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Corporate Tax Rates and Unemployment, A Correction

by Mike Kimel

Corporate Tax Rates and Unemployment, A Correction

Cross posted at the Presimetrics blog.

I’m embarrassed. I messed up last week’s post which appeared at Angry Bear and on the Presimetrics blog. Essentially, I copied in some of the data on tax rates incorrect for three years in the late 1970s; the IRS source I was using was not in spreadsheet form. The error was spotted by JzB. To be honest, I kinda shouldn’t have written that post… it was evident even from the way I started it:

I’ve been kind of swamped, low on sleep, and doing a few book related things in my few waking hours that don’t work or parenting (buy a copy of Presimetrics!!!!), so posting has been light. But I thought I’d do a quick and dirty post today about a hot topic

OK. I’ve gotten a bit more sleep (not enough, mind you, but some), and while the baby is in my care right now, he’s quiet for the time being, so let’s get this done. First off, the topic… I want to look a the relationship between corporate tax rates and unemployment. Links to the data are posted below, but all the information I use, plus the analysis itself, sits in this google spreadsheet.

So, let’s begin.

Figure 1 below shows the data used in this post; the top corporate marginal tax rate (obtained from the IRS) is on one axis and the unemployment rate for individuals sixteen years and over (from the Bureau of Labor Statistics) is on the other axis.


Figure 1

Where we go from here was best explained in the last post:

Now, consider the correlation between the top corporate marginal tax rate and the unemployment rate. If it is true that lower taxes = lower unemployment, the correlation between the two series should be positive. A positive correlation means the series should move more or less in the same direction; as tax rates rise, unemployment rises, and as tax rates fall, unemployment falls.

If the correlation is, in fact, negative, that means that lower unemployment tends to happen when tax rates are higher. Correlation may not be causation, but it would be very hard to argue that cutting taxes on corporations leads to lower unemployment if we do not see a positive correlation between the two series.

Now, obviously, it may take time for tax rates to do whatever magic they might have. So Figure 2 looks at the correlation between the top corporate marginal tax rate and the unemployment rate in the same year, the unemployment rate the next year, etc., all the way through ten years out. Its really hard to see how the effect of tax rates should last beyond a couple of years, but I figured I’d be thorough and put up the figures. I’ll take a pass at interpreting them, but feel free to reach your own conclusions.

Additionally, because whatever effect tax rates might have on unemployment might change over time, each correlation is computed several times: once for the entire 1948 – 2009 sample, a second time for 1960 – 2009, a third time for the period since 1970, a fourth for the period from 1980 and a fifth time for the 1990 – 2009 period. (I didn’t look at just post-2000 because the top corporate rate has been frozen during that period.)


Figure 2

So what do we make of this? As I stated last week, I don’t think the outyears are all that relevant; I don’t think unemployment rates are affected by corporate tax rates ten years earlier, but I included them so no-one accuses me of cherry picking. If you think they matter, explain how in comments. Here’s what I’m seeing in the graph:

1. For the longer samples (1948 – 2009 and 1960 – 2009), the correlation between tax rates and unemployment rates is very close to zero.
2. For the three shorter time samples, the correlations are very big (positive for 1970 – 2009 and 1980 – 2009, negative for 1990 – 2009).

That seems to indicate that corporate tax rates did not use to have an effect on unemployment, but in recent years, they may be never used to have an influence on jobs. That influence may not be in the direction that tax cut proponents keep telling us about, though, as evidenced by the 1990 – 2009 series; anyone who has read Presimetrics won’t be at all surprised, as we point out the same thing in a completely different way. I think its because over time, our economy has become more loop-hole oriented than doing things oriented.

Your thoughts?

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House Generic Ballot

Robert Waldmann

Something odd seems to be happening in US public opinion. Pollsters are shifting from polls of registered voters to polls of likely voters. Given demographics and the enthusiasm gap, I expected the Republican lead in the House generic ballot to increase. Until recently, that seemed to be happening right on schedule.

