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

Worst Socialist Ever

Many have noted that under success hating kenyan islamosocialist Barack Obama nominal corporate profits just set a new record.  Uh so what.  A dollar isn’t worth what it used to be worth.  Graphing nominal quantities is silly.  The more interesting points is that the ratio of after tax corporate profits to GDP just set a new record (data only go back to 1947)

Notice also how corporate profits were almost as high under Truman as under Obama and then that socialist Eisenhower ruined eerything.  Also notice that even the Eisenthower through Carter and Clinton ratio was much higher than the extraordinarily low ratio under Reagan and Bush Sr.

Of course the new record in after tax corporate profits divided by the consumer price index for all urban consumers is even more impressive.

Angrybear readers know that GDP grows faster under Democrats and so should not be surprised at how much more horribly real corporate profits tend to do under Republicans.

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There are no "per se" tax or spending caps: lame duck negotiations no place for Medicare/Medicaid cuts

 by Linda Beale

There are no “per se” tax or spending caps: lame duck negotiations no place for Medicare/Medicaid cuts

When George W. Bush got reelected with a minority of the popular vote and contested state counts, the GOP claimed a mandate to keep going with the fiscally irresponsible program of high military spending combined with tax cuts particularly advantageous for their wealthy and corporate-owning supporters.
When Barack Obama got reelected with a clear majority of the popular vote and a resounding majority in the electoral college, the GOP says Obama has no mandate because the GOP managed to retain the House though Democrats in the House got more votes than Republicans in the House.
Anybody notice the partisan inconsistency there?

What we do know is that a majority of Americans–even lots of those Republicans who voted for Romney–want this Congress to preserve Medicaid and Medicare.  There is a huge effort by some–like the Peterson Institute, the Simpson-Bowles comedy tour, and right-wing propaganda tanks–to cast Medicare as impossible to sustain because of the current trend in health care costs.  The argument goes this way:

  • health care costs in the US are rising
  • the population that is eligible for Medicare in the using is rising as baby boomers age
  • Medicare costs will therefore inevitably increase
  • even though Medicare costs are rising less rapidly than non-Medicare health care costs (because of the ability of the government to mandate certain cost controls), those increases will eventually require significantly higher government outlays
  • the US has unprecedented levels of debt and annual budget deficits
  • the US spends too much compared to its tax revenues (the tax take is several percentage points less of the GDP than the spending percentage)
  • therefore the US can’t afford to pay those increasing amounts for Medicare health care costs
  • therefore we should cut back on eligibilty for, and benefits from, Medicare.

But this argument has several fatal flaws that include the following:

  • debt is extraordinarily cheap right now
    • if you can borrow at very low rates, it is better to borrow now than later
    • if you can borrow at very low rates and there are important projects on which to spend the money, the borrowed money acts as a stimulant to the economy
    • if the economy is stimulated by the borrowed money, the GDP growth will likely support continued low interest rates and faster revenue growth that will repay the debt faster
  • deficit spending by the government is vital when there isn’t private spending
    • and if the economy grows, private spending will grow and deficit spending can pull back
  • spending priorities have to be determined: 
    • there is no per se rule that higher spending is necessarily bad (though the right-wing in this country presupposes that there is and based almost all policy prescriptions on that presupposition, because the right-wing ideologically wants to divert public spending to its private pocketbooks)
    • there is no arbitrary and fixed percentage of GDP that is the “right” amount to be spent by the government on government programs
    • we spend too little now on public infrastructure ( public transporation, national roadways, electrical grids, and sewage systems are badly deteriorated), basic research (we have cut back on funding for NIH and NSF, major drivers of advancements in scientific and medical knowledge), and major priorities like combatting global warming/ supporting renewable energy
    • we spend too much now on the military (the military-industrial complex constitutes about 60% of the federal government)
    • we should support continued spending on Medicaid and Medicare, because those programs fill a vital need and serve the population well–we should not reduce benefits but rather increase them, at least for those who rely on Medicare/Medicaid as their primary or only health care plan
  • We’ve already built in various cuts to the spending for Medicare and Medicaid (possibly too much) and the question of what the costs will be ten years down the road depend in part on what else we do along those lines and how those things work out. See Editorial, Health Care Entitlements, New York Times (Nov. 29, 2012); Yves Smith, Naked Capitalism.
  • tax policy should be based on fairness in the way we raise revenues and spending priroities in the amount of revenues we raise
  • An equation that says “X (health care costs) is increasing and Y (Medicare coverage of health care costs) is increasing (because the number of people needing the program that pays for health care costs is increasing) and Z (taxes for coverage of health care costs) is increasing” and then concludes “therefore we must reduce Y” is using false logic: 
    • to maintain a relative constant, there are more options than “reduce Y” since the country could:
      • reduce X (move to single payer, as every other advanced nation has done, and halve the cost of health care)
      • increase Z (increase the tax support for Medicare, because it is a high priority that a majority of the citizens of our democracy support)

