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

April Fools! Belated Social Security Joke.

Compilation of the Social Security Laws: Title 2
Sec. 201. [42 U.S.C. 401]

(c) With respect to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund (hereinafter in this title called the “Trust Funds”) there is hereby created a body to be known as the Board of Trustees of the Trust Funds (hereinafter in this title called the “Board of Trustees”) which Board of Trustees shall be composed of the Commissioner of Social Security, the Secretary of the Treasury, the Secretary of Labor, and the Secretary of Health and Human Services, all ex officio, and of two members of the public (both of whom may not be from the same political party), who shall be nominated by the President for a term of four years and subject to confirmation by the Senate. A member of the Board of Trustees serving as a member of the public and nominated and confirmed to fill a vacancy occurring during a term shall be nominated and confirmed only for the remainder of such term. An individual nominated and confirmed as a member of the public may serve in such position after the expiration of such member’s term until the earlier of the time at which the member’s successor takes office or the time at which a report of the Board is first issued under paragraph (2) after the expiration of the member’s term. The Secretary of the Treasury shall be the Managing Trustee of the Board of Trustees (hereinafter in this title called the “Managing Trustee”). The Deputy Commissioner of Social Security shall serve as Secretary of the Board of Trustees. The Board of Trustees shall meet not less frequently than once each calendar year. It shall be the duty of the Board of Trustees to—

(1) Hold the Trust Funds;

(2)[11] Report to the Congress not later than the first day of April of each year on the operation and status of the Trust Funds during the preceding fiscal year and on their expected operation and status during the next ensuing five fiscal years;

(3) Report immediately to the Congress whenever the Board of Trustees is of the opinion that the amount of either of the Trust Funds is unduly small;

(4) Recommend improvements in administrative procedures and policies designed to effectuate the proper coordination of the old-age and survivors insurance and Federal-State unemployment compensation program; and

(5) Review the general policies followed in managing the Trust Funds, and recommend changes in such policies, including necessary changes in the provisions of the law which govern the way in which the Trust Funds are to be managed.

The Social Security Annual Reports used to show up like clock work. In fact I used to have links set up on my blog that would activate the second the Reports was released to the web. Until one year late in the Bush Administration when it didn’t. A pattern then followed by the Obama SocSec Trustees every year since – no Report – no explanation – no corrected release date. Nope it just happens when it happens. Sure Social Security represents 5% of GDP and Medicare even more, but why should the American People or say Congress know WTF is going on.

The 2014 Report got released on July 28. Maybe we’ll beat that this year. Oh well since we CAN’T talk about a Report that doesn’t exist I guess this will have to be an Open Thread.

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Democratic Arithmetic vs Comparative Advantage: TAA, TPA, TPP

In reading around on reactions to the defeat of the TAA (Trade Adjustment Authority) component of the TAA/TPA (Trade Promotion Authority) Package needed to successfully pass TPP (Trans Pacific Partnership) I get the usual incomprehension as to why Democrats can possible oppose Free Trade given the proven mathematical reality of Ricardian Comparative Advantage. And the reason is simple, perhaps too simple for those educated in the higher maths of your typical Econ curriculum, Democrats are using democratic arithmetic.

Lets start with a schematic example. Suppose we have a Free Trade deal between two countries that we confidently predict will result in growth in national income in both over time. And maybe a lot of growth. For those that believe that GDP = Good this becomes a slam dunk, I mean who can argue against America getting richer? But what if the arithmetic goes somewhat as follows:

50% of the net gain flows to the top 1%, 20% to the 2-10%, 20% to the 11-30%, 10% to the 31-50%, 0 to the 51-70%, and -10% to the 71-100%.

Is this a good deal? Well even before you discuss possible offsets, it clearly is a great deal to the top 1% and a good deal to the top 10% but the benefits get pretty attenuated when spread over the top 50% while they range from zero to a net loss among the lowest 50%. And given this distribution this is true no matter how eye popping the top line GDP growth number gets. Which raises the question: why should small d democratic majorities vote for this?

