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

Need to remember

Many of the photos were taken before water and air pollution were fully regulated. The Clean Air Act was passed in 1970, and the Clean Water Act was passed in 1972.

Baltimore, Birmingham, Cleveland, Delaware, Denver, Kansas, Los Angeles, New Orleans, New Jersey, New York, Philadelphia, Pittsburgh, and San Francisco all feature here, in shots filled with smoke, smog, acid, oil, rubbish, and sewage.

None of the 35 photos are pretty (other than the film-photo haze), but it’s worth remembering what US cities used to be like before we cared what we put into the air, soil, and water.

Via Business Insider

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Amazon, FedEx and the Post Office

Both Amazon and Fed ex have embarked on plans to deliver their own “last mile” package delivery previously contracted with the US Post Office. Here is a link to run75441 (postmaster Mark Jamison’s) piece on this process Fake News, Flawed Analysis, and Bogus Tweets from 2018 for a much more complete description. I have pulled a quote from the more recent Business Insider post on “last mile” delivery.

 

According to the US Postal Service Inspector General, the new requirement to pre-fund retiree benefits accounted for $55 billion of the agency’s $62 billion loss incurred between 2007 and 2016.

Because of that, the Postal Service can’t make the massive investments into its logistics networks that its competitors have been able to.

Business Insider

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No more mister nice guy

(Dan here…lifted from Robert’s Stochastic Thoughts)

by Robert Waldmann

Nomoremisterniceblog almost states the bitter truth, but he’s too nice to tell us what fools we are.

He wrote:

I don’t want to relitigate the McGovern and Mondale campaigns, but Dukakis? “Free everything and impossible promises” weren’t what defeated him.

My comment

I want to relitigate events of 1984, which Delaney has sent down the memory hole. Mondale was not hammered because he made promises he couldn’t keep. He said he was going to talk to us like grownups. He said he was going to increase taxes (but not increase taxes on families with income under $ 30,000 which would be about $60,000 now with inflation).

So the people of the USA had to choose between a serious guy who told us the truth and the guy who promised that lower taxes meant higher revenues. It is obvious that most voted for Reagan who made absurd promises which he obviously couldn’t keep.

Now there have been Democratic candidates who promised to reduce the deficit and reduce taxes on most families — Clinton and Obama ‘– exactly the two non incumbent Democrats who won when the Income tax was constitutional and the top rate was under 55%. Obama also actually delivered (not that many people noticed) while Clinton was suddenly (not permanently) unpopular when Rubin convinced him we couldn’t afford a middle class tax cut.

Unlike her husband, Hillary Clinton was honest about budgetary and political limits. Unlike his wife, Bill Clinton was elected President.

The lesson is simple. Don’t treat the US public like adults. Do make promises, including some you can’t keep. The data are clear. Anyone who lives in the real world knows this. Only dreamers like Delaney, Dukakis, Mondale, Gore think you can win as the speaker of inconvenient truths.

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Barro’s Misstated Case for Federal Reserve Independence

Barro’s Misstated Case for Federal Reserve Independence

I guess I should applaud Robert Barro for standing up for the independence of the Federal Reserve and hoping it can resist political pressure to lower interest rates too much. But there are two aspects of his case that strike me as silly to say the least starting with his opening sentence:

In the early 1980s, the chairman of the US Federal Reserve, Paul Volcker, was able to choke off runaway inflation because he was afforded the autonomy necessary to implement steep interest-rate hikes.

This statement glosses over the fact that we had a macroeconomic mess in 1982. This mess was in part to blame on an ill advised fiscal stimulus initiated the moment St. Reagan took office. But clearly the Federal Reserve overreacted. To be fair – Barro continues his magical history tour in a reasonable way until we get this absurdity:

one could infer the normal rate from the average federal funds rate over time. Between January 1986 and August 2008, it was 4.9%, and the average inflation rate was 2.5% (based on the deflator for personal consumption expenditure), meaning that the average real rate was 2.4%. The long-term normal real rate can be regarded as an emergent property of the real economy. From an investment and saving standpoint, economic equilibrium balances the benefit from a low safe real interest rate (which provides low-cost credit for investors) against the benefit from a high real rate (which implies higher returns for savers). In the Great Recession, the federal funds rate dropped precipitously, reaching essentially zero by the end of 2008. That was appropriate, owing to the depth of the crisis. But what few expected was that the federal funds rate would remain close to zero for so long, through the end of then-Fed Chair Ben Bernanke’s term in January 2014 and beyond.

