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The chronic problem of exorbitantly expensive weapons is becoming acute

The Economist 28 Aug 2010 unattributed article:

Updated correct link: link to article is here, h/t Movie Guy

The chronic problem of exorbitantly expensive weapons is becoming acute.

Robert Gates, America’s defence secretary, has ordered that production of the F-22 should end this year, capping the fleet at 187—a final cull for the Raptor, whose numbers were once supposed to reach about 750. In Europe orders for the Typhoon—a fighter made by Britain, Germany, Italy and Spain—will fall. And on both sides of the Atlantic the rising cost of the stealthy F-35 Joint Strike Fighter means its order book could shrink sharply.

Mr Gates wants the Pentagon to save 1-2% a year in overheads. A study of defence bureaucracies by McKinsey, a global management consultancy, suggests that American forces, though the most potent in the world, are among the least efficient, at least in terms of the “tooth-to-tail” ratio, the proportion of fighting forces to support personnel (the best were Norway, Kuwait and the Netherlands). American forces deploy and fight globally, so need more support than those only defending national borders. Nevertheless, the study suggests there is flab to be trimmed.

Manpower in all-volunteer armies, as most Western ones are these days, is expensive. Pay has to be competitive. In America, moreover, a big burden is the cost of health-care programmes for current and former servicemen, and their families. “Health-care costs are eating the defence department alive,” complains Mr Gates. Yet he has a hard time restraining Congress’s generosity to soldiers and veterans.

One response to high manpower costs is to rely on technology. But that does not come cheap. Study after study shows that the price of combat aircraft has been rising substantially faster than inflation, often faster than GDP. The same is true of warships. In a book published in 1983, Norman Augustine, a luminary of the aerospace industry, drafted a series of lighthearted “laws”. In one aphorism, he plotted the exponential growth of unit cost for fighter aircraft since 1910, and extrapolated it to its absurd conclusion:

Nearly three decades on, Mr Augustine says, “we are right on target. Unfortunately nothing has changed.” These days Raptors go for $160m apiece ($350m including the cost of developing the jet), compared with $50m-60m for the venerable F-16. In the long run, high unit costs must limit numbers. Since 1970 America’s fleets of combat aircraft and major warships have shrunk, even as defence spending rose.

Repeated reforms have failed to break this dire cycle. According to the last full report by America’s Government Accountability Office (GAO), the cost of 96 of America’s biggest weapons programmes in 2008 had risen on average by 25%, incurring an average delay of 22 months.

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The wacky world_of American war

From Tom Dispatch a quiz:

With President Obama’s announced July 2011 drawdown of U.S. troops in Afghanistan in mind, the Pentagon has already:

a. Begun organizing an orderly early 2011 withdrawal of troops from combat outposts and forward operating bases to larger facilities to facilitate the president’s plan.

b. Launched a new U.S. base-building binge in Afghanistan, including contracts for three $100 million facilities not to be completed, no less completely occupied, until late 2011.

c. Announced plans to shut down Kandahar Air Base’s covered boardwalk, including a TGI Friday’s, a Kentucky Fried Chicken, and a Mamma Mia’s Pizzeria, and cancelled the opening of a Nathan’s Famous Hot Dogs as part of its preparations for an American drawdown.

Answer is b.

According to Walter Pincus of the Washington Post, construction is slated to begin on at least three $100 million air base projects — “a $100 million area at Shindand Air Base for Special Operations helicopters and unmanned intelligence and surveillance aircraft”; another $100 million to expand the airfield at Camp Dwyer, a Marine base in Helmand Province, also to support Special Operations forces; and a final $100 million for expanded air facilities at Mazar-e Sharif in northern Afghanistan. None of these projects are to be completed until well after July 2011. “[R]equests for $1.3 billion in additional fiscal 2011 funds for multiyear construction of military facilities in Afghanistan are pending before Congress.” And fear not, there are no indications that the fast-food joints at Kandahar are going anywhere.

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More on Poverty

Robert Waldmann

Matthew Yglesias has a post on poverty which is, shall we say, very different from my post on severe poverty below. In particular he wrote

We then had a giant reduction in poverty among this group [female-headed households without husbands] in the 1990s which was a combination of strong economic performance, “welfare reform,” and also the fact that the Clinton administration really wanted to make welfare reform work so threw lots of stuff—EITC expansion, SCHIP, etc.—at making it work. Then we saw a slow, steady erosion of that progress.