Since then there have been several polls showing a surprising close race. If I toss Rasmussen polls out (because I don’t like their results but at least I admit it) and set sensitivity to high so new polls count more I get a pollster smoothed average showing a the Democrats ahead ! * This is mostly determined by ten polls in September six of which are polls of likely voters and five of which are polls of registered voters.

I’m pretty sure I’m over interpreting data and seeing what I want to see. I guess it’s conceivable that recent Tea Party success in primaries have scared voters.

*this is a link to a graph which will be updated. For some reason, when I try to dowload the graph I get the smoothed average including Rasmussen.

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A Conversation with George Soros

With thanks to Felix Salmon for arranging the invitation.

There’s an episode of House where he has to get rid of one of the people for his new team.  By the end of the episode, the sharpest person in the group has said everything that we would have expected to hear from House—and is therefore summarily dismissed, since hearing one’s own opinions being spoken by someone else is less useful than being challenged.

I had a similar feeling with George Soros’s conversation last Wednesday morning with Chrystia Freeland, sponsored by Reuters and held in the NASDAQ building that, er, graces Times Square. So what follows isn’t everything Soros said so much as what he said that either (1) you wouldn’t already know from reading this blog or Paul Krugman or (2) added details or touched on an interesting issue.

UPDATE: Krugman finds another similarity between himself and Mr. Soros.

The Recent Crisis and Its Causes

Soros declares that there was twenty-five to thirty (25-30) years of a “Super Bubble,” which has now burst.  It seems from the discussion that Soros believes the SuperBubble was worldwide.  Recovery is being hindered by some policies—Germany’s talk about austerity was especially mentioned—by Soros sees strong hope in the Trade Shift that has accompanied the crisis. He noted that the “global economy is a lot better than the US economy,” and that he expects to see it continue growing even if the U.S. (or Europe, due to the German leadership, or even both) fall into a :double-dip.” (In this he is arguably more of an optimist than many.)

China I

Key to this shift has been the growth of bilateral relationships.  He noted obliquely that these developed in part because many governments—most especially the Chinese, who have been “the great beneficiary of globalization”—do not want to change their capital controls, but sees them as facilitating the new paradigm. He expects that the next move will be that Hong Kong (with the HKD remaining independent of the RMB) will become as London did in the 1960s and 1970s, the intermediary of choice for the growing market (now China, then Europe).

There is a strong need to increase Chinese domestic demand, which he rightly expects is being partially facilitated by the recent wage increases. While there is a need to shift from the previous US-Chinese symbiotic relationship (essentially, bonds for exports), Mr. Soros is “not sure there will be” further advancement in that relationship without greater domestic Chinese consumption. He declared that the Chinese economy has become “the motor” of the world economy, but also noted that it is a smaller motor, so the world economy is not moving so fast.

Currencies

In that context, he was asked by a gentleman from Fidelity Capital if it is time to move from the USD to a “basket” as the World Reserve Currency. (As regular readers know, this is an issue near and dear to my heart.) Stating the obvious, Soros noted that having “a more neutral currency” (which may not be an exact quote) would be helpful in correcting the imbalances, which are largely due to the dollar being the International Reserve Currency. He agreed that a basket Reserve Currency would improve the market. (I—and I suspect David Beckworth—might agree that it would provide for easier remedies, but I’m not convinced it would provide for a better market, since arbitrage opportunities and issues of asymmetric information would be more likely to skew outcomes.)

China II

Soros is very sympathetic to the Chinese people themselves.  He notes that they work hard but that their labor is harnessed to an undervalued currency to the benefit of the State. He described the Chinese mercantile system as being “State Capitalism,” which he calls a “very powerful” model, while also noting that it is not so good as the previous “International Capitalism.” Since he noted that “International Capitalism”; is synonymous with “the Washington Consensus,” this leaves him having damned China with very faint praise.  (Though, in fairness, he is even more negative about Russia, which he described to Jim Holt as an example of unsuccessful State Capitalism, whose success or failure is primarily driven by the price of oil. He also sees a real possibility of China developing into an Open Society—another point on which he is rather an optimist.)

