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

David Frum explains why friends don’t let friends vote for Republicans

He wrote

The right kind of focused, temporary government spending can also be a powerful job creator. Over the next generation, we desperately need to improve our road, air, and rail networks and to modernize our systems for distributing electricity. We should be doing as much as possible of this work now, to spur recovery.

Unfortunately, infrastructure investment has been a victim of our broken politics. The money does not go to the best projects. The money is earmarked by the most powerful politicians. We need a new tunnel under the Hudson. We get a bridge to nowhere.

(via Jonathan Chait)

Pretty good for a Republican except for the bit about reality. We didn’t get a bridge to nowhere. The project was cancelled (and not because Palin said “thanks but no thanks”). Frum couldn’t be bothered to find an example of actual pork barrel spending, because he is a Republican and mere facts are beneath him.

But he does have a point. The transportation bill which included funding for the bridge to Gravina island was a monstrosity — passed by a House and Senate with Republican majorities and signed into law by George Bush Jr. Also Republican governor Christopher Christie’s decision to cancel the project to build a new tunnel under the Hudson was idiotic.

There is an easy solution to both problems noted by Frum. Never vote for a Republican again.

Maybe maybe if there were no elected Republicans Frum could find a decision made by a Democrat to criticize.

Comments (4) | |

The Real State of the Union. Mr. President, I suggest for you: Flowers.

By: Daniel Becker

Well, it’s that time of year again. The State of the Union. And the state of my business. So far, from what I’m reading regarding the expected content of the address by President Obama, I think I’ll just practice my playing as I usually do on Tuesday nights. Really? What’s the use in listening? We have a person  who heads a company that is noted for pushing the off shoring concept of growing America via their prior celeb CEO, Jack Welch as Obama’s pick to head up the committee that is going to figure out how to boost job creation? And we wonder why this country can’t regain the glory days of accomplishment and prosperity. Actually, I don’t wonder. I know.

Though, I see Welch has had a change of heart? At least as it relates what a business should prioritize.

“On the face of it, shareholder value is the dumbest idea in the world,” he said. “Shareholder value is a result, not a strategy…your main constituencies are your employees, your customers and your products.”

Oh sure, after he got his.

Let’s get to it.

2010 started off looking hopeful for Fontana’s Flowers. We were up 1.5% for the first quarter, then April came. Off 17% even with Easter. By the end of June we were back up again 1.5%. So, I figured we had at least hit the bottom. WRONG! July came, off 21%. August came, off 20%. Every month since June as been off. It produced the following picture.

I guess we are hitting the bottom finally. It’s only been 5 years.

Now, before I start hearing about how flowers are a luxury, what does it say about a nation’s economy such as ours when a simple luxury that has the power to :

When women were given flowers, they always responded with a ‘real’ duchenne smile, and reported more positive moods three days later.

When men or women were given a flower, they responded with a duchenne smile and engaged in more prosocial activities (compared to control conditions of being given a pen or nothing).

Flowers given to elderly people resulted in more positive mood and improved episodic memory!

The researchers also reported other “unusual emotional displays that they were unprepared to measure,” (4, p122), including:

Hugs and kisses.
Invitations to participants’ homes for refreshments.
‘Thank you’ cards and letters – some with photographic evidence of the continuing beauty of the bouquet.

As they sum up – “In many years of studying emotions, we have never received hugs and kisses, thank you notes or photographs, not even for candy, doghnuts, hats, gift certificates, or direct monetary payment; flowers are different.”

…is not affordable to the masses? It says we are an elitist nation in the ugliest meaning of the word elite. I think considering the nation’s psyche, these pictures sum up the proper scientific based response to such ugliness.

Again, what does it say about our nation’s priorities when the masses can no longer afford such a simple luxury which has so many benefits that frankly, we need to experience desperately.

Back to business. There was a reason in part for our second half results. It was the stimulus programs of “shovel ready” projects. Seems many were not really shovel ready. Instead of having proper engineering and surveying performed, they went for quick and simple. This left me with 3 months of traffic issue powerful enough that even the big box stores were hampered. However, my “small business” is left with the following:

What you are viewing is a new, never existed prior, 6 ft wide concrete side walk that is 2.5” above my pavement and within 9 ft of my foundation. This might not be a problem if it were not for the fact that this new sidewalk leaves my foundation only 1/2” above the side walk. Can you say “gutter”. I am told, and I’ve tried, that I have to live with this. I also have to live with the curbing being 5” high, which means instead of having an easy in/out parking lot that was cut short when they originally widened the road, I have one that acts like a one way street. And, to add insult to injury, they stuck a “Tow Zone, Snow Route” sign exactly right where one backs up as they attempt to leave the left end of the parking lot.

