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

Ironies Never Cease: Great Moments In Libertarian History

Why have I never posted about Yasha Levine over at The Exiled? They’re the ones that first broke this story about Koch luring Hayek to America with Social Security, and I make a point to put down my coffee when reading Yasha, to avoid expensive and embarrassing spit-takes.
Just a week ago he gave us this:

More Great Moments In Libertarian History: Ancient Sumerian Word For “Libertarian” Was “Deadbeat”, “Freeloader”
… If you go onto one of the Liberty Fund’s project websites, the Library for Economics & Liberty, you’ll find this ancient cuneiform symbol at the footer of the home page:

The Liberty Fund-backed website goes on to explain that the significance of the amagi symbol goes deeper than just the word “liberty.” It represents the first popular struggle against big government tyranny

Except it doesn’t (emphasis mine):

What the history-failures at Liberty Fund hilariously mistranslated was that the term “return to mother” is Sumerian-speak for “jubilee”–as in “debt forgiveness” or “freedom from debt.
Here’s how David Graeber explains it in his brilliant book Debt: The First 5,000 Years:

Sumerian word amargi, the first recorded word for “freedom” in any known human language, literally means “return to mother”—since this is what freed debt-peons were finally allowed to do.

If you haven’t read Graeber, run don’t walk. In the meantime, read Yasha (too much good copy to highlight; read it all):

So in other words, amagi’s not about “freedom” from government interference at all–it’s about welching on your debts and sending Sumerian deadbeats back home to mooch off mommy. “Moochers,” “deadbeats,” “debt welchers”–Now that sounds more like the true face of libertarianism!

Despite the misunderstanding—or maybe because of it—the amagi symbol has become all the rage with baggertarian youngins’ all across the USA, many of whom have been known to get their pasty white hides branded with “deadbeat 4-ever” tats en masse at Koch-sponsored Free State campouts.
So does this make them moocher-bashing moochers? Or maybe closet-freeloader freeloaderphobes?
We’d like to thank Koch operative Peter Eyre for taking the time to maintain an up-to-date bagtard tat page, which includes a big collection of Sumerian deadbeat tats, as well as a nice range of other freemarket groupie ink. Eyre’s got himself branded a “deadbeat” in 2007, back before it was considered cool:

Cross-posted at Asymptosis.

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Kooky Tax Protestors!

by Linda Beale

Kooky Tax Protestors!

Anybody who has read much of my blog probably has realized that I don’t think much of “tax protestor” movements like the one Wesley Snipe got involved with. There are websites and books and information available in all kinds of places about these “tax protestor” arguments. They claim that there is no law that imposes an income tax liability or a duty to file a tax return. (They continue to make these absurd claims even after having the various provisions of the Code, regs and other authorities pointed out to them.) The arguments are often based on taking a Code provision out of context (e.g., provisions that cover the sourcing of income for non-U.S. residents who only pay tax on their U.S.-sourced income) or amalgamating historical antecedents with current day law and regulations to claim that there is a loophole they can walk through to find their goal of “no duty to pay taxes.” The arguments are facially frivolous and not founded in any reasonable basis. Moreover, no American who has paid attention to anything other than his navel could reasonably argue that he “genuinely believes” that there is no such duty.

But today I received a letter. It is printed on expensive rag content paper, with an attorney’s name prominently displayed at the top (from Shreveport, Louisiana) and it is addressed to me regarding my availability to be engaged as an expert witness on behalf of tax protestors who want to use the “Cheek” defense to criminal tax evasion charges. The “Cheek” defense derives from a Supreme Court case, Cheek v. United States, 498 U.S. 192 (1991). It provides that a genuinely held belief negates the willfulness requirement of criminal statutes.

Here, the claim that the defendants’ attorneys are hoping to make is that tax protestors can have a genuinely held belief that failure to file returns/pay taxes does not violate any known legal duty. The attorney claims in the letter that these defendants “have formed their beliefs after a thorough and careful reading of the Internal Revenue Code, regulations, Supreme Court holdings and historical authorities, including all of the past regulations and all tax acts enacted since 1916.”
Wow. Even the most careful tax professor who spends a good deal of his or her “spare” time (the time not devoted to committees, or faculty meetings, or teaching, or preparation for teaching, or conferences, or article writing) reading tax authorities–PLRs, regs, notices, cases, statutory amendments, proposed amendments, etc. probably would have trouble claiming to have read “all” past regulations and “all tax acts enacted since 1916” . These defendants are essentially claiming that they are as well-versed in what the tax Code says as any tax practitioner would claim to be–and yet they still make the patently frivolous claim that they arrived at a “genuinely held belief” that failing to file tax returns doesn’t violate any legal duty? You gotta be kidding me.

