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

Man Bites Dog

Newt Gingrich tells the truth.

“the individual mandate was originally developed by the Heritage Foundation and others, as a way to block Hillarycare.”

Firebaggers argue that the PPACA is conservative, because it is similar to a Heritage Foundation proposal. They neglect to note that the proposal was made in bad faith. The point was to complicate the debate by making it Clintoncare vs Obamacare vs no reform. That way the result was no reform, even though most US adults wanted some reform.

This is not speculation. The Heritage/Romney/Obama approach was also the Chafee proposal. [John] Chafee (R-R.I.) proposed something like the PPACA in 1993. Senate minority leader R. Dole cosponsored the bill. In 1994 Dole voted against a bill whcih he had cosponsored proving that his advocacy of an individual mandate was made in bad faith and aiming only at complicating the debate.

Similarly when Ted Kennedy was advocating single payer/Medicare for all, Nixon proposed a reform similar to that proposed by the Clintons.

Yes Obama, all Democratic Senators, two independent Senators, and a majority in the House voted for a plan similar to one proposed by The Heritage Foundation. Everyone who works at The Heritage Foundation (except maybe a janitor who hates the jerks after whom he cleans up) recognized this as a huge defeat. Jane Hamsher hasn’t wised up.

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Foreclosures and Mass. Attorney General make the news

From comes news of:

Massachusetts Attorney General Martha Coakley is suing five major US banks for allegedly seizing properties unlawfully and failing to help struggling borrowers keep their homes by lowering mortgage payments.

The civil lawsuit — filed yesterday in Suffolk Superior Court — targets Bank of America Corp.,Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc., and GMAC, a subsidiary of Ally Financial Inc. Also named are Mortgage Electronic Registration System Inc., a widely used mortgagerecording firm, and its parent company.

‘‘Our suit alleges that the banks have charted a destructive path by cutting corners and rushingto foreclose on homeowners without following the rule of law,’’ said Coakley, citing whatshe called their illegal behavior.

It is the first major legal action taken against the nation’s biggest banks since they startedforeclosure-settlement negotiations with the 50 state attorneys general in the spring. The talksbegan after the attorneys general launched an investigation into reports of fraudulent and sloppy foreclosure-related practices by the banks.

[Update…Yves Smith on GMAC’s threat to withdraw its business from Mass.]

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The Flaw in the Reasoning…

Brad DeLong (pulled from an otherwise-spot-on post):

Two years ago, after all, the recession was over.

The Recovery:

I started these from the first month after NBER’s recession end date. Note that there is one true, consistent growth line—sadly, that’s the mean (average) duration of Unemployment.

If this is victory, Pyrrhus of Epirus had nothing to complain about.

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Employment Situation…Spencer England

The employment report continues to report a sluggish economy and employment growth. The payroll report showed a gain of 120,000 jobs in November, consisting of a 140,000 gain in private payrolls and a 20,000 drop in government employment.

The household survey months showed the stronger gains it has in recent with a gain of some 278,000 jobs. With this 278,000 gain the unemployment rate fell -0.4% from 9.0% to 8.6%. The jobs gain alone was not enough to generate a 0.4% drop in the unemployment rate as the participation rate also fell-0.2%. On a monthly basis this is a very noisy indicator and when you look at the last few months data the participation rate actually appears to be bottoming– just the opposite conclusion that the headline suggest.
Moreover, employment as a percent of the population actually rose last month, reinforcing the point that this one months drop in the participation rate is noise, not a trend. November is the month when part time employment for the Christmas season starts and this can cause data problems.

The work week for all employees was unchanged at 33.4 hours while the average workweek for
nonsupervisory workers fell from 33.7 to 33.6 hours. As a consequence the index of aggregate hours worked for nonsupervisory workers fell -0.1%. Over all this does not appear to be a trend change and could very well be revised away.

Although the index of hours worked is still far below its pre-recession peak, compared to gains in other jobless recoveries it is showing nice gains.

Average hourly earnings for all employees fell from $23.20 to $23.18 while for nonsupervisory employees it rose from$19.53 to $19.54. Overall average hourly wage growth continues to slow and still is threatening to hit a new all time low.

Moreover, average weekly wages are also stagnating and the recent strength in consumer spending stems more from a falling savings rate rather than a surge in income.
Sorry to be so slow to post this mornings, but the BLS web site was overwhelmed this morning and it took a long time to download the data.

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OCCUPY ACROSS THE U.S.: Police don’t allow cold weather supplies at Boston protest

[Update…Taryn Hart at the Plutocracy Files has a daily OWS blog with news & videos from around the country, and has also done a number of interviews with economists & other left luminaries, including dean baker, larry mishel, john quiggin, jeff madrik, et al, with more coming…hat tip reader rjs]

In noting other OWS scenarios other than New York and LA comes this news:OCCUPY ACROSS THE U.S.: Police don’t allow cold weather supplies at Boston protest

By Matthew Schacht

Editor’s note: Missourian reporters visiting their homes during the week of Thanksgiving caught up with Occupy movements in those cities. This is one of six dispatches from the Occupy movement across the country.

