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

Accounting for the Current Economic Crisis and Inadequate Political Responses

by Tom Walker (aka Sandwichman)

(Dan here…this piece is in the middle of a conversation starting in 1997 to now and how we measure up in our capacity or willingness to learn different lessons from the series of financial bailouts of the last thirteen years. The links are necessary to flesh out the argument, but I hope further posts will develop the debate for newcomers. This also marks Tom’s new website Ecological Headstand)

Accounting for the Current Economic Crisis and Inadequate Political Responses

The day before yesterday, while searching for an online copy of an article on the rhetoric of Polish accounting he had cited many years ago, Sandwichman stumbled upon an old email list exchange from thirteen years ago between himself and the inestimable Miracle Max. The exchange illuminates the present economic crisis and the inadequate political responses to it from the left as only “a tiger’s leap into the past” can.

The question Max was addressing was the attitude of the left, broadly defined, toward financial bailouts. At that time, it was South Korea on the block. Max’s instinct was that “we’re going to see more rather than less of these events — crises that fall short of apocalypse but which reflect significant acts of economic exploitation and lost political opportunities.” Who can argue with that? “It seems to me,” Max mused, “that our politics lacks the right response to the current and incipient financial events. By “our” I include both a liberal, muddle-through stance and a radical, sit-back-and-gawk posture.” Thirteen years on and we haven’t learned a bloody thing!

Sandwichman’s reply called for “attention to something the left generally hasn’t been too interested in: accounting standards.” Remember, this was four years before the Enron, Arthur Anderson, etc., etc. debacle. It went on to contrast the much-hyped public drama of bailout negotiations with the arcane minutiae of the behind-the-scenes “technical” discourse of accounting where the conventions of what constitutes the bottom lines are drawn.

Max answered that he’d “like to hear more on the substance of the accounting issues, which really get my juices flowing” and Sandwichman replied that he, too, would like to hear more. “It seems to me that there is a missing link that I’ll call ‘labour accounting within capitalism.’ …I have a sense of what the missing pieces are but the task of pulling the loose threads together is huge. I could write an article or even a book, but I have a sense there is an entire missing sub-discipline here.”

Thirteen years later, the Sandwichman retreated to idyllic Mesa Refuge in Point Reyes Station, California to work on the revision of his manuscript. The gist of that revision was to bring the topic of social accounting – which had been buried entrails of a pair of chapters dealing with other matters – to the fore. The book, Jobs, Liberty and the Bottom Line (an unpublished manuscript), can serve as an introduction to that “missing sub-discipline” but more urgently it stands as an indictment of broad left complacency in assenting to the grammar and vocabulary of a bankrupt model of social accounting, riddled with “wondrous errors and confusions,” whose overt purpose is anathema to the prospects of human emancipation.

“One of the most important points in the whole of political economy,” according to Fred Engels, arose out of the problematic relationship between the ordinary business practice of book-keeping and political economy proper. Simon Kuznets was no flaming radical but he recognized and warned of the “dangerous implications that should be obvious” of fetishizing, in the national income accounts, government itself as the ultimate consumer. Exactly what Kuznets meant by that hinges on an understanding of such arcane points such as how to distinguish between intermediate goods and final goods and just what constitutes “duplication,” which I hope this brief historical note will clarify. The proper response to every assertion that “economic growth is essential” should be “do you want that growth with or without ‘double counting’?”

(Permission granted from Max to use e-mails)

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Increasing taxes

by Linda Beale

Increasing taxes on the rich
crossposted with Ataxingmatter

Sometimes a few letters to the editor can restore one’s faith in the sensibleness of fellow Americans.  I particularly like Jerry Trupin’s Nov. 25, 2010 New York Times letter responding to Nicholas Kristof’s article on hedge funds.  In A Hedge Fund Republic, New York Times, Nov. 18, 2010, Kristof noted that the US has long surpassed familiar “banana republics” in rampant inequality, with plutocrats in the top 1%  controlling 24% of American income in 2007.  In that context, it simply doesn’t make economic sense, Kristof says, for Congress to plan to give $700 billion in tax cuts to the wealthiest amongst us for the next ten years and yet not be willing to extend unemployment benefits for the long-term jobless as a result of this recession.  The richest 0.1% of taxpayers would get an average tax cut of $370,000–no way, Kristof says, that they will hire enough new groundskeepers and garage maintenance personnel to make that a good way to jumpstart the economy,  compared to getting money in the hands of those at the bottom. Tax cuts didn’t work to create jobs in the Bush II regime, and they’re not going to work now.  Getting money into the hands of the poor and middle class–especially the unemployed–does. 