Start with section 1 of the Code, in which a tax is imposed. Continue on and eventually the reader will arrive at section 6012, requiring the filing of tax returns by any person who has gross income for the year in excess of the exemption amount (with certain exceptions). And of course there’s section 6013 (joint returns) and section 6072 (stating the time for filing of returns under various provisions) and section 6151 (stating the time and place for making payment of taxes determined to be due under returns).

The Shreveport attorney included a disk, put out by what he terms to be six highly respected and credentialed tax practitioners, including one former IRS collection agent, with the arguments in support of the so-called “Tax Honesty Movement” (which of course should be called the “tax dishonesty–or how to rip off your country and your neighbors by not paying your share of the tax burden–movement”)
So just how many tax professors will respond that they think they could serve as expert witnesses on behalf of such defendants? I hope the answer is none.

originally published at ataxingmatter

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Guest post: The Obama Record after 3 years – Jobs and GDP

by Jon Hammond at Econographia

Guest post:  The Obama Record after 3 years – Jobs and GDP

The performance of the economy over President Obama’s tenure to date has been much discussed in light of the severe contraction that began in December 2007 .. and the policies implemented to correct course and restore growth. As of early 2012, the economic recovery shows signs of gathering momentum. Since the enactment of the Recovery Act .. and especially now with the presidential campaign season heating up .. misrepresentations have been piling up. Despite the fact that the economy has been creating jobs for 22 consecutive months, his opponents continue to attack his record … a recent example: “This president has been on the attack and has been a job killer,” GOP frontrunner Mitt Romney told a town hall meeting in Salem, N.H. Another example: “Either the president’s economic policies are killing this economy, or his lack of leadership,” Rick Santorum said in September. “Either way, President Obama is to blame.”

Here’s the factual record on economic growth and private sector job growth. In both cases, the graph displays the data points from the beginning of January 2007, showing the run-up to the Recession, followed by the enactment of the Recovery Act and the subsequent recovery through December 2011.

The two graphs below display:

Quarterly Real GDP, Q1 2007 though Q3 2011, sourced from BEA NIPA table 1.1.6 here:
Private Sector Jobs, monthly net change January 2007 through December 2011, sourced from the BLS data series CES0500000001 here:

Quarterly Real GDP Q1 2007 – Q3 2011, billions 2005 dollars:

Net Private Sector Jobs January 2007 – December 2011, month-over-month change (000s):

As the historical record clearly shows, the economy has rebounded to pre-recession levels in both economic output and private sector job growth. Since NBER declared an end to the Recession (June 2009), the economy restored almost 700 billion in real GDP and has added a net 1,992,000 private sector jobs. Moreover, from January 2010 through December 2011, the business sector has generated net job growth of over 3,000,000 jobs. The partisan rhetoric simply doesn’t match the record.

(I will comment in comments.)

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by Dale Coberly


David Brooks says in a column headlined  Where Are the Liberals?

Americans don’t hate government, but “believe the government has been captured by rent-seekers.”

This is the disease that corrodes government at all times and in all places. As George F. Will wrote in a column in Sunday’s Washington Post, as government grows, interest groups accumulate, seeking to capture its power and money. Some of these rent-seeking groups are corporate types. . . . Others exercise their power transparently and democratically. As Will notes, in 2009, the net worth of households headed by senior citizens was 47 times the net worth of households led by people under 35. Yet seniors use their voting power to protect programs that redistribute even more money from the young to the old and affluent.

The lie is that this is a dishonest segue from corporate rent seekers to the implication that “seniors” (as if they were all the same) are rent seekers, and that the normal wealth that “a generation” acquires after a lifetime of work is somehow unnatural and unfair, and worst of all, that somehow SS is redistributing money to the affluent.

SS doesn’t redistribute money except from your young self to your old self, exactly as if you had saved it (and bought insurance against inflation and financial setbacks of various kinds), it does not add to the wealth of the wealthy, it helps the elderly poor live in modest comfort… very modest comfort.

