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

Attacking Iran…repeat of crazy reasoning?

Peter Beinart in The Daily Beast points us to the crazy nature of our current attitude regarding attacking Iran in The Crazy Rush to Attack Iran. He lists and quotes an impressive series of experts familiar with the the last decades wars, and finally asks:

Can you find former military and intelligence officials who are more sympathetic to a strike? Sure. But in my lifetime, I’ve never seen a more lopsided debate among the experts paid to make these judgments. Yet it barely matters. So far, the Iran debate has been a rout, with the Republican presidential candidates loudly declaring their openness to war and President Obama unwilling to even echo the skepticism of his own security chiefs.

And who are the hawks who have so far marginalized the defense and intelligence establishments in both Israel and the U.S.? They’re a collection of think-tankers and politicians, most absolutely sincere, in my experience. But from Rick Santorum to John McCain to Elliott Abrams to John Bolton, their defining characteristic is that they were equally apocalyptic about the threat from Iraq, and equally nonchalant about the difficulties of successfully attacking it. The story of the Iraq debate was, in large measure, the story of their triumph over the career military and intelligence officials – folks like Eric Shinseki and Joseph Wilson – whose successors are now warning against attacking Iran.

How can it be, less than a decade after the U.S. invaded Iraq, that the Iran debate is breaking down along largely the same lines, and the people who were manifestly, painfully wrong about that war are driving the debate this time as well? Culturally, it’s a fascinating question – and too depressing for words.

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Politicians’ wealth and the tax policies they support

by Linda Beale

Politicians’ wealth and the tax policies they support

A story in the Boston Globe by Britt Peterson on Feb. 19, 2012 explored “Why it matters that our politicians are rich” (available here on Boston.com). A key point–the four remaining GOP presidential candidates all are millionaires, with most making more than a million a year and worth multiple millions, while the median net worth of members of Congress is “$913,000, compared with $100,000 for the rest of us.” Id. That should worry us because, as the article reports, studies have shown that rich people become  more focused on their own well-being, less empathetic with the suffering of others, more likely to view their own wealth as due to merit (and others’ lack thereof to reflect lack of merit), and ultimately to make them “more callous, self-absorbed, and self-justifying than the people they represent.” Id.

In 2009, Michael Kraus, Paul Piff, and Dacher Keltner, all then of Berkeley (Kraus is now at University of California, San Francisco), published research that divided up sample groups by family income as well as self-reported socioeconomic status. People of higher socioeconomic status were more likely to explain success or failure as a result of individual merit or fault; lower-class people, on the other hand, felt less control in their own lives and were more likely to blame events on circumstance. In other words, higher-status people were more likely to feel that they’d earned their high place in society, and that poorer people hadn’t.
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More recently, similar research—involving not just surveys, but heart-rate measurements —has found that higher-status people tend to be less compassionate toward others in a bad situation than people of lower-class backgrounds.
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The result of these differences, say researchers who work on money and social class, is that people who are confident in their status have a completely different worldview from those who lack that confidence: more self-involved, self-justifying, and even, as the dehumanization study suggests, crueler. And the higher up the spectrum you get, the stronger the effect . . ..
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Power itself can trigger similar changes. . . . Gaining a sense of power, then, even if it happens through random selection in a lab, alters you on a very basic level, making you “less attentive to others, more free to act, and more free to act in a way that doesn’t take account of other people,” said Adam Galinsky, a psychologist at Northwestern’s Kellogg School of Management who has been studying the effects of power for a decade. Id.

That sense of personal merit (and lack of responsibility in others) can lead to disastrous policy choices. The “ownership society/personal responsibility” mantra of the Bush presidency justified heaping tax breaks on large corporations and their owners/investors at the top of the income distribution while preaching deunionization, privatization, and safety net withdrawal. It permitted a method of bailing out “too big to fail” banks from the financial crisis they caused by profiting immensely from risky speculation (made possible by deregulation) in ways that didn’t require a clawback of the rentier profits received by the “ownership class,” resulting in privatization of gains/socialization of losses. In essence, the “ownership society/personal responsibility” mantra provides justification for class warfare on the middle class and poor who happen not to be as well-off as the rich.