Have I given enough to this “recovery” yet?

Back to the Real state of the Union. Here is the all telling picture.

As you can see, account sales are still trending down. Cash sales are leveling off, but the all telling credit card sales is rising. Are people using plastic as they become more digital with their money handling or are they spending on credit? Is it real money, or are they trying to buy a little happiness today for a headache tomorrow?
Personally, and I’m speaking to you President Obama, I still need customers, with money so that I can partake in your job growing desires. Mr. President, considering all the problems you want to solve, and what the science suggests, I would think you would want my business to have all the customers it could handle. To steal a phrase: A vase of flowers on every table. It speaks prosperity, it speaks peace, it speaks harmony, it speaks re-election. When people are able to buy flowers again, Mr. President, you will know that you and congress have set this nation on a real foundation of life, liberty and the pursuit of happiness. Or, you can talk all flowery about job creation to me while I look at your new head of the “President’s Council on Jobs and Competitiveness” CEO who heads the company that lead outsourcing and the shift from making money via manufacturing to making money from money.

For you President Obama. 

Tags: , , , , , Comments (9) | |

How Tax Rates Affect Investment and Consumption – A Look at the Data

by Mike Kimel

How Tax Rates Affect Investment and Consumption – A Look at the Data
Cross posted at the Presimetrics blog

This post looks at how changes in the top marginal tax rates affect peoples’ decisions on how much to consume and invest. Ask a libertarian or conservative economist and the answer is obvious – raising tax rates on high income individuals dissuades them from doing productive things – that is to say, it causes them to cut back on working and investing. In the interest of avoiding strawmen at all costs, many libertarians and conservatives might assume that a hike in the tax rates on such individuals can also cause them to cut back on consumption. After all, if tax rates are raised high enough, perhaps people won’t have enough left over to consume as much as they otherwise would. However, the reduction in voluntary activities that take effort (i.e., work, investment) should easily swamp the reduction in consumption, some amount of which is needed for simple survival. Put another way, as tax rates rise the ratio of investment to consumption should fall.

That right there is what’s known as a testable implication, and there’s data aplenty for that purpose. But before we move on to testing this, let me note that the first paragraph actually provides a second, far more familiar testable implication, namely that higher tax rates will generally lead to slower economic growth. While that particular narrative seems to be widely believed even by non-economists, it certainly isn’t borne out by US data from the last eight decades or so:

Figure 1

(Figure 1 first appeared in this post.)

The graph shows that, at least until top marginal tax rates get somewhere above 50% (a bit more precision available here), increasing those rates does not correlate with slower economic growth, but rather with faster increases in real GDP. In fact, raising top marginal tax rates doesn’t have many of the effects many people seem to expect (And incidentally, its worth noting that state level data also produces results the Chicago school and most libertarians don’t expect.)

Now, the reason I mention the data’s irresponsible failure to abide by conservative and/or libertarian philosophies when it comes to tax rates and growth is because I think the relationship between tax rates and economic growth can be at least partly explained by the relationship between tax rates and investment. As I stated here, in my opinion, higher tax rates can lead to more investment. After all, one way a person who owns a business (large or small) can reduce the taxes they pay on profits is to reinvest the profits, which in turn leads to faster economic expansion. Furthermore, the incentive to avoid taxes and reinvest increases as tax rates increase. Of course, at some point, tax rates get high enough to encourage individuals to reinvest even though the “benefits” from more reinvestment, at the margin, are negative. Where that happens, I don’t know, but based on Figure 1, my guess is that it takes a top marginal tax rate above 50%.

So… here’s what libertarians and conservatives should expect to see: as the top marginal tax rises, the ratio of investment to consumption falls.

Here’s what I expect to see: the relationship between the top marginal tax rate and the ratio of investment to consumption is somewhat curved. For top marginal tax rates between 0 and some point X (where X > 50%), an increase in the top marginal rate leads to an increase in investment/consumption. After that, as the top marginal rate rises, we should investment/consumption level off, and for even higher marginal rates, investment/consumption should fall.

So… using top marginal rates from the IRS’ Statistics of Income historical table 23, and national investment and consumption figures from the Commerce Department’s Bureau of Economic Analysis’ National Income and Product Accounts table 1.1.5, we can construct this little graph:

Figure 2

It’s not a perfect quadratic curve, but it sure looks a lot more like what I had in mind than what any conservative or libertarian would expect. FYI, the correlation between the top marginal tax rate the ratio of investment to consumption for top marginal tax rates below 50% is 55%. That is to say, an increase in tax rates increases the ratio of investment to consumption when tax rates are below 50%. On the other hand, the correlation is a negative 11% when tax rates are above 50%. That is to say, increasing tax rates when they are above 50% has a (not particularly strong) negative effect on people’s “invest v. consume” decision.

