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

2013 Social Security Report

Well I am back at Angry Bear and just getting my feet wet with WordPress, so this first post won’t be ambitious.


The 2013 Annual Report of the Trustees of Social Security was released today Friday the 31st of May. The short take-aways are ‘not much change’ and ‘no news is good news’: date of Trust Fund depletion remaining at 2033 and the 75 year actuarial gap going up from 2.66 to 2.72 which is precisely the structural amount due to the change in actuarial period. (On the other hand the numbers INSIDE that number would repay examination, an exercise for the diligent student.)

For now I am just putting this up for comment, consider this a Social Security open thread.

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Justice Scalia Says Rightwing Economic Ideology is Mandated By the Constitution. Really.

Scalia regularly bars video or voice recordings of his off-the-bench speeches, and in at least one fairly recent instance, the details of which I can’t recall, he employed a member of the U.S. Marshals Service to enforce his policy.  If I recall correctly, a member of his security detail confiscated a reporter’s or law student’s audio recorder as the audience was leaving the room after the speech; something like that, anyway.

But recently he spoke publicly to a group somewhere in Italy, the speech was recorded, and National Law Journal reporter Michelle Olsen obtained and posted access to a web page that, the How Appealing blog reported, “was then providing access to download the mp3 audio of Justice Scalia’s remarks.”  The remainder of that How Appealing post, from yesterday, relates what happened next:

Yesterday, however, Michelle noted that the link to the audio of Justice Scalia’s remarks at that web page had disappeared. Nevertheless, the audio file itself remained available for download from the server for those who possessed the original download link.

Today, Michelle has not only posted the audio of Justice Scalia’s remarks to SoundCloud, but she has also located online another place where the audio of Justice Scalia’s remarks remains available for download (70.7 MB mp3 audio file).

Today, How Appealing follows up with this post:

“Scalia on the Judiciary and Economic Liberty”: Josh Blackman has this post today at his blog.

Blackman, an assistant professor of law at South Texas College of Law in Houston, begins his post by expressing appreciation to Olsen “for retrieving Justice Scalia’s speech in Italy from a new ring of Dante’s inferno (where off-the-record recordings of Justice’s speech wither away in limbo).”  He then quotes from the part of the speech that he listened to; he says he’ll post further after listening to the remainder.

A two-paragraph excerpt and a couple of additional quotes that Blackman adds are, in my opinion, jaw-dropping for their bald assertion that the Constitution mandates the particular economic ideology that Scalia ascribes to and therefore prohibits many (most?) of the economics-related laws enacted by Congress.

One added quote has Scalia saying that John Locke was the “guiding light of American independence.” Blackman then writes:

Scalia notes that the structural provisions of the Constitution are most fundamental to protecting economic liberty. He mentions the doctrine of enumerated powers, the Due Process Clause, the takings clause, and the contracts clause.

“Our Constitution provides property owners with relatively few substantive rights. Almost all of our private rights in the Constitution are in the Bill of Rights, which was an afterthought  . . . . Judges cannot enact atextual rights to enact their preferred policies.”*

The rightwing justices are big these days on attributing much of their peculiar brand of constitutional jurisprudence to what they say is the “structure” of the Constitution–usually things that are not stated expressly in the Constitution but that conservatives nonetheless claim are inherent in the document.  Especially extreme and sometimes bizarre declarations of states’ rights, which, according to this crowd, oddly enough or conveniently enough regularly trumps individual rights, including such individual rights as due process and habeas corpus, and narrower rights such as the right to the assistance of counsel, that underpin the more general ones.

Or, likely, the supposed structure of the Constitution that, in the absence of a specific useful provision, will suffice sometime in the next four weeks to justify voiding a key provision of the Voting Rights Act.  The Fifth Amendment doesn’t expressly require due process for states, as it does for “persons,” and has never before been held to incorporate within it “an equal protection component” similar to the one in the Fourteenth Amendment protecting “any person,” as it has for “any person.”  But, absent a formal pronouncement by the Court that states and voting districts within states are people too, the Constitution’s structure will suffice, if the oral argument this spring in the current Voting Rights case is an indication.