What we have to do is get away from the kind of thinking that seems to permeate so much of the discussion in Congress and in the media–that there are pre-set limits to how much we should borrow, how much we should spend, or how much we should raise in tax revenues.

The deficit hawks want us to think that the countnry will be just another Greece if we don’t rein in spending and debt and keep taxes low.  Traditionally our spending has ranged around 21% of GDP, but there is nothing magical about that number–it could rise to 24% or 26% without harm.  And we are not Greece, because we remain a powerful economy, one that can print our own money and one that commands interest from the global economy, so our debt (mostly caused by the Bush tax cuts combined with the Bush wars, and the Reaganomics deregulatory mania) is not an unbearable yoke around our necks.  We should be discussing the real needs of the country for infrastructure and provision of public goods and then figuring out how to pay for them with a combination of taxes and debt.

cross posted with ataxingmatter

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Gigantic journalistic investigation into tax havens

by Kenneth Thomas

Gigantic journalistic investigation into tax havens

While Mitt Romney may be fading from view in the wake of his defeat on November 6, the issue of tax havens is definitely not following suit.

Via the Tax Justice Network, I’ve just learned of a massive, multi-national joint investigation into secrecy jurisdictions by three very heavy hitters, the Guardian, BBC Panorama, and the U.S.-based International Consortium of Investigative Journalists (ICIJ). Though they are starting out with the United Kingdom and the seriously understudied situation in the British Virgin Islands, ICIJ has announced that this is just the start of a multi-year investigative project and that there are “many more countries to come in the next 12 months.” Further, according to ICIJ, the investigation involves literally “dozens of jurisdictions and in collaboration with dozens of media partners and freelance journalists around the world” (emphasis in original).

As I write this, the first and second articles (Nov. 25 and 26) in the Guardian’s series rank number two and number one in the “most viewed” articles in the last 24 hours. One of the most amazing articles discusses the use of “nominee” directors, people who pretend to be a company or foundation’s directors in order to hide the true ownership from authorities. Incredibly, these nominee directors frequently do not know the companies they are supposedly responsible for; they just know that they are getting paid for the use of their names. Be sure to check out the BBC undercover film linked from this Guardian article.

The tremendous scope of the journalistic investigation begs the question: where is government on this? Part of the answer is that government is way behind the curve. In 1999, the British government claimed to have stamped out a nominee sham colorfully named the “Sark Lark,” for the tiny Channel Island of Sark where the nominees lived. However, it turns out that the perpetrators of the Sark Lark have simply moved all over the world to continue their scam; the BBC caught up with one former Sark resident in Mauritius.

The other part of the answer is that much of these activities are, in the immortal title of David Cay Johnston’s book, “perfectly legal.” It appears that in many cases governments do not make the effort to sift the illegal from the legal activities.

