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

The War on Private Citizens and Organizations Feeding the Homeless

It has been the political right’s mantra of welfare and charity being best done by private organizations rather than be government sponsored. 50 years have passed since President Johnson declared war on poverty. It was declared an abject failure by the right as it did not make people independent nor did it make people want to get off of welfare. Accordingly, it could be only be through private organizations and then the poor would be able to succeed past welfare. One NBC article written not that long ago focused on a couple feeding the poor once a week in a park in Florida .  The police ticketed the Jimenez, his wife and others for violating a local ordinance on feeding the poor in a restricted park area. The Jimenezs refused to pay the fines levied against them, the fines were ultimately forgiven by the Daytona police, and Jimenez was warned.


In  a follow-up article, “Food Feud: More Cities Block Meal-Sharing for Homeless; it was learned “33 cities have either adopted or are considering food–sharing restrictions. Raleigh, N.C.; Myrtle Beach, S.C.; Birmingham, Ala.; and Daytona Beach, Fla.;  have recently fined, removed, or threatened to jail private groups offering meals to the homeless instead of letting government-run service agencies care for those in need.” The idea of restricting food to the poor is the same as with wild animals; if you do not feed them, the poor will not come around looking for handouts and your neighborhood will remain untouched.


Volusia County where Daytona Beach resides called on an expert to consult with the authorities on how to resolve the problem with the poor. Robert Marbut, a national homeless consultant does not believe in locking up priests, ministers, and groups helping the poor. Nor does he believe in ordinances criminalizing the helping or feeding of the poor. Marbut does believe in “24/7 programs that treat the three root causes of homelessness – a lack of jobs, mental illnesses and chronic substance abuse – have been shown to reduce local homeless populations by 80 percent” and not just feeding the poor. Doesn’t this sound a little bit familiar and it would appear we are coming full circle on localities, states, and federal government helping the poor if only it was funded. As stated by Marbut, It is only with a combination of approaches can the poor find the means of breaking the poverty barrier once they have gotten this far in life. Of course the ultimate would be to provide the education and help before the poor ever became adults; but then, there is the little problem of Milliken vs. Bradley getting in the way of better schools and economics in cities. 


People are more comfortable with a group of weapon-toting people wandering into a restaurant to express their 2nd amendment right to bear arms than with having the poor around them. John Adams once noted about the poor. “The poor man’s conscience is clear . . . he does not feel guilty and has no reason to . . . yet, he is ashamed. Mankind takes no notice of him. He rambles unheeded. In the midst of a crowd; at a church; in the market . . . he is in as much obscurity as he would be in a garret or a cellar. He is not disapproved, censured, or reproached; he is not seen . . . To be wholly overlooked, and to know it, are intolerable.”  It is to a life of obscurity in which many people would push the poor.

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Has Tyler Cowen Updated His Priors on Wealth Concentration and Inequality?

Noah Smith has documented the “anti-Piketty crusade” by Tyler Cowen, Chairman and General Director of the Koch-brothers-funded Mercatus Center. (The post seems to have gone missing from Noah’s site [pourquoi?]; here’s Google’s cached version.)

The latest from Cowen is here, joining in the right-wing chorus desperately trying to debunk the long and widely documented increase in wealth inequality (documented by many researchers using many data sources and many methodologies).

Cowen and the GMU crowd are big fans of Bayes, so I thought I’d ask him if all that research had shifted his beliefs. He replied, though not to the point, it seems to me. The conversation:

Steve Roth May 25, 2014 at 4:55 pm

Bayesian prior: wealth inequality in the U.S. (or, choose your country) has been unchanged since 1980. (Call this “50/50″.)

New information: read every study of wealth inequality from the last ten or fifteen years.

Does Tyler Cowen move his priors from 50/50? How far? This post seems to suggest: no, and zero. That right?

Tyler Cowen May 25, 2014 at 5:02 pm

Try reading the excerpted paragraph at the very end of the post.

Steve Roth May 26, 2014 at 2:09 pm

Of course I did read that (more than once). But I don’t think it answers my question.

Does all the research on wealth inequality and concentration that you’ve read over the last decade or two (including that based on the somewhat sample-challenged SCF data) shift your priors from “50/50”?

Maybe he didn’t see my last comment, almost a day later, and that’s why he hasn’t replied.

Cross-posted at Asymptosis.