Trupin’s brief letter says it all–as one of the fortunate whose taxes would increase if the Bush cuts aren’t renewed for the wealthy, he benefited last year by being able to refuse to take out a 401(k) minimum distribution, saving himself $28,000 in taxes but not spending an additional penny.  That was a giveaway for the rich, as so many of our policies have been.  And it didn’t do a thing to create jobs.

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He Gave at the Office

What Treasury under Geither does, according to the Washington Post:

“I think we are known as the front line,” said [Michael] Pedroni, 38, a former International Monetary Fund economist and Federal Reserve Bank of New York employee who has spent time at a Wall Street research firm. “Our analysis is meant to be very candid, very quick, very unvarnished.”

Fortunately, he left the FRB NY before Geithner did, so it’s not a question of nepotism, just the finance perspective.

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Ireland is Bankrupt…a letter from an Irish citizen

A letter sent from Ireland (updated):

For less than what the US spent to save AIG, a corporation, with relatively easy terms; a country sinks below the financial waves. TBTF reaches across the ocean. As posted by Zeus-boy, his comments on his homeland of Ireland. (introduction by run75441)

Ireland is Bankrupt

Herman Van Rompuy, President of the European Council, warned that if Ireland didn’t apply for an EU/ECB/IMF bailout for its failed banking system, its soaring budget deficit and its colossal national debt, then the European single currency might collapse [the bond markets have already panicked and cashed in], and if the International markets lost confidence in the Euro, then the dissolution of the Union would quickly follow. He said the future of the Eurozone depended on stemming the tide of market distrust caused by the tanking Irish economy. He feared contagion, that Portugal and Italy and Spain would soon follow.

Ireland is not only insolvent because it has no liquidity, no way of meeting its debts. The government decided to link the economic future of the country to a failed banking system and now the two are inextricably intertwined. No amount of raised taxes can bail out the banks and still pay the day-to-day running expenses of our welfare state. The famed ‘Celtic Tiger’ boom economy was always a high-risk, dangerous fiction. Someone dubbed Ireland the ‘Wild West of Economics’. Our illusory wealth was tied to a property bubble that was as unsustainable as it vacuous, and all the money was borrowed, primarily from German savers. We were hooked on credit like it was crack cocaine. We binged but never purged and we stayed high to postpone the inevitable hangover. Everybody was in cahoots, from corrupt local governments, driving through emergency rezoning laws, to rogue bankers financing the criminal inflation of developments and shoveling billions to builders, to newspapers cashing in on their property advertising to regulators asleep at the wheel. Our mafia don cum Taoiseach, Bertie ‘Gombeen-Man’ Ahern, invited critics of the system to commit suicide. Nobody left the orgy. Nobody wanted to leave. Planet Hollywood had finally come to Planet Ireland!

But inevitably the whole house of cards would come crashing down, and Bertie [who tendered his timely resignation just before the collapse] soon got his wish as the suicide rate started to climb to the highest in Europe. The government panicked. The Minister for Finance, a barrister by profession, got a crash course in national and global economics. He learned about markets and budgets and bonds and gilts on the job, on a need-to-know basis. He instituted an abstraction called N.A.M.A. , The National Assets Management Agency, whose remit basically is to buy up all the debt and properties left unfinished and unpaid for by the construction moguls [developers & builders] and their bankers, to transfer them to a national trust, cue Irish tax-payer, as if we owned them, or even wanted them, or could avail of them in any way, and to pay off the outstanding loans. All over Ireland, in every town and village, are these unfinished ghost estates. These now belong and do not belong to the Irish taxpayer. This offense was compounded by the decision to bail out the very banks [like Anglo Irish and Irish Permanent, really, all of them] that got us into the mess. The banks were hemorrhaging money [and still are] and the government was on hand to provide on-the-spot triage, a botched stitch-up job if there ever was one, a cluster-fuck of cosmic proportions.

