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The Fournier Transform

Lifted from Robert’s Stochastic Thoughts:
The Fournier Transform
Near Stupidoclypse Alert

Major meme


It looks as if Ron Fournier may sweep the left blogosphere.

I read this by Joan McCarter at DailyKos

The nation’s most stubborn and willfully ignorant pundit, Ron “why won’t Obama lead and make Republicans like him” Fournier, strikes again.

On health care, we needed a market-driven plan that decreases the percentage of uninsured Americans without convoluting the U.S. health care system. Just such a plan sprang out of conservative think tanks and was tested by a GOP governor in Massachusetts, Mitt Romney.

Honestly. He wrote that. In November, 2014. Four and a half years after the Affordable Care Act—modeled after a Heritage Foundation proposal and Mitt Romney’s Massachusetts law—passed. After a presidential election in 2012 that featured Mitt Romney going through insane contortions trying to differentiate between Romneycare and Obamacare because they are almost exactly the same.

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Phrase of the Day: Fournier Transform

Dan here…hang on to this definition for examples.  It is also full of  Robert’s somewhat unique humor.  Lifted from Robert Waldmann’s Stochastic Thoughts.

Phrase of the Day: Fournier Transform

Fournier Transform:

This phrase is a technical term which describes the process through which an urgently needed excellent moderate proposal supported by all very serious centrist pundits changes into a partisan extreme one sided bill when Obama proposes it and Republicans reject it. The Fornier transform is somewhat similar to transubstatiation, as unbelievers are not able to detect any difference at all between the text of the needed proposal and the text of the partisan bill.

It is also the same as similar to the change of the word in the Nicene creed from Homoosian to Homoiosian (which lead to many deaths back when the stupid was even stronger, hard as that is to believe). (for those who know as little Greek as I do, Homoosian means “of the same substance” and Homoiosian means “of similar substance”).

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So, you want a pipe line? Jobs? Addendum: Ok veto the XL, it doesn’t matter.

Addendum below.

A very interesting article at Daily Kos has been posted.   Title: There’s been HOW many Pipeline spills in Alberta in the last Four Months?

Seems the Canadian news system does not find oil, gas and toxic water spills from the mining of carbon fuels to be news worthy.   But, the native Indian sure find it news worthy.  Their news outlet, West Coast Native News has been tracking all the spills.   You know, it’s their yard getting contaminated.

The Kos article quotes WCNN:

Over the past year WCNN has reported on many Crude oil and Toxic produced water spills all over Alberta, in fact we have reported over 600,000 Litres of toxic crap that has been spilled just last month and yet not one mainstream media outlet has picked up the incidents. So lets take a look back at just the last month (October) and see just what the mainstream is not telling you.

Of that 600,000 liters (165,107.5 gallons or 3931 barrels) 136,000 is crude oil.   That is, for us non metric thinkers, 35,927.4 gallons or 855.41 barrels of crude oil spilled in one month.  How long has there been mining in the area with pipeline transportation?

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Tax haven benefits are not investment incentives

Tim Worstall at Forbes takes issue with my last post, claiming that we actually don’t know that U.S. state and local governments give more in location incentives than EU Member States do. He then says that while it is true that EU states give less in cash grants and other kinds of subsidies defined as “state aid” in EU law, these same states give more than the U.S. in other types of tax benefits. His argument then moves quickly through Ireland’s 12.5% corporate income tax (though he gives no examples) to Amazon’s European sales all being channeled through Luxembourg subsidiaries. Worstall claims that the tax advantages created by this financial gimmickry comprise a location incentive just like providing Tesla $1.3 billion to build a factory in Nevada is.

I’ve been researching U.S. and EU incentives for 20 years, and I certainly don’t expect Worstall to have read everything I’ve written on the subject, including two books. So this makes as good a time as any to clarify the terms I use and the analysis I’ve made.

My default term for my object of study is “investment incentives,” as in the title of my last book. But you can’t say that phrase multiple times on every page of the book, so I use a specific set of synonyms when I write: Investment incentive = location incentive = investment subsidy = location subsidy = development incentive and sometimes, as in the headline of the last post, simply “incentive,” though I also use that term in its more generic sense. Note that the term Worstall uses in his headline, “tax incentive,” is not a synonym, because investment incentives and subsidies more generally can take forms other than tax breaks, i.e. cash grants, low-interest loans, free infrastructure, etc.