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Higher Inflation Target is a Non-Issue

Paul Krugman is pushing for a higher inflation target. Joseph Stiglitz pushed for it a couple of years ago and then put the issue on the shelf well, he is still talking about it. (source)

Even as the ECB’s president, Mario Draghi, said at the ECB conference where Mr. Krugman is presenting his case for a higher inflation target…

“Mr. Draghi’s response: try telling that to Germany. “What would it mean for a German, for example, to have a 5% objective in the whole of the euro area?” Mr. Draghi asked later Tuesday. “I don’t even want to think [about] that.” (source)

The basic reason that a higher inflation target is a non-issue is that the nominal base rates from central banks will stay low anyway… lower than normal for quite some time. Even some at the Federal Reserve of the United States thinks that inflation will probably return to its 2% target in 2018…. What!?… That’s right, 2018.

I think that higher inflation targets is a solution for some who cannot accept the dynamics of the Fisher effect where inflation is low due to low nominal rates from the central banks.

Mario Draghi needs to think about the Fisher effect instead of higher inflation targets.


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Is the Right to Carry and Bear Arms Absolute? Or Situational? Or Depending on the Arms Bearer?

BP Right to Bear Arms
I am probably not the only one to suspect that no matter how Second Amendment Friendly your local white-owned Southern retail establishment might be, there might be a little frisson (a Cheese Eating Surrender Monkey word) of fear when this group of “responsible gun owning” citizens simply exercising their Second Amendment Rights to open carry long guns came marching in the door.

Christ the entire Right Wing Media apparatus got freaked out about New Black Panther Voter Intimidation after two members showed up with a nightstick. At a predominantly black precinct. But suddenly sphincters tightened in wingnut households nationwide. White men with AK 47s – valuable public safety volunteers. Black men with nightsticks – existential threat to American Democracy.

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Marginal Consumption per Employee & Effective Demand

What is Effective Demand? Keynes made it a central concept of his great General Theory book. But what is it? Well, the idea is that there is only so much demand in the population for products. And that low demand can keep the economy from reaching full employment. How does that work? Keynes pointed to profits. Once firms see that profit rates stop rising, they stop increasing utilization of labor and capital. If profit rates stop increasing before full employment, well… we just won’t reach full employment now, will we?

Such is the thinking of Keynes on effective demand. But I want to show another part of the story related to the marginal consumption of employees. Here is the thinking. Employees will increase their real spending up until the effective demand limit, at which point employees simply maintain their spending and firms have no increasing demand profit motive to increase production.

Below is a graph. The orange line shows real personal consumption expenditures per employee (In FRED, DPCERX1A020NBEA/PAYEMS). In 2013, the orange line reads as around $77,000 of real consumption per employee. The blue line is the UT index which reflects the Effective Demand limit. (UT stands for “Unutilized Total” of potential labor and capital.) The equation for the UT index is…

UT index = effective labor share – (utilization of capacity * utilization of labor)

The effective demand limit is seen when the UT index (blue line) goes to zero. That’s when the real output of the economy reaches the effective demand limit. (graph has annual data to 2013) (Source of data from FRED.)

real consump 1

If you look close, real consumption per employee seems to decelerate as the economy reaches the effective demand limit. The orange line drops in relation to its exponential curve of growth. To see this better, the Year-over-Year difference of the orange line is plotted against the UT index in the following graph. (Note: A value of 0.002 on the right axis means that real consumption per employee rose $2000 from the previous year to the current year.)

real consump 2

Now we can see that the changes in real personal consumption per employee move similar to the changes in effective demand.

We are glimpsing some micro-foundations behind effective demand. It’s like this… As more labor and capital is employed, the UT index goes to zero at the effective demand limit. Yet, at the same time, the change in consumption per employee will tend to zero also. As the change in real consumption per employee goes to zero, growth of profit rates will reach their maximum. In the aggregate, Firms  do not increase marginal consumption per employee. So, the marginal consumption benefits per employee maximize.

Firms may try to employ more employees, but to increase the profit rate, they will lower utilization of capital capacity. We saw this throughout the 90’s. We are now seeing once again that real consumption per employee is trending to zero growth. If unemployment continues to decline, I suspect we will see capacity utilization stall or fall.