The government, Fianna Fáil in coalition with The Greens and a few independents, lied through their teeth and kept telling the Irish taxpayer that exports were up, that the revenue would come in once the austerity budget was passed, once the 4-year plan was unveiled and ratified and that no bail-out would be necessary. Reduce public spending, they told us, tighten our belts; cut the public sector; Trim this, give a haircut to that and all would be hunky dory. Well, the same shower of gangsters who gave the green light to sub-prime lenders and hedge-fund speculators-gamblers went to the ECB/IMF with cap in hand this week and begged for a bailout. Then they came on TeeVee to announce the done-deal. Ireland will borrow over 85 billion from its partners in the EU and the IMF and, depending on the repayment interest, 5 -7%, we could be paying back upwards of 4 billion a year. That’s about 1/4 of the Tax intake. The debt is completely beyond our means as Constantin Gurdjiev, and David McWilliams are trying to point out.

Ireland is used to erosions of its sovereignty ever since we joined the European Union. We, we had our first referendum on the Lisbon Treaty in June 2008 and it was defeated. Sarkozy told our Taoiseach that he delivered the wrong result and to go back to the people and get the right result next time, so that’s exactly what happened and so in April 2009 the treaty was finally passed in Ireland. So much for Irish sovereignty. Our membership of the single currency in 1998, as part of our EU obligations under the Maastricht Treaty, further compromised that independence. Now ceding control to the IMF — to save the Eurozone — is the final nail in the coffin of that putative myth known as Irish sovereignty. We gave away so glibly what we fought so hard to achieve.

Was it for this the wild geese spread
The grey wing upon every tide;
For this that all that blood was shed,
For this Edward Fitzgerald died,
And Robert Emmet and Wolfe Tone,
All that delirium of the brave?
Romantic Ireland’s dead and gone,
It’s with O’Leary in the grave.

I’m afraid the verdict isn’t very flattering. Ireland is indeed a banana republic, a land full of cronyism, wink and nod business deals, insider trading, nepotism, feather your own nest and forget about the next guy, take all you can as quickly as you can no matter who gets hurt, ostracize the whistle blowers and critics, advance number one every time and keep the circles closed. There’s no sense of civitas here, no notion of self-sacrifice, no pride in history, culture, nation; it’s all up for grabs to the highest bidder. It doesn’t matter that we struggled for 800 years to achieve independence, that millions died in the process; it doesn’t matter that the folk memory of harsher times is still very much alive; none of this mattered to the few generations that have dismantled our country institution by institution and thrown the Irish people to the wolves, the bean counters in the IMF who will now control our destiny. Our political system is in ruins. The people have lost all faith in their elected representatives. They feel that welfare for the wealthy, bailouts for crooked corporations and rewards instead of punishments for embezzlement and thievery is the rule of the land. And what the British and the world said about us, all the stereotypes, seem to be true after all and maybe were always true: we were never equipped to govern ourselves, we’re a nation of drunks, peasants, irresponsible wasters and chancers addicted to violence and quick fixes. Our independent republic is less than a century old and already it’s in smithereens — we’re in the gutter and being dictated to by the UK, Germany, France and the IMF. Mr. Ajai Chopra is our new vice-chancellor, our new Taoiseach, our new overlord and big boss and we’ve just been recolonized, first by our own brood of inbred gangsters and now by international bankers. We didn’t deserve any better. It’s our own damn fault.

By ‘we’ I mean the select few that got our country into the financial mess. But the blame game serves no useful purpose now: we’re all fucked, not equally, mind you [but when are people ever fucked equally?], and the nation has no option now but to drive through a draconian austerity budget and then take the bailout and let our affairs be run by outsiders. Could we say ‘Fuck You’ to the Euro and go back to the punt? Could we say ‘Fuck You’ to Germany and all our debtors? Could we say ‘Fuck You’ to the EU and let the Eurozone fall? Our politicians tell us we have no choice. It would be therapeutic to tell the lot of them to piss off and to return to hunter-gatherer status but how feasible is that? Kids think beef patties are really square and grow on trees. They wouldn’t know how to pluck a chicken let alone sow and reap a harvest. Everything’s in the grocery store and they’re too busy playing play station, twittering and gabbing on Facebook to worry about the right time of year to plant a tuber. The EU is run by neo-liberalist economic policies and if Ireland doesn’t play ball the multi-nationals will up and relocate to cheaper labour markets. They’re already doing just that. They’re encouraged to do it by Merkel and Sarkozy and Cameron.