BOSTON — In Dewey Park, Occupy Boston protestors and city officials have been playing cat-and-mouse games.

“Cops will search supplies and vehicles for what they call contraband,” Kevin Maley, an Occupy Boston volunteer, said. Police maintain a 24/7 presence and don’t allow cold-weather tents and other winter supplies into the camp, which is a patchwork of several dozen shelters topped with gray, green, red and blue tarps.

To get around the blockade, protestors need to be stealth. “A tent for the all-women living quarters was not allowed because it was winterized,” Maley said. “We brought it in under the darkness of night.”

“The next day cops staring at the tent looked annoyed,” he said.

Maley thinks the city’s “embargo” is designed to freeze protestors out of the square this winter, as an alternative to physically evicting them.

Boston Police Department spokeswoman Elaine Driscoll said police were trying to prevent “building materials” from entering the camp for safety reasons.

A November article by Open Media Boston said police only allow donations of food and clothing to enter the camp.

With the help of the ACLU, the National Lawyers Guild and the local law firm Todd & Weld, protestors have gone to court claiming that the First Amendment forbids police from evicting them or removing their tents.

On Nov. 16, the Superior Court of Suffolk County granted Occupy Boston protestors a temporary restraining order against the City of Boston until at least Dec. 1, when the court holds its first hearing on the case.

As a condition to hearing those claims, the judge required at least 50 protestors to sign affidavits promising to abide by the court’s decision in the case. Whether remaining protestors will obey an unfavorable order is unclear.

“We came here knowing it was an act of civil disobedience,” Maley said. “It’s up to every individual” to decide “whether you are willing to go to jail for something you believe in.”

The signatures are to show the judge that Occupy Boston was committed to the process, Maley said. At the same time, he said, Occupy Boston has no intention of evacuating. “We’re down here as long as it takes.”

According to Maley, “we” means about 250 protestors, volunteers and homeless individuals around Dewey Square at any given time. “We” also means Boston Occupy’s general assembly, which live-streams its meetings every Tuesday, Thursday, Saturday and Sunday at 6 p.m. CT.

Some volunteers permanently live in the park, while others come and go according to work schedules. Maley himself is employed at a nonprofit during the week and volunteers between shifts.

He explains some of the goals of the Occupy movement at an info tent in Dewey Park, where visitors come with questions. He lists off policy reforms supported by most Boston protestors, who were recently surveyed by the camp’s newspaper, The Boston Occupier.

Mike Mazor, a Vietnam Veteran visiting the Boston-area for Thanksgiving, listens to Maley’s explanation unconvinced.

Mazor said he wants to support the movement, but “I need something, a common goal … otherwise, I feel the Occupy movement is taking a shotgun to the situation instead of aiming at a clear target.”

Unfazed by Mazor’s skepticism, Maley launches into another explanation about reforming hedge fund taxation and regulating Wall Street bankers.

When Mazor leaves a few minutes later, Maley confided that he would like to have talked to the veteran for another hour. Eliminating apathy is Maley’s goal.

“There are people who stop in, and I have a conversation with them, and they leave kind of radicalized,” Maley said.

Of course, there are always other opinions:

See candidate winterization dome. A joint project with (my alma mater says Jan G.) MIT.

The Occupy Boston movement is also in the process of winterizing its encampment in Dewey Square. A group of Harvard and MIT students led by MIT architecture Professor Jan W. Wampler has suggested potential solutions, which the movement is currently considering.

“My understanding is that the Occupy Boston people would like to stay there during the winter, and we’re trying to help them,” said Wampler. “But I think what we’re also trying to do is change the image.”

Wampler said he believes Occupy could benefit from a makeover that would include the creation of “more beautiful” structures that better convey a sense of permanence than tents.

(hat tip reader Jan G.)

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How do you get it right?…

Mike’s response to a short note from me I lifted and summarized from an advertisement/advice for investors on Brazil. Mike’s response below the fold:

Today, Brazil moved aggressively to ensure that the widening global financial crisis will not reach its shores, taking several measures to stimulate consumption and investment in the world’s seventh largest economy. Finance Minister Guido Mantega estimates that the moves will help Brazil’s GDP reach 5 percent next year.

The following will take effect immediately:

– Producers of 8,500 manufactured products will receive tax credits of up to 3% for sales abroad

– The IOF transaction tax will be eliminated on foreign purchases of Brazilian stocks (previously 2%) and on corporate bonds with maturities of more than four years (previously 6%)

– Stock receipts of Brazilian companies traded abroad, such as American Depositary Receipts (ADRs), will be cancelled

In fairness, Brazilian trade policy has often been poorly designed and managed even worse. When I was growing up there were 500% tariffs on imported electronic goods, the idea being to protect the burgeoning Brazilian electronics and computer industries. (Needless to say, it didn’t work.)