Well the answer from the other side tends to fall into three types:
One. “A richer America is a stronger America. And a stronger America is a safer America.”
Which is a reasonable answer if you have a roof over your head, and sufficient food, and available health care. Because if not your world doesn’t seem that safe at all.

Two. “Well the distribution you suggest is actually impossible. Because of economic theory that shows indubitably:
a) Free Trade, b) PROFIT! c) Invisible Hand d) does something e) somehow, f) EVERYONE WINS!. Okay maybe not LAST time, or the time before THAT. But trust us, Free Trade cannot Fail. It can only be Failed.”
Which answer is reasonable enough if you still laugh when your weird uncle asks you to “Pull the other finger!”

Three. “Voters simply are not rational, they don’t understand the simplest most truistic arguments about Comparative Advantage and insist on nattering about redistribution (as if anyone cared about that) so lets take away their vote by reapplying a property qualification for voting”.
Which answer is reasonable enough in you are Bryan Caplan of GMU. The Myth of the Rational Voter: Why Democracies Choose Bad Policies

It just seems to me that Right economic and political theory seems to hold two contradictory ideas at one time:
One maximizing ones self interest is not only rational, it is virtuous.
Two democratic majorities looking to their own interests are simply selfish.

But you can’t square that circle with pure representative democracy. (Or with Ayn Rand’s The Virtue of Selfishness) Because why NOT a calculation of interest based on that of the majority?

Which given the general commitment in the West to some form of representative democracy leads to the impasse of the post title. Damn 50 + 1.

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Why Progressives Should Reject Social Security Cap Increases

The basic reason is simple: it undercuts the broader progressive agenda. Also it buys into a particular Right economic meme. Both are huge mistakes.

To understand this we need to step back and examine overall tax policy and tax progressivity. What should progressives want? Well I suggest that as a first step we restore top marginal income rates back to Reagan levels (50%) and extend them to all income including realized capital gains. And then as some potential second stop restore those top rates to Kennedy levels (70%). At this point the Federal government would have the funds to start addressing all parts of the progressive agenda from childhood education and health to retirement security in a direct way, that is we could once again engage in the New Deal and the Fair Deal in a quest to achieve the Great Society. Or in more restrained rhetoric start working on social democratic solutions to broad societal problems.

But if progressives and Social Democrats agree on this then proposals to lift current Social Security wage caps and/or extend FICA to all income starts crowding out any possibility to tax THAT SAME INCOME via changes in marginal rates. Moreover it floods cash into and through a Trust Fund system that doesn’t allow expenditures on anything other than the specific programs involved. With the result that the rest of the progressive agenda remains stymied by the crowding out effect even as the Right can ‘explain’ that ‘you can’t have nice things’ because all the money is going to Social Security. Thus proving that the whole program was ‘unsustainable’ to start with and that any extensions of it, say in the direction of Single Payer Health Insurance, is just foolish and ignorant.

The truth is that the actual cash flow issues facing Social Security are minor and manageable within its current structures. Indeed almost all that needs to be done for Social Security going forward can be addressed by policies focused on increasing real wage and labor share via minimum wage and wage theft/suppression enforcement and by embarking on a much needed direct expenditure on public infrastructure. After all 12.4% of every wage dollar funded directly by a bridge replacement projects and 12.4% of every wage dollar produced by the multiplier effects of those wage workers spending their remaining wages flows directly into Social Security anyway. Meaning that jobs projects ARE Social Security ‘reform’.

George Laffer wasn’t entirely crazy. There is a maximum rate of tax extraction that corresponds with the greatest growth of the economy. It would just seem that depending on how you structure the incidence of that tax between wage income and capital income the empirical data shows that rate to be closer to Johnson and Kennedy’s 70% than Reagan’s 50% then 35% or Clinton’s 40%. So lets get cracking on raising marginal tax rates. But that effort is only impeded by progressives explicitly endorsing ‘Social Security Crisis’ and sending any and all increased tax revenue through the Trust Funds.

This isn’t to say to neglect Social Security entirely. The DI Trust Fund needs an immediate boost in revenues and the OAS Trust Fund would well be served by a gradual increase in FICA rates (hi Coberly!). But that doesn’t require extending FICA to all income, that is simple overkill and overreaction to what Dean Baker and Mark Weisbrot appropriately named the Phony Crisis in their book back in 1999.