I totally absolutely utterly disagree as I explain after the jump.

I can’t say how strongly I disagree with you about welfare reform.

I note that welfare is still reformed. I think it is possible to distinguish the effects of welfare reform and the booming late 90s by looking at the 00s when we had the reformed welfare system (and SCHIP and expanded EITC). It seems to me that in 2000 one might wonder if the improvement were due to the tight labor market, to welfare reform or to a combination (as you very confidently assert). By 2007, it was obvious that the improvement was due to the tight labor market with (just eyeballing the graph) zero help from welfare reform. Also note the improvement in poverty under Clinton but before Welfare reform.

More importantly, the poverty rate is a very poor measure of total suffering due to poverty. to use the poverty rate as a welfare measure you must assum that someone just slightly below the poverty line suffers just as much as someone below half the poverty line. Obviously you don’t think anything that silly. Instead, you must be assuming that similar patterns are found in counts of sever poverty (below half the poverty line) near poverty (poverty line to 1.5 poverty line) etc. I think you are assuming this.

This assumption is totally utterly false. No one who wishes to consider poverty in the USA can stop after looking at the poverty rate and the poverty rate by demographic group as you did. The time series of the severe poverty rate is completely different from the time series of the poverty rate. It has increased enormously since 1975 (the trough of a recession). You can’t possible see the direct benefits of welfare looking the poverty rate as AFDC and TANF benefits were and are below the poverty line.

If you look at the poverty rate only, you would conclude that no harm was done if people on AFDC instead had zero income and starved after the reform (actually if they really starved the poverty rate would go down). Of course that didn’t happen, but the fraction of the population in severe poverty is now the highest in the Census time series (which only goes back to 75). Oh just go look at my post http://tinyurl.com/267hec4 .

An aside, you make a plainly false claim. You assert that the EITC expansion was part of the Clinton administration’s effort to make sure that welfare reform worked. This assertion is utter is nonsense. The EITC expansion was enacted into law in 1993 long before welfare reform.

You should have just mentioned SCHIP. Even in that case, you act as if Clinton was making policy which was actually made by the Republican controlled congress. Also, just to mind read, I would guess SCHIP was trying to win at least some health care reform and wasn’t even related to welfare reform in Clinton’s mind (not that that matters).

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Elizabeth Warren posts on her new job

Elizabeth Warren posts on the The White House Blog on her new job:

Over the past several weeks, the President and I have had extensive conversations about the vital importance of consumer financial protection.

The President asked me, and I enthusiastically agreed, to serve as an Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau. He has also asked me to take on the job to get the new CFPB started—right now. The President and I are committed to the same vision on CFPB, and I am confident that I will have the tools I need to get the job done.

President Obama understands the importance of leveling the playing field again for families and creating protections that work not just for the wealthy or connected, but for every American. The new consumer bureau is based on a pretty simple idea: people ought to be able to read their credit card and mortgage contracts and know the deal. They shouldn’t learn about an unfair rule or practice only when it bites them—way too late for them to do anything about it. The new law creates a chance to put a tough cop on the beat and provide real accountability and oversight of the consumer credit market. The time for hiding tricks and traps in the fine print is over. This new bureau is based on the simple idea that if the playing field is level and families can see what’s going on, they will have better tools to make better choices.

If the CFPB can succeed at leveling the playing field, we can go a long way toward repairing a gaping hole in the budgets of millions of families. But nobody has ever thought or argued that the consumer bureau can fix everything. Lost jobs, stagnant incomes, rising costs for college, dwindling retirement savings—there’s a lot of work to be done.

When she was 16, my grandmother, Hannie Reed, drove a wagon in the Oklahoma land rush. Her mother had died, so she was up front with her little brothers and sisters bouncing around in the back. When I was growing up, she talked about life on the prairie, about marrying my grandfather and making a living building one-room schoolhouses, about getting wiped out in the Great Depression. She was hit with hard challenges throughout her life, but the moral of her stories was always the same: she would solve her problems one at a time by pulling up her socks and getting to work.

It’s time for all of us to pull up our socks and get to work.

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NewsFedEx 1Q profit doubles; will cut 1,700 jobs

by Dan Crawford

Via Daily job cuts, this report highlights a problem:

NewsFedEx 1Q profit doubles; will cut 1,700 jobs

NEW YORK — FedEx says its fiscal first-quarter earnings doubled and the company will cut 1,700 jobs as it consolidates its trucking operations to save money.