But let’s not forget: tax havens cost the middle class worldwide hundreds of billions of dollars in tax revenue that they have to make up. The evidence is mounting that they are a central piece of the world financial system. Fundamental reform is necessary and a massive journalistic effort like this one will help produce the outrage to make it possible. I’m looking forward to more fruits of this investigation.

cross posted with Middle Class Political Economist

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Health Care Thoughts: EMR Cluster Mess

by Tom aka Rusty Rustbelt

Health Care Thoughts: EMR Cluster Mess

The 2009 stimulus bill kicked off the process to install electronic medical records (EMR) tied into electronic health records (EHR) networks. The stimulus bill included financial rewards for installing systems and meeting “meaningful use”standards.

Couple of problems, with unfair heat aimed at the Centers for Medicare and Medicaid Services.
First, it is difficult to really audit the “meaningful use” standards, even if the auditors were available, so we really don’t know if the stimulus money is being used properly. This was a problem baked into the cake.

Second problem , the physician office systems tend to direct docs through a check-a-box, drop-down-box, and standard language environment. The entered information (in many systems) then interacts with a coding program to send billing codes to the appropriate billing system. Now it seems some physicians using EMRs may be coding higher than physicians who are not. (see NYT archives, 9/24 and 9/25/2012)

Is this higher coding fraud, lack of training, incompetence or could it be the docs were under-documenting and under-coding previously. We won’t know for a while, with billions at risk, and the docs at risk for civil and criminal actions.

Third, THE BIGGEST PROBLEM, EMRs just do not seem to work as neatly as the vendors promise and the bureaucrats imagine. Like many panacea remedies, the implementation is tougher than the dream.
And we haven’t even gotten to ICD-10 implementation yet.

Or the privacy and security nightmares sure to follow.

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Does the Minimum Wage Increase Productivity?

This Galbraith article – pointing to Ron Unz’s ongoing good thinking on the topic, got me thinking:

If employers are faced with higher wage rates, that gives them more incentive to invest in business capital that 1. makes workers more efficient and productive, and 2. reduces the number of workers they need.

Is this incentive effect figured into the analyses of minimum-wage effects that you’ve seen? I haven’t laid eyes on such a thing, but my knowledge of the literature is far from comprehensive.

Cross-posted at Asymptosis.

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The Efficiency of De Ebil Gubmint Man

I’ve pointed out before that in some areas (here, Medicare), government programs are hugely more efficient and well-run than their private counterparts.

I don’t know if this qualifies as one of those, but it does make a very important point that I’ve also made before:

Government is not the problem.

Bad government is the problem.

Good government is the solution.

the government-wide [payment] error rate has decreased to 4.3 percent, having steadily declined from its high-water mark of 5.4 percent in Fiscal Year (FY) 2009.

That high-water mark would represent the culmination of eight years of Republican laissez-faire administration (boy you can say that again), coupled with six years of Republican control of both houses of Congress.

OMB: Eliminating Billions in Payment Errors

Cross-posted at Asymptosis.

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The oil industry is undergoing a major structural change.

Lifted from comments from this post US to be leading producer of oil is Spencer England’s comment about structural change in the oil markets. Obvious to some but bears repeating for a lot of us, as we discuss environmental issues or gasoline prices in the media more than structural economic impacts:

Spencer says:

The development of fracking and the tar sands means that the oil industry is undergoing a major structural change.

Use to be that one of the thing that made the oil industry very unique was that virtually all their costs were sunk or fixed costs and variable costs were relatively insignificant. Under this cost structure if prices fall it still pays to produce oil when prices fell as long as revenues covered the variable costs. So falling prices did not lead to falling output.

But now the marginal supply of oil is from tar sands or fracking where variable costs are very high. Moreover, the marginal costs of bringing in new oil from these sources is now in the $80 to $100 range.

So now, when prices fall, at the margin some producers will withdraw from the market and output will fall.

This is creating a fairly solid floor, the price for oil at about $80 — where oil bottomed last year and again this year.

Very few people are incorporating this structural change in the oil market into their analysis.


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Econo blogging

I have written several posts pointing to the role economics blogs play in the media, and am sorting out strengths and weakness to be addressed at Angry Bear in our own content.

