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

Rick Perry’s 20-20 Vision

Charles Pierce sums up the true issue:

It is on days like this that I don’t envy political economists. They’re the ones that are going to have to take this Message from Goobertown seriously. They’re going to have to score it. They’re going to have to do the math, such as it is, and try to find a coherent formation in this unwieldy parade of hackneyed talking points (Kill the Estate Tax and Save the Family Farm!) and tired applause lines (The Job Creators Are Uncertain!). They’re the ones who are going to have to find a way to square the utter abandonment of the progressive income tax, a balanced-budget amendment to the Constitution, a return to explosively inflationary health-care costs, an unchained and undoubtedly newly amok financial-services industry, and the partial privatization of Social Security, all of which Goodhair has managed to wedge into “Cap, Balance, and Grow (!).”

(By now, I figure the political economists are going to be hopelessly drunk and firing rubber bands at each other.)

They’re the ones who are going to have to tell the family of the sad-eyed young intern in the corner that their son, a Wharton grad with a brilliant future, studied this plan for a couple of hours and then screamed, “But it doesn’t make sense!” prior to trying to feed himself into the fax machine in a vain attempt to get as far as possible from any place where this nonsense is taken seriously.

Personally speaking, I’m not bothering. When you’ve already lost Pete Davis, you can pretty much give up on anyone believing your economics will work:

Governor Rick Perry (R-TX) proposed his tax reform plan today and wrote this Wall Street Journal op-ed. Unfortunately, it’s just a slapdash of slogans. If this plan were enacted as proposed, it would lose a lot of revenue, reward the rich, and complicate filing for most taxpayers.

Giving taxpayers the option would also mean that only those who pay less would opt in, guaranteeing significant revenue loss. [OPENING QUOTE ADDED, sans original links; go read the whole thing]

And Andrew Samwick piles on with the politics:

And now we have another version of the flat tax, as if the crushing irrelevance of Steve Forbes to the primaries in 1996 and 2000 were not an indication of how unproductive the discussion will ultimately be. What are the prospects that a Republican President would actually be able to implement such a change if elected? They are equal to the chance that Republicans will both retain control of the House and secure a filibuster-proof majority in the Senate in 2012. In other words, absolutely zero.

Personally speaking, I don’t think the odds on that election scenario are “absolutely zero” (but I count people like Ben Nelson, who fellated George W Bush from the beginning, referring to him in interviews as “the King,” as part of that “filibuster-proof majority”). But the rest of the analysis is spot-on.

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Kudlow’s Komedy Kapers (Cross-post)

Brad DeLong asked a few days ago who he should be reading on a daily basis. Following is a cross-post from my nominee, The Hunting of the Snark:

Kudlow’s Komedy Kapers

Larry Kudlow is worried that Obama is ruining the economy.

Larry Kudlow
August 5, 2011 4:30 P.M.

More Obama Spending Won’t Do It
And stocks know it.

There he goes again.

Because quoting Reagan is cool.

Out on the campaign trail, President Obama is proposing more federal spending as his answer to sluggish growth and jobs. That won’t do it, Mr. President.

Yes, when the private sector doesn’t provide jobs, don’t look to the government to provide jobs. That just won’t do it, Obama. That just…won’t….do!

He wants more infrastructure spending, undoubtedly in the form of an infrastructure bank. That’s a terrible idea. It’s borrowed from Latin America, where bloated and corrupt bureaucratic construction agencies have helped bankrupt any number of countries in the past.

It’s also borrowed from Roosevelt, but we all know how he secretly created the Depression by spending money.

He wants to lengthen 99-week unemployment insurance, although numerous studies have shown that continuous unemployment benefits are associated with higher unemployment.

I want to bronze that comment and turn it into an ashtray. Numerous studies have show that UI is associated with high unemployment! Obviously, the only solution is to stop handing out UI, and then we’ll have no more unemployment.

And he wants to extend the temporary payroll tax credit, which is not a permanent reduction in marginal tax rates, has no incentive effect, has not worked so far, and is really a form of federal spending — not real tax relief.