Similarly, Congress’ inability to empathize with ordinary Americans has led to significant numbers of Congresspeople (particularly members of the GOP) who support privatization of Social Security, reduction of benefits under Medicaid and Medicare and unemployment insurance at the same time that they continue to argue for zero taxation on the unearned income of the rich. And each of the GOP presidential candidates reflects that overarching goal of reducing taxes on the ownership class. See, e.g., Gingrich’s “optional 15% flat tax” (zero tax on unearned income); Cain’s 999 transitioning to a national retail sales tax proposal (a flat consumption tax that would be heavily regressive and leave rentier profits of the wealthiest essentially untaxed); Santorum’s tax proposals (even less protective of the poor than Gingrich’s), Romney’s tax proposals (including zero taxation of estates, extraordinarily low taxation of corporations, etc.). Rather than supporting a repeal of the “carried interest” loophole that allows private equity fund managers like Romney pay ridiculously low tax rates on their very high compensation income, these candidates and politicians support continuing the tax policies of redistribution upwards that have led to the decline of the middle class as the “ownership class” gathers for itself all the productivity gains of the economic system.
crossposted with ataxingmatter

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More links

Whats the matter with Chisago county?  One look at the NYT’s article on how and why people who receive benefits from the government think they don’t, and considers the ’causes’ slid into the article as ‘fact’.

Payroll tax cut undermines Social Security  An article in the LA Times that considers the messages involved in using the payroll tax as a stimulus

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Has America Lost its Drive? Part 2

I made a mistake in my original post.   Graph 4 in that post was based on the wrong data set.  As Roger Chittum pointed out in comments, that graph only covers a subset of total gasoline deliveries.

This is the correct graph.  (Source.)  Thanks, Roger!

Graph 1 Gasoline Supplied

The fall off in gasoline delivery is not as extreme as I indicated, but it is still real.  Here is a close-up view of data for the current century, from the same source.

Graph 2 Gasoline Supplied This Century

Seasonal changes are dramatic.  Peaks occur in July or August, valleys in January or February of most years.  May values, highlighted with blue dots, and September values, highlighted with yellow dots, are recurring secondary peaks and valleys, respectively.  July values are highlighted with red dots.  The years 2008 and 2010 are accented with contrasting blue line segments.

In 2008, gasoline consumption dropped dramatically.  May was down slightly, compared to ’07, while July and September were down a lot.  Through 2009 and ’10 there was a slight recovery, with all three highlighted months showing increases.  The 12 month moving average, in pink, stopped falling, but failed to increase very much.

Then, in 2011, gasoline deliveries turned down again. This can be seen clearly in the highlighted months and the moving average. Some of the standard explanations are changing demographics and retail habits. An aging population with more retirees might tend to drive less – though this is not my personal experience. Kids these days cruise on social media rather than pleasure drive through the streets of town as we did in my day. On-line shopping, though only about 5% of total retail, is growing rapidly.

You can’t gainsay any of these trends.  They are probably affecting the big picture.  But it would a stretch to say that they can account for less gasoline use in 2011, but not 2010 or 2009.  Especially so, since this past year was supposed to be a recovery from the previous economic doldrums, and the expectation would be for the improvements of the previous two years to continue.  But it looks like something is happening, economically or culturally, to cause another downturn in travel – though not as dramatically as I suggested in the original post.

The estimate of vehicle miles driven, from the December, 2011 report by the Federal Highway Administration, tells a similar story.

Graph 3 Vehicle Miles Driven – Moving Total

The years 2008 and 2010 are highlighted in yellow.  The pink line traces the November, 2011 low back through the Summer of 2004.  Again we see recovery in 2009 and ’10, and a resumption of the slide in 2011.

The slope change in mid-2005 is intriguing.   This precedes the April 2006 peaks in the Case-Shiller Composite-10 and Composite-20 Indexes by several months, and the October 2007 peak in the S&P 500 by over 2 years.  The new slope remains relatively constant right up to the peak in November, 2007. 

