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

School openings need….

Via Diana Ravitch’s blog on a Time magazine article What the U.S. Can Learn from 3 Countries About Reopening:

TIME Magazine just published a story about school reopening in Denmark, South Korea, and Israel, with lessons for the U.S.

Lesson #1 from Denmark: Get the virus under control before reopening schools. Unlike Denmark, the United States is bungling that, and the virus is spreading in the south and west. Perhaps states that have taken the necessary steps and flattened the curve can begin to reopen, with caution.

Lesson #2 from South Korea: Prepare to delay reopening if cases spike. Older students returned to school fumirst.

Lesson #3 from Israel: Infections increase when schools don’t take every safety precaution. Expect to close down again if you don’t follow the protocols of masks, social distancing and other precautions.

The necessary health and safety protocols require extra funding. No extra funding is available. Trump threatened to cut federal funds from schools that don’t open fully even without the small classes, masks, PPE, extra nurses, etc. He wants the schools open without regard to the health or safety of teachers and students.

The 2017 Tax Cuts and Irish Jobs Act

The 2017 Tax Cuts and Irish Jobs Act

Brad Setser has more to say about how the lack of enforcement with respect to transfer pricing in the Big Pharma sector has not only cost us Federal tax revenues but perhaps in American jobs in his “The Irish Shock to U.S. Manufacturing?” (May 25, 2020):

America’s production of pharmaceuticals and medicines peaked in 2006, back before the global financial crisis. Output now is about 20 percent below its 2006 level. Pharmaceuticals tend to be capital not labor intensive. High quality pharmaceuticals aren’t made in sweat shops. Pharmaceuticals certainly weren’t the kind of industry that most economists expected to be on the losing end of trade liberalization twenty years ago. Yet America’s consumption of pharmaceuticals didn’t peak in 2006. Only U.S. output. Imports have increased substantially since 2006. Imports of pharmaceuticals have increased from $65 billion in 2006 to $151 billion in 2019. As a result, the trade deficit in pharmaceuticals has increased from $32 billion at the end of 2006 to $93 billion in March of this year. That is about 0.4 percent of US GDP, or just under 10 percent of the total trade deficit in manufactures. The bulk of these imports are from countries that pay high wages. The two biggest sources of imports are Ireland and Switzerland. Many of the usual arguments around the gains to consumers from trade don’t really apply here. The imports are of patent protected goods, so they don’t expand consumer choice. And U.S. pharmaceutical prices are notoriously high—imports from Ireland and Switzerland haven’t brought U.S. pharmaceutical prices down to European levels. The bulk of the gains from trade here almost certainly go to the owners of the pharmaceutical companies who benefit from lower taxes. And the main loser is the U.S. Treasury. Right now, the United States pays the highest prices in the world for its medicines (many of which derive from NIH research) while U.S. pharmaceutical companies are often taxed at quite low effective rates.

I want to do two things here starting with an explanation of the Irish transfer pricing game and later a small complaint about his Swiss tale. He cites a story about an Irish affiliate of Pfizer by Tom Bergin and Kevin Drawbaugh:

Fed Deficit as a % of GDP now at new record

For once Trump is right to claim that he has set a new record as the federal deficit is now over 10% of GDP.  It is now 10.7% of GDP as compared to the prior record of 10.2% that  Obama inherited from Bush.

The deficit is looking more and more like what happened in Japan.  Despite ever expanding debt, Japan’s economy stagnated.  Expanding federal debt may keep the economy from collapsing, but it can not stimulate growth. The strongest growth in recent decades was under Clinton when the federal government ran a surplus. But the real cause of growth under Clinton was the sharp drop in computer prices and the widespread adoption of personal computers. Clinton followed the wise policy of just stepping aside and letting it happen.

Trump appears to just be following the pattern set by previous Republican administrations with their “starve the beast” strategy. That is to create such a severe deficit problem that when democrats get into office they can not afford to pass new liberal legislation.

The quick and dirty rule of thumb is that when Republican presidents leave office the deficit is larger — as a share of GDP — than when they took office.  It is just the opposite with Democratic presidents,  that leave a smaller deficit than they inherited. But it is funny that you never have the press question Republican presidents about their claim that tax cuts will be self-financing.

Republicans Built and Own This

And we as Democrats did not resist hard enough and gave in to the Republican message.

It wasn’t the lack of turnout by black Americans causing Trump to be elected. It was not the failure to vote as the numbers of voters exceeded that of the 2012 election. It was the minority of voters who cast their ballots in the “others” column or as the media calls the “anybody but trump or Clinton” vote which was at a historical high. Many voters bought into the Republican message of lies and deceit about Clinton which had been answered years ago, many times over, in multiple investigations of Hillary and Bill Clinton.

