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

If Interest Rates Rise, We Can Plummet the National Debt!

Dean Baker makes what seems to be a stunningly obvious point, one that I haven’t seen discussed anywhere. Condensed and with emphasis added for your consideration:

…the value of our [government] debt will plummet if interest rates rise… we could buy back long-term debt issued today at interest rates of less than 2.0 percent for discounts of 30-40 percent. This would sharply reduce our debt-to-GDP ratio at zero cost.

This is not some kind of magic bullet, of course:

we would still pay the same interest

Buy back $100 billion of 2% bonds at their new market value of $66 billion. Pay for it by issuing $66 billion of 3% bonds. Either way, interest: $2 billion.

But (if we did this with all the outstanding 2% bonds) our debt/GDP ratio would plummet by 33%! That’s a magic bullet, right? Growth would skyrocket!

Right?

Read Dean’s whole piece for all the appropriate snarks on Reinhart-Rogoff, debt-kills-growth hysterians, and economists’ general financial innumeracy.

Extra credit questions: How would this future buyback-and-borrow compare to 1. Treasury, today, issuing $33-billion in platinum coins and using it to buy back (retire) 2% bonds from the Fed (with the coins sitting in the Fed’s vault…forever), or 2. the Fed just burning those bonds, and Treasury zeroing out the obligations?

Show your work, in particular specifying the balance-sheet perspective(s) you’re speaking from. Treasury (on balance sheet or unified)? Fed? Both consolidated? Private sector? Financial sector? Real sector?

Or don’t bother, because it’s a somewhat pointless set of arithmetic problems, balance-sheet prestidigitation with little ultimate import.

And even if you do think the government debt/GDP ratio is an important driver (cause) of growth or non-growth, do some more arithmetic and you’ll come to some rather striking conclusions, here courtesy of Josh Mason:

…interest, income growth and inflation rates also affect debt-income ratios, and movements in these other variables often swamp any change in …borrowing… government borrowing and government debt are not equivalent, or even always closely linked… What we have here is a kind of morality tale where responsible policy — keeping government spending in line with revenues — is rewarded with falling debt; while irresponsible policy — deficits! — gets its just desserts in the form of rising debt ratios. It’s a seductive story… But it’s mostly false, and misleading. More precisely, it’s about one quarter true and three quarters false.if you do think debt is a problem, then you are looking in the wrong place if you think holding down government borrowing is the solution. What matters is holding down i – (g + π) — that is, keeping interest rates low relative to growth and inflation. And while higher growth may not be within reach of policy, higher inflation and lower interest rates certainly are.

Compounding interest and all that…

Cross-posted at Asymptosis.

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The Eternal War

Andrew Bacevich writes:

Twelve and a half years after Congress didn’t declare war on an organization of hundreds or, at most, thousands of jihadis scattered mainly across the backlands of the planet, and instead let President George W. Bush and his cohort loose to do whatever they wanted; twelve and a half years after the president, his top officials, his neocon supporters, assembled pundits, and others swore we were nonetheless “at war” and the country in “wartime,” after our media beat the drums for “war” and assured us that “war” was our fate, after followers of the president insisted we were entering a monumental, multigenerational struggle, or even World War IV; twelve and a half years after the war that hadn’t been declared was launched and the bombing of Afghanistan began, after the CIA and Washington targeted up to 80 countries in a “worldwide attack matrix” — later given the leave-no-location-out name the Global War on Terror — and after top Washington officials swore we would soon “drain the [global] swamp,” another president has now assured us that someday, in a distant future, in a way that we might not even notice (“Our victory against terrorism won’t be measured in a surrender ceremony at a battleship…”), we might possibly find ourselves approaching the sort-of-end of what will have been a 20- or 30-year conflict.

See also Obama renews his anti-terrorism strategy.

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The ‘ignorance is bliss’/’ride’em cowboy’ mentality of today’s GOP

by Linda beale

The ‘ignorance is bliss’/’ride’em cowboy’ mentality of today’s GOP

Today’s GOP is dominated by the Tea Party types that are a cross between an ostrich with its head stuck in the sand– the “ignorance is bliss” philosophy– and a 1860s cowboy as depicted in the 1960s western-mania TV shows– the “hell bent on raising a ruckus”/”my way or the highway” mentality.  The combination is deadly dangerous for democratic egalitarianism.

On the ignorance is bliss side, see, for one example out of many possible, the “two pending Republican bills that seek to curtail or end vital surveys by the Census Bureau.”  Editorial, Stragegic Ignorance, New York Times (May 25, 2013).