Where he is not positive about China is its Real Estate market, which is skewed in part due to the political structure. The Chinese version of mercantilism allows government officials to own three (3) properties, which has been a very good way for those workers to get rich through selling and “trading up.”  The primary solution to this bubble, he believes, would be initiating a property tax, which would produce a carrying cost on properties and therefore mitigate the speculative aspects of the bubble. (Soros essentially notes that, as with the United States, labor is overtaxed and capital undertaxed in China.  Since China has excess productive labor, the benefits flow to the state.  Implicitly, the U.S.’s excess produced the differential model discussed above, which worked well for both parties for some fifteen (15) years.)

But all is not  bread and roses in Soros’s view of China.  An Indian journalist sitting next to me asked the obvious question: Has being a democratic country “hamstrung” India as compared to China? Soros came back to his key theme of the need for growth in Chinese domestic demand, noting that the Indian economy is more stable precisely because there is now domestic growth—growth that will be facilitated in China only as that State evolves both politically and economically. He noted that the Chinese people, to date, have been willing to accept limits on their individual freedom for its benefit in growth, but he does not see other countries being willing to accept such limits on their own freedom to support China’s growth.  If I ever had any doubt that Soros is a more devoted Popperian than I, it was eliminated in that moment.

Other Powers, and Some That Might Be

Soros spoke positively of Turkey (Dani Rodrik may have a counterpoint), negatively of Germany (from a policy perspective; when asked by a reporter from Crain’s what we will look back on and see as stupid, he replied that “fiscal rectitude, from a timing point of view, is wrong.”), and generally positively of the Euro, declaring in response to a question about Ireland and Greece that “If anybody would leave [the Eurozone] it would be Germany.”

His key point about the Euro is one that is often found in the literature of financial crises, including the previous Great Depression: there is a European Central Bank, but there is not a central Treasury. But this appears to be de facto being remedied by the Solvency Crisis, with “back-up funds” being developed and used.  Soros noted a key distinction that is often missed in discussions: there was not a crisis of the EUR, but rather a European banking crisis, which was exacerbated by policy disagreements between France and Germany. (Germany won, though his view of whether this victory will be relatively Pyrrhic is left as an exercise.)

Again, he looks to the Chinese as an indicator, who started putting their money—you know, that 4 Trillion RMB stimulus and the revenues that have followed it—into the EUR as soon as it reached around 1.20.  The Chinese bought the EUR, the Chinese bought Spanish bonds, the Chinese stabilized the market.  The Chinese did something no one else can do for them—bought another currency on the open market.

And this is the key to understanding Soros’s attitude toward Japan. You think this is easy, realism? The Japanese are correct to worry about their currency, Soros notes, because, while the RMB is the strongest currency in the world, you cannot own it because of capital controls that the Chinese government maintains because they do not want to have both rising wages and an appreciating currency in their export-based economy. Accordingly, per Soros, any appreciation of the RMB “has to be done in an orderly manner.” In the meantime, the Japanese did the only thing they could.

U.S. Politics

Mr. Soros was by no means a fan of the Obama Administration. Echoing Glenn Greenwald, he notes that the Obama Administration should have corrected the excesses, the abuse of power, of the Bush Administration. Despite this (and what follows), Soros believes Obama “may well be elected to a second term.”

As a matter of handling the banks through the crisis, Mr. Soros noted that the Administration should have injected Equity into the banks, but notes that he believes the Obama team found this politically unacceptable. The result is that the government effectively nationalized the banks’s liabilities and “allowed” them to “earn their way out of that hole,” through practices such as increasing consumer credit card rates.

(My memory of the events is somewhat different, since part of what the Fed received for its TARP funds were warrants on those banks—warrants that have subsequently been sold and counted as if the revenue against the original loans to make them appear more “profitable” in the eyes of several bloggers and financial journalists [including, for instance, Robert]. But certainly there was no AIG-like structure imposed, no U.S. equivalent of Northern Rock, no matter how much saner than would have been.) 

To no one’s great surprise, Mr. Soros does not believe that Mr. Obama is “anti-business.”