While it is nice that one conservative economist has finally decided that the low interest rates policies during the Great Recession were appropriate and not the harbinger of hyperinflation, Barro seems to be saying the long-run real interest rate has been the same for the last 23 years. There has been a lot of research to suggest otherwise.

Rather than cite all of this research, let’s just check out the interest rate on the 10-Year Treasury Inflation-Indexed Security, which used to hover around 2 percent before the Great Recession but is now less than 0.3 percent. I agree with Barro that the Federal Reserve should resist Donald Trump’s push for significantly lower interest rates at this time but I also hope that the Federal Reserve resists the temptation to increase real interest rates as much as Barro’s devotion to some 23 year average would suggest.

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The Change in the U.S. Direct Investment Position

by Joseph Joyce   (Joseph P. Joyce is a Professor of Economics at Wellesley College, where he holds the M. Margaret Ball Chair of International Relations. He served as the first Faculty Director of the Madeleine Korbel Albright Institute for Global Affairs.)

The Change in the U.S. Direct Investment Position

The U.S. has long held an external balance sheet that is comprised of foreign equity assets, mainly in the form of direct investment (DI), and liabilities held abroad primarily in the form of debt, including U.S. Treasury securities. This composition is known “long equity, short debt.” Pierre-Olivier Gourinchas of UC-Berkeley and Hélène Rey of the London Business School claim that this allocation has allowed the U.S. to serve as the “world’s venture capitalist,” issuing short-term debt in order to invest in high-yield assets. But the U.S. direct investment position has changed from a surplus to a deficit, with uncertain consequences for the international monetary system.

There is more than one reason for the change. To see this, it is important to understand that the U.S. Bureau of Economic Analysis, which reports these data, uses several methods to value direct investment. One of these utilizes stock market prices to calculate the market values of the assets and liabilities. The second method is the use of the historical costs of the investments when they were made. The third is the current, or replacement, costs of the direct investment assets and liabilities.

Direct investment includes equity and debt instruments. The latter is based on intra-company borrowing. Historically, the equity component has registered a net positive position that outweighed the negative debt position. But the net direct investment equity position, which had been falling for several years, plunged in late 2017. The falloff continued in 2018 and led to a negative balance, which combined with the negative net direct investment debt position, turned the overall net direct investment balance negative.

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Pledging Zero Carbon Emissions by 2030 or 2050: Does it Matter?

Pledging Zero Carbon Emissions by 2030 or 2050: Does it Matter?

We now have two responses to the climate emergency battling it out among House Democrats, the “aggressive” 2030 target for net zero emissions folded into the Green New Deal and a more “moderate” 2050 target for the same, just announced by a group of mainstream legislators.  How significant is this difference?  Does where you stand on climate policy depend on whether your policy has a 2030 or 2050 checkpoint?

I say no.  Neither target has any more than symbolic value, and what the government does or doesn’t do to prevent a klimapocalypse (can we use this interlingual word?) won’t depend on which one gets chosen.

Endpoint targets have no constraining power at all.  A 2030 target won’t be met or unmet until 2030, and by then it will be too late.  Same, and worse, for a 2050 target.  Moreover, the whole target idea is based on a misconception of how carbon emissions work.  The CO2 we pump into the atmosphere will remain for several human generations; it accumulates, and the sum of the carbon we emit this year plus next plus the one after and so on is what will determine how much climate change we and our descendants will have to endure.  (The relationship between our emissions and the earth system’s response is complex and may embody tipping points due to feedback effects.)  Every additional ton of carbon counts the same, whether it occurs today or just before some arbitrary target date.

What we need instead is a carbon budget, an announced total quantity of emissions we intend to hold ourselves to, starting right now and continuing through the end of the century.  That way, whether we’re living up to our pledge or scrapping it is put to us each year based on how quickly we’re using up our quota.  It sets the meter running now.

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Climate Chaos?

Dan here.  You will be reading more of him soon…David Zetland has contributed here on water issues via Aguanomics. He now publishes his blog The one-handed economist.  He is a native Californian who moved to Amsterdam several years ago. David is an assistant professor of political economy at Leiden University College, a liberal arts school located in The Hague. He teaches courses in social and business entrepreneurship, cooperation in the commons, and environmental, growth and development economics.