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tax breaks for wealthy; corporate tax shouldn’t be reformed away; seed patents are a real scandal

by Linda Beale

Tax breaks for wealthy; corporate tax shouldn’t be reformed away; seed patents are a real scandal

No time for lengthy commentary today, but worth calling attention to some noteworthy items.

(1) The CBO released a new report detailing the income groups that benefit most from the various tax expenditures in the internal revenue code. No surprise that it finds that those in the highest income brackets receive an enormous amount of (not-needed) money from these tax subsidies.

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Tax Breaks Favor The Income Rich

Jon Perr at Crooks and Liars does a nice review on defining who benefits the most from tax breaks:  CBO Study Shows Tax Breaks Favor the Rich  

“Every year, tax expenditures–Uncle Sam’s myriad credits, exclusion, loopholes and breaks–cost the U.S. Treasury over $1 trillion a year. To put that in perspective, that figure is greater than the cost of Medicare, Social Security and national defense. Much larger than this year’s projected budget deficit of $642 billion, tax expenditures equal roughly 30 percent of federal spending. It’s no wonder why Republicans are so fond of calling for closing loopholes while lowering rates to produce “revenue-neutral” tax reform.

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“Per qualche dollaro in più” or For A Few Dollars More . . .

Having helped quite a few younger people rearrange student loans from the private sector to Direct Loans or consolidate loans to achieve lower interest rates or payments; I just find this market-place-staging by some politicians offensive. July 1st the rates are expected to double (3+% to 6+%) for subsidized and unsubsidized Stafford loans and probably Perkins loans which all typically go to students who can least afford the “few extra dollars” as suggested by this newly minted Congressman from Indiana who appears to not be able to tie a decent knot in his tie. Student debt is on the upswing and appears to be the next bubble in which to contend. The rising deficit as suggested by Congressman Luke Messer is not increasing but is in a steady rate of decline and the economy is mediocre with slow job growth slow but is still far better than 1,2 or 3 years ago although it could use a shot of stimulus again. What is also insidious about this foray of increasing interest rates for those who can least afford it is there is “almost” no-way-out of it once students sign up for a loan. Those who have defaulted on ninja-style mortgages or did not pay hospital bills might understand the relentless pressure brought to bear; however, student loans have the official distinction of being cast in stone by Congress once a student signs his name. With only death, disability, or a lack of income over 20-or-so years being reasons for discharge can a person escape a student loan. We would not tolerate such for a mortgage or healthcare; but yet, we have locked our youth into such an arrangement.

Read or listen in to a few comments Indiana Congressman Luke Messer makes:

Visit NBCNews.com for breaking news, world news, and news about the economy

The real threat to a college education today is not a few more dollars on their student loans today, it is the fact of the explosive growth of debt; the fact the jobs in this economy for young people entering this economy have been the people most hurt by Obama’s policies

The bottom line is, what you’re saying is the president’s an effective politician. He does a good job of distracting people from things that they ought to be focused on, and sometimes focusing them on things that while important, listen, none of us want to see student-loan rates spike, are only part of the larger problem.”

“I think, as Republicans, we’ve got to do a better job of explaining how our ideas apply to young people. Sometimes it sounds like he’s selling ice cream and we’re selling spinach. But I think personal responsibility is pretty cool. There is nothing out of date about freedom, and we need to have the policies that get this budget back in line, stop the explosive growth of spending — spending that will be paid for by this generation. And we’ve got to do a better job of explaining that.”

Student debt as a result of high interest student loans is becoming more of a threat than the mortgage market ever did as there is no simple discharge. If one wanted to see the financial rats flee the commercial student loan business ship which this Congressman evidently supports, the president should propose simple interest for student loans.

http://maddowblog.msnbc.com/_news/2013/05/31/18660880-house-goper-sees-student-loans-as-trivial-distraction?lite “House GOPer sees student loans as trivial ‘distraction’

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Justice Scalia Says Rightwing Economic Ideology is Mandated By the Constitution. Really.

Scalia regularly bars video or voice recordings of his off-the-bench speeches, and in at least one fairly recent instance, the details of which I can’t recall, he employed a member of the U.S. Marshals Service to enforce his policy.  If I recall correctly, a member of his security detail confiscated a reporter’s or law student’s audio recorder as the audience was leaving the room after the speech; something like that, anyway.