To me the broader progressive economic agenda is simple: Restore top marginal income tax rates to 50%, or better 65%. Pursue policies explicitly focused on increasing employment, real wage and so labor share. And then—. Well there doesn’t really need to be much more “And then”. Certainly not in regards to major adjustments in the structure of Social Security finance, that just will work itself out with the combination of higher employment at higher wages and maybe some tinkering with FICA rates under the current cap formula.

Progressive Taxation and MJ.ABW (More Jobs. At Better Wages). And oh yeah – leave Social Security alone (at least mostly). Cap Increases are just a diversion from the real progressive solutions to the total progressive agenda.

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More Class Warfare: The Real Point of the 18th Amendment (Prohibition)

Consider the wording of the 18th Amendment passed out of Congress during WWI and ratified in 1919.

Section 1. After one year from the ratification of this article the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all the territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited.

Section 2. The Congress and the several States shall have concurrent power to enforce this article by appropriate legislation.

Section 3. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress.

and then consider what is missing from it.

And the answer is “purchase, possession, or consumption”. All of which remained legal. Which meant that serving alcohol in a private residence whether at a dinner party or a cocktail party or a garden party was perfectly okay, at worst the host would have to claim some “pre-war” stock. Why even Senators and Congressmen and Presidents could (and did) openly consume intoxicating beverages in their offices and within limits at private clubs. Which would raise instant issues of hypocrisy and “goose and ganderism” except for one thing the history books gloss over. Prohibition was all about maintaining maximum productivity on the factory floor by effectively denying open access for workingmen. Because while in theory there would be no barrier to buying beer by the glass, or the beer bucket, or gin by the drink, or the bottle, it was clearly illegal to sell it in any open city or town setting. And it was not like the workingman could afford to have a bootlegger deliver booze by the case to be legally tucked away in some rich man’s cellar.

Which gets me to the point, and one that I barely have even anecdotal support for, though I believe it is out there. Prohibition largely worked for the actual purpose for which the wealthy and powerful ALLOWED it to be put in place. The 20s were the golden era for the new science of industrial engineering and production efficiency. Jobs that a generation or more before had largely been done by craftsmen were increasingly being done by factory workers operating on “the line” with every move under observation by those who would implement improvements based on Taylorism, after Frederick Winslow Taylor the father of time-motion studies. Which efficiency improvements you were not likely to get in the kind of alcohol infused workplace of the century before.

As an indication of the soundness of this theory consider that in reading about the business and social affairs of the American elite in the 1920s there is not a single hint that alcohol use was restrained or repressed, no instead this was the golden age of cocktails. Nor was there any evidence of an upsurge in piety among that group. But there was (and always will be) a class interest in boosting labor productivity and grabbing the spoils. I suggest that was what in part made the Roaring 20’s what they were. A program of prohibition that largely left the elites unaffected while clamping down on at least day time consumption by the working class.

Consider this an open thread on class warfare and labor share. Or whatever. Me, I am going to grab a stiff drink.

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EITC vs MJ.ABW: Neo-Liberal Acronymic War

Cryptic enough? Well let me do some unpacking and straight out asserting and then turn this over to AB readers and commenters.

EITC is the Earned Income Tax Credit. Its open premise is that work should be rewarded. Its more hidden premise is that this reward should come as a premium over actual marginal labor productivity and so not come directly in the form of wages paid by the employer. Instead it becomes the obligation of society, or rather taxpayers as a whole. That is the promoters of EITC insist that the market works perfectly when assigning wages as a product of actual productivity but allow that the result is not socially equitable. I mean we can’t actually STARVE people even if the books suggest we should Amirite? After all we are good hearted Neo-Liberals.