But I digress.  What we have right  now, from one of the mouth of one of the five horses, is an express adoption of an extreme laissez faire economics policy agenda in the ostensible name of the Constitution.  I hope that Democratic congressional candidates make this known when they address their constituents at Town Hall meetings and are asked about economic-policy issues.  We now have a Supreme Court justice who has publicly vowed to use his official position to undermine economic policy that he claims the Founding Fathers–followers of John Locke all, he says–would disapprove.

It’s struck me in recent weeks that statements by Paul Ryan and Mitch McConnell and other congressional wingnuts acknowledge that the Republicans are attempting to stage what amounts to a non-military coup.  They lost the popular vote for the House, and soundly lost the White House and the Senate, last fall, yet they will bring down the economy of the United States and will routinely refuse to confirm the president’s judicial and agency-head appointments, and will disallow funding for statutorily mandated agencies and programs, because–as Ryan said a week or two ago–they believe that the Republican policy agenda is better policy.

And now we have a Supreme Court justice announcing, if quietly, that he will try to use the Court to do the same.**  In the name of John Locke, no less.

*Indent-format-corrected to show boundary of quote.

**Sentence typo-corrected.


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More on Ineffective Fiscal Policy

This is a companion piece to Steve’s AB post from earlier today, where he points out the specious reasoning of  “the likes of Scott Sumner, David Beckworth, Lars Christensen, et al., claiming that fiscal austerity has obviously had no effect on GDP growth.”

I wrote Sumner off a few years ago due to a highly unfavorable chaff/wheat ratio.  I’ve tried really hard to like Beckworth, but these guys simply wallow in confirmation bias.  I’ve repeatedly criticized Beckworth at his blog for cherry picking short-term time series data to make his points.

Comparing 2013 to ’12 is an example of time series cherry picking used to justify absolutist dogma.

Back on Feb 10, Beckworth said: “despite this austerity happening at a time of high unemployment and a large output gap, a slowdown in aggregate demand growth has failed to materialize.”

And also:  “we should at least see aggregate demand faltering over the past few years while this unfolded. But in fact, we see relatively stable aggregate demand growth, as measured by NGDP”

He does admit in the end that, “the Fed has failed to restore NGDP to its pre-crisis trend.” but uses this to get in a dig at the Fed for not following his preferred agenda.

Despite the admission, this is absolutist thinking.  Austerity and demand growth in this view each have an on-off switch.  There is a refusal or unwillingness to recognize matters of degree.  GDP growth is slower than before the crisis, and the slowest of any alleged recovery period ever.  Blaming the Fed willfully ignores the part played by fiscal austerity

My comment, which he also ignored, is as follows. [Graphs added, in place of links.]


Yes, your graphs all show relative austerity. Except for total government expenditure/GDP – yes falling rapidly, but still higher than any pre-2007 number. And relative is relative. I still think you are considering austerity in absolutist terms.  [Afterthought – total government expenditure as a direct measure is basically flat, not falling over the past three years.  Another example of using a denominator to skew the view.]

We now have the slowest growth in real personal consumption expenditures, % change YoY, of any non-recessionary period in the WW II era. In fact, by that measure, this is the most anemic recovery on record.  [Graph 1]

Graph 1 – Real Personal Consumption Expenditures, YoY % Change

If you prefer GDP growth, this “remarkably stable” measure [% change YoY] has plateaued at or below the level of troughs in the last 8 recessions, going back to 1960. [Graph 2]  So, by that measure, this is the most anemic recovery on record.


Graph 2 – GDP, YoY % Change

Unemployment has fallen, but remains at a level above that of most recessions.[Graph 3]


Graph 3 – Civilian Unemployment Rate

The worst recovery in my life time is pretty dismal success. Plus, wealth and income disparity continue to increase. With sequester looming, I think we’re in for a very rough ride.


There are legions of economists who simply refuse to recognize that fiscal policy can make a difference, and are willing to torture data in an attempt to validate this point of view.

