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

Elizabeth Warren Wants to Collect More in Corporate Profits Taxes

Elizabeth Warren Wants to Collect More in Corporate Profits Taxes

John Harwood reports:

Democratic presidential candidate Elizabeth Warren proposes raising $1 trillion in government revenue from a new tax on profits of the largest corporations. The proposed surtax would prevent Amazon and other companies with profits exceeding $100 million from wiping out their tax liabilities altogether. Instead of taxable corporate income as defined by the IRS, the 7% surtax would apply to profits companies report to their investors.

A lot to like. Look – I hated that 2017 tax scam, which we were told would clean up how corporations are allowed to shield income by all sorts of tricks including transfer pricing manipulation. Alas, its complexity was a boondoggle for shifty tax attorneys rather than simplification and closing loopholes. So proposals to “repeal and replace” this awful tax deform are highly welcomed. But this part of Harwood’s reporting was dreadful:

Warren cited two high-profile examples: Amazon has reported $10 billion in 2018 profits but zero in U.S. corporate taxes; Occidental Petroleum has reported $4.1 billion in profits and also paid zero.

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Real wages got gassed in March

Real wages got gassed in March

The consumer price index rose +0.4% in March, mainly as a result of a big monthly increase in gas prices. That really shouldn’t have been a surprise, since almost every time gas prices have increased by as much as they did in March — up 9% for the month — consumer prices as a whole have gone up at least +0.4%. I’m showing just the last 10 years in the graph below:

In fact, ex-gas, consumer inflation ex-energy has been remarkably stable between 1.5% and 2.5% YoY ever since gas prices made their long term bottom in early 1999. The only big exceptions were in the year before each of the last two recessions:

 

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Downturn in manufacturing new orders adds to evidence of slowdown

Downturn in manufacturing new orders adds to evidence of slowdown

I don’t normally pay much attention to the new factory orders report, because it is simply too noisy to be of much use. But as of February’s report, released Monday and showing a -0.1% decline in “core” new orders, there is enough to at least take notice.

Here are overall new factory orders (blue, left scale) and “core” new orders (red, right scale) for the past 25 years:

In the first place, while they clearly turned down in advance of the 2001 recession, which was a producer-led recession, that wasn’t the case at all, especially for “core” new orders, in the 2008 recession, which was consumer-led. Further, there is so much monthly noise that monthly readings don’t give you reliable signal until the turn is well underway.

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2019 Core CPI

In a low inflation world firms tend to raise prices once a year, typically in the first quarter of the calendar year or their fiscal year.   Because of this very strong seasonal pattern, on a not seasonally adjusted  around 50% of the annual increase in the core CPI —  excluding food and energy — occurs in the first quarter

This very strong pattern gives great insight in to the annual inflation rate. One, is if this year’s first quarter is greater than or less that the prior year’s first quarter, this year’s annual increase will be greater of less than the prior year’s annual increase. This has worked every since year since 1990. Second, just doubling the NSA first quarter rate gives you an amazingly accurate estimate of the annual increase in  the core CPI for that year. In 2018 the first quarter rose 1.20% and the annual increase was 2.16%.  This year the first quarter rose 1.06%.  This implies that the rise in the core CPI should be slightly less in  2019 than  it as in 2018.

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We Were Not Walking the Planet . . .

When Jackasses reign.

John Kerry answers a Congressman.

“Kerry delivered his rebuke of the GOP’s inaction on the environment to Rep. James Comer (R-K.Y.). Comer questioned whether there was a reasonable way for the U.S. to afford the ideas entailed in the resolution, which was introduced by Ocasio-Cortez and Sen. Ed Markey (D-Mass.) in February.

Kerry: ‘There are a lot of different proposals about how to proceed. I don’t know that any of them are coming from your party or your side of the aisle.’

Kerry added: (his) ‘focus is on how we’re going to move forward despite varying positions on legislation, adding that regardless of differences among politicians, Ocasio-Cortez has in fact offered more leadership in one day or in one week than President Trump has in his lifetime on the subject.’”

Cincinnati Enquirer

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Does Cochrane Really Understand the Latest on Minimum Wages?

Does Cochrane Really Understand the Latest on Minimum Wages?

John Cochrane thinks we liberals who think higher minimum wages can do some good by offsetting monopsony power fail to grasp labor economics. He is citing some work by Jeffrey Clemens, Lisa B. Kahn, and Jonathan Meer. Alas his blog post screwed up the link to this interesting paper:

Compensation consists of a combination of cash and non-cash attributes, and depends on worker productivity. We also allow for the possibility of a bargaining wedge whereby the firm pays less in total compensation (cash and non-cash benefits) than a worker’s marginal product. When the minimum wage rises above the prevailing wage (cash payment) but below a worker’s marginal product, the firm will shift the mix of compensation towards cash and away from non-cash benefits, but will still find it worthwhile to employ the worker. This distortion can create losses to worker welfare which, if large enough, will push workers to prefer their outside option of nonwork. We also show that, in the presence of a bargaining wedge, the welfare effects of minimum wage increases are non-monotonic. In general, wage gains associated with increases in worker bargaining power will tend to improve welfare, while wage gains that are accommodated through reductions in non-cash benefits can reduce welfare.