What, then, is an investment incentive? I define it as a subsidy ( = “state aid” in the EU context) to affect the location of an investment. To get this kind of subsidy from a government, it is necessary to make an investment. An investment incentive can be contrasted with an operating subsidy (“operating aid” in the EU), which is a subsidy for ongoing operations and is, critically, not contingent on making an investment. The distinction between investment incentives and operating subsidies is crucial to what follows.

So an investment incentive requires a subsidy and an investment. Let’s now consider Worstall’s examples on these criteria. As some readers may know, Ireland for many years had a 10% corporate income tax rate on profits from manufacturing, a rate explicitly provided for in Ireland’s EU accession negotiations, and which the European Commission long accepted as being part of the country’s general macroeconomic framework rather than a subsidy (see my book Competing for Capital, pp. 94-95, for an extended discussion). Contra Worstall, I am certainly well aware that Ireland’s tax policy is a method of competing for investment; in 2000, I called it “a clear and unregulated element in the country’s competition for investment” (p. 95; italics in original).

Despite that, when the Commission ruled in July 1998 that manufacturing was specific enough for the tax rate to be considered a state aid, it ruled that it constituted an operating aid. A manufacturing company was entitled to the 10% tax rate forever, whether it made new investment or not, or even if it disinvested, as Intel has done from Ireland. Since there was no link between the subsidy and investment, it did not constitute an investment incentive. In the end, Ireland and the Commission agreed that a 12.5% tax rate that applied to all corporations would not be considered state aid. Now we no longer have a subsidy, but tax competition. (This of course doesn’t talk about the boutique deals that the EU is now investigating as possible state aid.)

One ironic takeaway is that despite the intentions and nearly unanimous views of Irish policy-makers (many of whom I have interviewed over the years), the evidence doesn’t actually suggest that the country’s low-tax policy contributed to its growth. For the policy’s first 30 years, 1958-87, Ireland grew, but no more rapidly than the rest of the EU. For almost the entire period, it had no tax on foreign multinational corporations. The famed Celtic Tiger came together when the tax rate MNCs faced was 10 percentage points higher, 10%.

What about Amazon and Luxembourg? Amazon has real operations in Luxembourg, employing about 1000 people overall. But the turbocharged financial benefits Amazon receives come not from normal operations using the lower VAT (again, tax competition, not an investment incentive), but from its use of tax haven subsidiaries. As the linked article points out, where Amazon makes its money in Luxembourg is from Amazon Europe Holding Technologies SCS, a partnership with no employees or office, which had completely tax-free profits of €156.7 million in 2013, according to the Wall Street Journal article linked above.

Moreover, according to the huge dump of leaked documents from the International Consortium of Investigative Journalists, in 2009 Amazon Europe Holding Technologies SCS paid Amazon Technologies Inc. (located in the tax haven of Nevada) €105 million in order to license Amazon’s intellectual property. By some miracle, this no-employee company managed to re-license the IP to Amazon EU for €519 million. Given Worstall’s claim in July that transfers of technology to a tax haven subsidiary have to be made at “full market value,” how does he explain the way that “no one,” if you will, raised the value of this IP by €414 million, which just coincidentally was untaxed in Luxembourg? Could it be that Amazon Europe Holding Technologies SCS didn’t actually pay “full market value”?

Worstall also makes the odd claim: “And we do regard different corporation tax rates within the US dependent upon location as being location based incentives and we don’t regard them as such in the EU.” Aside from wondering who his “we” is, I know I’m not part of it: My estimates of U.S. state and local subsidies and investment incentives most definitely do not count differences in corporate income tax rates among states as a “location incentive.” My posts on Tesla take no account of the fact that Nevada has no corporate income tax, while its home state of California levies 8.84%. Yes, it’s tax competition, as in Ireland, but if you were to call it a subsidy, it would be an operating subsidy, not an investment subsidy. I also don’t include the federal government’s many subsidies in these numbers. (Note: Writing this prompted me to go back and look at the data ICA Incentives provided me last year, wherein I found that it did include some federal subsidies. I removed them from the totals from the ASDEQ paper I cited in my last post, leaving U.S. state and local investment incentives 3 1/2 times, not 5 1/2 times, as large as EU investment incentives. See corrected post here.)