If you want to make a point using time series data, you really need to consider what is a valid context.  Is it this year vs last year, or vs long range historical trends?

If you need to cherry pick or engage that ol’ devil denominator to make your point, then your point has questionable validity.


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Is the IRS Inspector General Himself Partisan, Or Is He Just Stupifyingly Clueless About the Law?

After the tax agency was denounced in recent weeks by President Obama, lawmakers and critics for what they described as improper scrutiny of at least 100 groups seeking I.R.S. recognition, The New York Times examined more than a dozen of the organizations, most of them organized as 501(c)(4) “social welfare” groups under the tax code, or in some cases as 501(c)(3) charities. None ran major election advertising campaigns, according to the Campaign Media Analysis Group, the main activity of a small number of big-spending tax-exempt groups that emerged as major players in the 2010 and 2012 elections.

But some organized volunteers, distributed pamphlets and held rallies leading up to the 2010 elections or the 2012 presidential election, as conservatives fought to turn out Mr. Obama.

A report issued this month by the Treasury Department’s inspector general, J. Russell George, found that inappropriate criteria, including groups’ policy positions, were used to flag some cases and that specialists in the I.R.S. office in Cincinnati, which reviews all tax-exemption requests, sometimes asked questions that were irrelevant to the application process.

And agency officials have acknowledged that specialists inappropriately used keywords like “Tea Party” and “Patriots” in searching through applications.

But some former I.R.S. officials disputed several of [I.G. J. Russell] George’s conclusions, including his assertion that it was inappropriate to ask groups about their donors, or whether their leaders had plans to run for public office. While unusual, the former officials said, such questions are not prohibited if relevant to an application under consideration.

“The I.G. was as careless with terminology as the Cincinnati office was,” said Marcus S. Owens, who headed the I.R.S.’s exempt organizations division until 2000. “Half of those questions have been found to be germane in court decisions.”

Groups Targeted by I.R.S. Tested Rules on Politics, Nicholas Confessore and Michael Luo, New York Times, May 26

I had planned to post on the Times story but haven’t had the time this week, and Linda Beale’s terrific post this morning would make an in-depth one by me redundant.  But I do want question, explicitly, the inspector general’s own competence, and maybe even his own political biases.  What struck me most about the Times story is its indication that the I.G. himself apparently is ignorant of the relevant law, particularly of some relevant court decisions; that his report apparently does not attempt to reconcile the specific actions of some of these groups with the law’s limiting of 501(c)(4) status to groups that do not electioneer; and that the investigation (apparently) did not attempt to determine whether groups with conservative-sounding names were “targeted” for further inquiry at a higher rate than groups with with liberal-sounding names.

If there were a significantly higher number of applicant conservative groups than applicant liberal groups, or if applicant conservative groups more often use political-sounding names than applicant liberal groups do, then–in light of the body of actual law pertaining to 501(c)(4) status–these statistics, it certainly seems to me, should have been featured in the report, and then widely reported by news organizations.

But instead, the I.G. started–and therefore finished–with the mistaken legal premise that political groups, groups whose very purpose was to electioneer, were entitled to 501(c)(4) status. This itself is stunning. From time to time, there are indications that an inspector general has deliberately skewed an investigative report or an investigation itself.  But I’ve never before heard of an inspector general who appeared unknowledgeable about the law relevant to the agency or department that his or her office was charged with inspecting upon receiving triggering information.

It would be nice now if Obama, having already expressed his outrage at the indication of political targeting by that IRS division, would now fully explain to the public what the relevant law actually is; that Democratic-leaning electioneering groups were targeted, too; why the groups that were targeted were targeted; what some of these groups actually do; and the real reason that these groups, whether Republican-leaning or Democratic-leaning, applied for 501(c)(4) status: to be able to hide the identity of the electioneering organization’s donors.

