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Stiglitz on globalization: the MNEs bought the law they wanted; it’s time to take it back

by Linda Beale

Stiglitz on globalization: the MNEs bought the law they wanted; it’s time to take it back

Joseph Stiglitz has a new read-worthy article. Globalization isn’t just about profits; it’s about taxes, too, The Guardian (May 27, 2013).

As he notes towards the conclusion of the piece, the big MNEs aren’t simply “applying the law as they find it” in order to minimize their taxes legally.  They were instrumental in making the law what it is today.

To say that Apple or Google simply took advantage of the current system is to let them off the hook too easily: the system didn’t just come into being on its own. It was shaped from the start by lobbyists from large multinationals.

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31 Million Uninsured Under the PPACA . . .

Over at “Economists View,” Anne and Muses are having a discussion over why some 30-something million will be uninsured under the PPACA Paul Krugman: The Obamacare Shock. The conversation goes back and forth citing references without giving any real explanation of what the 31 million is composed of and why they will not be covered. For some reason today, I can not log-in and add to the conversation with an explanation of the 31 million.

Perhaps it is a little known fact; but states today can, if they so choose to do so, qualify Medicaid coverage for everyone. States can also cover beyond 100% of FPL which some states do. The majority of states do not cover certain single adults as determined by each state’s rules for Medicaid coverage.

“Currently, few states cover non-disabled, non-pregnant parents up to 138 percent of FPL in Medicaid, and even fewer states cover such adults without dependent children. At present, only 18 states provide comprehensive Medicaid coverage to parents at or above 100 percent of FPL ($18,530 for a family of three in 2011), and the median state covers working and non-working parents up to only 63 and 37 percent of FPL, respectively. The majority of states do not cover non-disabled, non-pregnant adults without dependent children at any income level, and many low-income women only qualify for Medicaid coverage when they are pregnant. As has been noted, ‘it’s a very common misconception that Medicaid covers all poor people, but that’s far from the truth.'”

“Nationally, just over half (53 percent) of the uninsured who would be newly eligible for Medicaid are male. This is not surprising, since, as indicated above, Medicaid has historically had much broader eligibility for parents than for adults without dependent children, and a high proportion of these parents have been single mothers. ‘Overall, 47 percent of the uninsured who would be made newly eligible for Medicaid under the ACA are women.” Opting into the Medicaid Expansion under the ACA: Who Are the Uninsured Adults Who Could Gain Health Insurance Coverage?.

The expansion of Medicaid to 138% of FPL under the PPACA would have mandated state coverage for single adults not qualifying for the PPACA and its subsidies. The SCOTUS decision to allow states to back out of the expanded Medicaid coverage up to 138% FPL was previously mandatory under the PPACA with the threat of the removal of Medicaid subsidies. States not expanding Medicaid coverage will maintain the status quo and many who would have been covered under Medicaid may now go uninsured as they will not qualify for the PPACA. The state exclusions for which many blogs, politicians, and conservative think tanks such as Cato blame the PPACA as causing is the result of states not expanding Medicaid and accounts for 15.1 million uninsured of the potential 31 million. Another estimated 11.2 million are considered to be illegal residents of the US who will not be covered by the PPACA. Treatment of Non-Citizens under the PPACA and do not have healthcare insurance. The balance of the uninsured is made up of those exempt from being insured, those opting out and paying the penalty, those who may not understand how to apply for Medicaid, etc.

Without a doubt, Republicans hope the constituency will not understand the issues and blame the PPACA for the lack of coverage of single adults by using the 31 million as a political numeric. It is also doubtful whether there is a real concern by politicians for the coverage of illegal residents. I also believe it to be ironic when Republican-lead states are concerned a Republican-controlled House may pull the carpet out from under them by negating funding for the expansion of Medicaid in the future.

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“Public” Debt and Safe Assets: A View from Space

In my ongoing efforts to clarify national-accounting-speak (for myself and others), I’d like to take a stab at some language that is often used ambiguously: the notion of “public” debt. (See also Thinking About the Fed.)