The biggest fault he found with the Administration’s approach to the crisis is that they depended on the “confidence multiplier” to make recession shallower and shorter than it otherwise would have been. The problem with a confidence multiplier is, of course, that when the results do not match the expectations, the “multiplier” becomes a disappointment, and therefore a drag on expectations going forward. Mr. Soros described this as what happened.

If this scenario is true, then the decision not to ask initially for a $1.2T stimulus, with a chance to end up with a better mix and higher absolute amount of actual stimulus funding, will go down as the tombstone for the Administration, not “just” a spanner in the possible continuation of the Administration’s economic team (h/t Mark Thoma on Twitter).  But, hey, the recession has been over for more than a year, so things are getting better, with the upcoming elections more resembling the signpost of 1982 than 1932.  At least in some timestream.

Gold

This one was pulled all over the place, so it should come as no surprise.  Gold is, per Mr. Soros, the only active “bull market” right now.  He is also not optimistic about the ending of that market. Gold is “the ultimate bubble”—may be going higher, but is certainly not safe and is not going to be forever.

Mr. Soros admits a similar attitude toward oil, but at least there the commodity has intrinsic value. As Vincent Fernando, CFA, notes, owning something other than gold at least gives you the possibility of “productive assets.”

Conclusion

I’ve left out a few things, including the roundelay that resulted when one journalist attempted to discuss Mr. Soros’s firm’s holdings in a company he said he didn’t the firm owns. But in general the feeling one gets when presented by Mr. Soros the person is that he is an optimist, perhaps incurably so. Things are rough, and they will probably continue to be rough for a while, but in the longer term, things are getting better for all.

I’m guessing he won’t be speaking at The March to Keep Fear Alive.  But Mr. Colbert—let alone his predecessor at the Washington Monument—would do well to book him as a guest.

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Current doldrums are just jobless, sales-less recovery

NBER just made official what we all knew they would say: the Great Recession ended in June of 2009.

For those who are encouraged, note that they also do not indicate that there was a recession from March of 1933 to May of 1937, that the eighteen (18) months indicated is the longest since 1929-1933, and that eighteen months is—coincidentally—the average duration of the recessions between the World Wars. (The success of the Great Moderation is palpable.)

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Social Security benefits and maximum contribution base

originally posted at Calculated Risk
re-posted with permission from the author

Dan here…there might be a lot of noise about no increase due to cost of living adjustment (cola), but here is part one of three excellent posts on why it works this way for no inflation:

Update: Updated links and formatting made 3:00 PM.

Calculated Risk writes:

The BLS reported this morning that the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was at 213.898 in July. This means it is very likely there will no change to Social Security Benefits and the Maximum Contribution Base again this year.
Here is an explanation …

The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W1 for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U.

•In 2007, the average of CPI-W was 203.596. In 2008, the average was 215.495. That gave an increase of 5.8%.

•In 2009, the Q3 average of CPI-W was 211.013. That was a decline of -2.1% from 2008, however, by law, the adjustment is never negative – so the benefits remained the same this year.

Click on graph for larger image in new window.

This graph shows CPI-W over the last ten years. The red lines are the Q3 average of CPI-W for each year.

The COLA adjustment is based on the increase from Q3 of one year from the highest previous Q3 average. So a 2.3% increase was announced in 2007 for 2008, and a 5.8% increase was announced in 2008 for 2009.

In Q3 2009, CPI-W was lower than in Q3 2008, so there was no change in benefits for 2010.

Even though there was no increase last year, and there will probably be no increase this year, those receiving benefits are still ahead because of the huge increase in Q3 2008.

For 2011, the calculation is not based on Q3 2010 over Q3 2009, but Q3 2010 over the highest preceding Q3 average … the 215.495 in Q3 2008. This means CPI-W in Q3 2010 has to average above 215.495 or there will be no increase in Social Security benefits in 2011.

In July 2010, CPI-W was at 213.898, so CPI-W will have to average above 216.294 in August and September for the Q3 average to be at or above Q3 2008. That suggests an increase in COLA is very unlikely right now.

Contribution and Benefit Base

The law – as currently written – prohibits an increase in the contribution and benefit base if COLA is not greater than zero. However if the there is even a small increase in CPI-W, the contribution base will be adjusted using the National Average Wage Index.