The company is also boosting its quarterly per share outlook to between $1.15 and $1.35, from $1.05 to $1.25.

The Memphis, Tenn., company earned $380 million, or $1.20 per share, compared with $181 million, or 58 cents per share a year ago.

Revenue rose 18 percent to $9.46 billion.

FedEx will combine its FedEx Freight and FedEx National LTL operations on Jan. 30, closing 100 facilities and cutting 1,700 workers. FedEx Corp. says the move, along with other cost cuts, will ensure it’s profitable next year.

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The hypocrisy of most deficit discussions

by Linda Beale
crossposted with Ataxingmatter

The hypocrisy of most deficit discussions

Congress seems incapable of setting aside electioneering rhetoric and talking straight about taxes and deficits. The GOP claims that it thinks deficits are bad things while at the same time it proposes no spending cuts (except to important safety net programs) and does propose further tax cuts.

Just a bit of background on tax cut rationales and deficits.

Back in the old days of the Bush regime, the tax cutters tended to claim that tax cuts would create jobs and raise (not lower) government revenues. They didn’t. The Bush administration had anemic job growth, certainly seeing no boost from the humongous tax cuts enacted in 2001, 2003, and 2004 (and smaller cuts throughout the term). And we have enough experience with tax cut programs from Reagan to Bush I to Bush II to see that revenues do not miraculously go up when the taxing provisions that are intended to raise revenues are cut back. Sometimes there are a few localized effects–such as increased selling of capital stocks to take advantage of a new and lower rate because it is expected that higher rates will have to be enacted later. But tax cuts cut revenues.

Further, in spite of the GOP attempt to label the Dems as the tax-and-spend party, the GOP turned out to be the tax-cut-and spend-anyway party. Government grew under Bush, even while revenues shrank. The war in Iraq, for example, resulted in huge expansions of military and defense costs, and the homeland security apparatus, much of it intrusive of our private liberty and ineffective at dealing with terrorists, piled on additional government bureaucracy and costs.

If you cut revenues without finding appropriate government programs to cut, then you will increase government borrowing and increase government deficits.

Now, deficit increases make sense sometimes. When the economy is in a slump, it means that private spending is down, so government spending is needed to move it out of the slump. A deficit that is caused by increased government spending that helps the economy by restoring jobs and getting the economy moving again is a deficit that will be reduced as the economy grows, people with jobs pay taxes, and government spending that was used to supplement inadequate private spending can be cut back. Infrastructure spending provides that kind of a stimulus–building systems that will last for years now, to create jobs and stimulate the economy serves the public interest now and for the long term. See, e.g., Laurence Seidman, Reducing Future Deficits While Stimulating Today’s Economy, 7 Economists’ Voice Art. 2 (Sept. 2010).

But the deficit created by the Bush tax cuts doesn’t make sense. It is based on “trickle down” economics–the view that if the rich get richer, everybody else will do well too. But that hasn’t been the case. Since 1980, the rich have gotten immensely richer, but most Americans have hit stagnation, with real wages not sharing at all in the productivity gains that have made corporate managers multimillionaires. The productivity gains, that is, have gone to the people at the top, and the people at the top have horded them, supporting tax policies that give themselves huge tax cuts.

Tax cuts–especially for the wealthiest people and corproations–do not make sense. That money is as likely to be invested overseas as in the US, and overseas it does nothing but contribute to the job drain. Corporations purchasing new equipment with the 100% expensing may buy that equipment from China or India or Korea–again, pushing jobs overseas and doing nothing to stimulate the local economy, but costing the government the tax expenditure that could have been used for public infrastructure projects instead.

And now to the current situation as the “Senate G.O.P. Digs In to Keep Tax Cuts”

The income tax provisions passed during the Bush regime were almost all temporary provisions–they were passed with a sunsetting provision so that they expire at the end of 2010, and the law as it was prior to the Bush administration retakes its place as the applicable law. The question now is whether new laws should be enacted along the same lines.

When the Bush cuts were enacted, the arguments were that tax cuts would lead to more revenues (they didn’t), that there was a surplus to return to the people (there wasn’t–by the time the GOP Congress enacted the 2001 tax cuts, there was already a deficit), and that the tax cuts would stimulate the economy so that it would grow really fast and create large numbers of new jobs (it didn’t–job growth was anemic).

