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

2012 = 2006?

It’s not just that you make a mistake; it’s that you cling desperately to that mistake and let it define you.

Katrina revealed George W. Bush’s basic incompetence in a way that 9/11, Afghanistan, and Iraq had not. So he was weak going into the 2006 midterms. There were going to be losses. No one who wasn’t being paid to say otherwise thought there were not going to be some losses.

And you have to assume that some people thought those losses would be smaller: they got rid of “Brownie,” made a lot of noise about “Katrina and Rita,” put Hayley Barbour on television as often as they could, talking about how Mississippi was rebuilt.

Damage control.

The problem was that one failure got people to look at other failures. And the sacrifices didn’t come from there.

After the 2006 election, Donald Rumsfeld resigned. There were rumors it might happen before then, but it didn’t.

A few weeks ago, going into the Wisconsin recall elections, there were rumors that Tim Geithner would resign.

That’s not going to be true now. So Barack Obama is going to go into a re-election campaign running what John Hempton astutely described as “the cravenly pro-finance Obama administration.”

Not pro-economy: that would involve employment and GDP growth, neither of which has been happening for so long that Sensible Centrist Brad DeLong is sounding more and more and more like me.

The center isn’t holding. Every pictures tells the same story.

Tags: , , , , Comments (11) | |

Committed Funding Streams and Public Support

Does committed funding — as in the Social Security and Medicare payroll taxes — protect programs from cuts ? It is often argued (sometimes here) that the committed funding makes it harder to cut Social Security OASDI pensions. Certainly recipients stress the (perceived) fact that they just want their money back and that it isn’t like welfare.

How could we manage an experiment to test this hypothesis ? It seems to me that the best approach would be to have two similar programs with the same name some of which had committed funding and two of which didn’t. Quick pop quiz: of Medicare plans A, B and D, which is funded how (answer after the jump).

Now lets see how this affects public opinion. Is it true that cuts to the programs without committed funding are considered more legtimate than cuts to the program with committed funding ? Has policy shifted so that only one set of programs is cut ? Which set ?

I think it is clear that this is a perfect experiment testing the relevance of completely committed funding compared to funding or partial funding from general revenues. In particular, I think that anyone who argues that the payroll tax cut (under which the Treasury just sends bonds to the SSA OASDI trust fund instead of selling the bonds to it) tends to undermine social security must bet his or her reputation on the results of the experiment (after the jump)

OK I know angrybear readers are even better informed that DailyShow viewers so most of you probably knew that plan A (hospital insurance) has committed funding and that plan B (office care) and D (pharmaceuticals) don’t.

Also you probably know that the PPACA had Medicare plan A specific cuts (payments based on the assumption (OK lie) that labor productivity increases as fast in health care as in the economy as a whole). In contrast, not specifically funded plan D was expanded (the doughnut hole was closed).

IIRC the fact that a program with committed funding was specifically cut while one with uncommitted funding was expanded had no role whatsoever in criticism of the bill.

I don’t think that there could be stronger evidence against the committed funding is guaranteed funding hypothesis.

Finally, look, angry comments just encourage me. My aim is to get lots and lots of comments. I don’t care if half of them are indignant. Also I think it is good for the blog if there are debates between angry bears (including angry debates).

update: Two danmed typos corrected.

update2: Two more typos corrected.

Comments (56) | |

Malicious ECB rate hikes

by Rebecca Wilder

Lieblings quote of the day by Dean Baker:

“The ECB is run by a perverse cult that worships 2.0 percent inflation and is prepared to sacrifice almost all other economic goals to meet this target.”

The article goes on to argue that the ECB should increase its inflation target to 3-4% in order to facilitate positive wage growth in the debt deflationary economies like Spain. I’ve argued a similar point in the past.

However, I’d like to add that this “perverse cult” called the European Central Bank (ECB) raised its policy rate on April 13 – a point in time that correlates perfectly with a shift in trend across euro-area bond markets. Specifically, April 13 marks the upswing in risk premia on Italian, Spanish, and Belgian bonds relative to German bunds. Hmmm…policy mistake?

Now that’s just malicious.

Rebecca Wilder also posted at Newsneconomics

Tags: , , , Comments (5) | |

Goldbugs and inflation

by Mike Kimel

Howard Hill on has been arguing with gold bugs:

I know that some readers are going to say “Wait. The gold market is saying inflation, not deflation.”

