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

Guest post: Affairs, Domestic and Foreign

by Joseph Joyce

Affairs, Domestic and Foreign

Raghuram Rajan, ex- faculty member of the Booth School of Business at the University of Chicago, ex-head of the research department of the IMF research head, and currently Governor of the Reserve Bank of India (its central bank), set off a storm of comment when he warned of a breakdown in the global coordination of monetary policy. Frustrated by the decline in the foreign exchange value of the rupee that followed the cutback in asset purchases by the Federal Reserve, Rajan claimed that the Federal Reserve was ignoring the impact of its policies on the rest of the world.  Does he have a valid cause for concern?

Quite a few folks have weighed in on this matter: see here, here, here, here, here and here.Rodrik and Subramanian make several interesting points. First, the Federal Reserve was criticized when it lowered rates, so complaints that it is now raising them are a bit hypocritical (but see here). Second, blaming the Fed for not being a team player as the emerging markets were when they lowered their rates in 2008-09 is not a valid comparison. The emerging markets lowered their rates then because it was in their interest to do so, not out of any sense of international solidarity. Third, their governments allowed short-term capital inflows to enter their economies; did they not realize that the day could come when these flows would reverse? Finally, their policymakers allowed the inflows to contribute to credit bubbles that resulted in inflation and current account deficits, which are significant drivers of the volatility.

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Just Go Read

As I said on Facebook, it appears that Tim Armstrong—who got paid $12 million last year alone as CEO of the dead-on-its-feet AOL—is even more of an asshole than anyone previously believed.

The pull quote:

Until the morning I woke up in labor, every exam indicated that our daughter was perfectly healthy. In fact, had signs of trouble emerged, such as bleeding or pre-eclampsia, the doctors would have had the chance to mitigate the danger, administering steroids to speed up her lung development or hormones to delay labor. Instead, even with the best medical care available, we had no warnings, and we will never have an explanation for what went wrong. This is why the head neonatologist referred matter-of-factly to our daughter’s birth as “catastrophic.”

In other words, we experienced exactly the kind of unforeseeable, unpreventable medical crisis that any health plan is supposed to cover. Isn’t that the whole point of health insurance?

The story has a happy ending. Except that around ten years from now, that daughter is going to find out what someone who isn’t fit to shine her shoes but somehow runs an American corporation said about her when she was fighting for her life.

The next mofo who makes the absurd claim that “the 1% work harder” better have overcome at least what Deanna Fei’s daughter did and is. In a just world, or even the world of Brad DeLong’s Sensible Technocrat Economist *** dreams, anyone on AOL’s Board of Directors who did not come out publicly for Armstrong’s firing would be summarily dismissed from any other Board on which she or he served due to nonfeasance.

Instead, Armstrong is an invited guest at Davos, though he didn’t show up this year. Saving the Swiss being lectured about how evil it is to allow pregnancies to go to term.

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Apple has some money burning a hole in its pocket

Getting real about Apple’s $100 billion stock buyback. 


So I was hearing some where that Apple has a lot of money just burning a hole in it’s pocket. Seems there’s an arson named Carl Icahn trying to really ignite it by using twitter.

Apple has implemented a plan to spend $100 billion of it’s current estimate of $148.6 billion pocket money by 2015 to buyback it’s stock. Mr. Icahn has tweeting his joy.   Others say Apple needs to grow to grow it’s stock price.  Now wouldn’t that be the New Deal thing.

Apple has 80,300 full time equivalent employees of which 42,800 are “outside the retail division”.  Yup, you guessed…what if Apple instead of buying their stock back distributed that $100 billion to its employees?  Try $1,245,300.01 to each of them by 2015.  That’s 80 thousand new millionaires. Now that’s some job creating.

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More national income diverted to capital in 2013 than 2012…

Let’s compare 2012 to 2013.

  • From 4th quarter 2011 to 4thQ-2012, real GDP rose $294 billion. During that time, capital income fell $225 billion, while labor income grew $519 billion.
  • From 4thQ-2012 to 4thQ-2013, real GDP rose $432 billion. During that time, capital income grew $444 billion while labor income fell $12 billion.

Granted there was a big spike in labor income at the end of 2012, but we now see the spike going in the other direction, toward capital income. From 3rdQ-2013 to 4thQ-2013, capital income rose $113 billion, while labor income only rose $11 billion.

Looks like there were very small Christmas bonuses this year.

At the end of 2012, the strategy was to take personal income before the tax changes of 2013. The strategy this year seems to be boost earnings for some buybacks. We already see a buyback here from Apple.


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One reason earnings might look better… labor share dropped

The stock market is rising again on some positive earnings being reported. One reason for the nice earnings could be found in another number… the labor share index.

The number for the labor share index, 4th quarter 2013, came out today. It dropped to 95.5… its lowest level since the 1940’s. So if we see stocks rebound due to earnings looking good, there is another side to the story. Labor’s share of the national income produced during the Christmas season had to take a hit to boost those earnings. We can expect demand to be weaker in 2014… unless labor share rebounds and then profits take a hit.  (link to chart)

Update: My calculations show that that capital income grew $444 billion from 4th quarter 2012 to 4th quarter 2013. While labor income fell by $12 billion.

4Q13 labor share

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Political Journalists Should Follow the Lead of Insurance Industry CEOs and Read Angry Bear Regularly. Seriously.

Meanwhile, health insurers warned that Rubio’s legislation [to kill the insurance risk-corridors provision in the ACA] would lead to the government-run health-care system that most alarms conservatives. And there was the awkward fact that the risk corridors were the same mechanism Republicans used in the 2006 prescription-drug legislation.