Meanwhile, gasoline prices have increased again in the last month, after sliding about 70 cents from the high in May, 2011.  This gloomy article at Seeking Alpha blames part of the price increase on “stronger demand, courtesy of a growing economy.”  The data simply does not support this opinion. Instead of text book supply-demand behavior, gasoline prices and miles driven exhibit basically similar motion

I still contend that the prices of petroleum products are manipulated on the supply side.  All the data I’m aware of supports this.

I expected the original post to be a one-off, but the current picture is interesting, with no obvious explanation.  This might bear looking into in another 6 months, or so.

Cross posted at Retirement Blues.

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Massachusetts Home Seizures Threatened in Loan Case: Mortgages

Yves at Naked Capitalism  comments on this Bloomberg article about the Eaton v. Federal National Mortgage Association case before the MA Supreme Court in the article  Massachusetts Home Seizures Threatened in Loan Case: Mortgages:

This is super important … The highly respected Massachusetts Supreme Judicial Court is going to rule on whether the mortgage (the lien) can be separated from the note (the borrower IOU). Since the US Supreme Court over 100 years ago said the lien was a mere accessory to the mortgage, the odds are high they will say no. That means they might invalidate the foreclosure at issue, putting many other FCs under a cloud (but even if they rule for the borrower, I’d expect them to award damages rather than undo the FC; there is a lot of other law that treats sales out of bankruptcies and foreclosures as final). But a ruling in favor of the borrower would also deliver a fatal blow to MERS.

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Health Care Thoughts: Here We Go Again – SGR Edition

Health Care Thoughts: Here We Go Again – SGR Edition

Congress has passed a ten month patch of the sustainable growth rate (SGR) formula by which Medicare reimburses physicians. I have lost count, but I believe that is the 11th or 12th year since creation of the formula which has never been put into full effect, being always subject to a short-term patch.
   
If the cumulative impact of SGR were to go into effect the cuts in reimbursements would average about 30%.

Clearly, we need a permanent fix. We need Medicare reform. Clearly, a fix or reform are not likely anytime soon.
    
Tom aka Rusty Rustbelt

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Does Latvia Give Us Any Clues?

by Rebecca Wilder

Does Latvia Give Us Any Clues?

Short answer: yes, as long as global trade growth is negligible.

Over the weekend I came across a December CEPR paper about the Latvian economy. Authors Mark Weisbrot and Rebecca Ray highlight the Latvian experience with internal devaluation, which may prove to be a case study for the current Eurozone model of internal devaluation by the program countries (Ireland, Portugal, and Greece). Weisbrot and Ray find the following (emphasis mine):

The paper also finds that Latvia’s net exports contributed little or nothing to the economic recovery over the past year and a half. This means that “internal devaluation” cannot have succeeded in bringing about the recovery. Rather, it appears that the recovery resulted from the government not adopting the fiscal tightening for 2010 that was prescribed by the IMF, and also from an expansionary monetary policy caused by rising inflation. The data contradict the notion that Latvia’s experience provides an example of successful internal devaluation.

Note: Internal devaluation is Europe’s favored prescription for any country seeking liquidity assistance; it refers to the process by which an EZ country that cannot devalue its currency reduces relative costs (wages) and prices by raising the unemployment rate in order to shift export income in favor of the deflating economy.

Internal devaluation didn’t work for Latvia, as evidenced by export demand. I wondered, though, how has real export demand performed for the current program countries, Ireland, Portugal, and Greece? Have these countries followed Latvia’s path?

To date, as regards to export income, internal devaluation appears to be working in Ireland and Portugal but not in Greece. For comparison to Latvia, I illustrate the path of real exports and imports spanning 2005Q1 through 2011Q3, as demonstrated for Latvia on page 14 of the CEPR paper.

Similar to Latvia’s experience, real import demand deteriorated in the face of fiscal austerity, especially in the case of Ireland and Greece. In contrast to Latvia’s experience, though, real exports in Ireland and Portugal are roughly 6% and 8%, respectively, above levels in 2007Q1. The Greek experience looks more like that of Latvia, as real imports and exports plummeted below pre-crisis levels, having yet to recover.