Just to be clear, not all the elderly are rich. Social Security is a way for people to protect themselves from being destitute in old age. It does not make them rich. It does not take money from “the government.” It does not take money from the poor young to give to the elderly rich. Workers simply save their own money in an insurance plan run by, but not paid for by, the government. The plan protects their savings from inflation, market losses, and certain kinds of personal bad luck. It is insurance. At the end of the day part of the premium paid by those who end up not needing the insurance (they did not have the fire) is used to help out those who did have the fire. As it turns out even those who don’t have the fire get all of their premium back plus enough interest to make up for inflation and provide a real return on their “investment” equal to the average growth of wages over the time they have been making their Social Security payments.

And, just in case you missed it, working people normally start out relatively poor in “wealth”, they work all their lives to acquire “wealth” so they will be able to retire when they need to or want to. For Brooks, or George Will to imply that somehow this is robbing the young is not just a lie, it’s a damned lie.

SS does not redistribute money from the young to the old… except in the sense of deferring some of your spending when you are young so that you will have something to live on when you are old. Pay as you go is the mechanism that makes this possible without risk of losses due to inflation or bad investments.

This is no different from what you would do if you saved it on your own… except for the guarantee. It is no more “rent seeking” than any other investment. All investment assumes that when you need to start cashing in your assets there will be another generation of investors out there glad to buy your stocks, or at least buy the products of the company you own stock in. If this be “rent seeking” then the whole idea of capitalism is based on rent seeking.

Brooks and George Will know this. They are highly paid liars, confidence men paid to talk you out of your life savings.

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Where Has All The Money Gone – Pt. III, Not to You and Me

Part I showed the money going to corporate profits, not to the salaries of working people.  Part II showed that the finance sector has captured an increasing slice of the profit pie.  Here is a different look at where the money hasn’t gone.

The first graph shows Real GDP/capita and Real Disposable Income/Cap since 1950 on a log scale.  (Data through 2009, from The Census Bureau. Table 678 at the link.)

I’ve left the 50’s out of the argument (but not the graph,) as a courtesy to Ike, since his relative performance suffers due to the post war baby boom.  The population grew at an above normal rate for over a decade, and that skews the GDP/Cap data.

If you’ve been paying any attention to time series economic data, you know there are break points in almost any econ measure, somewhere in the vicinity of 1980.  I’ve added trend lines, breaking the data sets arbitrarily at 1980.  These trend lines here tell the same story – it’s deja vu all over again.  Pre-1980 trend lines start with 1960 data.  I stopped the post ’80 trend line data sets at 2007, to avoid the influence of The Great Recession, which would have have further deceased their slopes.

What I want to emphasize here is the difference between the two lines.  Though both have a knee, the Disposable Income break is much sharper.   Here is a graph of the difference between the two, linear scale.  And, BTW, this time I left the ’08 and ’09 data in the trend line determination. 

Well – since 1980(-ish) not only has GDP growth slowed, the amount captured in disposable income has decreased, quite dramatically.

That’s a whole lot of wealth that is NOT ending up in the hands of ordinary people.   Which is why it doesn’t get spent.  But that is another story.

An earlier version of this post was published at Retirement Blues, back in June.

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Freddie Mac Attack

Freddster (noun): Fraudster who profits from conflict of interest at Freddie Mac (the knife).

Jesse Eisinger, pf ProPublica and Chris Arnold, of the public sector NPR News have the most interesting article about ruthless greedy uh socialism I guess at public sector Freddie Mac.

The idea is that Freddie Went long the interest payments on mortgages and not the principal repayments. This means the harder it is to refinance, the better for Freddie Mac. Freddie Mac also has significant regulatory power to decide how hard it is to refinance Freddie Mac insured loans. The conflict of interest is clear.

via Kevin Drum where commenter
Andrew Sprung wrote
“Could Einsinger and Arnold”s story have been prompted by an administration leak as a prelude to a recess appointment to replace DeMarco at FHFA?”

I hope so, or rather I wish I had any hope that it is so. But at least it is a hint that someone in the White House has decided to put pressure on DeMarco.
I also look forward to testimony by the Freddie Mac CEO Charles Haldeman who I expect will have considerable trouble recalling details (see HR Block)

After the jump I cut and paste a summary of the conflict of interest from Eisenger and Arnold with human interest and Freddie Mac efforts to respond to the accusation deleted.