Obama, of course, won’t do that.  His primary goals throughout his presidency have been to please centrist pundits and try to tamp down on the virulence toward him from the right.  But any self-styled centrist pundit who would attack him for explaining the law and mentioning what the targeted organizations really do–that is, what exactly “targeting” meant here–is, by definition, no centrist.  And it’s painful to think of how much more successful this administration would have been all along, and how many serious mistakes it would have avoided, had Obama not dedicated himself so thoroughly to trying to assuage the unassuageable.  And that includes the political pundits of the studiously-centrist variety.

But the Senate Democrats should hold a hearing to make the points about the Times article makes.  The Times article provides a good starter witness list–including Inspector General George–and the names of some of the political organizations, Republican-leaning and Democratic-leaning, that inappropriately filed 501(c)(4) applications, and whose officers should be subpoenaed to testify.

The purpose would be to clarify for the public what the law is now and why–why–groups whose raison d’être is openly partisan want the 501(c)(4) designation, and, in doing so, enlist public support for a new campaign-finance law with specific guidelines concerning public disclosure of donors to political-campaign groups irrespective of their IRS tax status.  And along the way maybe we would learn why, pray tell, the inspector general thinks current law permits (requires?) the IRS to authorize these overtly partisan groups to keep their donors’ identities secret.  That alone would be worth the trouble.

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Does Steady GDP Growth “Prove” that Market Monetarists Are Right About Ineffective Fiscal Policy and Foolish Keynesianism?

You’re seeing a lot of crowing these days from the likes of Scott Sumner, David Beckworth, Lars Christensen, et al., claiming that fiscal austerity has obviously had no effect on GDP growth.

“Look!” they say: “Even with the sequester and all the other government spending cuts, growth in 2013 has been the same as 2012! The notion that government spending affects GDP growth (“Keynesianism”) is obviously false and stupid.”

As Scott says in a recent post:

The left predicts fiscal austerity will slow the recovery, and yet both GDP and jobs are actually a bit ahead of the 2012 pace so far this year.

This is specious reasoning.

1. The “left” prediction has been that “fiscal austerity will will slow the recovery” relative to what it would be otherwise, not relative to 2012, or Q1 2012. Scott, not the lefties, chose 2012 as the benchmark. But I know they know: when you compare 2012 to 2013, ceteris is not paribus.

Look at the four highlighted numbers here, showing growth/decline in the two GDP-component numbers that dominate our economy:

Chained 2005 $, %, AR Q1’13 (2nd Estimate) Q1’13 (Advance) Q4’12 Q3’12 Q1 Y/Y 2012 2011 2010
Gross Domestic Product 2.4 2.5 0.4 3.1 1.8 2.2 1.8 2.4
 Inventory Effect 0.6 1.0 -1.5 0.7 -0.1 0.2 -0.2 1.5
Final Sales 1.8 1.5 1.9 2.4 1.9 2.1 2.0 0.9
 Foreign Trade Effect -0.2 -0.5 0.3 0.4 0.2 0.1 0.2 -0.4
Domestic Final Sales 1.9 1.9 1.5 1.9 1.7 1.9 1.8 1.3
Demand Components
Personal Consumption 3.4 3.2 1.8 1.6 2.1 1.9 2.5 1.8
Business Fixed Investment 2.2 2.1 13.1 -1.8 4.1 8.0 8.6 0.7
Residential Investment 12.0 12.6 17.5 13.6 12.8 12.1 -1.4 -3.1
Government Spending -4.9 -4.1 -7.0 3.9 -2.3 -1.7 -3.1 0.6
Chain-Type Price Index
GDP 1.1 1.2 1.0 2.7 1.6 1.8 2.1 1.3
Personal Consumption Expenditures 1.0 0.9 1.6 1.6 1.2 1.8 2.4 1.9
   PCE less Food & Energy 1.2 1.2 1.0 1.1 1.3 1.7 1.4 1.5

Haver Analytics

Personal consumption growth (roughly 70% of the economy) is way up. Shouldn’t we expect 2013 to be kicking 2012’s anemic little butt? You gotta ask: If government spending (20% of GDP) weren’t such a drag, would we (finally) be experiencing robust growth? (Business investment growth also dropped, but 1. it remained positive, still adding to growth, and 2. it’s only 10% of the economy. Residential investment is less than 5%.)