If you don’t think anyone is confused by that term, understand: in “public debt,” “public” means government. In “debt held by the public,” “public” means non-government.

I’m prompted to tackle this by a statement from Adair Turner in this very interesting discussion over at VoxEU. (Hat tip/further discussion: Simon Wren.)

If Japan had used [helicopter money], it would now have some mix of a higher real GDP level, a higher price level, and lower public debt to GDP.

I think the last phrase in this statement (“lower public debt”) is potentially confusing, and I’d like to explain why.

The meaning of “public debt” depends on the accounting/balance-sheet view you’re adopting. Each is a perfectly valid accounting construct; each depicts the situation differently. Some views may be more useful than others in sussing out how things work/are working.

1. The view from the Treasury balance sheet, with 1. government trust funds (Social Security, etc.) and 2. the Fed viewed as external entities. Generally referred to as “gross public debt.” The treasury bonds/bills held by those external entities are liabilities of Treasury. It must pay interest, and eventually principal, to those entities. (Though those payments flow right back to Treasury, and/or don’t flow out, depending on how you describe the “flow of funds.”)

2. The view from the “unified” balance sheet. Generally called “debt held by the public.” This consolidates the Treasury and trust-fund balances (viz: the “unified budget“) into a single “government” balance sheet. Treasury’s debt/liability to those funds is internal to government (one department just owes another), so they vanish from this consolidated view. “Government” liabilities consist only of bills/bonds held by external entities.

But crucially: those external entities include the Fed. In this view, the Fed is part of “the public,” and its bond holdings are “government” liabilities. “Government” owes money to the Fed. (This again nothwithstanding the fact that interest and principal flows from Treasury to the Fed flow right back to Treasury.)

3. The view from a fully consolidated “government” balance sheet, including Treasury, the trust funds, and the Fed. Debt consists of bonds/bills held by parties external to that “government.” There is no common name for this construct, and you rarely if ever see the situation depicted this way.

4. The view including GSEs (Fannie/Freddie). The Fed is buying $40 billion/month in mortgage-backed securities from these entities. They owe the Fed money, just like Treasury owes money to the trust funds. Those entities are quite arguably part of “government” (Treasury will always cover their liabilities, though perhaps using Fed machinations as the vehicle), so it’s not crazy to view this as another instance of “government owing money to itself.” If you consolidate these entities into the “government” balance sheet, “debt held by the public” includes truly non-government entities’ holdings of Treasury and GSE bonds/bills. As with #3 (but more so), you never see the situation depicted from this view.

Back to Turner’s statement: From view #2 (“government” is Treasury but not the central bank), if Japan had taxed less and issued bonds/borrowed instead the direct result would be higher “government” debt to GDP compared to a normal tax-and-spend approach. It owes all that money to an external entity: the CB. This would only be ameliorated to the extent that second-order effects — policy-induced NGDP increases — resulted in higher tax revenues.

But from View #3 (government including the CB), “public debt” would be less. Instead of taxing or borrowing money from the true non-government “public,” with the CB buying the bonds Treasury is effectively borrowing from the CB. Again: it’s just government owing money to itself.

Personally I’d like to see a lot more thinking and analysis from the perspective of View #4. In particular I’d like to see flow analysis from that perspective, showing the net Net NET flow of additional treasuries/GSEs into the private market after Fed “retirements” (under the theory that a smaller net incoming supply of additional financial assets will result in higher financial-asset prices). See for instance this Citi graph, which both Cullen Roche and Izabella Kaminska (no mean monetary thinkers) consider to be especially enlightening:

I would also suggest with some trepidation that their emphasis on “safe” assets might be misplaced, that the effects that are of interest might simply result from a reduced “supply” of financial assets, period. Which is why QE raises both bond and stock prices. But only while QE continues.

Cross-posted at Asymptosis.