Remember, folks, there was no huge public outcry for new tax cuts when the Bush regime passed the 2001 cuts. And the cuts were made temporary BECAUSE of the huge cost of extending them for more than ten years, which would have made the deficit creation impact too obvious. This was policy pushed by the right, not by the public. Does the fact that the teapartiers are now part of the anti-government, anti-tax hollering mean that people really want to retain the super-low taxes of the Bush period no matter what? I doubt it. Remember those teapartiers who want the government to stay away from their Medicare and Social Security? How about Center for Disease Control–would anyone want there to be no federal vaccine programs for highly contagious diseases? How about National Science Foundation–would people want basic scientific research to cease in the US, so that all our brightest young minds would go to China or India for education and work, leaving us with no innovation? How about emergency response funding–do we not want the Federal Government to be able to send people, supplies and support to Katrina-type events? What about keeping the food supply safe? the water supply? medicines? All of these things are “we the people” acting to do things that need to be done through the Federal Government.

John Boehner, the House Minority Leader and generally not a very astute person to trust with developing tax policy, had actually admitted to some rational thinking on the expiring Bush tax cuts last Sunday on Face the Nation. He acknowledged that he could support a new tax cut for the middle class, even if the wealthy didn’t get one. Daniel, Boehner says he’d support a middle-class tax cut, YahooNews.com (Sept. 12, 2010). Of course, he resorted to the old “class warfare” attack–according to the GOP, anybody who doesn’t give a tax cut to the rich every time they give some kind of break to the poor is engaging in class warfare.

Aside on “class warfare”: But of course, the GOP has supported numerous tax breaks that are primarily for the rich–or only available to the top 40% of taxpayers–and never admit that is class warfare. e.g., the deduction for home mortgage interest on mortgages up to a million dollars, which is available only to those who itemize –about 30% of taxpayers, and of those 30%, is of the most benefit to the richest minority who pay higher rates and thus get a larger deduction, or the exclusion for municipal bond interest, which is used by the wealthiest taxpayers who have most of the financial assets, etc.

Progressives would argue that class warfare is represented by the corporatist agenda that extracts all productivity gains for managers and owners and leaves workers without even the pension promises that were made when workers accepted lower wages for higher pension benefits, or the policies that make it extraordinarily hard for workers to form a union, which would give them some semblance of equality of bargaining power with the concentrated power of megalithic multinational corporations, or the “globalization” policies that lead to free trade agreements that impose no protections for our own workers or our environment, etc.

The reasonableness represented by Boehner’s concession lasted all of a microsecond. Boehner’s deputy, the House Republican whip, got out the word on Monday that the Republicans would only be content with a bill that enacted new tax cuts for the wealthiest as well as the most vulnerable–anything else, he says, is a “nonstarter.” And Mitch McConnell, the Senate Republican leader, proposed legislation for new tax cuts that would be the same as the Bush tax cuts for everybody. See Herszenhorn, Senate G.O.P. Digs In to Keep Tax Cuts, NY Times, Sept. 13, 2010.

The cost of enacting new tax cuts that provide the same revenue reductions as the Bush tax cuts will be enormous. It will cost $700 billion over ten years for the new tax cuts for the wealthy and a total of $4 trillion over ten years to extend all of the Bush tax cuts.

McConnell’s argument is that it would hurt economic growth and job creation to tax the ultra wealthy now. But that’s a sham argument. The wealthy are likely to save, not spend, any extra monies from a new tax cut. Or invest it overseas. Or just buy some more stock on the secondary market–making a bank or another wealthy person even wealthier. They aren’t likely to start a new company or directly invest in a new start up just because they get a little more spare change from a tax cut. They’d either be doing that already or not doing it at all. And McConnell, as the Times piece notes, isn’t offering either specific spending cuts that won’t hurt the economy nor other sources of revenue to make up for the additional $700 billion needed to give these multimillionaires another tax break in addition to all of the breaks targeting the wealthy already in the Code.