On the flip side, protection of aircraft has led to Embraer making some pretty good planes. Similarly, as I noted before (this isn’t exactly trade policy, but it is economic policy) actions by the Brazilian government in the late 1970s, 1980s and 1990s are responsible for the fact that a Brazilian can walk into a car dealership today and buy a tri-flex vehicle that runs on any combination of gasoline, ethanol or natural gas. I doubt Americans will be able to do the same thing before my 17 month old son is able to drive, and perhaps not for decades later.

The trick, I guess, is… how do you get it right? To come back to the US, how do you increase the ratio of Arpanets to Solyndras?

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What is meritocracy?

Andrew Gelman points to our confusions regarding merit in our social perceptions of winners and losers. I might make a list of naughty and nice sayings for another post.

Tyler Cowen pointed to an article by business-school professor Luigi Zingales about meritocracy. I’d expect a b-school prof to support the idea of meritocracy, and Zingales does not disappoint.

But he says a bunch of other things that to me represent a confused conflation of ideas. Here’s Zingales:

America became known as a land of opportunity—a place whose capitalist system benefited the hardworking and the virtuous [emphasis added]. In a word, it was a meritocracy.

That’s interesting—and revealing. Here’s what I get when I look up “meritocracy” in the dictionary:

1 : a system in which the talented are chosen and moved ahead on the basis of their achievement
2 : leadership selected on the basis of intellectual criteria

Nothing here about “hardworking” or “virtuous.” In a meritocracy, you can be as hardworking as John Kruk or as virtuous as Kobe Bryant and you’ll still get ahead—if you have the talent and achievement. Throwing in “hardworking” and “virtuous” seems to me to an attempt (unconscious, I expect) to retroactively assign moral standing to the winners in an economic race.
Later, Zingales writes:

The fundamental role of an economic system, even an extremely primitive one, is to assign responsibility and reward.

Huh? Again he seems to be conflating economics with morality, in a similar way as when economists Mankiw and Weinzierl implied that the state only has a right to tax things that are “unjustly wrestled from someone else.” Zingales in the above quote is taking the economic functions of prices, wages, supply, and demand and transmuting them into to the morally-loaded terms “responsibility” and “reward.”

Finally, in his praise of meritocracy, Zingales doesn’t seem to be aware of the concept’s self-contradicting nature. As James “Effect” Flynn has pointed out,

The case against meritocracy can be put psychologically: (a) The abolition of materialist-elitist values is a prerequisite for the abolition of inequality and privilege; (b) the persistence of materialist-elitist values is a prerequisite for class stratification based on wealth and status; (c) therefore, a class-stratified meritocracy is impossible.

To put it another way, Zingales talks a lot about the threat to meritocracy from business capturing government regulation or from pitchfork-wielding hordes raising the marginal tax rate, but he doesn’t consider some much more direct effects of meritocracy such as this.

More can be read at Andrew’s place. (link is at beginning)

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Top Marginal tax rate of 70% ?

I agree with Diamond and Saez that the top marginal income tax rate should be slightly over 70%, but I don’t agree with what I take their reasoning to be. My argument after the jump.

They argue that the tax rate should be chosen to maximize taxes collected from the super rich. the argument that we should tax the super/rich to less than the peak of the Laffer curve follows.

The assumptions aren’t even crazy. Assume there are three types of people, the super-rich, the rich and the middle-class. Labor of the super-rich and of the rich are perfect substitutes with the super-rich 10 times as good at everything. Labor of the middle-class and labor of the richandsuperrich enter in production cobb douglass. Reduction of labor supply by the super-rich reduces GDP by their wage. It also causes the wage of the rich to go up and the wage of the middle class to go down. This second effect reduces welfare. At the top of the supper-rich Laffer curve, a tiny reduction in the tax on the super-rich causes the same income of the rest of society and a more equal distribution of that income. So it causes increased welfare. This is true for any fixed tax rates on the rich and the middle class and for tax rates which are adujsted optimally (the second by the envelope theorem).

I haven’t read the paper, but I think that Diamond and Saez must be doing something odd. They consider utils when discussing the income of the rich and equivalent variation when considering the effect of the labor supply of the rich on the rest of us.

There is an argument which seems to suggest that the effect of the labor supply of Mr Jones (“Smith” is already in use in this context) on the rest of us is zero. Standard (false) positive assumptions imply that Mr Jones is paid his marginal product, so the effect of his labor supply on the total income of the rest of us is zero. This means that the effect on money metric not-welfare-at-all is zero. So if we don’t care about the distribution of income and wealth among the rest of us, we don’t care about Mr Jones’ labor supply. So if money can’t help Mr Jones more, we tax him to the peak of his personal Jones/Laffer curve.

But wait the whole point is that we should care a whole lot about the distribution of income.

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