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

Productivity and wages

Another article from Jared Bernstein Washington Post:

There’s an interesting sort of argument going on between Stansbury/Summers (SS) and Mishel/Bivens (MB). My name has been invoked as well, so I’ll weigh in. It’s a “sort-of” argument because there’s less disagreement than first appears.

It all revolves around this chart, which plots to the real compensation of mid-wage workers against the growth in productivity. For years they grew together, then they grow apart. The levels of both variables almost double, 1948-73, but since then, productivity has outpaced the real comp of blue-collar, non-managerial workers (mid-wage workers) by a factor of 6.

Figure 1

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…California’s Republican delegation boycotted a request for disaster funding for their own state.”

Lifted from comments reader Denis Drew:

Donald Trump’s Response to Disaster Aid for California: Nothing
Kevin DrumNov. 20, 2017

“A few weeks ago, California requested $7.4 billion in disaster aid following the massive series of wildfires in the northern part of the state that killed 43 people and destroyed nearly 9,000 structures. Actually, let’s back up. That’s not quite accurate. California’s Democratic governor, its two Democratic senators, and its 39 Democratic members of Congress asked for $7.4 billion. With only one exception, California’s Republican delegation boycotted a request for disaster funding for their own state.”

* * * * * *

Republicans are anti-American

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Trade deficits, offshoring jobs, Republican tax plan

Via Washington Post, Jared Bernstein writes:

The Republican tax cut plan has been justly criticized for worsening both income inequality and the national debt, but the plan has another big problem: It’s likely to lead to more outsourcing of U.S. jobs and a larger trade deficit. That’s obviously a negative for factory jobs and net exports, but it’s also precisely the opposite of what Trump continues to promise to many of his working-class supporters.

First, the tax plan moves to what’s called a territorial system of international taxation, which means the U.S. tax rate on the overseas earnings of U.S. foreign affiliates would become zero. While it’s true these firms can defer taxes on these earnings for as long as they like, they cannot “repatriate” them tax-free to invest domestically or to pay dividends to their shareholders (instead, they invest them in financial markets).

Would not the lower corporate rate proposed by the GOP’s tax plan — 20 percent — preclude this incentive? Unfortunately not, because our multinationals have perfected the art of “transfer pricing:” booking, if not producing, their overseas profits in tax havens with single-digit tax rates, while booking deductible expenses in high-tax countries. Under the new regime, they’d be able to keep up this tax avoidance with the added bonus of sending earnings back home tax free. As international tax expert Ed Klienbard puts it: “Territorial tax systems … reward successful transfer pricing gamers as “instant winners” by enabling the successful U.S. firm to recycle immediately its offshore profits as tax-exempt dividends paid to the U.S. parent.”

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Venezuela and the Next Debt Crisis

by Joseph Joyce

Venezuela and the Next Debt Crisis

The markets for the bonds of emerging markets have been rattled by developments in Venezuela. On November 13,Standard & Poor’s declared Venezuela to be in default after that country missed interest payments of $200 million on two government bonds. Venezuelan President Nicolás Maduro had pledged to restructure and refinance his country’s $60 billion debt, but there were no concrete proposals offered at a meeting with bondholders. By the end of the week, however, support from Russia and China had allowed the country to make the late payments.

Whether or not Venezuela’s situation can be resolved, the outlook for the sovereign debt of emerging markets and developing economies is worrisome. The incentive to purchase the debt is clear: their recent yields of about 5% and total returns of over 10% have surpassed the returns on similar debt in the advanced economies. The security of those returns seem to be based on strong fundamental condtions: the IMF in its most recent World Economic Outlook has forecast growth rates for emerging market and developing economies of 4.6% in 2017, 4.9% next year and 5% over the medium term.

The Quarterly Review of the Bank for International Settlements last September reviewed the government debt of 23 emerging markets, worth $11.7 trillion. The BIS economists found that much of this debt was denominated in the domestic currency, had maturities comparable to those of the advanced economies, and carried fixed rates. These trends, the BIS economists reported, “..should help strengthen public finance sustainability by reducing currency mismatches and rollover risks.”