EITC is often explicitly promoted as an alternative to increases in Minimum Wage. Which might provide the same or more reward or equity as EITC but are regarded as an economic distortion of actual market wages themselves set by some version of actual labor productivity. The problem here is two-fold. First it just concedes the underlying economic argument to the neo-liberal and classical liberals: that the Invisible Hand works when it comes to wage levels. The second problem is more pernicious. It comes into play when you realize that there is a lot of overlap between the ‘big-hearted’ economic liberals who allow that work should be rewarded even if those rewards are not specifically justified by the economics of the labor exchange and those who believe that taxation on corporations is both inefficient and inequitable. And who would make similar arguments about tax on capital in general. With results as seen in say the respective tax plans of Paul Ryan and Marco Rubio. The end result of this is that employers and capital in general propose to provide big ‘E’ Equity via EITC while shifting all responsibilities for its funding right onto labor share. Much as they propose to do with parallel proposals to shift taxes away from income to consumption. From this perspective all of EITC, and VAT, and FAIR Tax and Flat tax become a combined Acronymic War on labor by the controllers of capital.

In direct contrast to this jumble is the opposing acronym: MJ.ABW. More Jobs. At Better Wages. It too argues that work should be promoted and rewarded. But in the form of pre-tax wages rather than post-tax credits. And to those that would argue that this is just distortionary would simply reject the basic neo-liberal/classical assumption that wages are in practice set by some actual calculation of marginal labor productivity but instead recognize that they are and always have been by some combination of pure pricing power by employers mitigated only by residual wage market clearing power retained by workers. That is given any sort of labor market at all wages have to clear at or above subsistence, else people will just walk away. WHERE it clears above subsistence is some combination of actual labor supply and collective ability to demand higher wages. That is ultimately more of a purely political than economic calculation.

As such I consider most proposals to address inequity via EITC or UBI or tax credits to be potential Trojan Horses. Because in the end the actual equity depends on the actual incidence of the taxes that fund those benefits, income guarantees and credits. And all too often the promoters of such things as EITC propose to couple that with a shift away from taxes on profits and capital gains paid by the 1% to wage and consumption taxes paid by the 90%. With the 91-99% alternately rewarded and screwed as serves the interest of the real bosses.

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The Missing Follow Up Question: Why Iraq is Still a Landmine for Jeb and Marco

Over the last week the various talking heads have come to a consensus on two points about Iraq. One, given what we know now OF COURSE it was a mistake to go to war on Iraq. And two, why on Earth weren’t Jeb and Marco prepared to answer this obvious question in that obvious way? Well I think there are any numbers of reasons why they fell into this trap, but perhaps the simplest is this:

“Governor Bush/Senator Rubio, having conceded that with the 20/20 advantage of hindsight that YOU wouldn’t have made the decision to go to war, and moreover insist that President G.W. Bush wouldn’t have either, why have you each hired as top foreign policy advisers people who were not only centrally involved in making that decision, but deny to this date that it even WAS a mistake?”

Jeb, who was a PNAC Vulcan, and Marco, who is positioning himself as the heir to Neo-Con-ism, are STILL relying on PNAC Signatories of either the 1997 Statement of Principles or the 1998 Letter to President Clinton on Iraq. It is one thing to agree “Mistakes were made” and another to say “Hey what the hell, why not give the mistake makers another bite at the apple?” Maybe because they don’t even AGREE that they made any mistakes to start with?

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JEB the Vulcan; the 90’s Roots of the Iraq War

Was the invasion of Iraq in 2003 a mistake based on false intelligence gathered post 9/11? Well for some that might be a reasonable excuse, say for the Senators who voted for the 2002 AUMF – the Authorization for the Use of Military Force against Iraq. Even they would have some things to explain and ask forgiveness for, because after all a lot of that supposed intelligence was known to be bunk at that time, and probably some of them knew that and all of them SHOULD have known that. Still there were reasonable (if cowardly) political calculations that suggested that standing in the way of those who were bound and determined to go to war come what may was a bad idea for politicians with future ambitions. Say certain Senators whose names were Kerry and Clinton, but of course not only them.

So we should not give the Signatories of the AUMF a pass. On the other hand there is a clear difference in culpability between being an accomplice after the fact and a conspirator before the fact. And the ‘fact’ in question is when the decision to go to war on Iraq was decided and by whom. And on examination that decision had little to do with intelligence gathered between 2001 and 2003, it had little to nothing to do with aluminum tubes or yellowcake or Curveball, those were instead convenient trigger points for a decision made years before. By a group that came known as the Vulcans, which overlapped almost entirely with those who signed on to the Project for a New American Century – PNAC.