But recently he spoke publicly to a group somewhere in Italy, the speech was recorded, and National Law Journal reporter Michelle Olsen obtained and posted access to a web page that, the How Appealing blog reported, “was then providing access to download the mp3 audio of Justice Scalia’s remarks.”  The remainder of that How Appealing post, from yesterday, relates what happened next:

Yesterday, however, Michelle noted that the link to the audio of Justice Scalia’s remarks at that web page had disappeared. Nevertheless, the audio file itself remained available for download from the server for those who possessed the original download link.

Today, Michelle has not only posted the audio of Justice Scalia’s remarks to SoundCloud, but she has also located online another place where the audio of Justice Scalia’s remarks remains available for download (70.7 MB mp3 audio file).

Today, How Appealing follows up with this post:

“Scalia on the Judiciary and Economic Liberty”: Josh Blackman has this post today at his blog.

Blackman, an assistant professor of law at South Texas College of Law in Houston, begins his post by expressing appreciation to Olsen “for retrieving Justice Scalia’s speech in Italy from a new ring of Dante’s inferno (where off-the-record recordings of Justice’s speech wither away in limbo).”  He then quotes from the part of the speech that he listened to; he says he’ll post further after listening to the remainder.

A two-paragraph excerpt and a couple of additional quotes that Blackman adds are, in my opinion, jaw-dropping for their bald assertion that the Constitution mandates the particular economic ideology that Scalia ascribes to and therefore prohibits many (most?) of the economics-related laws enacted by Congress.

One added quote has Scalia saying that John Locke was the “guiding light of American independence.” Blackman then writes:

Scalia notes that the structural provisions of the Constitution are most fundamental to protecting economic liberty. He mentions the doctrine of enumerated powers, the Due Process Clause, the takings clause, and the contracts clause.

“Our Constitution provides property owners with relatively few substantive rights. Almost all of our private rights in the Constitution are in the Bill of Rights, which was an afterthought  . . . . Judges cannot enact atextual rights to enact their preferred policies.”*

The rightwing justices are big these days on attributing much of their peculiar brand of constitutional jurisprudence to what they say is the “structure” of the Constitution–usually things that are not stated expressly in the Constitution but that conservatives nonetheless claim are inherent in the document.  Especially extreme and sometimes bizarre declarations of states’ rights, which, according to this crowd, oddly enough or conveniently enough regularly trumps individual rights, including such individual rights as due process and habeas corpus, and narrower rights such as the right to the assistance of counsel, that underpin the more general ones.

Or, likely, the supposed structure of the Constitution that, in the absence of a specific useful provision, will suffice sometime in the next four weeks to justify voiding a key provision of the Voting Rights Act.  The Fifth Amendment doesn’t expressly require due process for states, as it does for “persons,” and has never before been held to incorporate within it “an equal protection component” similar to the one in the Fourteenth Amendment protecting “any person,” as it has for “any person.”  But, absent a formal pronouncement by the Court that states and voting districts within states are people too, the Constitution’s structure will suffice, if the oral argument this spring in the current Voting Rights case is an indication.

But I digress.  What we have right  now, from one of the mouth of one of the five horses, is an express adoption of an extreme laissez faire economics policy agenda in the ostensible name of the Constitution.  I hope that Democratic congressional candidates make this known when they address their constituents at Town Hall meetings and are asked about economic-policy issues.  We now have a Supreme Court justice who has publicly vowed to use his official position to undermine economic policy that he claims the Founding Fathers–followers of John Locke all, he says–would disapprove.

It’s struck me in recent weeks that statements by Paul Ryan and Mitch McConnell and other congressional wingnuts acknowledge that the Republicans are attempting to stage what amounts to a non-military coup.  They lost the popular vote for the House, and soundly lost the White House and the Senate, last fall, yet they will bring down the economy of the United States and will routinely refuse to confirm the president’s judicial and agency-head appointments, and will disallow funding for statutorily mandated agencies and programs, because–as Ryan said a week or two ago–they believe that the Republican policy agenda is better policy.

And now we have a Supreme Court justice announcing, if quietly, that he will try to use the Court to do the same.**  In the name of John Locke, no less.

*Indent-format-corrected to show boundary of quote.

**Sentence typo-corrected.

 

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Is the IRS Inspector General Himself Partisan, Or Is He Just Stupifyingly Clueless About the Law?