As I highlighted in a December post, relative unit labor costs have been cut in the case of all program countries, so internal devaluation is evident. (Note: the chart in the post illustrates the 4-q average Y/Y growth in nominal unit labor costs compared to the EA overall – it’s not intended to be a thorough examination of real exchange rates.) But has that been the driving force behind the export growth?

The resurgence in global trade has been an influential factor in the case of Ireland and Portugal. The chart above illustrates the Dutch estimate of world trade. Notably, there was a resurgence of trade spanning mid 2009 to Q1 2011, which support European exports broadly. It’s difficult, in this respect, to attribute all of the export success to internal devaluation.

Going forward, Ireland and Portugal are very likely slaves to global demand for exports. Prospects there are not looking too bright, given the slowdown in Asia.

Ultimately, I do think that Latvia serves as a warning for EA program countries. Internal devaluation is impossible for those countries with high private sector leverage without a burst of external demand. Unfortunately, the burst of external demand seems to have passed.
(Insert here a discussion of the 3-sector financial balances model, and why Ireland depends exclusively on generous export income to facilitate economic growth).

originally published at The Wilder View…Economonitors

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Links worth noting

by Linda Beale

Links worth noting

Lynn Parrymore (Alternet, Naked Capitalism) on the difficulties in putting a stop to congressional insider trading: Can Rep. Bacchus and his money-crazed congressional colleagues be stopped from insider trading?

OMB Watch BudgetBlog, Small Biz Owners: Big Businesses, Millionaires Not Paying Fair Share (showing that small businesses are more aware of problems of corporate loopholes and more supportive of having big businesses and wealthy pay higher taxes)

Brad DeLong, Grasping Reality, Heartening News about what Economists Think (Feb. 16, 2012) (noting that a recent Chicago forum found most economists admitting that the 2009 stimulus bill had kept unemployment lower than it otherwise would have been)


Trudy Lieberman, The case of the missing premium, Columbia Journalism Review (Feb. 16, 2012) (hattip Naked Capitalism) discusses new disclosure rules purportedly designed to help contain health care costs by permitting purchasers of insurance to do more comparison shopping. The article notes a fatal flaw in the disclosure requirements–no one has to reveal the actual insurance premium.

But insurers and employers do not have to tell consumers how much a policy costs—in other words, no premium information has to be given. Yep, that’s right—the key piece of information needed to make a good decision is missing. When insurers design a policy, they consider the interplay of coinsurance, copays, deductibles, coverage, and, of course, the premium, which lets them know what price point will make a consumer say “yes.” Price is the bottom line for consumers, but it’s poison for sellers, who fear a shopper might choose a policy with a lower price, other things being equal. So much for that price competition that was to solve all the ills of U.S. health care.
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Jost told me “premium disclosure is not required by statute.” Chalk that up to clever bill drafting. The administration was trying to add it to the proposed regulations circulated months ago, but Jost said “plans and employers pushed back. It was one place to give.” HHS official Steve Larsen did his media walk-back. “People have premium information. They will have that. The goal of this provision was to focus on coverage, benefits and how they interact,” he said.

Citizens for Tax Justice, Tax Justice Digest, Quick Hits in State News: Tax Victory in Iowa, and More (Feb. 17, 2012), provides more evidence that cutting taxes isn’t the way to achieve broad-based tax growth:

Gardner [of Institute on Taxation and Economic Policy] writes that Georgia lawmakers “wanting to join the non-income tax club are simply idolizing the wrong states. Most states without income taxes are doing worse than average … and the states with the highest top tax rates are actually outperforming them.”

Citizens for Tax Justice, Tax Justice Digest, New Fact Sheet: Obama Promoting Tax Cuts at Boeing, a Company that Paid Nothing in Net Federal Taxes Over Past Decade (Feb. 16, 2012). The key fact you need in addition to the information in the title–that Boeing has $32 billion in pre-tax U.S. profits in those years.

Mark Thoma, Economist’s View, NBER Research Summary: Offshoring, International Trade, and American Workers (Feb. 19, 2012) (excellent exercpting from academic work on offshoring and the impact on American workers).