Worstall, then, is trying to mix apples and oranges. For a tax provision to be a subsidy, it needs to be a derogation from a country’s normal tax rules. Yet Amazon tells us it is “subject to the same tax laws as other companies operating” in Luxembourg. Of course, Amazon may be stretching the truth here. But if Worstall thinks that creating arcane tax haven arrangements (as in his examples of Apple, Google, Facebook and Microsoft sales flowing through Ireland for tax purposes) is the same thing as, you know, actually building things, I’m here to tell him he is mistaken. Using the same term, “location incentive,” to try to cover two completely different types of economic activity, is certain to detract from our understanding of the policy issues, not increase it.

Cross-posted from Middle Class Political Economist.

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In which I compare Rand Paul, Jay Ackroyd, and David Dayan

Lifted from Robert Waldmann‘s StochasticThoughts

In which I compare  Rand Paul, Jay Ackroyd, and David Dayan

Jay Ackroyd notes DDay’s excellent policy proposals. I comment That is indeed an excellent list.

I especially like point 3 (I think it is useful to ask people how much money Medicare Advantage saved the government if they object). It is petty picky and silly to quibble and I am that petty picky silly quibbler.

In point 4 you followed acqua buddha. “Adding good jobs with proper pensions in the public sector — which employs the fewest workers since 1966 — could help. ” The claim “the public sector — which employs the fewest workers since 1966” is absolutely false. The link evidence is an observation about the Federal Government. Federal Government employment is a small fraction of public sector employment (about one sixth of it). I invoke acqua buddha from the watery shallows, because this is exactly the dodge used by Rand Paul to hide his ignorance

In an interview, he was visibly astounded by Paul Krugman’s claim that government employment had declined during a period when it had in fact declined (hint the period was not “since 1966”). After the data were shown to him or, more likely, an aid — he claimed he thought that Krugman had made a claim about Federal Government employment.

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SEC enforcement theater

From Naked Capitalism, Yves continues to point to enforcement theater:

One of Teddy’s Roosevelt’s famed sayings was “Speak softly and carry a big stick.” The SEC seems to be hoping that speaking loudly and brandishing a water pistol will be as effective.

As we’ve written, the securities regulator made an impressive initial salvo at the private equity industry. The first was Mary Jo White describing industry abuses in surprisingly specific detail in Congressional testimony. That was followed shortly by SEC official Andrew Bowden giving a simply stunning speech in May. Bowden described more than half the firms in the industry as engaging in what amounted to embezzlement or other serious compliance violations and depicting at length the sort of troubling behavior the SEC was unearthing.

Normally, when the SEC is that pointed in calling out abuses, it means the agency is about to send out Wells notices, which are official warnings that an enforcement action is imminent. But here it is, five months later, and the agency has been walking its tough talk back. What gives?

And concluding:

One can reasonably argue that Lincolnshire was too penny-ante a case for it to be worth it for the SEC to pursue. But one can just as easily point out the reverse: that the SEC has gotten to be in the business of taking cases only so far and settling, and that includes letting its targets off with virtually nothing in the way of admissions.

The fact that even small firms on small matters are getting away with this sort of treatment is a worrisome sign. If the SEC’s posture is that it is not going to chase big guys too hard because they’ve got the agency outgunned, and the SEC won’t pursue small guys aggressively because they are too penny-ante to be worth hounding, then what pray tell are they going to go after? Despite all the private equity saber-rattling, its posture appears to be that it is content to let inmates continue the asylum provided they are willing to play along with occasional exercises in enforcement theater.