In many ways, this dates to a 1980 paper by Walter Wessels (“The effect of minimum wages in the presence of fringe benefits: An expanded model,” Economic Inquiry), which the authors cite. Wessels assumed a perfectly competitive model where government interference lowered worker total compensation. Wessels published later papers, which alas the authors did not cite. In 1994, the Journal of Labor Research presented an extension of Wessels thinking that incorporated monopsony power entitled “Minimum wages and the wessels effect in a monopsony model” by J. Harold McClure:

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France’s Fiscal Dilemma Solved

France’s Fiscal Dilemma Solved

I was struck by this morning’s headline in the New York Times:

No doubt this was intended as irony, but that itself is ironic, since the “unrealistic” attitude it sums up is actually a good starting point for policy.  France has one of the world’s better welfare states, and it should be preserved and enhanced.  French taxes are very high—almost half of national income—and should be cut.  Carbon needs to be priced far more comprehensively and aggressively than Macron’s idiotic gas surcharge, but that can be done with little or no additional net taxes.  (Hint: rebate.)

So what squares this circle?  France’s budget deficit is way too small, about 2.6% of GDP the past two years.  Given the slack in its economy (over 9% headline unemployment) and rock bottom real interest rates, France would be wise to cut taxes and preserve spending even if the gilets jaunes had never existed.  Of course, it is prohibited from doing this by the eurozone’s Stability and Growth Pact, but that’s an argument against the Pact, not the policy.

Nothing I’ve said goes against standard macroeconomic advice.  The reason for bringing it up is that headline, and the article that follows it, which recycles a facile putdown of populism that is both economically ignorant and disdainful of social needs.  Come to think of it, that could be a good way to describe Macron and the political circle he represents.

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Doctor, Who Was Paid by Purdue to Push Opioids, Will Testify Against Drugmaker

Just this morning I read this article by The Guardian;

Doctor Who Was Paid by Purdue to Push Opioids to Testify Against Drugmaker

“In a newly released statement to an Ohio court hearing a combined lawsuit of more than 1,600 cases, Doctor Portenoy accuses drugmakers of underplaying the dangers of opioids and of pushing them on patients who did not need them. The doctor said the industry overstated the benefits of narcotics painkillers and ‘understated the risks of opioids, particularly the risk of abuse, addiction and overdose’”.

Apparently Doctor Portenoy was the hired gun for Purdue Pharma and others to promote the use of Opioids. Dr. Portenoy “did a study of only 38 patients and the results were mixed with more than one-third failing to benefit from the drugs. It also lacked the standard scientific rigor of control groups.

But the paper had a significant impact and tapped into a frustration among a group of younger pain doctors at their inability to offer anything more than superficial relief to patients whose lives were dominated by debilitating pain.”

Even though Portenoy’s study lacked the numbers that the Jick and Porter study had in their study, I am sure it had a tremendous impact on subsequent sales. It was a more recent study than the 1980 letter detailing the impact of Opioids in a hospital setting.

In the text of my post on April 7th;

The cause of the Opioid epidemic up till recently can be partially blamed on the misuse of a 1980 Jick and Porter letter to the NEJM. The letter cited the risk of addiction from the “use of Opioids in a hospital setting is rare.” Except when cited by people using this letter 608 times, 80.8% (491) of the citations to promote Opioids failed to mention the use of Opioids was in a hospital setting. Purdue Pharma, other companies, and doctors used this letter to promote the use of Opioids.

In 1996 with the introduction of OxyContin by Purdue Pharma, the use and abuse of the letter almost tripled. If we go back to the charts again, we can see that upon introduction of OxyContin in 1996 a year or so later the death rate per 100,000 doubles and continues to increase yearly. “The aggressive sales pitch led to a spike in prescriptions for OxyContin of which many were for things not requiring a strong painkiller. In 1998, an OxyContin marketing video called ‘I got My life Back,’ targeted doctors. In the promotional, a doctor explains opioid painkillers such as OxyContin as being the best pain medicine available, have few if any side effects, and less than 1% of people using them become addicted.” Increases in drug poisoning deaths involving prescription Opioids increases with 37% of all drug-poisoning deaths in 2013 being attributed to Opioids a 4-fold increase from 1999.

In the 2017 letter to the NEJM, The Jick and Porter Letter is cited in the Supplemental Appendix. The bibliometric analysis of the increased numbers of citations of this letter aligns with the introduction of OxyContin in 1995/96.

“the authors of 439 (72.2%) cited it as evidence that addiction was rare in patients treated with opioids. Of the 608 articles, the authors of 491 articles (80.8%) did not note that the patients who were described in the letter were hospitalized at the time they received the prescription”

The increased numbers of deaths due to Opioid use, as shown in the Joint Commission charts, occurred shortly after the introduction of Oxycontin.

The Guardian article affirms what many of us have been thinking over the last couple of years.

There a pretty detailed discussion of the impact of pharmaceutical companies on the use of Opioids at Naked Capitalism as written by Yves Smith; New York Sues Big Pharma for Opioid Crisis Bill Black, Marc Steiner, Letita James, discuss the study and how Purdue and other Pharma companies influenced the market.

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