Nick Rowe  at Worthwhile Canadian Initiative posts Four MC curves and two PPFs.  The comments flesh out the ideas involved in a beginning econ class, and provide a bit of the human side of teaching economic concepts of marginal cost, average cost, real world and the smoothing from economics modeling aggregates.  Of course I read him and Frances regularly.

On the other hand, as Steven Colbert (representing common sentiment) responded to Warren Buffet’s explanation of his position on taxes and tax code the other night, “Why do I find this interesting and yet am so bored?”  I get this sort of reaction sometimes in my own circles, as people run to the exits .  It forces me to consider my own social skills as well as what to offer readers.  🙂

Our own Steve Roth is sorting out his own understanding of models with Nick Rowe in a manner I find refreshing to the extent that  bloggers can add to our understanding in a back and forth manner without shouting out the truth of things.  Thanks guys.

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Small businesses, tax cuts, and reporting

 I sometimes get the ‘eyes rolling’ reaction from people in my social sphere when I insist that at least linking to  original documents is important, and that someone needs to follow up on what an author says someone else says (as a way to gain traction and authority status for their own writing, such as saying the non-partisan Tax Policy Centers says).  I won’t go into the idea of spin, which involves figuring out intent.  Mine is a caution for readers:

The post is lifted from a note from Daniel Becker in response to a query I sent to him…Dan is a small businessman in the way most of us think of as small business.  (The IRS has a different criterion  of ownership that allows a company like Bechtal at $31 billion to be considered a small business).

Dan Becker’s note:

The Washington Post article is   Obama calls for small business tax breaks.   The article uses the  Tax Policy Center original under the title Temporary Tax Relief to Create Jobs  as the source for the reporting.

The WP article notes:

“The last time the country had a similar proposal to the tax subsidy was during the Carter administration, according to the Tax Policy Center. Research by the Labor Department found that few firms knew about the tax policy, but those that did increased employment notably.”

But from their source it actually notes:

“The last experience the United States had with a credit for incremental employment was with the new jobs credit enacted at the beginning of the Carter Administration in 1977. Evaluations of that credit and how it came about found that most firms were either unaware of the credit or did not respond to it. Research based on a Department of Labor survey found that only 6 percent of firms who knew about the credit said that it prompted them to hire more workers. Firms that were aware of the credit, however, increased employment about 3 percent more than other firms. ”   (bolding is Dan B.’s)

WP had another smoothing over (under the fold):

“An incremental jobs credit could be a cost-effective way of raising employment in the short run, the nonpartisan center said in a report this year. The effectiveness of any jobs subsidy depends . . . on how employers perceive its potential benefits when making hiring decisions.”

The actual statement:

In summary, the effect of this proposal on employment is very uncertain. In theory, an incremental jobs credit could be a cost-effective way of raising employment in the short run and some research suggests that the 1977 credit did increase jobs, although the evidence on that is far from conclusive.
The effectiveness of any jobs subsidy depends greatly on both the details of the proposal, still to be finalized, and on how employers perceive its potential benefits when making hiring decisions.

Dan B

(Editorial comment at end of note from Dan Becker….Man! They still want to believe that cutting taxes is actually the same as if the 99% were now getting that $1 trillion of income that is now with the 1%. Just like they believe cutting taxes will increase revenues (sure if you convince the dictator to stop taking a full 90% of all that his people produce, but that’s not US).

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Religious freedom, contraception, and law

Lifted from a note from Beverly Mann in response to a query of mine, as a note of interest:

Here’s a link to a long Politico article on those cases and on the prospects of their success:

Apparently it looks like the Supreme Court eventually will hear two or three of these cases, probably all at one time, and draw some line about which organizations and for-profit companies are entitled to be exempt from the contraception part of the mandate. But mainly, these lawsuits concern a federal statute called The Religious Freedom Restoration Act, which provides religious protections for these groups beyond what the Supreme Court has held that the First Amendment requires. That statute was passed in reaction to a Supreme Court opinion that defined the First Amendment’s Free Exercise clause more narrowly than a majority of Congress thought was appropriate.

The Politico article gives a pretty detailed rundown on this.


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