Here is the most recent data for quarter to quarter change in real consumption per employee. (Note: In this graph, the FRED codes for real consumption per employee are PCEC96/PAYEMS.) These codes give recent quarterly data.

real consump 3

The lines continue to move together. The uptick in real consumption per employee in the first quarter 2014 is most likely due to the “winter freeze” on hiring, while people still had to spend money. The result is more spending per employed person. This uptick gave some incentive for businesses to hire in April. Yet, I expect growth in real consumption per employee to adjust back down. So, hiring will slow down through the summer.

Another factor to take into consideration is the consumption by the rich. They have been consuming a great deal. Yet, 2013 was a great year for stocks and housing. 2014 not so much. Consumption by the rich will decline in 2014, which will tend to lower consumption per employee and reinforce the effective demand limit.

In all, the marginal consumption rate per employee has fallen back down to near zero since the crisis. The economy is experiencing weak effective demand. I foresee the utilization of labor and capital will be moderate moving forward.

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Private Equity limited lease agreements

Yves Smith at Naked Capitalism lists posts and links to documents on private equity agreements well worth taking the time to read through and comment. The list is extensive so best go there.

Dean Baker weighs in today as well in the Wall Street pension scam via Truth Out.

We anticipate that some of you are new to this site and have visited to access the 12 private equity limited partnership agreements that we published in searchable form. You can find them here and here.

But we also thought you might want to familiarize yourself with our recent coverage of the private equity industry.

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Protesting Madame Lagarde (what is the IMF doing now?)

by Joseph Joyce  

Protesting Madame Lagarde

The protests at Smith College that led to the withdrawal of Christine Lagarde, Managing Director of the International Monetary Fund, as this year’s commencement speaker have been widely denounced as a manifestation of intolerance. They also demonstrate a lack of understanding of the IMF and the many changes that have taken place at that institution in the last decade, as well as Ms. Lagarde’s own record. The IMF adjusted its policies in response to the criticisms it received after the crises of the 1990s, but apparently its critics are mired in the past.

A petition signed by several hundred Smith students and faculty (but not supported by many Smith faculty, including members of the Economics Department) explains the grounds for their opposition to Lagarde’s appearance on their campus:

“By having her speak at our commencement, we would be publicly supporting and acknowledging her, and thus the IMF. Even if we give Ms. Lagarde the benefit of the doubt, and recognize that she is just a good person working in a corrupt system, we should not by any means promote or encourage the values and ideals that the IMF fosters. The IMF has been a primary culprit in the failed developmental policies implanted in some of the world’s poorest countries. This has led directly to the strengthening of imperialist and patriarchal systems that oppress and abuse women worldwide.”

This statement exhibits the “vagueness and sheer incompetence” that George Orwell cited as characteristics of modern English prose, particularly political writing. In addition, the assignment of responsibility to the IMF for the “imperialist and patriarchal systems” is a contemporary example of the “staleness of imagery” that Orwell deplored. Holding the IMF responsible for global poverty reveals a lack of knowledge about the decline in global poverty in recent decades as well as a gross misunderstanding of the IMF’s role.  The IMF long ago retreated from the structural adjustment policies that were criticized as inappropriate, and ceded the lead role in addressing poverty to the World Bank. More recently, the IMF was active in responding to the global financial crisis. The Fund in 2008-09 provided large amounts of credit relatively quickly with limited conditionality, and the IMF’s programs contributed to the recovery of global economic activity (see here for more detail).

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Fred Hiatt Thinks Obama Not War whooping Enough

by Barclay Rosser (reposted from Econospeak with permission from the author)

Fred Hiatt Thinks Obama Not War whooping Enough

In today’s Washington Post, editorial page editor, Fred Hiatt, has a column under his own name entitled, “A critique of Obama catches on.”  The critique amounts to Obama being “too passive” in foreign policy, with this supposedly punctuated by the recent events in Ukraine, although there is not a shred of evidence that any action or lack thereof by Obama in the Middle East (Hiatt’s main focus) would have deterred Putin from annexing Crimea and engaging in further games in Russia’s near neighbors. Even having a couple of more ships in the Black Sea, which I would not have minded seeing and which Hiatt never mentioned, would not have made any difference on that, frankly.

So, anyway, Hiatt gets to join a general bashing of Obama and completely botches it, making a total fool of himself.  What is his case?  He argues that Obama missed his chance to play like George H.W. Bush at the fall of the Berlin Wall, with “the most heartbreaking being the missed opportunity of the Arab Spring,” even as Hiatt notes that he still has troops in Afghanistan and has droned after al Qaeda and the Taliban in Yemen and Pakistan and elsewhere, with many thinking there has been way too much of the latter.