In this post, there a little bit of WaPo, some Washington Monthly, and some of me giving an explanation how we arrived to today.  As I stood by, watched, and now experience what this president has brought us, I ask the question of myself; what did we miss along the way as many of us still continue to lock down in our homes. How could we have stopped trump as citizens. I have come to this point in time thinking there may be something different I could have done then just bringing what I consider to be cogent arguments to the table. My hands were  tied and my words on the topic ignored in sounding the alarm. And fair warning don’t argue about your liberty being violated if forced to wear a mask. You are a fool if you venture into public without mask and get within the six foot area of others. There is more to Covid than just dying which is the easy way out in many cases. Once you are on ventilation, you are probably going to die.

Stuart Stevens the strategist for Mitt Romney’s campaign makes the argument of Republicans being responsible for Trump in that GOP Principles paved the Way For Massive Suffering. One of the critiques often leveled at the Repub “Never Trumpers” is; even as they reject the current president’s words and deeds, they fail to assume any responsibility for them. In the end Republicans built today’s moment and crisis while still looking the other way.

Jan. 22 2020:

Oklahoma Expands Medicaid

Kind of a big deal because Oklahomans rejected Trump’s Medicaid and Republican block grant-program which would be more vulnerable to cuts of Federal funding.  It is unfortunate Oklahoma did not get on board with the ACA Medicaid expansion as 100% of the costs of the Medicaid expansion from 2014 – 2016 and 90% there after. I could never understand the cold-hearted logic of states in not expanding Medicaid. Much of the costs of expanding Medicaid now would have been covered.

In spite of Oklahoma Governor Kevin Stitt’s plan to make the state a test case for the Trump administration Medicaid block grant program, Oklahoma voters narrowly approved its own initiative to expand Medicaid for low income people. In theory, the state will be in the driver’s sit (mostly) in deciding how much money it will allocate to the program rather than the Federal government.

Oklahoma is the the first state to expand Medicaid during the Covid pandemic. Oklahoma has the second-highest uninsured rate in the country following up Texas who is #1 in both uninsured and the numbers of new Covid cases. The State Question 802 initiative was passed by a margin of less than 1 percentage point amongst voters. It was strongly supported in metropolitan areas such as Tulsa and Oklahoma City and widely opposed in rural counties. While Idaho, Maine, Nebraska and Utah expanded Medicaid through ballot questions and amended state statutes, Oklahoma State Question 802 amended the Oklahoma Constitution which prevents  the Republican-controlled Legislature from altering  the Medicaid program or rolling back coverage.

At an “Americans for Prosperity” forum, Governor Stitt said “We will have a $billion shortfall next year. The state will have to consider raising taxes or cut to such services as education, first responders, or roads and bridges” in order to cover the additional costs of Medicaid.

Looking back, the expansion of Medicaid and also the ACA mandate would increase the numbers of people having healthcare insurance which would be a boon to healthcare insurance companies. The ACA tax on healthcare insurance companies (who would benefit greatly from the new business) was meant to provide additional funds to cover the costs of healthcare. Instead, the Oklahoma plan will increase the fees on hospitals from 2.5% to 4%.  There is more to this issue and I will tackle it another time.

Housing rebounded sharply in May

by New Deal democrat

Housing rebounded sharply in May

One aspect of the economy that is important in terms of how well things will go once the pandemic ultimately recedes (which won’t occur until after next January 20) remains housing.

And low-interest rates brought housing back from the depths in May.

My look at the current state of mortgage rates, housing sales, and prices is up over at Seeking Alpha.

George Floyd and the Costs of Racial Capitalism

George Floyd and the Costs of Racial Capitalism, LAWCHA, Ken Estey, June 10, 2020

Some History

A little bit about LAWCHA. The “Labor and Working Class History Association” is an organization of scholars, teachers, students, labor educators, and activists who seek to promote public and scholarly awareness of labor and working-class history through research, writing, and organizing. It grew out of the conversations among labor historians over the course of a couple of years between 1996 and 1998 about the importance of giving labor history greater visibility nationally in both academic circles and public arenas.

Introduction

With all the news on the murder of George Floyd in Minneapolis, little is being said about George other than his demise at the hands of the police. Ken Etsey writes on George’s background as a person and why so many other Black Americans like George arrive at a similar point in time where they can lose their lives over so minor as a “supposed” counterfeit 20 dollar bill. Many others like George struggle in what is described as a Racial Capitalist economy which values flexibility to “hire and fire” and profit over Labor stability and good pay. It is a good read. James McElroy at  LAWCHA gave AB the go-ahead to post Ken Etsey’s commentary about George and a May economy in which there are gains in white employment while black and Latinx unemployment still rises.

George Floyd’s Story

S&P PE NOW BACK ABOVE FAIR VALUE

After the recent market rebound the S&P 500 valuation has risen from below my estimated fair value to just over the top of the fair value band.