Put another way – conservatives and libertarians have a very, very flawed theory of the world. At the very least it does not conform at all with historical US data. At all. Which of course has serious consequences; because that theory is somewhat dominant in the political sphere, and has been since the late 60s. The end result – slower economic growth for all of us since the late 60s. That has real consequences for real people – 310 million of us. That should have repercussions for the consciences of economists who peddle this garbage, though apparently it doesn’t.

But that’s for another post. Today, I want to remain clinical. So… what does Figure 2 mean, with respect to Figure 1? It means that, yes, at least until a certain point (somewhere above 50%), raising the top marginal rate both increases the ratio of investment to consumption and the real economic growth rate. Its not outlandish to assume that increasing investment is one of the factors that can increase real economic growth. (Worth exploring more in a post sometime in the future.) Other things matter, of course, but I think investment is up there among factors that matter.

It also means that since we’re keeping tax rates at the level they’ve been for the past decade or so, we shouldn’t expect sustained rapid investment or economic growth any time soon. Don’t expect the 60s or even the 70s again any time soon – we’re in end of the 80s and 00s level taxation, and over the long haul, we’re in for that sort of growth too.

A few closing remarks:

1. 1. This post was partly inspired by an interview I had with George Kenney of Electric Politics. It was a really useful and interesting conversation for me, in part because he pressed me a bit past my comfort level. I understand he’ll have that interview up in a few weeks.

2. 2. I’ve noticed that a number of the graphs I’ve been putting up are not so much quadratic as a bit bimodal. I have been thinking about that for the past few days, and I think that will be my next post on this “kimel curve” approach to world I’ve been following lately.

3. 3. Please, please, please, please, if you object to something in this post and are planning to bring up Romer and Romer, read this first to save me from being embarrassed on your behalf.

4. 4. As always, my spreadsheets are available to anyone who wants them.

5. 5. Between the time I finished my spreadsheet and the time I wrote this post, I read this blurb from Tyler Cowen’s next book. It might be uncharitable of me, but my first thought was to wonder about the odds a libertarian professor would add two and two together, and whether he could remain libertarian if he inadvertently did.

Tags: , , Comments (29) | |

Ezra Klein asks, Nate Silver answers.

I don’t disagree with Ezra Klein often, so it is all the more pleasant to answer his rhetorical question. He wrote

As a general point, I think “making people take semi-embarrassing votes” is vastly overrated in American politics. Can anyone think of a campaign that even partly turned on one of these gambits?

It should go without saying that if anyone can think of such a campaign then that person is Nate Silver. In fact he has thought of many such campaigns (which appear as dots in a scatter).

I know this is at that other newspaper which must not be mentioned here, but it absolutely answers your rhetorical question

Votes against ACA and TARP are associated with better than otherwise expected performance by Democrats running for congress.

I know you appreciate math, but your question suggests that you think it is useful only for policy analysis and not for political strategy. Even if there is no single case in which a vote on a bill clearly made a difference, it is possible to use information from many races to test and apparently reject the null that roll call votes don’t matter.

I suppose that Klein will argue that those were serious votes and not gambits. I don’t think that the argument that the whole business on which they insisted was a charade will be helpful to embarrassed Republican candidates.

In any case, my argument is that to inist on one case which is convincing all by itself is to reject useful statistical tools.

Comments (1) | |

Health Care: The House’s Vote to Repeal

by Linda Beale
Health Care: The House’s Vote to Repeal
crossposted with Ataxingmatter

Well, they’ve done it. The House Republican majority pressed ahead with their repeal of health care reform, putting us (if their bill were to become law) right back in the mess of spiralling health care costs, tens of millions of uninsured Americans, and no handle at all on how to deal with it. The vote was 245-189, with three purported Democrats joining the entire Republican House membership in voting for Big INsurance and against ordinary Americans. See Herszenhorn, House Votes to Repeal Obama Health Care Law, New York Times, Jan. 19, 2011. For background, see this “backgrounders” (available on BNA) from the House Energy and Commerce Committee chaired by Republican Fred Upton (noting the priority for repealing “Obamacare”).