What about McConnell’s argument that the Obama regime has spent the last two years putting the government in charge of everything? Note he included student loans. Just a reminder about the FACTS about the student loan issue. We used to have a direct loan program. It actually made money for the government. But due to funny accounting procedures that were used for such loans, the books didn’t look like the loans were making money for the government. That’s because they were counted as “pure” expenditures, and not as loans that included an obligation for the borrower to pay the money back to the government with interest. So they made money, but looked like they didn’t make money. The GOP seized on this, and under Reagan changed the program to a “guaranteed loan” program. The same universities would do the work, but the banks would get a significantly larger interest rate than the government had gotten for acting as a middleman but bearing no losses. In other words, the GOP privatized the loan program, ensuring banks a “cut” of profits, and providing for the government to pay the banks for any losses they might incur–privatization of gains, socialization of losses. There was less money to lend, since the banks were getting the interest income and paid by the government if there were losses. The government was losing money instead of making money. But it LOOKED LIKE the government was smaller. And the GOP bragged about its new privatized loan program. As years went on, people argued for a return to the direct loan program. This was especially true when banks managed to get students to consolidate old loans and retain their higher subsidized rate even when they were supposed to reset the rate to a lower rate. So Clinton inaugurated a small direct loan program. And we have moved from there forward, saving the government money and providing students with a cheaper loan program. The only losers in the direct loan program are the banks who no longer get their “entitlement” “welfare” handout from the government. And McConnell condemns the Dem for that change, hoping that Americans will be gullible enough to be fooled into thinking that the direct loan program represents an awful invasion into private commerce, instead of a reasonable and wise use of government funds to provide students the opportunity to have a college education.

By the way, Lieberman is, as usual, supporting the GOP platform on taxes with a statement that “the more money we leave in private hands, the quicker our economic recovery will be.” When private spending has declined, that statement is not only likely wrong, it misses the fact that without government spending there is likely to be no recovery.

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Trade policy stories

by Dan Crawford

Stormy asks in an e-mail: At one time, I thought America was supposed to lead the way in green technology, providing jobs for Americans…and sends this quote from the Washington Post.

The last major GE factory making ordinary incandescent light bulbs in the United States is closing this month…

What made the plant here vulnerable is, in part, a 2007 energy conservation measure passed by Congress that set standards essentially banning ordinary incandescents by 2014. The law will force millions of American households to switch to more efficient bulbs.

The resulting savings in energy and greenhouse-gas emissions are expected to be immense. But the move also had unintended consequences.

Rather than setting off a boom in the U.S. manufacture of replacement lights, the leading replacement lights are compact fluorescents, or CFLs, which are made almost entirely overseas, mostly in China.

Well, let’s see. The article seems to imply a whole story- Environmental concerns pushed closings and lost American jobs, which was not forseen, and those awful Chinese somehow wound up with the manufacturing.

The IBEW notice adds a bit to the story:

The news stunned Lexington Local 1627 Business Manager David Butcher, who represents 114 workers at the plant. “I knew there was trouble but that was the last thing I expected to hear,” he said.

That local had recently negotiated an agreement with the company to help reduce costs by agreeing to a wage freeze and flexible overtime regulations, hoping to buy more time so GE could update its facilities to be more competitive.

And then this article points to our responses on trade. It describes the next generation after flourescent technology of lighting using LED technology.

The Federal government either has no role to play in trade policy to benefit its own citizens according to free trade enthusiasts, or possibly is only part of a short term ‘stimulus’ package for green technology. Bottom line decisions on how and where to do business are global in nature without regard to your role as a citizen. Admired from afar it all looks good, but how do you voice a concern for where you belong.

As indicated in the article the role of suggesting incentives has been traditionally a function of municiple and state governments, leaving individual trade agreements with countries to the federal government.

Pay special attention to the notion that the national government of China is offering help to locate a manufacturing site in Mexico with the help of the national Mexican government. And that the current employees to manufacture new light bulbs are drawn from former government employees (NASA).

The national narrative on trade bears little resemblance to the reality of doing business from this point of view. When listening to speeches it is best to keep this in mind.

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Private Student Loan Bankruptcy Fairness Act of 2010

The Project on student debt updates on student loans:

Yesterday the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law took a stand for students and consumers by passing the Private Student Loan Bankruptcy Fairness Act of 2010 (H.R. 5043). The bill reverses the unfair and unjustified special protections for lenders of private student loans enacted in 2005. There have been two hearings on the topic in the past year, but this was the first time this bill came up for a vote, and it passed 6-3 with no amendments. Under the new legislation private student loans would once again be treated like other consumer debt in bankruptcy.

and

The U.S. Department of Education released new data this week showing that the national “cohort default rate” on federal student loans is 7.0 percent. The default rate at for-profit colleges is highest at 11.6 percent – almost double the average rate for public colleges. Nearly half of all defaulters (43 percent) attended for-profit schools, even though these schools enrolled only about ten percent of all college students during the relevant time period.

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