It is important to remember that much of the rebound in the S&P PE  is due to weaker earnings.  In the second quarter earnings are falling at double digit rates. But if second quarter real GDP is falling at a 40% to 50% rate earnings estimated are still too high.

Wall Street says do, not fight the Fed.  One measure of Fed policy is money supply growth and as the chart shows MZM ( zero maturity growth) is surging to near record highs.  This implies that the market PE is going to continue to rise and it should pull the overall market with it despite the fact that earnings estimates are probably too high.

Stephen Miller’s Racist Fix for Race Relations

Word is circulating that Stephen Miller is writing Donald Trump’s speech on race relations. I’m going to go out on a limb and predict that Trump’s “solution” to the current malaise in the U.S. will involve extending a ban on immigration and expanding enforcement and expulsion of undocumented individuals. This seems like a safe bet to me because Miller really is a one-trick pony and Trump relishes rehashing his greatest hits. Maybe Miller will toss in some “enterprise zones” or other ornamental trivia but the meat will be anti-immigration.

They playbook for this will be Miller’s Immigration Handbook for a New Republican Majority that he wrote for Jeff Sessions in 2015. Footnote 21 of that handbook states that, “Amnesty and uncontrolled immigration disproportionately harms African-American workers, and has been
described by U.S. Civil Rights Commission member Peter Kirsanow as a ‘disaster.'” The handbook also cites a poll commissioned by Kellyanne \Conway, one finding of which was that “86% of black voters and 71% of Hispanic voters said companies should raise wages and improve working conditions instead of increasing immigration.”

Two years ago, I posted a couple of pieces discussing Miller’s handbook in more detail: The Lump That Begot Trump and Goebbels or Gompers?: A Closer Look at Stephen Miller’s Immigration Manifesto. I hope these pieces provide some insight into just how dangerous and effective Miller’s and Trump’s anti-immigration rhetoric can be, especially given the hypocrisy of neo-liberal promotion of immigration as exemplified by Tony Blair’s and Gerhard Schroeder’s “Third Way” advocating “a new supply-side agenda for the left“. To put it bluntly, “Third Way” immigration policy was intended to create jobs by keeping wages low through an abundant supply of labor. The transfer of income from the working class to the wealthy would provide ample funds for “investment.”

In short, Miller’s and Trump’s anti-immigrant rhetoric is dangerous and effective because Blair and Schroeder (and Clinton and Obama) enacted right-wing, supply-side economic policies in the name of “the [‘responsible’] left.”

Using insurance to improve policing

There are two insurance-related police reform ideas being discussed.

One approach focuses on municipal liability insurance.  Many municipalities do not purchase liability insurance to cover lawsuits against officers, instead choosing to self-insure.  This is potentially a problem because insurers actually play an important role in loss control.  They provide information and services related to procedures, training, the risks posed by individual officers, etc.

The second proposal would require individual police officers to purchase professional liability insurance, in the same way that doctors and other professionals do today:

In response, we propose an innovative, market-based solution – mandatory professional liability insurance for police officers. Much the way that drivers with terrible records may be forced off the roads by high premiums, officers with the most dangerous histories, tendencies, and indicators might be “priced-out” of policing by premiums that reflect their actual risk of unjustified violence. Potential reductions or increases in premiums would create systemic effects by incentivizing both departments and individual officers to adopt policies, trainings, and procedures that are proven to lower risk.  Insurance companies, an outside third-party removed from local politics, would be in an ideal position to assess indicators of risk actuarially and set premiums accordingly.

My sense is that neither of these proposals are magic bullets, but they may be worth trying.

Under the first proposal, municipalities that buy insurance would have less of an incentive to prevent lawsuits than they do when they self-insure.  The loss control expertise of insurance companies may offset this, but municipalities that self-insure can (I assume) purchase loss control services today.  They may choose not to do so, presumably because of pressures from police officers and unions, because “loss control” includes things like getting rid of problem officers.  This is the heart of the political problem, and insurance will not make it go away, though it may help create pressure for reform if it makes better information about the costs of poor policing available.

Forcing municipalities to purchase insurance may also help if municipal governments that self-insure do not put aside adequate funds (“reserves”) to pay for wrongdoing by police officers that occurs today.  By under-reserving for today’s wrongful behavior by police, city officials can pass the costs of poor policing practices on to future officials and taxpayers.  If municipalities purchase reasonably full insurance, the expected costs of lawsuits from current policing practices will be reflected in the current insurance premium.  This will increase the incentive of city officials to reduce behavior that leads to lawsuits.  It seems to me that this may be the main advantage of both proposals.

The same problems would arise under the second proposal.  In addition, the prices charged to individual officers would quickly be politicized, just as they are in many other areas of insurance.  More subtly, full experience rating of officers may not be desirable because it exposes officers to too much risk.