The health reform passed last year was far from perfect–partly because it was based on a Republican-generated model for health reform that relied too much on private sector self-policing, rather than setting up a single payer system or at least a public medicare-like option to compete with the private system we have now. Our medical system without reform combines the worst of all possible worlds–very high cost (much more costly than those of our peers like Canada) and mediocre service (for all but the wealthiest oligarchic members of our society, who are empowered by their wealth and able to get just about anything they want). So the Republicans have taken a less-than-perfect bill that at least provided medical care for 30 million uninsured Americans with a mandate for coverage that made that insurance affordable and at least addressed some of the painful examples of insurance company power to put their profits above reasonable medical coverage of their customers by eliminating the pre-existing condition provision (which could impact insurance coverage for about half of all Americans, according to a recent study discussed in the Times) and they have proposed simply saying no and putting us back at square one.

If their proposal had offered a better way to achieve the much needed objective of providing universal insurance (or at least coverage for the 30 million aided by the reform legislation), then that might be something worth looking at. But they haven’t bothered to do that. And regretably, the “free market” alternatives that they pushed during the discussion of the existing bill don’t promise much. We’ve had a free market in insurance for decades. That’s why we have a problem. INsurance is too lightly regulated, with companies able to pit state against state and get by with almost no regulation. Insurers put profits first, and have become notorious for denying coverage for technical faults that shouldn’t result in denial of coverage or just delaying payments for so long that insureds end up suffering significant economic damage that the insurance plan was supposed to prevent. They write policies intended to provide skimpy coverage for those who aren’t likely to need it, and shun people who are likely to need medical expense assistance since they are the ones that keep their profits from soaring even higher.

The Republicans’ primary idea of “reform”?–allowing sales of insurance across state lines and enacting tort reform. See, e.g., tweets from Rep. Shimkus, including this one (Jan. 19, 2011) re “we will allow sale of insurance across state lines, allow sm biz to join together to purchase plans, enact meaningful tort reform.”

Let’s consider tort reform. What David Hylton and others have shown is that there is really no need for tort reform. Awards have actually not been skyrocketing, and the tort process works fairly well to provide a remedy that would otherwise be missing for medical malpractice–such as when the wrong arm or leg gets operated on or the wrong organ implanted, etc. Hospitals have adopted better oversight because of tort cases that challenge them to greater competency. Tort reform as preached by most Republicans amounts to a claim that any system that gives some measure of remedy and justice to ordinary victims is bad, because it cuts into the profits of insurers. In other words, tort reform is a euphemism for politicians in the pockets of Big Medicine.

What about the idea of competing across state lines? That’s the worst nonsolution imaginable–it removes the little bit of regulatory power that individual states have, lets companies troll for healthy customers by aiming their policies towards that clientele while rejecting those that they might have to pay for; and invites insurance companies to engage in the kind of “what favor will you do me” arbitrage that already has states sacrificing good policies to entice bad companies to “use” their subsidies. Without strong federal regulation, it would be a health care disaster. The idea is based on a ideological view of economics 101 that says that increasing competition will always improve the market place. But that “law” of supply and demand doesn’t really work the way that economics 101 suggests in the first place, and it is even less of a reliable rule when we are talking about something like health care.

Let’s play the hypothetical game we love so well in law schools. Imagine one state that requires hospitals and clinics to satisfy various requirements to operate and another that doesn’t. Clinics that don’t have to satisfy requirements operate more cheaply. And insurers that insure only patients who use those clinics can pay out less. So that probably means you can get cheap insurance if you buy from a company that requires you to use those cheaper, unlicensed clinics. Interested? I doubt it.

These and many other issues would arise in a market where insurance companies could pit state against state to pick the regulatory regime that pleases them. See, e.g., Ezra Klein, Selling Insurance across state lines: a terrible, no good, very bad health-care idea, Washinstong Post, Feb. 17, 2010 (noting what happened with the “freeing” of credit card banks do operate cross-border and concluding that such moves would not insure more Americans or save money but make insurance more expensive for the sick and maybe cheaper for the healthy–“a great proposal if you don’t ever plan to be sick and if you don’t mind finding out that your insurer doesn’t cover your illness”); Why Buying Health Insurance Across State Lines Minght Not be a Good Idea; Allowing health insurers to sell across state lines is a BAD idea on Democratic Underground (suggesting that our experience in opening up the credit card interest is a good warning, since credit card banks moved to the states that allowed the highest interest rates). So insurance across state lines is likely to be a race to the bottom in health care coverage, with a race to the top in premium pricing for anyone who really may have a serious illness that needs to be covered. The result would likely be cheap coverage for healthy individuals that mostly don’t need it and out-of-sight expensive coverage (but still probably unsatisfactory) for those who do.

