Give-Away to the Insurance Industry
_ It is true that millions of people will be forced to buy healthcare insurance by 2014which will result in $millions in new premiums. It is also true that many of these new customers are the very same ones cast adrift by these companies because of the expenses of insuring them.

– In 2010, Medicare will slash Medicare Advantage Payments by 5%. In 2011, Medicare Advantage Payments will be frozen. Over 10 years, $132 billion will be cut from Medicare Advantage.

– In 2011, the MLR will be applied to all premiums charged. For Group coverage this amounts to 85% of all premiums must be paid out in medical expenses. For Individual coverage the percentage is 80%.

– In six months (2010), all healthcare plans will have to provide preventative service at no cost.

– In 2010, insurance companies will no longer be able to drop the seriously ill unless they can prove fraud or intentional deceit. Denial of service is appealable to the Comptroller as established in the Manager’s Amendment.

– In 2011, the cap is removed from how much can be paid out over a patient’s life time. In 2014, the yearly cap is removed.

– In 2011, states will have greater power to insist upon justification for premium increases from insurance companies.

_ Myth 2: In 2014 when the mandate for healthcare insurance begins, the healthcare insurance companies will capture millions of “new” customers.

– Yes this is true and as discussed above, however many of these new insurees will be the ones cast off in the past by insurance companies due to ill health and the resulting high expense. These new insurees will bring a greater liability than those presently insured to their higher costs.

– 15 million of the 47 million uninsured today have incomes between $25,000 and $50,000. As established in a 2009 Kaiser Study, 11% of the uninsured in this category are in poor health which will also result in higher payouts.
(Rdan update…slightly edited for clarity)

Myth 3: Reform Legislation will cut 21% in Medicare payments to Doctors

– The much advertised 21% cut in Medicare payments to Doctors has nothing to do with today’s Healthcare Reform legislation. It originated with 1997 legislation which detailed fees surpassing an established “Sustainable Growth Rate,” Medicare payments to all doctors would be cut. Congress keeps negating this automatic cut yearly rather than changing the 1997 legislation.

– Why is the Sustainable Growth Rate still Law? The Bush administration used the SGR to make the budget appear to be leaner and included the hypothetical cuts in his budget. President Obama has not incorporated the cuts in the budget and Congress has yet to change it.
(Myth # updated…Rdan)

Myth 4: Healthcare Reform will cause Doctors not to take more Medicare Patients and drop those they have today.

– This myth is tied to the slashing of Medicare payments by 21%. Under the new health care reform legislation there is a 10% incentive for primary care doctors, a 10% incentive for general surgeons, and a 5% incentive for mental health services.

– There is also differential for geographical differences such as seen in South Dakota as compared to New Jersey.

– In 2013, Medicaid payments for primary care doctors will be raised to match Medicare payments.

A popular message to seniors is the loss of their personal doctors and care as a result of the new healthcare legislation. The reality is they will gain more care as payments to primary care physicians will increase as well as those to general surgeons. The same holds true for the general populace. In 2008, the AMA estimated there was ~$24 billion in charity care, much of which was used for uninsured patients. With reform, it is expected the amount of charity care will decrease. At the same time, doctors such as Oncologist Allen Mondazac are preparing for the deluge of new patients who will be insured in the earlier stages of cancer rather than later stages as seen presently due to being uninsured.

The media, anti-Social Security/Medicare groups, and others have repeatedly used scare tactics associating rising healthcare costs ultimately to an aging baby boomer population leading to the demise of the US as both programs together become more burdensome and in need of offsetting benefit cuts. In no way will an aging baby boomer population negate the several decades of SS Trust Fund today or tomorrow as much as the AEI, Peterson, Heritage, Cato, Concord, etc. wish such to happen and neither will a population of retirees negate productivity gains which offset worker to retiree ratios. As long as Labor receives the benefit of those productivity gains in fair proportion to that allocated to capital in the form of higher wages which Labor hasn’t since the eighties; the ratio is adequate and only minor adjustments to SS Payroll Withholding are needed to balance payouts to revenues for SS to make up for the ~2% overall difference. Medicare will need small increases to its taxes to stabilize its Fund. What the media has not targeted is the reason for rising healthcare costs which directly impacts Medicare.

Asenescent citizenry is playing only a minor role in the ongoing climb in the nation’s health care bill—from $585 billion (the sum we laid out in 1990) to over $14 trillion (the amount we are projected to spend in 2030, assuming we continue in our profligate ways)” Uwe Reinhardt 2008 World Healthcare Conference, http://www.tcf.org/Publications/Healthcare/Maggie%20Agenda.pdf “Getting Better Value from Medicare.” Indeed, of the projected $14 trillion healthcare costs in 2030, $728 billion can be attributed to age and gender. So what are the cause(s) of rising healthcare cost?