And then there’s always the fear that this crisis will inaugurate excessive nationalism, that the Provos will exploit civil unrest and lack of confidence in the government to push their demented and deranged United Ireland bollocks. Gerry Adams has already announced his candidacy for a seat in Co. Louth which, if elected, will find him in Dáil Éireann. This would be disastrous for Ireland. Ireland doesn’t need Sinn Féin’s brand of patriotism. People should remember Gerry Adams’ devolvement announcement for the Good Friday Agreement: He said he was now ready to pursue through the political process the same agenda he failed to achieve through armed struggle, that is, a United Ireland. If Sinn Féin ever gets a foothold in Irish politics there will be a return to the rule of the gun; if his bunch of murderous, terrorist thugs are ever allowed to exploit the political vacuum in Ireland there will be a bloodbath. Adams has always preached against the EU and partnership with Britain. He’s still the same dickweed that did time in Long Kesh and had Jean McConville a widowed mother of 11 children murdered because she administered last rites to a British soldier who died on her footstep. His brand of fascistic nationalism is no good for Ireland. We must reject him and what he stands for.

As a nation we’re a joke, a laughing stock, and now it’s time to become a colony of the IMF under the direction of the same cowboy outfit that brought peace and prosperity to Argentina and Iceland. O Joy, I just can’t wait. We the Irish People have our asses greased for yet another bout of sodomy. We’re used to it. It feels good. And this time we walked right into it. Heck, we can always get drunk afterwards, have a rare old session and weep and wail over our Fenian dead.

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How Smart is Klein ?

This is another post linking to Ezra Klein. I can’t help linking to his post noting that self identified Republicans and Democrats agreed about how the economy was going when Clinton was President, but then disagreed when Bush was President, with most Republicans saying it was excellent or good in 2006.

The data from Pew.


My thoughts after the jump.

Klein offers two explanations and I propose a third. To recap he notes that people might agree about the economy when it is excellent or terrible. But he worries that there is a trend towards a partisan divide in perception of everything as people use the internet and select cable channels to find information which confirms their prejudices. This is testable as people are sometimes asked their main source of news.

I wouldn’t be surprised at all if the real growing perception gap is between Fox News viewers and everyone else. David Frum once said something like “We thought that Fox worked for us, but now we work for Fox.” OK Fox news and talk radio, but media not a party.

I’m posting because there is another possibility. It is possible that Democrats have a generally more negative view of the US economy and that there is a constant partisan bias so people of the same party as the President have a more positive view. This makes sense. A large part of the Republican ideology is that the USA is better in every way than Europe.

The evidence comes from the tiny bit of data on opinions under Bush the elder. The economy was in recession so even most Republicans said it was not good. However slightly more than 20% said it was good or excellent in 1992. That was crazy.

The ratio of fraction of Republicans who say it was good or excellent to fraction of Democrats who said it was good or excellent was about 2 under both Bushes. I think my little story fits the data and that I have to find more data to distinguish it from Klein’s using new technology to create partisan cocoons hypothesis.

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Everything Old is New Again, The "Value" of Active Investment Managers Edition

First, there was Fred Schwed’s Where are the Customer’s Yachts?, which is still the standard bearer for why Money Managers are overpaid.

Now (via the NYT) there is The Investment Answer (preface here [PDF]).

The Prologue opens more Matt Taibbi than Jason Zweig:

Wall Street brokers and active money managers use your relative lack of investment expertise to their benefit…not yours

Of course, they have a method That Will Work to solve this, which looks suspicuously like what those Active Money Managers say they do. And what you would think Economic Theory would tell you to do, which may be why they have the endorsement of Eugene (“the markets are too efficient”) Fama among many others.

Perhaps it’s time for economists to model why economic theory doesn’t work?

The last time people realized their money managers were taking them for a ride, the market basically sat still for a generation. Whether this dying text is a leading indicator is left as an exercise, though not an academic one.