From Obamacare to the IRS scandal, Republicans are ignoring the facts, Dana Milbank, Washington Post, today

Hmmm.  It’s interesting that the insurance companies finally are catching on.  Their CEOs must read AB.  But, given the importance of this insurance-industry awakening, I wonder why this has not (at least to my knowledge) been reported elsewhere in the mainstream media.

My suggestion to mainstream political journalists: Follow the lead of insurance industry CEOs and read Angry Bear regularly!


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Republicans and Dana Milbank Solve the Unemployment Problem in Germany, Canada, Taiwan and Australia: Those countries just need to repeal their universal-healthcare laws and tie healthcare insurance to full-time employment at large corporations!

It’s worth appreciating the perverse nature of the [Republicans’] lie on display [in a new web ad against North Carolina Sen. Kay Hagan here. Because Republicans are absolutely wedded to their “Obamacare is a job killer” talking point, the CBO report’s findings are being distorted into proof that the law will inflict job losses on millions of workers who, in this telling, become Obamacare’s helpless victims — a labor demand argument. In reality, the report actually found it would impact the choices workers receiving the law’s benefits make — a labor supply argument.

Some conservatives have dealt with the report’s actual findings directly by arguing they prove the case against the law — that government subsidies reduce the incentive to work. Many of the good wonky writers — Jonathan Cohn, Brian Beutler, Jonathan Chait, Jared Bernstein — have already engaged this argument effectively. But that is at least a legitimate debate to have within the context of the CBO’s findings.

Morning Plum: Republicans double down on another Big Lie about Obamacare, Greg Sargent, Washington Post, today

Okay, look, folks.  As Sargent recognizes, there are two distinct issues concerning the Republicans’ and the news media’s treatment of the CBO report’s statement that approximately 2.3 million people will voluntarily retire or reduce their weekly hours from full-time to part-time because they no longer need to work or to work full-time in order to have access to healthcare insurance insurance.

One of those issues is the bald misrepresentation, deliberately or unwittingly, that the report said that an estimated 2.3 million workers will be involuntarily laid off because of Obamacare, and its punditry-proffered corollary that although that’s not at all what the report actually said, what the report actually said is just too complicated for the Democrats to explain to the public between now and November.

Unfortunately for the Washington Post, two of its preeminent political-analyst pundits, Dana Milbank and Chris Cillizza, have become the poster journalists, respectively, for the former and the latter.

The other issue is the question of whether we should return to a healthcare insurance system tied almost entirely to full-time employment, so as to effectively preclude voluntary early retirement (raise the Medicare eligibility age to 67!) or voluntary reduction from full-time to part-time work–or the decision to leave a corporate job and start a business–for millions of Americans, lest we encourage sloth among working-age Americans.  In a transparent attempt at a sleight of hand to quietly backtrack on his jaw-dropping initial misconstruction of the CBO report, Milbank today makes himself the poster mainstream-journalist for support of repeal of Obamacare on this  ground. He says that, with a single exception, the report is “otherwise unhelpful to the health-care law.”  Suffice it to say that the exception is not the uncoupling of access to healthcare insurance from full-time employment at a large corporation; that, he maintains without explanation, is part of the unhelpful stuff.

It is, or course, Milbank rather than the report that is unhelpful, and the absent explanation is that he does not want to admit that he either misread the report on Tuesday or didn’t read it all before posting a full-length column about it.  But why does Sargent–who interpreted the report correctly from the outset–treat this as a legitimate policy dispute?  Yes, it certainly is a policy dispute.  But is it really a legitimate argument that it’s better for the economy to continue to tie access to healthcare insurance to full-time employment at a large corporation?  What evidence is there that this is so?

The United States is the only modern economy in the world that has that system.  But it is not the most successful economy in the world.  Germany, Canada, Australia and Taiwan all (I believe) have more vibrant economies these days than the United States.

As for Cillizza’s claim, reiterated yesterday after criticism of it the day before, I’ve been at an utter loss to understand why journalists and pundits think that the public won’t know by November that the people at issue in that part of the CBO report are those who have wanted to retire or work just part time but haven’t been able to because they need the healthcare insurance benefit–and that their choice to retire or reduce their weekly work hours means openings for others.  

This isn’t rocket science. This option is a fact of life in every advanced economy other than ours, and it’s a concept that almost everyone is very familiar with right here in this country.  Is the unemployment rate higher in Germany, Canada, Australia and Taiwan because their healthcare insurance systems aren’t based on full-time employment by a company that provides it to its full-time but not to its part-time employees?  Really?

This isn’t hard to explain and it’s not hard to understand.  As Sargent says today:

Indeed, even CBO director Douglas Elmendorf directly contested the characterization of jobs being “lost” during yesterday’s House hearing, noting that when people decide to ease up on work for good reasons, “we don’t sympathize. We say congratulations.” Elmendorf even added that those impacted this way could include older people who decide to retire earlier than they otherwise might have, or spouses who choose to reduce work hours to stay home with a new baby.

But instead of simply refuting the anti-Hagan ad with one showing a clip of that part of Elmendorf’s testimony, or of someone in his or her early 60s who is ecstatic to now be able to retire, or a young mother who can now choose to reduce work hours to stay home with a new baby–as they obviously should, and presumably will–the Democrats should do this as well: point out in ads that the Republicans apparently have trouble understanding basic English-language declaratory sentences, such as the ones in the CBO report.

Rather than attacking the Republicans for dishonestly, the Democrats should take them at their word.  Their word being that they are too stupid to understand a clearly written CBO report.

Then again, I suppose the Republicans could invoke Dana Milbank and a few other mainstream journalists to show that they are not alone in that.

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