In other words, the primary plan that the Republicans have offered so far as their panacea for “reforming” health care is one that is of great benefit to Big Insurance (allowing it to select the regulations it wants to abide with and make profits from healthy people while disregarding those who may really need insurance) and dastardly for all of us who will, inevitably, get sick or have an accident and need medical care. Only a universal, national plan of some kind will satisfactorily address spiraling medical costs and growing medical needs.

Further, the Republicans have been utter hypocrites in the way they have dealt with this. They say they oppose the bill at least in part because it will be costly. Let’s evaluate that. shows that their claim that it will “add over $700 billion in red ink over the next decade” is simply “bogus.” A Budget-Busting Law?,, Jan. 19, 2011 (and the Democrats’ claims are also exaggerated). The Republicans conjure up $115 billion of administrative costs over the next ten years, but the CBO–our best arbiter on these issues–says those numbers are way too high and that the cost will be a modest 10-20 billion. The Republicans claim that estimates that show costsavings are based on doublecounting, but the CBO is “simply not doing that”, according to FactCheck. The Republicans have added in monies that they themselves want to spend to increase their claims about the law’s cost (as though that is bad)–even though they support that separate expenditure for the “medicare fix” for doctor payments and it is not even a part of the health reform law! Id.

And they aren’t really serious about ensuring that we finally reform our health system to begin to address the costs. If they don’t achieve repeal by the honest way, then they intend to exercise minority veto of the majority’s legislative preferences through trying to choke off money –both appropriations and the mandate that most employers provide a health insurance benefit for their workers. As John Lewis noted ” It is unbelievable that with so many people out of work and millions of people uninsured, the first act of this new Congress is to take health care away from people who just got coverage.” House Votes to Repeal Obama Health Care Law, New York Times.

Further, they are being untrue to the basic principles of individual responsibility that they claim to support. The individual mandate is a mechanism to ensure that people can’t choose not to buy insurance, using their funds for other needs, and then freeload off the system at the expense of all of the rest of us. It is the only such mechanism that the Congress has been able to agree on in all of these post-war years when our peers in the developed world long ago found a way to achieve universal coverage at a decent cost. Yet instead of decrying freeloading, the Republicans have decried the mandate as government intrusion. That makes a good soundbite for the Fox-Hannity crowd, but it isn’t what’s going on. And they aren’t offering any other solution to the problem.

You want to know what I think, really? I am in one of these very pessimistic moods. The Democrats weren’t able to use their majority wisely but wasted it trying to achieve “bipartisanship” rather than honing their message about how government can and does serve the people to help people separate the huge amount of pseudo-news chaff from the hearty grain of information that we need to have a sustainable democracy. Now we’ve got the Republican minority calling the tunes in Congress–or at least making it even harder to do anything decent . And as long as the Senate sticks to the stupid tradition of allowing a minority to veto any decision it doesn’t like through the filibuster rule, that will continue.

Because the reality is that the Republicans don’t want to address the real problems that face this country. They just want to keep mouthing the same old shibboleths of “free market” and “competition” and “property rights” that they have used for so long to further the interests of the monied upper class, no matter what the result for the US economy and the public weal. They want to oppose progressive policies (even ones that were proposed first by Republicans). And they don’t give a damn about whether the 50 million uninsured Americans can get decent health care. They don’t even give a damn about addressing long-term fiscal needs of the country. They just want to fire workers (especially ones that are unionized) so that bosses and owners can take home even more of the profits, and let Business go on as usual.

Tags: Comments (40) | |

Start from Silliness and the Product is…?

Begin with a Really Stupid Assumption:

  1. Assume Tom Friedman is correct.

    Not about the brilliance of cab drivers, or the flatness of the Earth, or even that AGW is the route to revitalize the U.S. economy.* But assume as valid his claim that the “global economy” makes war less likely; that Pakistan and India won’t battle because too many people in India depend on trade with Pakistan for their income and vice versa.**

    How do you then conduct war? Why, economically, of course.

    I mean, you can do it the stupid way: spend a bunch of your capital, get a lot of your people with potential for economic growth killed, and develop the enmity of those you battle, win or lose, but no one would be stupid enough to do that these days, would they?

  2. Assume you want to take over a country or bunch of countries. What’s the optimal way to do it?

    My best guess is

    1. You start with countries whose economies together are larger than yours, but where each one individually is smaller. This gives them a sense of security.
    2. Check that you start in better fiscal shape than all but one or two of them. (Those that are comparable or better need to be that much smaller.)
    3. Lend significantly to the poorer countries. Iterate and expand lending program as possible, and
    4. Dun them to within an inch of their life at the first opportunity after reaching a critical mass.
  3. When the result is the same as if you have just fought (and won) a war, what comes next for your “coalition.”