See here, from one far better-credentialed than I:

All else being equal, growth in 2013 should be better than 2012, because the headwinds holding it back are diminishing,” said Michelle Girard, chief economist of RBS. “The impact of the fiscal drag isn’t things getting worse, it’s the absence of things getting much better.”

2.  The market monetarists’ whole theory is that fiscal policy doesn’t matter (nor, apparently, does anything else) because the Fed will always offset it with monetary policy. So according to their theory, the steady GDP growth is because the Fed has offset the fiscal drag.

But: the Fed has made basically zero changes to policy or guidance since its big announcement on December 12 ($85 billion in Treasury/MBS purchases until unemployment’s below 6.5% or inflation’s at 2.5%), except to state unequivocally that “fiscal policy is restraining economic growth.”

Now maybe the market monetarists want to argue that the December 12 announcement was pre-emptive, proleptically adjusting for the sequester etc. that hadn’t even been legislated yet. In which case their theory would be correct. But that’s suggesting a remarkably prescient reaction function by the Fed, one that I don’t think even market monetarists would want to lay claim to.

Cross-posted at Asymptosis.

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Modern money and public purpose

From Matt McOsker  :

This might be a good debate to advertise on AB:

Modern Monetary Theory vs. the Austrian school

macroeconomic debates among the heterodoxy

Warren Mosler, Author, Soft Currency Economic Versus Robert Murphy, Associated Scholar, The Mises Academy
When: 6.15pm June 3rd, 2013
Where: Room 103, Jerome Greene Hall, Columbia Law School
Livestream: A livestream will be available on the day of the event and can be accessed from the home page or at this permanent link.
Participants: Information about participants can be found here.

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The real IRS scandal

by Linda Beale

The real IRS scandal

Various posts here have made the argument that the TIGTA report shouldn’t be taken as a definitive analysis of the ins and outs of the various issues related to the IRS’s examination of applications for 501(c)(4) status and its use of terms like “tea party” and “patriot” as a shortcut to identify groups that likely engage in way too much politicking to be entitled to C-4 status and nondisclosure of donors.  It does not appear to be quite so clear that the IRS actions were either “outrageous” (as so many hopping on the IRS “scandal” bandwagon suggest) or even “inappropriate”.  The right’s willingness to push this for all it is worth is typical of what passes for Congressional action these days–partisan politicking with a great dash of scandalmongering and a very little seasoning of legislative action intended to put the country in a better position.

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“Libertarian Koch brothers have taken tens of millions in subsidies UPDATED

The Cato Institute, originally the Charles Koch Foundation, is one of the most influential libertarian think tanks in the country. With both Charles and David Koch on its board of directors, Cato has produced numerous studies on the evils of corporate subsidies (which it calls “corporate welfare“), dating back at least to the 1990s. Supposedly, Charles Koch himself (via Wikipedia) is opposed to “corporate welfare,” and plans to oppose it this year.

I guess I’ll believe it when I see it. As previously discussed in Dirt Diggers Digest, Koch Industries has received many subsidies over the years, and I doubt this leopard will change its spots. In fact, the full tally of giveaways they have received extends far beyond the article linked above.

The calculation below relies on Good Jobs First’s Subsidy Tracker database and the New York Times subsidy award database (not the program database). While 98% of the entries in the Times database come from Good Jobs First, reporter Louise Story took the first big step toward aggregating by standardizing company names. However, this still does not connect parent and subsidiary companies, so I carried out this step for the Kochs by using the Wikipedia entry for Koch Industries. With a quarter of a million entries and counting in Subsidy Tracker, I cannot imagine how long this would take if I had to do it for every company.

Here are the subsidies I was able to identify for Koch companies.

Flagship Koch Industries has taken over $16.5 million in subsidies from 11 different awards, none of which are sales tax breaks (which generally are not subsidies).

Subsidiary Georgia Pacific has received 72 subsidies worth over $43.9 million (none of these were sales tax breaks).