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An Open Letter to the Board of Trustees of Purdue University

by Mike Kimel

An Open Letter to the Board of Trustees of Purdue University

Dear Board of Trustees of Purdue University,

If I may, I’d like to bring some facts about your President, Mitch Daniels, to your awareness. Now, it may be odd for me to do so, as I am not actually affiliated in any way with Purdue University. I have never been a student or employee of the institution, nor have I so much as ever been to West Lafayette. But I do know a bit about data, and there was a time I was looking at facts and figures pertaining to Mr. Daniels.

Thus, I was interested when I read Mr. Daniels bio on your website. It certainly is quite impressive. He was a business executive and head of a think tank. To quote the bio directly,

[H]e also served as Chief of Staff to Senator Richard Lugar, Senior Advisor to President Ronald Reagan and Director of the Office of Management and Budget under President George W. Bush.

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What Reinhart and Rogoff should do now

Carmen Reinhart and Kenneth Rogoff wrote an angry open letter about how Krugman has been uncivil to them.  Krugman’s reply strikes me as being convincing even devastating.

Update: My full fisking here.

I want to focus on one sentence in the R&R letter


politicians may float a citation to an academic paper if it suits their purposes.  But there are limits to how much policy traction they can get with this device when the paper’s authors are out offering very different policy conclusions. “ 

The claim that there are such limits is not supported with any historical evidence.  I think it is plainly false, unless the limits are say thta the  politicians can’t travel faster than light by distorting academic work.


The example of R&R and the alleged 90% critical level of debt to GDP is proof that their claim is false.  Politicians have gotten huge policy traction citing them and Herndon had a significant impact on the policy debate.

update: The huge traction is documented here

Also note the case of Kenneth Arrow whose first welfare theorem and impossibility theorem have been used for decades to argue that markets are superior to political processes and who is a democratic socialist.  His view on that rather important issue has had no impact on the debate, while misuse of his mathematical results has had a huge impact. Phillips made no claim that the scatter he plotted was a structural relationship.  He expressed horror over how it was used.


R&R’s claim about history is plainly utterly false and they should know it.


But there is something they can, and really should, do.  If politicians are misusing their work, they can denounce those politicians by name.  Consider


The 90% debt-to-GPD ratio was sighted by many as proof of the necessity of austerity in fiscal matters. Paul Ryan’s 2012 “Path to Prosperity” budget plan cited the paper and specifically cited the 90% figure. European Union Economic and Monetary Affairs Commissioner Olli Rehn cited the study when urging EU member nations to cut their budgets, saying, “Serious empirical research shows that public debt above 90% of GDP acts as a permanent drag on growth.”

Reinhart and Rogoff could and should have said “Paul Ryan, you know nothing of our work” (obligatory Annie Hall reference).  They did not.  They still can.  I think they should.  His claims have no basis in the evidence and all reality based people should say so.



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Health Care Thoughts: I really shouldn’t write this…..

by Tom aka Rusty Rustbelt

Health Care Thoughts: I really shouldn’t write this…..

This will, if Dan publishes the piece, offend someone for certain.

I have a libertarian do-your-own-thing streak, but something recently really struck me as a tragic image.

So I am in the grocery store, and coming around the aisle hear the beep-beep of a back up alarm on a power cart. I often try to help power cart shoppers reach items on higher shelves, especially the little old ladies and men wearing veteran caps.

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Just What Exactly Do You Mean by “Money,” Buster? #23

I was poking around at the very interesting Divisia measures of money, and came up with the following chart.

Update: Spreadsheet error in original graph. Result: this has little to impart. Never mind. Thanks to Mark Sadowski for pointing it out.

Screen shot 2013-05-26 at 9.09.10 AM

Which has me, once again, asking monetarists the question in the title of this post. For instance: are Treasuries money? How moneyish are they? We have two presumably valid measures here telling wildly different stories in MV=PY World. What’s your story?

The numbers in this chart are purely arbitrary (Divisia measures are just indexes, here divided into GDP, which is in dollars); it’s about the relative changes.

Cross-posted at Asymptosis.

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