    Henry Farrell, who appears to be as old as I am, (and nine others [PDF]) suggests the answer:

    The long term consequences of Germany’s successful push towards austerity have yet to play out. However, initial results from the Irish case would suggest two lessons. The first is that the contradictions within Germany’s policy towards Europe are leading to bad policy. The second is that as a result, Germany is likely to receive the political blame in target countries both for the economic pain that its mandated measures are causing, and for many of the adjustment pains that they would surely have suffered in any event. Germany’s asymmetric power is reshaping European economic politics in a direct, and arguably even a brutal fashion. It is not clear that German politicians and economic policy makers have any appreciation of the resentment and hostility that they are likely to incur as a result.

New types of war may require new weapon, but they appear likely to produce the old results, though possibly with human capital devalued instead of outright eliminated.

It is left as an exercise whether the model of France 1918-1939 is preferrable to the PIIGS and Belgium 2010-???

*As an aside, that route is completely eliminated, simply as collateral damage, by the GOP spending cut proposal discussed here. Good thing their constituents don’t depend on the U.S. for anything.

**While we’re at it, I would like a pony, of course.

Tags: , , , Comments (4) | |

The Republicans have a savings plan. Gut the Nation’s Personality

by: Daniel Becker

Well, the repubs finally have put up.  They have a $2.5 trillion, ten year savings plan.  No, don’t worry.  You will be kept safe as all national security is untouched.  However, you can expect to wake up the next day from passage in a nation with an completely different personality.  As in 180 degree different.

Here is the overview provided by the Republican Study Committee:

FY 2011 CR Amendment: Replace the spending levels in the FY 2011 continuing resolution (NYSE: CR – News) with non-defense, non-homeland security, non-veterans spending at FY 2008 levels. The legislation will further prohibit any FY 2011 funding from being used to carry out any provision of the Democrat government takeover of health care, or to defend the health care law against any lawsuit challenging any provision of the act. $80 billion savings.

Discretionary Spending Limit, FY 2012-2021: Eliminate automatic increases for inflation from CBO baseline projections for future discretionary appropriations. Further, impose discretionary spending limits through 2021 at 2006 levels on the non-defense portion of the discretionary budget. $2.29 trillion savings over ten years.

Federal Workforce Reforms: Eliminate automatic pay increases for civilian federal workers for five years. Additionally, cut the civilian workforce by a total of 15 percent through attrition. Allow the hiring of only one new worker for every two workers who leave federal employment until the reduction target has been met. (Savings included in above discretionary savings figure).

“Stimulus” Repeal: Eliminate all remaining “stimulus” funding. $45 billion total savings.

Eliminate federal control of Fannie Mae and Freddie Mac. $30 billion total savings.

Repeal the Medicaid FMAP increase in the “State Bailout” (Senate amendments to S. 1586). $16.1 billion total savings.

The 100 item list is below

Some of the items, cutting them, you just have to ask: How are they going to get the job done?  Like cutting by 20% the federal vehicle budget or cut in half the congressional printing and binding budget?  What, we’re going to suddenly seen legislation that is only 1/2 the size of pages?  I’m sorry folks, but this list is nothing but an ideological hit list.  There is not thought at all regarding intergration as it relates to investing in this country or even governing.  Can you say: New York snow storm clearing disaster?

Here is the full list of cuts:

Additional Program Eliminations/Spending Reforms

Corporation for Public Broadcasting Subsidy. $445 million annual savings.
Save America’s Treasures Program. $25 million annual savings.
International Fund for Ireland. $17 million annual savings.
Legal Services Corporation. $420 million annual savings.
National Endowment for the Arts. $167.5 million annual savings.
National Endowment for the Humanities. $167.5 million annual savings.
Hope VI Program. $250 million annual savings.
Amtrak Subsidies. $1.565 billion annual savings.
Eliminate duplicative education programs. H.R. 2274 (in last Congress), authored by Rep. McKeon, eliminates 68 at a savings of $1.3 billion annually.
U.S. Trade Development Agency. $55 million annual savings.
Woodrow Wilson Center Subsidy. $20 million annual savings.
Cut in half funding for congressional printing and binding. $47 million annual savings.
John C. Stennis Center Subsidy. $430,000 annual savings.
Community Development Fund. $4.5 billion annual savings.
Heritage Area Grants and Statutory Aid. $24 million annual savings.
Cut Federal Travel Budget in Half. $7.5 billion annual savings.
Trim Federal Vehicle Budget by 20%. $600 million annual savings.
Essential Air Service. $150 million annual savings.
Technology Innovation Program. $70 million annual savings.
Manufacturing Extension Partnership (MEP) Program. $125 million annual savings.
Department of Energy Grants to States for Weatherization. $530 million annual savings.
Beach Replenishment. $95 million annual savings.
New Starts Transit. $2 billion annual savings.
Exchange Programs for Alaska, Natives Native Hawaiians, and Their Historical Trading Partners in Massachusetts. $9 million annual savings.
Intercity and High Speed Rail Grants. $2.5 billion annual savings.
Title X Family Planning. $318 million annual savings.
Appalachian Regional Commission. $76 million annual savings.
Economic Development Administration. $293 million annual savings.
Programs under the National and Community Services Act. $1.15 billion annual savings.
Applied Research at Department of Energy. $1.27 billion annual savings.
FreedomCAR and Fuel Partnership. $200 million annual savings.
Energy Star Program. $52 million annual savings.
Economic Assistance to Egypt. $250 million annually.
U.S. Agency for International Development. $1.39 billion annual savings.
General Assistance to District of Columbia. $210 million annual savings.
Subsidy for Washington Metropolitan Area Transit Authority. $150 million annual savings.
Presidential Campaign Fund. $775 million savings over ten years.
No funding for federal office space acquisition. $864 million annual savings.
End prohibitions on competitive sourcing of government services.
Repeal the Davis-Bacon Act. More than $1 billion annually.
IRS Direct Deposit: Require the IRS to deposit fees for some services it offers (such as processing payment plans for taxpayers) to the Treasury, instead of allowing it to remain as part of its budget. $1.8 billion savings over ten years.
Require collection of unpaid taxes by federal employees. $1 billion total savings.
Prohibit taxpayer funded union activities by federal employees. $1.2 billion savings over ten years.
Sell excess federal properties the government does not make use of. $15 billion total savings.
Eliminate death gratuity for Members of Congress.
Eliminate Mohair Subsidies. $1 million annual savings.
Eliminate taxpayer subsidies to the United Nations Intergovernmental Panel on Climate Change. $12.5 million annual savings.
Eliminate Market Access Program. $200 million annual savings.
USDA Sugar Program. $14 million annual savings.
Subsidy to Organisation for Economic Co-operation and Development (OECD). $93 million annual savings.
Eliminate the National Organic Certification Cost-Share Program. $56.2 million annual savings.
Eliminate fund for Obamacare administrative costs. $900 million savings.
Ready to Learn TV Program. $27 million savings.
HUD Ph.D. Program.
Deficit Reduction Check-Off Act.

TOTAL SAVINGS: $2.5 Trillion over Ten Years

Tags: , , , , Comments (40) | |

Capital, Labor, and Modernization

Many years ago, I had a Cultural Anthropology professor who discussed the glories of the mechanical cherry-picker. The only catch was that (1) it had upfront and maintenance costs and (2) it performs less well than experienced cherry-pickers. In short, it would be useful if you have a shortage of labor and an excess of capital, but not—as is common in cherry-picking areas—the reverse.

Roy Mayall at The London Review of Books blog notes that the same type of conceit is being used by the Royal Mail:

Walk-sequencing machines sort the letters into the order that they are going to be delivered in. The old walk-sorting machines only organised the post into rounds: postal workers had to do the final sorting. Under the old system, all the post was in the delivery office by 7.15 and we were usually out on our rounds by 9.00. Under the new system, the last lorry arrives at 9.15 and sometimes we don’t get out until after 11.00. It’s quite normal for a postal worker to finish work at 3.30 these days, and for posties doing rural rounds still to be delivering letters as late as four in the afternoon. The machines also have a tendency to break down, as we’ve just discovered, so on some days no post is delivered at all. But they are central to the Royal Mail’s ‘modernisation’ programme. [italics mine]

And, as with newspaper deliveries in the United States, the emphasis on capital over labor has collateral costs to both:

The Royal Mail have scrapped all the bikes in Milton Keynes and replaced them with vans. Vans are obviously much more modern than bikes. They are also more expensive. Not only do they cost several thousand pounds to buy, they cost several hundred pounds a year to tax and insure….

Vans are also slower and less versatile than bikes. They are quicker along the road, but once on your round you have to get out and walk, pulling the post behind you on a trolley. It’s awkward. After a while it puts a strain on your back. And you can’t read the envelopes as you’re walking, which slows things down even more. Rounds that used to take three and a half hours to complete are now taking up to five. Whoever devised this method has obviously never delivered a letter in their life.