From Social Security: Cost-of-Living Adjustment Must Be Greater Than Zero

… … any amount that is directly dependent for its value on the COLA would not increase. For example, the maximum Supplemental Security Income (SSI) payment amounts would not increase if there were no COLA.

… if there were no COLA, section 230(a) of the Social Security Act prohibits an increase in the contribution and benefit base (Social Security’s maximum taxable earnings), which normally increases with increases in the national average wage index. Similarly, the retirement test exempt amounts would not increase …

This is based on a lag. If there had been an increase in COLA last year, the contribution and benefit base would have increased by about 2.3% based on the increase in wages from 2007 to 2008. The National Average Wage Index is not available for 2009 yet, but wages probably declined – but it probably won’t matter for the maximum contribution base since COLA will probably be zero.

To summarize (assuming no new legislation):

•In 2011, for benefits, there will probably be no increase (although we need to see CPI-W for August and September to know for sure).

•For the contribution base in 2011 there will probably be no change too. However, if the COLA is even slightly positive, the increase will be based on changes in the national average wage index (not COLA).

(1) CPI-W usually tracks CPI-U (headline number) pretty well. From the BLS:

The Bureau of Labor Statistics publishes CPIs for two population groups: (1)the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) … which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self- employed, short-term workers, the unemployed, and retirees and others not in the labor force.

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Evaluating the "excess" in the US corporate financial balance

In a NY Times op-ed, Rob Parenteau and Yves Smith reminded us that the private sector financial balance is a function of the household financial balance and the corporate financial balance. They concluded the following regarding excess corporate saving:

So instead of pursuing budget retrenchment, policymakers need to create incentives for corporations to reinvest their profits in business operations.

In my view, it’s not that simple (not that passing this type policy would be easy at all). As I illustrate below, firms, like households, are in a deleveraging cycle, where corporate excess saving is likely to persist for some time. (Note: US total corporate financial balance, excess saving if the balance is positive, is roughly undistributed profits minus gross corporate domestic investment)

In their NY Times article, Rob and Yves cite a 2005 JP Morgan study, “Corporates are driving the global saving glut”. In that study, JP Morgan argues that the global saving glut has been driven largely by G6 excess corporate saving, and to a lesser extent emerging economies. In the US, positive corporate excess saving persisted through the latest print, 2010 Q2.

The illustration above plots the total corporate financial balance as a percentage of GDP. I calculate the Total Corporate Financial Balance (TCFB) as in the JP Morgan study, which is the residual of the national accounting identity of the Current Account Balance minus the Household Financial Balance minus the Government Financial Balance. According to this measure, the TCFB was roughly +3% in 2010 Q2, or about +1% above the 2008-2010Q2 average (2.1%).

About the same time as JP Morgan published their research, the IMF and the OECD were wondering why global TCFBs were rising. Several factors are attributed the upward trend in the first half of the 2000’s, including (this is not a complete list of factors):

  • Repurchase of stock shares relative to dividend payouts
  • The falling relative price of capital goods dragging nominal investment spending as a share of GDP (see Table 3.2 of the OECD publication)
  • The overhang of leverage build in the 1990’s
  • Rising profits via falling taxes and low interest payments (especially in other OECD economies)

Although firms likely worked out much of the debt overhang from the 1990’s, the debt accumulation spanning the second half of the 2000’s was precipitous.

It’s very unlikely that the excess corporate saving will fall anytime soon, as non-financial business leverage is high just as household leverage is high. Total non-financial business debt peaked in 2009 Q1 at 79.5% of GDP and is now trending downward, hitting 74.9% in 2010 Q2.

If history is any guide, then the “excessive” borrowing spanning 2005-2008 will take some time to repair. Spanning 2002 to 2004, the non-financial business sector dropped leverage 2.5% to 64%. If this 2-year period of de-leveraging indicates an “equilibrium” level of leverage, then non-financial businesses are likely to run consecutive financial surpluses (excess saving) in order to reduce debt levels by another 11 percentage points of GDP for a decade more.