The healthcare industry will continue developing new stuff for every age group,’ Reinhardt explains. ‘Will that ‘new stuff’—in the form of new drugs, devices, tests, and procedures—be worth it? Some of it will be and some of it will not.’

The US has the only global healthcare program unregulated and managed for the highest return possible in profits. Innovation of products, medicines, and procedures having a low benefit and return as compared to cost has been the #1 culprit for rising healthcare cost. In a 2006 Health Affairs study, spending on new heart disease technology increased while survival rate remained flat. It appears to be the same for the “me-too” drugs which mimic older technology with little or no increase in results and having a higher cost and subsequent price. New and improved in medicine is not delivering what it being advertised to do. 1 of 3 healthcare dollars is spent on ineffective procedures, unnecessary hospitalizations, and over priced drugs and devices no better than the predecessors with little or no improvements in outcomes

Rather than target Social Security, Medicare, baby boomers, and the elderly as the issues, perhaps it is time to get to the root causes of healthcare costs.

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CORE CPI


I have reported on this in previous years, but in the first quarter the increase in the not seasonally adjusted (NSA) core CPI was the smallest increase since the early 1960s. Moreover, the 2010 increase was only 0.5%, or less than half the average increase of 1.2% from 2000 to 2009.
Why is this important? In a low inflation world firms tend to raise prices once a year — typically at the start of the year or season. Consequently, in the not seasonally adjusted core CPI over half the annual increase occurs in the first quarter. Actually, in recent years the first quarter share has even been larger than the 55% share since the early 1990s. Moreover, if the first quarter change is less than the prior years change, than the annual change is generally less than in the prior year. This very small increase in the first quarter NSA core CPI strongly implies that in 2010 the annual increase in the core CPI will be significantly smaller than in 2009.

Given the extremely modest increase in the first quarter NSA core CPI virtually the only acceleration in inflation in 2010 is likely to stem from food or fuel. We are all familiar with the risk to the recovery and inflation from oil, so there is not much I can add here. The DOE expects the spring switch over to more gasoline use to develop without significant refinery shortages. Concerns are being raised by the recent rise in food prices, especially in the PPI. Yes, meat and vegetable prices have risen in recent months, but it is hard to be too concerned about food inflation as long as prices of the big four major crops of corn, wheat, rice and soybeans appear to be well under control.
Note that a lower core CPI would be consistent with the typical cyclical pattern as the lowest core inflation numbers generally occur in the first year or two of a recovery.

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War reporting and discussion

It has been asked a number of times why Angry Bear has not posted on the wars in Iraq and Afghanistan for awhile now. William Pitt asks the same question for himself:

William Pitt writes an op-ed about where the criticism in the press and blogs of the wars in Iraq and Afghanistan have gone in the last couple years:

A good friend noted recently how little we hear of Iraq and Afghanistan in the news anymore, and further noted the deafening silence regarding those ongoing wars from what he described as “dishwater left-leaning political activists” whose disengagement from the issue, according to him, makes them full of something I can’t repeat in print. That bogus disengagement, he asserts, stems from the fact that Obama is in office now, so everything must be OK. It isn’t, of course, but it is hard to miss the fact that we haven’t heard much about the wars, or the protesters, since a couple of Januarys ago.

[snip]

Once again, all that was from one single day (Rdan…a long list of bombings and deaths by place). So, yeah, it’s not over over there. Not by a long chalk, and despite the whistling silence, it’s not over over here, either. The wars in Iraq and Afghanistan affect every living American well beyond the impact of the flesh-and-blood conflicts we occasionally see on TV. The issue of who is still getting rich off those wars, how our society has been wired to blindly support a permanent state of war, and why we hear so little about these all-consuming matters, remain deeply pressing and of deadly importance.

Jamail is not the only reporter focusing on this. This Thursday, a teach-in will be taking place on Capitol Hill to focus specifically on Iraq, Afghanistan and the issues that surround them. The moderator will be Rep. Dennis Kucinich (D-Ohio) and the panelists will include Chris Hedges, author of “War Is a Force That Gives Us Meaning”; Jeremy Scahill, author of “Blackwater: The Rise of the World’s Most Powerful Mercenary Army,” and former Army colonel and current political activist Ann Wright.

There is a lot of conversation on other hearings and news, but as

“Jarhead” succinctly puts it, “We are still in the desert.”

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