After the tax agency was denounced in recent weeks by President Obama, lawmakers and critics for what they described as improper scrutiny of at least 100 groups seeking I.R.S. recognition, The New York Times examined more than a dozen of the organizations, most of them organized as 501(c)(4) “social welfare” groups under the tax code, or in some cases as 501(c)(3) charities. None ran major election advertising campaigns, according to the Campaign Media Analysis Group, the main activity of a small number of big-spending tax-exempt groups that emerged as major players in the 2010 and 2012 elections.

But some organized volunteers, distributed pamphlets and held rallies leading up to the 2010 elections or the 2012 presidential election, as conservatives fought to turn out Mr. Obama.

A report issued this month by the Treasury Department’s inspector general, J. Russell George, found that inappropriate criteria, including groups’ policy positions, were used to flag some cases and that specialists in the I.R.S. office in Cincinnati, which reviews all tax-exemption requests, sometimes asked questions that were irrelevant to the application process.

And agency officials have acknowledged that specialists inappropriately used keywords like “Tea Party” and “Patriots” in searching through applications.

But some former I.R.S. officials disputed several of [I.G. J. Russell] George’s conclusions, including his assertion that it was inappropriate to ask groups about their donors, or whether their leaders had plans to run for public office. While unusual, the former officials said, such questions are not prohibited if relevant to an application under consideration.

“The I.G. was as careless with terminology as the Cincinnati office was,” said Marcus S. Owens, who headed the I.R.S.’s exempt organizations division until 2000. “Half of those questions have been found to be germane in court decisions.”

Groups Targeted by I.R.S. Tested Rules on Politics, Nicholas Confessore and Michael Luo, New York Times, May 26

I had planned to post on the Times story but haven’t had the time this week, and Linda Beale’s terrific post this morning would make an in-depth one by me redundant.  But I do want question, explicitly, the inspector general’s own competence, and maybe even his own political biases.  What struck me most about the Times story is its indication that the I.G. himself apparently is ignorant of the relevant law, particularly of some relevant court decisions; that his report apparently does not attempt to reconcile the specific actions of some of these groups with the law’s limiting of 501(c)(4) status to groups that do not electioneer; and that the investigation (apparently) did not attempt to determine whether groups with conservative-sounding names were “targeted” for further inquiry at a higher rate than groups with with liberal-sounding names.

If there were a significantly higher number of applicant conservative groups than applicant liberal groups, or if applicant conservative groups more often use political-sounding names than applicant liberal groups do, then–in light of the body of actual law pertaining to 501(c)(4) status–these statistics, it certainly seems to me, should have been featured in the report, and then widely reported by news organizations.

But instead, the I.G. started–and therefore finished–with the mistaken legal premise that political groups, groups whose very purpose was to electioneer, were entitled to 501(c)(4) status. This itself is stunning. From time to time, there are indications that an inspector general has deliberately skewed an investigative report or an investigation itself.  But I’ve never before heard of an inspector general who appeared unknowledgeable about the law relevant to the agency or department that his or her office was charged with inspecting upon receiving triggering information.

It would be nice now if Obama, having already expressed his outrage at the indication of political targeting by that IRS division, would now fully explain to the public what the relevant law actually is; that Democratic-leaning electioneering groups were targeted, too; why the groups that were targeted were targeted; what some of these groups actually do; and the real reason that these groups, whether Republican-leaning or Democratic-leaning, applied for 501(c)(4) status: to be able to hide the identity of the electioneering organization’s donors.

Obama, of course, won’t do that.  His primary goals throughout his presidency have been to please centrist pundits and try to tamp down on the virulence toward him from the right.  But any self-styled centrist pundit who would attack him for explaining the law and mentioning what the targeted organizations really do–that is, what exactly “targeting” meant here–is, by definition, no centrist.  And it’s painful to think of how much more successful this administration would have been all along, and how many serious mistakes it would have avoided, had Obama not dedicated himself so thoroughly to trying to assuage the unassuageable.  And that includes the political pundits of the studiously-centrist variety.

But the Senate Democrats should hold a hearing to make the points about the Times article makes.  The Times article provides a good starter witness list–including Inspector General George–and the names of some of the political organizations, Republican-leaning and Democratic-leaning, that inappropriately filed 501(c)(4) applications, and whose officers should be subpoenaed to testify.