There’s a possibility that the shift to cars allows you to downsize labor. (It also means you cannot deliver the post without a driver’s licence.) But the cost of labor is virtually never the primary cost in a service industry, and it is unlikely to be cost-saving when you go from spending nothing on petrol to buying a commodity whose cost increased 9.9% in the past year, and which is currently running about 1.30 per litre. When your Fixed Cost of “0” becomes a Variable Cost much larger than zero, those “savings” disappear rather quickly.

As Mr. Mayall summarizes:

‘Modernising’ the Royal Mail means replacing a tried and tested method that’s been good for more than a hundred years with one that is more tiring, more polluting, slower and more expensive.

If the goal were optimal processing, he would be correct. If, instead, the idea is to exploit a difference in net pricing between capital and labor and leave the consequences and externalities to the future, then the Royal Mail becomes just a contemporary example of bad economic policies leading to poor social outcomes.

In that context, it’s not even especially noteworthy. Just ask, say, Jaime Dimon.

Tags: , , , Comments (12) | |

According to the Setser Test, it’s unlikely that China reduced its Treasury holdings in November

According to the Treasury International Capital System (TIC) release, foreigners were net buyers of US securities in November, +$39 billion over the month. Of the $61.7 billion in long-term Treasuries net purchased (notes and bonds), private investors claimed $50.6, while official investors (central banks, sovereign wealth funds, etc.) accrued a smaller $11.1 billion. Over the last twelve months, foreign investors amassed $571 billion of the high-quality US securities: Treasury notes and bonds, agencies, and stocks, which includes the -$12 billion net sale of corporate bonds. Overall, it was a reasonably positive report, indicating that long-term asset sales are roughly in line with the current account deficit (chart to the upper left).

But the pundits follow the table on major foreign holders of US Treasuries. They note that the number 1 holder, China, reduced its holdings of Treasuries in November from just over $900 billion to just under. For some reason, investors and critics of the deficit alike are worried that when China is no longer named the US’ biggest stockpiler of Treasury securities, Treasury rates will skyrocket. Oh, the bond vigilantes.

And this is when I really miss Brad Setser’s commentary (he is now at the National Economic Council). He noted time and time again, that the monthly TIC data tend to under-report the Chinese holdings, especially when they are shifting their portfolio holdings of US Treasuries up the curve. Well, that’s what the Chinese did in November: holdings of US Tbills dropped $21 billion, while longer-term note holdings increased a net $9.9 billion. (more after the jump)

According to Brad Setser, only in the annual survey of US portfolio holdings are China’s measured holdings of US Treasuries accurate:

This is actually a well established pattern. The past five surveys of foreign portfolio investment in the US have all revised China’s long-term Treasury holdings up (in some cases quite significantly) even as they revised the UK’s holdings down. The following graph shows the gap between Chinese long-term Treasury purchases in the TIC data and China’s actual purchases of long-term Treasuries– as revealed in the survey.

Brad Setser’s quote was from 2009, but the story hasn’t changed since. In the 2010 report for 2009 foreign holdings, the level of Chinese Treasury holdings was revised up from the TIC-implied level by near $140 billion, while that of the UK was revised down (by over 100 billion, I might add). Clockwork.

So let’s apply Brad’s test, I’ll call it the Setser Test, to see if China actually reduced US Treasury holdings in November, as the November TIC release suggests. (I highlighted Brad’s test in bold italics, RW is me). The test is listed in the middle of this post.

Brad: First, the TIC data should show a fall in China’s holdings, i.e. net sales of Treasuries.

RW: Yes.

Second, the TIC data should also show limited purchases of Treasuries through the UK.

RW: No. The UK bought near $25 billion in Treasury notes and bonds, which more than offset the drop in Chinese Treasury buying. In fact, if the TIC data is accurate, the UK is amassing a rather large stockpile of US Treasuries. This would be in sharp contrast with the average $48 billion balance of Treasury holdings since 2006 (Table 4 or 5 depending on the year)!

Third, the Fed’s custodial holdings should not be rising at a strong clip — as, given China’s size, it is hard to see how China doesn’t make up a large fraction of all custodial holdings.

RW: The Fed’s custodial holdings increased by a sizable $39 billion. More likely than not, this was due in part to Chinese activity.

So according to the Setser Test, it’s very unlikely that China reduced its Treasury holdings in November. In fact they probably increased their Treasury holdings, given the magnitude of the Fed’s custodial balance.

Rebecca Wilder

Tags: , , Comments (4) | |