Who were the Vulcans? Well the easiest test is those who either signed the Statement of Principles of the Project for a New American Century in June 1997 or those who signed the follow-up Jan 1998 Letter to President Clinton on Iraq or as in many cases both. These names and explanations for who they are can be seen at this openly anti-PNAC site, so feel free to fact check: Sourcewatch: Project for a New American Century. An examination of those names and the express goals of the PNAC and how the inclusion of Jeb Bush among the former implicates him in the latter below the fold.

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Iraq was JEB’s War: Started by the Dim Son Instead

There has been some furor over the “Would you have launched the Iraq War?” question posed to Jeb Bush mostly revolving around the question of whether he understood the qualifying “knowing what we know now” as opposed to “knowing what we knew then”. But this is to miss the point. Because Jeb was on record for launching a war on Iraq right from 1997. That is screw what we did or didn’t know in September 2001 or March 2003, Bush was ready to lead the Neo-Cons to war years before that. To see that this is true you need to examine two coupled documents from the Project for a New American Century and their signatories: the PNAC Statement of Principles (1997) and their Letter to Clinton on Iraq (1998)

Now some might make the case that the Statement was just aspirational and the Letter operational but I say that in this case that is a distinction without a difference. In 1997 Jeb Bush and Dick Cheney signed their name to a manifesto, one that committed this country to a campaign of perma-war to establish a ‘New American Century’. If only the country would put the power to do so in their hands. Which the country (with an assist from the Supreme Court) did in 2000. Which in turn made the war on Iraq a matter of when and not if. If that is you take the Neo-Cons at their word. As publically signed in a full page ad in the New York Times. The Statement opens as follows:

American foreign and defense policy is adrift. Conservatives have criticized the incoherent policies of the Clinton Administration. They have also resisted isolationist impulses from within their own ranks. But conservatives have not confidently advanced a strategic vision of America’s role in the world. They have not set forth guiding principles for American foreign policy. They have allowed differences over tactics to obscure potential agreement on strategic objectives. And they have not fought for a defense budget that would maintain American security and advance American interests in the new century.

We aim to change this. We aim to make the case and rally support for American global leadership.

As the 20th century draws to a close, the United States stands as the world’s preeminent power. Having led the West to victory in the Cold War, America faces an opportunity and a challenge: Does the United States have the vision to build upon the achievements of past decades? Does the United States have the resolve to shape a new century favorable to American principles and interests?

Elliott Abrams
Gary Bauer
William J. Bennett
Jeb Bush
Dick Cheney
Eliot A. Cohen
Midge Decter
Paula Dobriansky
Steve Forbes
Aaron Friedberg
Francis Fukuyama
Frank Gaffney
Fred C. Ikle Donald Kagan
Zalmay Khalilzad
I. Lewis Libby
Norman Podhoretz
Dan Quayle
Peter W. Rodman
Stephen P. Rosen
Henry S. Rowen
Donald Rumsfeld
Vin Weber
George Weigel
Paul Wolfowitz

This is the Bush Foreign Policy. The JEB Bush Foreign Policy. And in this policy the Iraq was was a Feature, indeed the Opening Feature, and not some Bug.

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British Elections are Weird

I have been following the British Parliamentary elections all night and final numbers are not in. But we have the outgoing government with the following numbers: Conservative 302 and partners Liberal Democrats 56 plus maybe NI Democratic Unionists 8. In a system where you mostly need 326 for a majority.

Now we are coming up on a situation where the Conservatives might end up with 326 on their own (but maybe not) but where almost all of that was poached off their one time partners the Liberal Democrats. Which depending on the breaks means a much narrower majority. But based on the coverage I have been watching all night this is going to be posed as a huge victory for David Cameron and the Tories. Even though his overall majority in Parliament might be shaved to just about nothing. Because SNP. Or other acronyms. I find all this fascinating and invite others to weigh in on this Open Thread.

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