It was not surprising, then when earlier this year the Institute for International Finance announced that total debt in developing countries had risen by $3 trillion in the first quarter. But surging markets invariably attract borrowers with less promising prospects. A FT article reported more recent data from Dealogic, which tracks developments in these markets, that shows that governments with junk-bond ratings raised $75 billion in syndicated bonds this calendar year. These bonds represented 40% of the new debt issued in emerging markets. Examples of such debt include the $3 billion bond issue of Bahrain, Tajikistan’s $500 million issue and the $3 billion raised by Ukraine. These bonds offer even higher yields, in part to compensate bondholders for their relative illiquidity.

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Do Android Phones Dream of Electoral Sheeple in 1984

(Dan here…Lifted from Robert’s StochasticThoughts)
Do Android Phones Dream of Electoral Sheeple in 1984

Signs of the times

A photo tweeted by the Russian Ministry of Defense Tuesday as “irrefutable” proof that the United States has allied with the Islamic State in Iraq and Syria turned out to be from a video game.

@umpire43 a bot who claimed to have joined the nave at age 5, then claimed to have served 22 years from 1970 to 1972 has deleted all its tweets. But, I have a screen capture:

Dan Scavino retweeted him/her/and or it. Umpire43’s story is amazing. Roy Moore and his wife literally took an old letter of support by 53 pastors, and forged it to make it seem like he was still supported by them AFTER the allegations of sexual assault on minors came out.

So far, multiple people named in the letter have demanded they be removed from it.

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More on why so many parents lose under the TCJA

Ernie Tedeschi writes:

As a followup to my post earlier this morning, I’ve created a table below detailing how each policy in the TCJA affects the number of parental families in 2027 seeing a tax hike.

Using refined policy parameters that have been added to the OSPC model since yesterday, I find that under the TCJA as written, 22 million families with children would see a tax hike in 2027 versus current law. This includes the indirect effects of the corporate income tax cut, but assumes that the filer credits expire in 2023.

That 22 million figure is almost exactly half of the 44 million total families with kids projected for 2027.

I’ve stacked the policies left to right in roughly the same order as in JCT’s score of the TCJA. You can see all the way to the right in bold the 22 million number at the end of the running sum row. So this table is showing how each policy in the TCJA incrementally changes the number of parents who lose out, until we get to the 22 million bottom line.

The story I would tell goes something like this:

1. Right off the bat, 25 million parental families get hit by the new income tax bracket structure.

2. The higher standard deduction and the expansion of personal & child credits are a little more than enough to offset the hit to parental families harmless from the repeal of the personal exemptions: the hike count falls by 2.5 million on net from these three policies combined. If the child tax credit expansion were more generous & refundable, this would be more.

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Crack v. Opioids and Violence v. Racism

Here’s is a PBS commentary by law professor Ekow Yankah:

That Kroger, the Midwestern grocery chain, has decided to make the heroin overdose drug naloxone available without a prescription is a sign of how ominous the current epidemic has grown.
Faced with a rising wave of addiction, misery, crime and death, our nation has linked arms to save souls. Senators and CEOs, Midwestern pharmacies and even tough-on-crime Republican presidential candidates now speak with moving compassion about the real people crippled by addiction.

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Tax Cuts Pay for themselves nonsense

by Hale Stewart (originally published at Bonddad blog)

John Hinderaker Renews His “Tax Cuts Pay For Themselves With Growth” Nonsense

It’s been awhile since John “Everything I wrote about economics for an entire year was wrong” Hinderaker has written about economics.  The respite has been glorious.  But now that Republicans in the House have passed a tax bill, ol’ John has to tell us that they will lead to glorious growth.

I have one word for him: KANSAS.  Sam Brownback tried this over the last 5 years in his state and it failed.  Miserably.  For more on this, please see Menzie Chen’s writing over at Econbrowser.

But more to the point, the whole “tax cuts made the 80s the most amazing economic growth miracle since the beginning of time pure trope.  Let’s look at the overall pace of growth:

Above is a chart from the FRED database (which John still can’t seem to locate) that shows the Y/Y percentage change in real GDP.  On the really funny side, notice that the pace of growth under Carter was higher on a Y/Y pace than Reagan.  John never seems to mention that.  And yes, growth in the 1980s was good.  But after the initial acceleration (which is more a function of statistics than actual numbers) growth occurred at/near/around its historical trend.

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