If firms run excess saving balances, then they’re not investing in future profitability via capital expenditures nor increasing marginal costs, like wages and hiring, relative to profit growth. So while it is true that some fiscal policy should be targeted directly at investment incentives (Rob Parenteau and Yves Smith article), these measures may prove less effective since the non-financial business sector’s desire to “save” and repair balance sheets is high.

I leave you with one final chart to inspire more discussion: a breakdown of the total corporate financial balance into its two parts, financial-business and non-financial business.

The financial balances in illustration 2 are computed directly from the Flow of Funds Accounts, Table F.8, rather than taking the residual as calculated in illustration 1. Thus, the total corporate financial balance will not match that in illustration 1.

The point is simple: the small drop in excess saving in total corporate financial balance in illustration 1 is stemming from the financial side. The non-financial corporate sector continues to raise excess saving by investing retained earnings into liquid financial assets relative to capital investment.

Fiscal policy should be targeted at the high desired saving by the corporate and household sectors alike. The idea is to pull forward the deleveraging process by “helping” households and firms lower debt burden via direct liquidity transfers (lower taxes or subsidies, for example). Only then will healthy private-sector growth resume.

Rebecca Wilder

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Clinical Trial Ethics

Robert Waldmann

In the New York Times Amy Harmon has a long and fascinating article on the ethics of medical experiments on humans. She considers the argument that it is unethical to have a control group which doesn’t get the wonderful new experimental treatment.

I just note that the ethical rule imposed by the FDA and IRBs seems to be
first: do no harm.
second: do no harm.
third: do no harm.

The immense effort and delay required for approval of clinical trials basically forces anyone who doesn’t have tenure already to devote his or her efforts to treating sick mice and rats.

The article discusses two cousins with melanoma one of whom is in the control group and dying. However, if any reader has malignant melanoma with metasteses but no metasteces to the brain or heart and no history of auto-immune diseases, I personally can arrange participation in a clinical trial without a control group.

I am absolutely 100% serious. Commenters with melanoma are most extremely welcome and eagerly sought.

update: Link added. This post does not discuss the ethics of including control groups in clinical trials. My points are that it is very extremely horribly difficult to get approval for clinical trials, and that this is a moral problem too.

Also, if you contact me soon, I might be ablt to get you into a phase 1 trial of treatment of melanoma. Phase 1 means no control group. This is an absolutely serious claim. I did not post contact information for the trial, as I don’t want the team burdened with general debate about ethics.

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Why Do I Predict That TARP Will Cost Less ?

Robert Waldmann

I am generally reluctant to make predictions. However, I am willing to predict that the cost of TARP will be less than forecast by the CBO. I should point out that forecasts of the cost have declined.

The reason is that the CBO values TARP assets at “fair market value” which means the value for which they could be sold. It assumes that risky assets are not systematically worth much more to the Treasury than to private investors. Thus the cost is the cost if the Treasury liquidiated its portfolio (without considering the huge market pressure and reputational effects). It is not equal to the expected value of additional debt due to TARP — it is assumed that variance in returns on assets (which by definition doesn’t affect the expected value of those returns) increases the cost to the Treasury.

I think this is backwards. It is good for the country for the Treasury to bear risk, so the risky returns act as automatic stabilizers.

After the jump, I quote Doug Elmendorf explaining what they do (and indirectly noting that Barney Frank objected). Barney Frank is an excellent congressman.

In its August 2010 baseline projections, CBO included an estimated $53 billion in costs for new mortgage guarantees that Fannie Mae and Freddie Mac will make over the 2011–2020 period. That estimate was made using a so-called “fair-value” basis of accounting, which differs from the way most federal credit programs are reflected in the budget. In a letter sent today to Congressman Barney Frank, CBO discusses that estimate and compares it with the budgetary impact that would be estimated using the procedures specified in the Federal Credit Reform Act of 1990 (FCRA), which governs the accounting for most federal direct loans and loan guarantees. CBO estimates that on a FCRA basis, Fannie Mae’s and Freddie Mac’s new mortgage guarantees made over the 2011–2020 period would generate total budgetary savings of $44 billion.