Those mortgages underpin securities that get divided into two basic categories.

One portion is backed mainly by principal, pays a low return, and was sold to investors who wanted a safe place to park their money. The other part, the inverse floater, is backed mainly by the interest payments on the mortgages … . So this portion of the security can pay a much higher return, and this is what Freddie retained.

In 2010 and ’11, Freddie purchased $3.4 billion worth of inverse floater portions — their value based mostly on interest payments on $19.5 billion in mortgage-backed securities, according to prospectuses for the deals.


It’s … a big problem if people … refinance their mortgages. That’s because a refi is a new loan; the borrower pays off the first loan early, stopping the interest payments. Since the security Freddie owns is backed mainly by those interest payments, Freddie loses.


Restricting credit for people who have done short sales isn’t the only way that Freddie Mac and Fannie Mae have tightened their lending criteria in the wake of the financial crisis, making it harder for borrowers to get housing loans.


just as it was escalating its inverse floater deals, it was also introducing new fees on borrowers, including those wanting to refinance. During Thanksgiving week in 2010, Freddie quietly announced that it was raising charges, called post-settlement delivery fees.

In a recent white paper on remedies for the stalled housing market, the Federal Reserve criticized Fannie and Freddie for the fees they have charged for refinancing. Such fees are “another possible reason for low rates of refinancing” and are “difficult to justify,” the Fed wrote.

A former Freddie employee, who spoke on condition he not be named, was even blunter: “Generally, it makes no sense whatsoever” for Freddie “to restrict refinancing” from expensive loans to ones borrowers can more easily pay, since the company remains on the hook if homeowners default.

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Full-Reserve Banking, the "Right" to Earn Interest, and "Financial Repression"

Nick Rowe replies to Richard Williamson re: full-reserve banking (emphasis mine):

The key reading here (even though it appears to be about a different subject) is Milton Friedman’s “The optimum quantity of money”.
Foregone nominal interest payments is a tax on holding currency…. 100% required reserves mean you impose the same tax on chequing accounts …

My reply, edited and links added:
Nick, just because people (“the market”) want risk-free long-term holdings that pay interest does not in any way imply what seems to be the unstated assumption here: that the government is obligated to provide them, or that failing to provide them is a “tax” — a “taking” of something that they own or deserve by some natural right.
The government could issue dollar bills instead of t-bills without violating anyone’s rights.
This is no different from saying that foregone transfer payments to the poor constitute a “tax” on the poor.
You could call either (as in Carmen Reinhart’s “pity the poh’ bondholders” perorarations) “financial repression” — though the charge seems sadly misplaced in one of the two contexts. (This locution is the most egregious example I’ve seen of economists shilling for creditors. Witness its widespread repetition by said creditors, their congressional toadies, and their money-media water carriers.)
You could certainly say that either of these “foregoings” creates incentives similar (identical?) to those created by taxes. As long as it’s presented as such — which it decidedly is not in Friedman — it can serve as a useful pedagogical conceit. But the implicit, undeniable normative baggage must be ditched and explicitly disclaimed.

As for checking accounts, full-reserve banking might indeed result in account holders paying banks a fee to hold their money for them securely and conveniently.
And banks would be in the surprisingly novel situation of earning a living by providing a service to individuals in return for fees paid by those individuals.
It’s not immediately clear to me how that constitutes a “tax” on checking accounts.
Cross-posted at Asymptosis.

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Full-Reserve Banking and Loanable Funds

Richard Williamson asks a sensible and straightforward question: If, as Modern Monetary Theorists propose, banks’ reserve levels put no significant constraints on their lending, why don’t we have 100%-reserve banking — and presumably no runs on banks as a result?
First an explanation — I hope simple, clear, and generally accurate (if simplified):

Say you start your own bank. You take in $100 in checking-account deposits and lend it all out, holding no reserves. That’s not safe or even workable. You need some buffer so your depositor’s checks will clear.
So there’s a rule: you can only lend $90, and you leave $10 sitting in your “reserve account” at the Fed — essentially your bank’s checking account. When everybody’s checks clear each night through the Fed’s system, reserves get transferred between banks, and you’ve got enough on deposit so nothing bounces.
If the Fed says you need to hold 12% reserves instead of 10%, that means you can lend $88 instead of $90 — not exactly the massive asphyxiation of the “money multiplier” that many people imagine.
That multiplier is actually related not to your reserves, but to your bank’s capital — the money that you and others have invested. That capital is your bank’s buffer against losses from making bad loans. It’s your “skin in the game.”
The amount of capital limits how much you can lend (irrespective of 90%-lent deposits). If the allowed capital-to-loans ratio is 10%, you can lend $10 for every dollar in capital. Now that’s a money multiplier.
The reserve ratio and the capital ratio are completely different things.