The purpose would be to clarify for the public what the law is now and why–why–groups whose raison d’être is openly partisan want the 501(c)(4) designation, and, in doing so, enlist public support for a new campaign-finance law with specific guidelines concerning public disclosure of donors to political-campaign groups irrespective of their IRS tax status.  And along the way maybe we would learn why, pray tell, the inspector general thinks current law permits (requires?) the IRS to authorize these overtly partisan groups to keep their donors’ identities secret.  That alone would be worth the trouble.

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The real IRS scandal

by Linda Beale

The real IRS scandal

Various posts here have made the argument that the TIGTA report shouldn’t be taken as a definitive analysis of the ins and outs of the various issues related to the IRS’s examination of applications for 501(c)(4) status and its use of terms like “tea party” and “patriot” as a shortcut to identify groups that likely engage in way too much politicking to be entitled to C-4 status and nondisclosure of donors.  It does not appear to be quite so clear that the IRS actions were either “outrageous” (as so many hopping on the IRS “scandal” bandwagon suggest) or even “inappropriate”.  The right’s willingness to push this for all it is worth is typical of what passes for Congressional action these days–partisan politicking with a great dash of scandalmongering and a very little seasoning of legislative action intended to put the country in a better position.

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“Libertarian Koch brothers have taken tens of millions in subsidies UPDATED

The Cato Institute, originally the Charles Koch Foundation, is one of the most influential libertarian think tanks in the country. With both Charles and David Koch on its board of directors, Cato has produced numerous studies on the evils of corporate subsidies (which it calls “corporate welfare“), dating back at least to the 1990s. Supposedly, Charles Koch himself (via Wikipedia) is opposed to “corporate welfare,” and plans to oppose it this year.

I guess I’ll believe it when I see it. As previously discussed in Dirt Diggers Digest, Koch Industries has received many subsidies over the years, and I doubt this leopard will change its spots. In fact, the full tally of giveaways they have received extends far beyond the article linked above.

The calculation below relies on Good Jobs First’s Subsidy Tracker database and the New York Times subsidy award database (not the program database). While 98% of the entries in the Times database come from Good Jobs First, reporter Louise Story took the first big step toward aggregating by standardizing company names. However, this still does not connect parent and subsidiary companies, so I carried out this step for the Kochs by using the Wikipedia entry for Koch Industries. With a quarter of a million entries and counting in Subsidy Tracker, I cannot imagine how long this would take if I had to do it for every company.

Here are the subsidies I was able to identify for Koch companies.

Flagship Koch Industries has taken over $16.5 million in subsidies from 11 different awards, none of which are sales tax breaks (which generally are not subsidies).

Subsidiary Georgia Pacific has received 72 subsidies worth over $43.9 million (none of these were sales tax breaks).

Subsidiary Flint Hills Resources LP has received subsidies from Iowa, Kansas, Texas, and Michigan, according to the Good Jobs First Subsidy Tracker; the New York Times subsidy database, which omits Michigan but includes one more Iowa subsidy, puts the value of the Iowa and Kansas subsidies alone at just over $12.5 million (again, none of which were sales tax breaks).

Subsidiary INVISTA has received $217,504 in training grants from South Carolina, according to Subsidy Tracker. Several other subsidies appear to be connected to this subsidiary, but none have available subsidy amounts. Again, none were sales tax breaks.

To summarize:

Koch Industries: $16.5 million

Georgia Pacific: $43.9 million

Flint Hills: $12.5 million

INVISTA: $0.2 million

Total subsidies to the Koch brothers:$73.1 million

Remember, this is the minimum value of the Koch brothers’ subsidies. Some of the entries had no dollar figures available, and there is always the possibility that some incentives were missed entirely or that the awards above were only a part of a subsidy package, not the entire value. In particular, local subsidies are not well covered in either database; the same is true for my national estimates. The  data just isn’t widely available.

Meanwhile, Koch Industries is going to be the largest investor in the Big River Steel project in Osceola, Arkansas, which is expected to cost the state $132 million in incentives.

Like I said, when it comes to the Kochs fighting subsidies, I’ll believe it when I see it.

UPDATE: Yasha Levine tweeted me to let me know about two stories he did at Exiled Online in 2010 and 2011. While I focus above on state and local subsidies, Levine’s stories focus on federal and foreign subsidies received by Koch companies. The biggest takeaway is that the federal subsidies, especially the ethanol subsidy, dwarf what the Kochs have received at the state and local level, with the ethanol subsidy alone worth perhaps $1 billion a year. The mind boggles.

Check out Levine’s stories for the gory details. Thanks, Yasha!

Cross-posted from Middle Class Political Economist.

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