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Thanks, But We Still Hate Obamacare!

Greg Sargent gets a great nugget from Democratic pollster Celinda Lake, who “recently conducted a statewide poll in Kentucky for an unnamed client and found that Kynect polls very positively, in contrast to Obamacare, which is underwater.”

Kynect is the Kentucky version of the Affordable Care Act exchange. To the extent the polling is correct, these results are another example of people loving the ACA but hating Obamacare.


Which just isn’t very surprising. People still don’t really know what “Obamacare” is. Why should they? There’s nothing labeled “Obamacare” that anyone has to deal with; almost nothing labeled “Affordable Care Act;” and there aren’t even all that many noticeable parts of the new system. Of course, Kynect is one of those new things, but there’s no reason for anyone in Kentucky to know that it has anything to do with the national law.


Hat Tip: Jonathan Berstein Thanks, But We Still Hate Obamacare!, Jonathan Bernstein

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We Have No Idea What Our Capital is Worth

That headline makes quite a statement. But it’s true. The stock of so-called “financial capital,” or wealth — all the financial assets out there, which are ultimately claims on real capital — represents only the most tenuous long-term approximation of what our real capital is worth.

Certainly true: the stock (total dollar value) of “financial capital” goes up (in fits, starts, and reverses) over the decades as real capital is accumulated. But beyond that rough, big-picture relationship, the total value of financial assets tells us very little about the total value of real assets.


1. The value of real capital is purely a function of its power to to deliver future consumables (through consumption of inventories and creation of new consumables — including, notably, “housing services”). To specify the value of our capital — designated, necessarily, in dollars — we must predict the value of its future output, designated, necessarily, in inflation-adjusted dollars — with all the necessary uncertainties of predicted “hedonic adjustment” that are involved in inflation and “real-value” projections. We must also predict how quickly that capital will be consumed — through use, decay, obsolescence and yes, death and illness.

So even our estimates of the value (dollar or “real”) of tangible assets like office- and apartment-buildings are radically uncertain. Really: what will be the “value” of living in a typical American condo 20 years from now? To what extent will the market’s dollar denomination of that value (indicated, by, say, the going rent 20 years from now) be determined by shifts in rent-to-own ratios, household formation rates, mortgage interest rates, the strength of and optimism for the American economy, (changes in) America’s and China’s current-account balances, etc? We can somewhat arbitrarily predict discount rates, growth rates, etc. etc., but a tiny change in any one of those can radically alter our dollar-designated estimate of current real asset values.

2. Not all our real capital is “capitalized,” financialized. Not nearly. The national accounts provide rough tallies of the value of “fixed” capital — hardware, software, and structures — based on what was spent to create them and market revaluations after creation. And there have been important national accounting changes in recent years attempting to tally the value of intangible but very real assets like patents (very roughly: our knowledge), brands, and the like. But very little of our stock of plumbers’ or scientists’ knowledge and skill, for instance, is formally financialized, much less mothers’ knowledge and skill. (A notable exception: The rise in student-loan debt represents a rough capitalization, financialization, of some portion of those students’ acquired knowledge and future abilities to produce stuff.)

We possess those very real assets; they exist and are arguably the most valuable capital we have. The knowledge represented in patents has real, productive value. But there’s no way to measure or count most of those assets with any accuracy — or often, at all.

Now you could certainly say that the value of financial assets (including deeds) is the best estimate we have of the value of our real assets. And you could say even more accurately say that long-term changes in the stock of financial assets are the best indicators we have of changes in the accumulation of real assets.

But even that, you just can’t know. How much of the change in the stock of financial assets over any period represents, results from:

• Accumulation of real assets?

• More widespread financialization of real assets (read: indebting), assets which had never been financialized before?

• Investors’ greater or lesser optimism and projections of our future productive capacity — their changing beliefs about the true value of the real assets underlying financial-asset values?

You can, on the other hand, make very solid assertions about the accumulated stock of wealth measured in dollars at market values (generally: bonds/cash plus equity — company stock plus homeowners’ equity) — the outstanding claims on all those real assets, whatever the value of those real assets might be.

Which is why — I’ll say it again — Piketty should have called it Wealth in the 21st Century. Just sayin’.

Cross-posted at Asymptosis.

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