So back to Richard’s question: if the Fed required 100% reserves, the banks couldn’t lend out all those checking-account deposits. The quantity of “loanable funds” would decline. But banks could still lend, 10-to-1 (or so), against their capital.

What do those numbers look like in practice? U.S. checking and savings deposits total about $6 trillion right now.

Circa 90% of that would be removed from the loanable funds market. Call it $5 trillion — sounds like a lot.
But total credit market debt outstanding is about $55 trillion.

That makes $5 trillion sound…not insignificant (and profound at the margin), but less onerous.
Which raises my question, one that I’m not knowledgeable enough to answer: Would 100%-reserve banking result in there being more bank capital available — more equity investments in banks — which via its money-multiplying power would offset or more than offset the otherwise decline in loanable funds?
Would we end up with roughly the same amount of credit market debt outstanding?
The answer, it seems to me, would depend on a whole lot of complex and interacting incentive effects. Anyone care to take a stab?
P.S. Like me, you’ve no doubt noticed that debt outstanding is in fact about ten times bank deposits. Does this put the big-picture lie to the MMTers’ claim that lending is not reserve-constrained? Is it just a coincidence? Other?
Cross-posted at Asymptosis.

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Social Security: The Elevator Pitch

• Since Social Security started it has always brought in more money than was spent. It contributes a surplus to the total federal budget. That’s true today and will continue for quite some time.
• The extra revenue needed to make SS solid far beyond the foreseeable future (75 years) is tiny: 0.6% of GDP.
• A 0.6% revenue increase would not be a big burden. The U.S. has been taxing about 28% of GDP for decades, compared to 30-50% in other rich countries (average: 40%).
• Coincidentally, Scrapping the Cap on SS contributions — so high earners paid payroll tax above $110K — would deliver … 0.6% of GDP.

Worried about our fiscal future? It’s the health care costs, stupid. What providers charge.
U.S. providers charge two to five times what they charge in other countries, and it’s rising faster — and faster than wages, GDP, inflation.

If you’re not talking about that, you have nothing useful to say about our fiscal future:

Cross-posted at Asymptosis.

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The ECB is Plugging Holes

by Rebecca Wilder

The ECB is Plugging Holes

Today the ECB released its monthly data on monetary developments in the Euro area (EA), as measured by M3 and its components. The market usually focuses on the marketable assets portion of M3, M3-M2, as a representation of funding access – here’s an FT Alphaville post highlighting as much. In December 2011, M3-M2 declined 0.2% over the year, its first annual decline since early 2010. What’s going on here? The ECB’s plugging holes.

There’s an evolution in marketable debt that is telling a very interesting story regarding bank funding through December 2011. As each private funding market shuts down, the ECB compensates by relaxing its lending facilities and collateral rules, effectively shoring up bank liquidity.

Look at the chart below: it maps out the dynamics of the components of marketable instruments in the EA, M3-M2, in levels of seasonally adjusted billion €. See Table 1 of the release, or download the data here. Since September 2011, the level of repo lending dropped 21%, or – €107 billion. Not coincidentally, the ECB started to introduce longer-term refinancing operations starting with the 1-yr in LTRO October. Holdings of debt instruments <2 years increased €40 billion, as banks use the securities for collateral under the ECB’s lending operations.
The ECB is offsetting, at least partially, the crunch in private repo funding markets.

This policy behavior is evident throughout 2010. Spanning the period January 2010 to August 2011, money market securities fell -€ 108 billion while private repo lending rose € 179 billion. The ECB offset fully the dropoff in funding from mutual fund shares by flushing private repo markets with liquidity.

The Table below describes the dynamics of funding through marketable assets more succinctly.

It’s pretty clear what the ECB is doing: plugging up the bank funding holes left exposed by private capital markets. What’s next?

originally published at The Wilder View…Economonitors

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