Subsidiary Flint Hills Resources LP has received subsidies from Iowa, Kansas, Texas, and Michigan, according to the Good Jobs First Subsidy Tracker; the New York Times subsidy database, which omits Michigan but includes one more Iowa subsidy, puts the value of the Iowa and Kansas subsidies alone at just over $12.5 million (again, none of which were sales tax breaks).

Subsidiary INVISTA has received $217,504 in training grants from South Carolina, according to Subsidy Tracker. Several other subsidies appear to be connected to this subsidiary, but none have available subsidy amounts. Again, none were sales tax breaks.

To summarize:

Koch Industries: $16.5 million

Georgia Pacific: $43.9 million

Flint Hills: $12.5 million

INVISTA: $0.2 million

Total subsidies to the Koch brothers:$73.1 million

Remember, this is the minimum value of the Koch brothers’ subsidies. Some of the entries had no dollar figures available, and there is always the possibility that some incentives were missed entirely or that the awards above were only a part of a subsidy package, not the entire value. In particular, local subsidies are not well covered in either database; the same is true for my national estimates. The  data just isn’t widely available.

Meanwhile, Koch Industries is going to be the largest investor in the Big River Steel project in Osceola, Arkansas, which is expected to cost the state $132 million in incentives.

Like I said, when it comes to the Kochs fighting subsidies, I’ll believe it when I see it.

UPDATE: Yasha Levine tweeted me to let me know about two stories he did at Exiled Online in 2010 and 2011. While I focus above on state and local subsidies, Levine’s stories focus on federal and foreign subsidies received by Koch companies. The biggest takeaway is that the federal subsidies, especially the ethanol subsidy, dwarf what the Kochs have received at the state and local level, with the ethanol subsidy alone worth perhaps $1 billion a year. The mind boggles.

Check out Levine’s stories for the gory details. Thanks, Yasha!

Cross-posted from Middle Class Political Economist.

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Why Libs and Cons Should All Love Milton Friedman’s Corporate Tax Proposal

I’m constantly astounded that nobody on the left or the right ever mentions Milton Friedman’s proposal for taxes on corporate profits.

On page 174 of (my edition of) Friedman’s libertarian bible Capitalism and Freedom, he proposes what seems a simple and sensible plan (transcription here):

…the abolition of the corporate income tax, … with the requirement that corporations be required to attribute their income to stockholders, and that stockholders be required to include such sums on their tax returns.

In other words, treat C-corp profits like S-Corp (pass-through) profits. Shareholders (they’re the “owners,” right?) pay taxes on them whether or not they’re distributed as dividends. Corporations would pay zero taxes on profits.

If corporations want to distribute enough in dividends to cover their shareholders’ tax bills, fine. That’s between the shareholders and the corporation.

I suggest: announce that this change will take place five or ten years hence, and let the capital markets adapt in the meantime.

Friedman doesn’t say anything about tax rates. I’d suggest taxing profits at the regular income rate or higher. (Pace the incoherent notion that taxing income from financial investments prevents people from making financial investments; what else are they gonna do with the money, stuff it in a mattress?)

Conservatives should love this proposal not only because it emanates from their godhead, but because it eliminates double taxation (profits taxed at the corporate level, then again when they’re distributed as dividends).

Liberals should love this proposal (despite its source) because it places the tax burden directly on “owners,” and it taxes corporate earnings at the same unsubsidized rate as labor earnings.

Everyone should love this proposal because it eradicates the whole public and private apparatus of corporate tax collection, and removes multiple preferential tax treatments that distort markets and keeps tax accountants, lawyers, and regulation-arbitragers burning the oil.


In and of itself, this proposal does nothing to address the international tax dodging that is such a problem with corporate profits.

There would still remain the question of capital gains and how/if they should be taxed, which I will leave to another post.

But I will mention here, once again, that the corporate interest deduction should be eradicated (along with the mortgage interest deduction). There’s no reason for taxpayers to subsidize debt financing in preference to equity financing. QTC, in fact.

Cross-posted at Asymptosis.

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