That’s not how I see it. I see the negative real rate on cash parked in T-bills (three month yield 0%, 12 month yield 0.08%) as a clear indication that prices are going down, not up. As more and more market participants equate gold to another currency, they are simply diversifying their cash into that currency along with Dollars, Pounds, Swiss Francs, Yen and Euros. If you consider the total bullion supply, the allocation into gold is less than $10 trillion worldwide, a small fraction of the total debt held as investment.

The key to understanding the mixed signals of gold and the bond market(s) is to realize that boiling every bit of information in the market down to a single price eliminates much of the information. Once that information is reduced to a single data point, you can’t actually re-create it. We’re left guessing at what forces are at work that put the prices where they are.

The one thing that makes no sense is to look at one market (eg gold) and conclude that there is inflation ahead while ignoring other larger markets that are telling the opposite story.

Tags: , , Comments (10) | |

Corporations pushing for job-creation tax breaks shield U.S.-vs.-abroad hiring data

The Washington Post points us to a thought that needs to be included in public debate. (h/t Stormy)

Corporations pushing for job-creation tax breaks shield U.S.-vs.-abroad hiring data

Some of the country’s best-known multi­national corporations closely guard a number they don’t want anyone to know: the breakdown between their jobs here and abroad.

So secretive are these companies that they hand the figure over to government statisticians on the condition that officials will release only an aggregate number. The latest data show that multinationals cut 2.9 million jobs in the United States and added 2.4 million overseas between 2000 and 2009.

Some of the same companies that do not report their jobs breakdown, including Apple and Pfizer, are pushing lawmakers to cut their tax bills in the name of job creation in the United States.

Apple, by the way, is at the top or close to the top, in recent profits. GE has deceased its per centage of US workers from 54% to 46% in the last decade. Few contenders in the presidentail elections or Congressional elections make this notion a part of their campaigns. The debate in regular media usually stops at words like ‘protectionism’. The next time you read about tax cut money flowing to create jobs, hold in mind global trade demands that companies actually respond to, and do not think US jobs are a priority. The rhetoric merely implies a vague ideal…not company policies.

Perhaps multi-national companies need to be lean and mean to thrive, and raising the overall living standards of the world has trememdous benefits for people in general, and of course some problems that go with it. Just don’t think that election political rhetoric has US public benefit in mind overall as a priority high on the list.

Tags: , , , , Comments (19) | |

Wall St Borrowed $1.2 Trillion from Fed…

Barry Ritholtz points us to how essential US government intervention was for the banking system and in particular existing banks and the management at The Big Picture. It has links worth pursuing as well.

I continue to be of the mind that the Wall Street Bailouts were misguided, and that a massive Swedish style reorg would have been the best thing for the nation and the economy in the long run. Both Uncle Sam and the Fed would have provided the broad based debtor in possession financing required, and the losses would have fallen where they belonged — on the Shareholders and Bond Holders — and not the taxpayers.

The latest evidence of this: Data obtained by Bloomberg News through Freedom of Information Act requests, followed by months of litigation, and eventually, an act of Congress. (Wall Street Aristocracy Got $1.2T in Loans)

Note these are not ideas come about with the benefit of hindsight, but what a small band of insightful people were saying at the time.

An honest broker of the situation would have:

1. Fire the senior management of the banks (see this)

2. Banned all lobbying activity as a condition of any aid (see this)

3. Forced a Swedish style prepackaged bankruptcy (see this and this)

Tags: , Comments (10) | |

A Caesura in Canadian Opposition

[Expletive Deleted].

It will be interesting to see whether the Libya of Brad DeLong and Juan Cole’s beliefs produces a respectable opposition leader—one of the surer signs of rule by the people—before Canada does.*

UPDATE: Via Amy Wilkins Twitter feed, Layton’s final words. Can anyone imagine the 2011 Obama** being able to say this:

You decided that the way to replace Canada’s Conservative federal government with something better was by working together in partnership with progressive-minded Canadians across the country. You made the right decision then; it is still the right decision today; and it will be the right decision right through to the next election, when we will succeed, together…

All my life I have worked to make things better. Hope and optimism have defined my political career, and I continue to be hopeful and optimistic about Canada….More and more, you are engaging in politics because you want to change things for the better. Many of you have placed your trust in our party. As my time in political life draws to a close I want to share with you my belief in your power to change this country and this world. There are great challenges before you, from the overwhelming nature of climate change to the unfairness of an economy that excludes so many from our collective wealth, and the changes necessary to build a more inclusive and generous Canada. I believe in you. Your energy, your vision, your passion for justice are exactly what this country needs today. You need to be at the heart of our economy, our political life, and our plans for the present and the future. [emphasis mine]

*I said “respectable.” This does not include the Liberal Party for as long as they are led by Michael Ignatieff, to whom this post was Far Too Nice.