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Dealing with the Fallout from U.S. Policies

by Joseph Joyce (re-posted from Capital Ebbs and Flows)

Dealing with the Fallout from U.S. Policies

The divergence of monetary policies in the advanced economies continues to roil financial markets. The Federal Reserve has reacted to better labor market conditions by ending its quantitative easing policy. The Bank of Japan, on the other hand, will expand its purchases of securities, and the European Central Bank has indicated its willingness to undertake unconventional policies if inflation expectations do not rise. The differences in the prospects between the U.S. and Great Britain on the one hand and the Eurozone and Japan on the other has caused Nouriel Roubini to liken the global economy to a jetliner with only one engine still functioning.

The effect of U.S. interest rates on international capital flows is well-documented. Many countries are vulnerable to changes in U.S. policies that can reverse financial flows. Countries that have relied on capital flows searching for a higher yield to finance their current account deficits are particularly susceptible. Declining commodity prices reinforce the exposure of commodity exporters such as Brazil and Russia.

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Honest Abe…Japan in recession

Shinzo Abe didn’t fool any of the people any of the time.

Japan is now in a recession by the standard definition of two quarters of declining GDP in a row. The timing leaves little doubt that this recession was caused by the 3% increase in the consumption tax this April fools day. Japan’s GDP declined at an annual rate of 7.3 percent in the second quarter and at an annual rate of 1.6 percent in the third quarter. The 2014q2 decline is similar to the decline in US GDP in the 4th quarter of 2008 — a falling off the cliff decline.

This corresponds to a really impressively large multiplier. Consumption was only 61% of GDP in thrifty Japan so the increase in tax receipts should have been about 1.8 % of GDP yet GDP declined 1.8%. This isn’t normal. for one think tax changes normally have a smaller multiplier than spending changes. For another, GDP changes slowly with momentum (note the further small decrease in the third quarter).

Abe (and central bank governor H Kuroda) have been making trouble for me. They seem to have called the expected inflation imp from the vasty deep, and I said it couldn’t be done. Now they are forcing me to consider forward looking intertemporal optimizing consumers.

The long announced consumption tax increase implied that consumers faced a quite unusual real interest rate. Prices increased 2.1% in April (to me the surprising thing is that this is so close to 3 %). Price increases on that order were predictable and predicted. That corresponds to a real annual interest rate of oh about -24% (since nominal interest rates are almost exactly zero). Japanese consumers had a huge incentive to buy anything which didn’t rot in March.

Some goods are quite durable (OK my car is not at the moment quite as durable as it was Friday but I think it just needs a new battery). It is possible that well before March, Japanese demand was artificially high because of the threatened tax increase. There was an impressive 1.5 % increase in the first quarter of 2014.

So I think the Abe experiment provides evidence of forward looking consumption savings choices. Now Japanese consumers didn’t have to look far forward and everything was announced in advance. Still I am a bit impressed. I think such similarity between standard theory and data is very unusual.

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Election Puzzle

by Linda Beale

Election Puzzle

The elections got me down.  I must admit that I am truly puzzled by the American electorate–that is, the very small slice of American voters that actually makes it to the polls and votes.  We know that many of the right-wing efforts at voter repression –claimed as necessary to deal with non-existent voter fraud– have succeeded.  By limiting days for early voting, making registration more difficult, requiring government photo IDs and similar ploys, many people (especially minorities and young people more likely to vote Democratic) simply aren’t able to vote.  But that doesn’t account for the huge numbers of people who don’t bother to vote to prevent wacky right-wingers like Iowa  GOP Senator-Elect Joni Ernst (who declared to the NRA that Americans might just have to exercise those “Second Amendment remedies”–i.e., assassinate some government officials that she/they don’t like????) from getting into a position of power.

I think some of the result reflects lingering racism.  The GOP successfully turned the midterm election into a vote on Obama, and there are an awful lot of white Americans who still resent having an African American in the White House.  But that surely doesn’t account for all of it.

It also reflects the influence of  Koch Brother money spreading falsehoods and misleading assertions about the economy, and American voters’ being seduced by them.  What kind of falsehoods?  That the wealthy are the “job creators”.  That corporations shouldn’t have to pay taxes at all.  That the IRS is out to get Republicans and Christians.  That the Affordable Care Act is a piece of socialist legislation that is harming ordinary Americans. and on and on.

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