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Friday Animations: Why is health care reform so difficult

by Linda Beale

Friday Animations: Why is health care reform so difficult
crossposted with Ataxingmatter

If you think about it, health care surely is one of the basic human needs that we should try to ensure is met for every person, if at all possible. That’s the idea behind universal health care–that is, that the US should have a system that covers everyone, not just the wealthy. That no one should have to give up home or job to have health care. That no one should die from an easily treatable illness simply because they didn’t have enough money to pay a doctor. That our health system should work for the people, and not for corporate interests. That health insurers, if they are to be involved, should only be making a reasonable profit out of guaranteeing that the services we want are available–they should not be able to deny care, they should not be able to decide what kind of care is available, they should not be able to rip people off for exorbitant profits. Because they are providing a service that meets basic human needs, they are a quasi public utility and must be regulated as such, if they are to exist at all.

Other countries seem to have managed this much better than we have. Canada’s health care system costs about half what ours does yet provides better service. Same in Europe. We have missed the boat.

The health care reform act is just a first step in the right direction. It involved way too much payoff for the health insurers, and not enough reform. But it is a start. The new rules about pre-existing conditions are very important. The mandatory coverage is very important. Eventually maybe we’ll finally be able to enact a public option. And then, who knows, maybe we’ll finally enact a single-payer system that will provide to Americans the quality of health care, at the lower expense, that Europeans have enjoyed for decades.

So here’s today’s animation feature–a reminder that health care reform made some progress, but that we have a long way to go. What we don’t need, however, is gutting of the little progress we did make.

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Paying better wages and profit sharing another way to success?

Higher Wages, Profit Sharing and Greater Flexibility Benefit All Employees — And the Company Bottom Line Too
(link repaired)

Costco is so certain that its policy is sound that it has kept paying better wages than rivals, even as Wall Street has pressured the company to conform to industry standards.

As the economy slowly recovers, it’s no secret that companies would like to boost productivity and profits. Many think the best way to do so is to slash costs. As an entrepreneur and business owner, though, I’d like to suggest another idea: Pay your employees more.

That’s not as crazy as it sounds. A growing body of evidence is revealing that companies that pay fair wages, and offer flexibility and training to even entry-level and lower-skilled employees, do better than those that don’t. A vast number of businesses mistakenly assume that their lowest-wage workers are easily replaced or not worth investing in, but those that do the right thing soon find that they’re doing the right thing for their bottom lines. It’s time that this becomes a business norm.

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218 + 60 + 1….math of the budget deficit

To solve the deficit, the numbers add up – but not the votes Ezra Klein

The sudden proliferation of deficit-reduction plans is a reminder that the deficit is, at its heart, a math problem. To get the budget into “primary balance” in 2015 – that’s wonk-speak for a balanced budget before interest payments, and it’s the target everyone is trying to hit – we need $225 billion in savings and new revenue. And you know what? That’s not so hard.

You get there by adding taxes and subtracting spending. As the differences between the various plans suggest, there are a lot of ways to do that. Alan Simpson and Erskine Bowles, the Bipartisan Policy Center, Rep. Jan Schakowsky (D-Ill.) and the conservative Americans for Tax Reform all have their own proposals, with their own unique mixes of policy suggestions.

Resolving the deficit, however, requires a different sort of math. The equation is almost insultingly simple: 218 + 60 + 1. That’s a majority in the House plus a supermajority in the Senate (though you could do this through budget reconciliation, meaning you only need a majority) plus a signature from the president. This math problem, however, is almost impossible to solve. That’s because the politicians don’t agree, and perhaps more important, neither do the people.

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Boomer life experience

EEOC offers this information:

The Commission heard testimony from a number of experts on the impact of the economic crisis on older workers, the legal issues surrounding age discrimination today, and best practices to retain older workers. Dr. William Spriggs, Assistant Secretary for Policy, U.S. Department of Labor, testified that the rate of unemployment for people age 55 and over “rose from a pre-recession low of 3.0 percent (November 2007) to reach 7.3 percent in August, 2010, making the past 22 months the longest spell of high unemployment workers in this age group have experienced in 60 years.” Older workers also spend far more time searching for work and are jobless for far longer periods of time compared to workers under 55.

(bolding mine)

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