Tax Policy Center, Roberton Williams, Tax Rates on Capital Gains (history of tax rate fluctuation over the last century).

crossposted with ataxingmatter

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A oh, Some in Europe can’t take the pressure

Seems the austerity thingy is starting to hurt where it really counts. Just read via the AP:
… and amid growing concern in Europe that austerity aimed at cutting ballooning deficits may also be choking growth.
A dozen European Union leaders, including British Prime Minister David Cameron and Italian Premier Mario Monti, called Monday for an open-markets strategy to stimulate growth and jolt the region out of its economic doldrums.
“We meet in Brussels at a perilous moment for economies across Europe,” the leaders said. “Growth has stalled. Unemployment is rising. Citizens and businesses are facing their toughest conditions for years. ”
Of course their solution is “Free the Kraken!*“: 
The letter urges European nations to deregulate their service, research and energy sectors, forge trade ties with growing markets including China, Russia and South America — and even contemplate a free trade agreement with the United States.
How scared are they? They are this frightened: 
“Implicit guarantees to always rescue banks, which distort the single market, should be reduced,” the letter said. “Banks, not taxpayers, should be responsible for bearing the costs of the risks they take.”
Be still my beating heart, be still.

Of course, all of this is related to Greece. I found that the British paper, the Daily Telegraph is liveposting daily on the Debt Crisis:
“Live coverage of the international debt crisis and rollercoaster financial markets in the eurozone and US.” From today’s postings:
20.06 Jeremy Warner [financial editor] writes that the US has proved that the brutality of hire and fire really does work:
It is a simple fact of life that business is more prone to hire if it is allowed to fire. The major risk to business investment, which is that of an ongoing workforce liability, is thereby removed.
Vince Cable’s proposed shake-up of employment law is in truth of much more importance to the future of the UK economy than faffing around either with credit easing or squandering £12bn on a temporary tax cut. It’s vitally important that the task is not ducked.
And yet, considering the 12’s concern about austerity to cut debt and banks taking the hit, there was this today: 
22.02 Here we go. Eurozone ministers agree on ways to cut Greek debt to 123/124pc of GDP by 2020, aiming to go close to 120pc. Eurozone in talks with representatives of private sector about finding further debt relief. Issue of ECB forgoing profits on its holdings of Greek bonds remains a sticking point.
Coming soon to a theater near you!  The Son of Austerity.
*Kraken: In modern German, Krake (plural and declined singular: Kraken) means octopus but can also refer to the legendary Kraken.

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Former Sen. Gramm retires from UBS

by Linda Beale

Former Sen. Gramm retires from UBS

Let’s see. Gramm pushed through the Commodities modernization act in Dec 2000–the thousand pages that nobody read but that made sure that credit default swaps (CDS) stayed unregulated. CDC then went on to form one of the pillars of the financialization of the economy–as they mushroom from a few billion in 2000 to about 70 trillion in 2007–all a castle of cards built on a foundation of sand and tangling the world’s too-big-to-fail banks in a web of speculative bets and what looked like easy-money guarantees. Then it all came tumbling down with the realization that the huge mortgage loan securitization industry and the CDOs, CDO-squared, and CDO-cubed transactions were filled mostly with hot air.

When Gramm left the Senate, he went in 2003 to UBS, a bank whose profits built on speculation and gambling with other people’s money he had made much cushier with the commodities modernization act . The proverbial swinging door swung nicely for Gramm. He was a vice chairman and “senior adviser to investment-banking clients” and “worked with governments around the world on behalf of UBS”. Wall Street Journal, Feb. 11, 2012, at B13. The “Who’s News” note says tht Gramm “helped build the UBS Office of Public Policy in Washington.” In other words, in addition to schmoozing with bank execs and wealthy clients, Gramm was a lobbyist working his old pals in DC on behalf of the bank.

Guess the bank must have been disappointed when he wasn’t able to get them out of the mess their greedy tax evasion business got them into. Hmmm. That does make one wonder just how much Gramm knew about UBS’s business of pushing secret accounts that the IRS couldn’t trace, smuggling diamonds in toothpaste tubes, and generally doing whatever necessary to make loads of money by helping US taxpayers avoid their tax liability under US tax laws?

PS In a “serves it right” result, UBS reported a fourth quarter net profit decline of 76%…..

crossposted with ataxingmatter

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