[skip]

FCRA estimates are based on Treasury rates (which are generally viewed as risk-free), whereas fair-value estimates employ discount rates that are adjusted to match the risk of the specific credit obligation.

Why is the appropriate adjusment for risk a higher required return not a lower required return ? Elmendorf doesn’t say. He does make it clear that TARP costs are calculated in a way no other costs are calculated (just think what the expected cost of invading Iraq would have been if it were assumed that financial risk must be rewarded). Notice the little correction of $ 97 billion dollars. That is (part of) the difference between the reported expected “cost” of bailing out the GSEs and the expected effect of that bailout on national debt in 2020 (assuming they aren’t reprivatized in which case the national debt will be higher in expected value).

I think that answer is that using standard FCRA accounting for Treasury purchases of risky assets would imply that the Treasury should buy risky assets even when there isn’t a crisis and we just can’t have that. That would be socialism. The standard accounting would still be conservative given the desirability of automatic stabilizers (deficits in downturns and surpluses in expansions). If the numbers weren’t calculated with non standard rules, socialism would look sensible, and that just can’t possibly be allowed.

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Small Business Men Not Suffering from the Blues

Robert Waldmann

Worthwhile Canadian point. Nick Rowe looks at Catherine Rampell’s graph, which everyone has been talking about, and notes the dog that didn’t bark. Very few small businessmen are complaining about the quality of labor. This basically proves that the argument that the incerase in unemployment is due to missmatch is wrong. If the problem were too many construction workers and no workers in other fields, than firms in other sectors would be complaining about trouble finding qualified workers.

I add that they might also complain about the cost of labor. These are really the same problem if the minimum wage and contracts negotiated with unions aren’t binding. Firms can always hire quality labor if they offer one million and hour.

Fortunately the graph has the fraction describing quality of labor and cost of labor as the number one problem one on top of the other and both shaded blue. The graph shows the fraction of small business men with the blues declining sharply.

blues

I am kicking myself for not blogging about this before (I noticed the fact in the graph really I did). I try to make up for lost time after the jump.

Worthwhile US initiative.

And get a load of those yellow employers terrified by insurance companies. There was a sudden sharp drop in the fraction listing insurance as teh worse problem just about November 2008. Now part of this (as with the blues) is low sales driving other problems out of first place. Still the decline is very very dramatic. There is no similar decline in complaints about taxes (is there ever ?).

I think that small businessmen were naively optimistic about health care reform’s chances in congress and counted on HCR eliminating their problem buying insurance for newly hired workers so soon that it was worth hiring and paying through the nose for a year — oops in the event 6 years, but, hey, too late now employers.

I’d say the graph shows fairly strong evidence that HCR caused increased hiring by small firms. Now it might have reduced hiring by large firms (which feared a mandate which turned out to be fairly feeble).

For both the issue of the blues and the yellow, I’d like to see a graph of the fraction of small businesses naming something an important problem not just the most important problem. That way the numbers would not have to add up to 100% and one could really tell to what extent concerns about insurance, the quality of labor and the cost of labor declined and to what extent they were driven out of first place by collapsing sales.

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Part 2 on the 50% of our discretionary budget

The point of the first chart, I believe, is that as our navel power decreases Chinese navel power increases. But that aspect needs to be described carefully as the chart does not explain the differences in navies between the two countries.

The point of the second chart is to demonstrate the conundrum of manpower expenses and the rising costs of technology that outstrip resources…ie getting fewer units for a lot more cost.

Augustine’s law

The third and last piece is to discuss a response to the unexplained comments regarding the equations:

That you are not speaking German = FDR, U.S. military forces, and the U.S. defense industry.

That you are not speaking Japanese = FDR, U.S. military forces, and the U.S. defense industry

The fourth aspect is the losing strategy of our lack of cohesive trade policy in some form of national self-interest, which I believe is at odds with the current views of free trade enthusiasts for little federal intervention and reliance on the good graces of multi-national companies and equilibrium theory of some economists. But that is for another post.

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