**I’ll be nice to those of you who thought that Obama was anything other than a Corporatist from the start.

Tags: , , Comments (3) | |

US economy in August: moving sideways

With the (roughly) 11% decline in US equities year-to-date, talk of a US recession has resurfaced. Through mid August, the high frequency economic indicators point to further weakness, rather than a double dip.

In my view, whether or not the US is IN a recession – defined as the coincident variables followed by the NBER (.xls) are turning downward – is really a moot point for a good chunk of the working-aged population. It probably ‘feels’ like the economy never exited recession to many.

As an aside, it would be difficult for the US economy to actually ENTER a contractionary phase right now, since the cyclical forces that normally drag the US into recession – inventories, auto sales, and housing – are at severely depressed levels. Confidence (or lack thereof) can reduce domestic spending and investment – it’s in this respect that the losses in equity equity markets are important. It takes time for shocks to work their way into the economic data. Nevertheless, high frequency indicators do not point to recession…for now.

Claims are elevated but ticked up last week. If claims do not fall back in coming weeks, the unemployment rate will rise again. This could indicate the outset of a contracting economy.

Weekly diesel production shows an increase in transportation activity (please see this post for an explanation of the data).

Read More After the Jump!

The demand for diesel (in real barrels per day) recovered, rising at a rate of roughly 15% annually for each of the weeks of July 29 and August 05. Annual growth declined to -3% in the week of August 12; but this series (even in annual growth rates) is highly volatile, and the 4 week moving average of annual growth decelerated only mildly, from 7% to 6%.

Finally, daily Treasury tax receipts are slowing but growth remains positive.

The chart illustrates the annual growth rate of the 30-day rolling sum of daily withholding receipts for income and employment tax payments. This series proxies the health of the labor market. Spanning the last three months, the annual growth rate decelerated to 4% (May 18 through August 18 this year compared to the same period last year) from 4.6% in the three months previous. There’s no indication of a contraction in tax receipt activity, but a further trend downward in the pace of tax receipt gains would turn some heads.

Nothing to indicate a contraction in the high-frequency data; but the deceleration is worrisome, given that consumers must ‘earn’ their consumption rather than ‘borrow’ for consumption. I don’t feel particularly positive about the state of the US economy. Neither does Mark Thoma.

Rebecca Wilder

Tags: , , , Comments (8) | |

Deficit: Why Should I Care?

by Mike Kimel

Hi folks! Long time readers probably know I’ve been haranguing on the deficit and the national debt for a long time. Last week I got an e-mail telling me about a new book called “Deficit: Why Should I Care?” by Marie Bussing-Burks. I had never heard of either the book or Ms. Bussing-Burks, but the topic was interesting. I was offered the opportunity to read a pdf version of the book. That isn’t unusual – such offers seem to arrive at Angry Bear’s doorstep on a regular basis.

What is unusual though, is that I’ve read through much of the book already, and unlike most books purportedly written about the topic, I can safely recommend it to anyone who wants to learn more. It is factual, interesting, well written, very informative and seems to be a fairly unbiased treatment of the issue. That isn’t to say I agree with everything in the book, but I do think the book is very good. Dan has arranged with the publisher for 50% discounts to be made available to any Angry Bear readers who buy it between now and September 5.

FYI, I looked up Ms. Bussing-Burks and found she is an assistant professor at the University of Southern Indiana.

Full disclosure – I do not know anyone at the publisher nor Ms. Bussing-Burks. Furthermore, I did not receive nor will I receive anything for having written any of the above.

(Rdan here…go to apress, then click ‘your cart’, and on the e-book selction, add the coupon code DeficitABB in the appropriate box and follow the instructions for the discount)

Tags: , Comments (1) | |