Here is a more informal piece on his newsletter:

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The Federal Deficit by Presidential Terms

Under Trump the federal deficit has rebounded to some 4.4 % of GDP  — it is the same whether you look at it quarterly or monthly data as this chart does.  The monthly estimate is calculated by Haver Analytics. So much for the tax cut paying for itself.

 

The shaded areas are by Presidential term, not of recessions as is usually the case.  Typically, Republicans leave office with a larger deficit than they inherited while Democrats leave with a smaller one, or a surplus. Of course, this is exactly what “starve the beast” calls for.

Federal Deficit each Presidential Term

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Bill Black says what if…

(Dan here… Via Real News Network, Bill Black discusses the what-ifs of President Trump’s policies in a spectacular contrast to current expectations…providing. a jumping off point from what we expect from the way it is framed now. I assume the complex interalationships of the wealthy elites (let us see how the Epstein case unwinds for another aspect) plays an important but not so well known role in this drama.  I find his thought his conclusions dismaying if even somewhat accurate.)

BILL BLACK: Sure. The question I ask in the article is why did Trump choose to be so spectacularly unpopular? Because had he done what he promised and had a true middle class tax cut that gave, for example, $5,000 a year to the typical middle class household, he would be spectacularly popular. And almost certainly they would have–the Republicans would have retained control of the House, and quite possibly they would have gained seats in the House. And of course they would have gained seats in the Senate. And Trump would be well positioned for re-election. He would have greatly expanded his base, and he would have paid off to his base, as well. And you know, convinced them that backing him was exactly the right thing.

And that’s the biggest thing. But also, if Trump had done what he promised and had a true infrastructure bill, where he spent $2 trillion on infrastructure, he would have divided the Democratic Party.

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Eliminate The Debt Ceiling

Eliminate The Debt Ceiling

Several days ago in WaPo, Catherine Rampell published a highly reasonable column calling for eliminating the century-old US debt ceiling, something no other nation has ever had, a position supported by a wide array of economists including such a conservative GOP stalwart as the recently deceased Martin Feldstein, a former CEA Chair for Reagan.  I have made numerous posts here on this in the past, but the issue is hot again as once again the debt ceiling is being rapidly approached.

The latest story is that the “adults in the room,” Treasury Secretary Steven Mnuchin and Speaker of the House Nancy Pelosi, may be very near an agreement to raise the debt ceiling, Reportedly Pelosi has been open to eliminating the ceiling, but in the current circumstances I certainly understand why she might be wanting to secure a two year agreement to preserve funding for social safety programs crazy right wingers want to use the debt ceiling issue to trash as well as holding off any shutdowns this fall.  This is what used to be known as “good government,” but in the current environment, even this apparently reasonable deal, which also has no non-economic sideshows involving abortion or whatever, may yet not pass.  Pelosi says it must be agreed to by tomorrow evening if it will get passed properly by Congress before they all go on leave and the government might run out of money in early September (corporate tax payments have been way down due to Trump tax law).  Eliminating the ceiling would avoid all this bs, but this is not the moment for that.

This is definitely a weird and unprecedented situation.  For over a century we have had this completely indefensible debt ceiling, which has been raised so many times it is not worth counting, and when the WH and Congress have been controlled by the same party, it has been no big deal, although obviously that is what we need to get rid of the damned thing.  However, historically, when there has been split partisan control the game has been the WH pushing raising the ceiling while the opposition party in Congress has made lots of complaining noises and often made demands for raising it.  The problem this time is that the major power broker of the administration, Acting Chief of Staff Mulvaney, was part of the tea party fanatics in the House who when Obama was prez tried to block raising the ceiling.  Apparently at times he and Trump have indulged in fantasies that if there is a default he could personally control which agencies get funded and which do not.  This is not true, and maybe they are figuring it out, but Mulvaney has said nothing, and Trump must pass on this.

If he messes up the deal, it will be all his fault, as his own Treasury Secretary has cut it with the Congressional leader of the opposition party in the House, with reportedly the toadish GOP-controlled Senate ready to go along.  He may or may not have figured out that triggering a shutdown did not help him, but if he thinks triggering a default will not be worse, this will be a big mistake, to put it mildly.

Barkley Rosser

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