How the rich suffer so from their high taxes.

Earlier this week, when he signed the debt-ceiling bill, the president ranted on about the need to raise tax rates on successful earners, investors, and small businesses. He’s trying to bring back tax hikes as part of the phase-two special committee seeking additional deficit reduction, even though his own party rebuffed him on this in the late stages of the debt talks. All this is a prescription to grow government, not the economy.

Reagan actually raised taxes when it was necessary while Obama is just talking about raising taxes, but as we all know, the Reagan years were a bit of a blur for Kudlow.

What the economy needs, Mr. President, is a strong dose of new incentives, with pro-growth tax reform that flattens marginal rates and broadens the base for individuals and businesses. This includes moving to territorial taxation that ends the double tax on foreign earnings of U.S. companies. Plus, we desperately need a complete moratorium on federal regulations. As Sen. Barrasso recently noted, the government put out 379 new rules on business in July alone, amounting to $9.5 billion in additional costs.

Because US companies pay far, far too much in taxes. Just ask the Center On Budget and Policy Priorities (CBPP).

The U.S. corporate tax burden is smaller than average for developed countries.[1] Corporations in 19 of the member states of the Organization for Economic Co-operation and Development paid 16.1 percent of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4 percent.

Nevertheless, some have argued that U.S. corporate tax rates unduly burden U.S. companies by pointing to the country’s top statutory tax rate, which is 35 percent. For example, a recent Wall Street Journal editorial calling for corporate tax cuts noted that this is the second highest top statutory tax rate among developed countries.[2] While true, this gives the false impression that the corporate tax burden is greater here than in other developed countries. Because the U.S. tax code offers so many deductions, credits, and other mechanisms by which corporations can reduce their taxes, the actual percentage of profits that U.S. corporations pay in taxes — or what analysts refer to as their effective tax rate — is not high, compared to other developed countries.

Because the average U.S. corporate tax burden is low, many economists believe a revenue-neutral corporate tax reform that reduces statutory corporate tax rates, while broadening the tax base by eliminating costly tax breaks, could improve economic efficiency and likely benefit the U.S. economy.


None of these pro-growth reforms are in sight. So the stock market is going through a nasty 10 percent correction over fears of another recession (and European debt default).

That’s definitely not a recession reading.

Yes, you read that right. Kudlow says we are not in a recession. From an earlier post

No Recession

Strong profits, easy money, and Tea Party gains argue against it.

Stocks and bond yields are sinking as Wall Street disses the debt deal and instead focuses on a likely double-dip recession.

Everyone is gloomy. But is this pessimism getting a little overbaked?

Granted, the economy is sputtering, with less than 1 percent growth in the first half of the year. But if there is a recession in the cards, it will be the first time one occurs when the yield curve is steeply positive (an ultra-easy Fed) and corporate profits are strong.

And since we do have ultra-easy money and strong profits, I don’t believe we’re heading into a recession. Nor do I believe stocks will continue to swoon.

The principal reason for the sub-par first-half economy is the rise of inflation, which severely damaged real incomes and consumer spending. We experienced a mini oil shock, which has dampened the whole economy. Actually, it’s worth remembering that oil shocks and inverted yield curves, along with falling profits, are the most important leading indicators of recessions. We don’t have this right now.

Back to the present:

But at least we got some good news on jobs. The July jobs report came in stronger than expected. It’s not great. But at least nonfarm payrolls increased 117,000 — as the prior two months were revised upward by 56,000 — while private payrolls gained 154,000.

That’s definitely not a recession reading. But neither is it a strong performance. If the economy were really rebounding, we would be creating 300,000 new jobs a month.

In the report, the unemployment rate slipped to 9.1 percent from 9.2 percent. But that’s mostly because nearly 200,000 workers left the civilian labor force. Another negative is the household employment survey, which fell 38,000 in July after dropping nearly half a million in June. That survey measures job creation among small owner-operated businesses or the lack thereof.

Yet when looking at the new jobs report, along with reasonable gains in chain-store sales and car sales, plus the ISM Purchasing Managers reports (which stayed above the 50 percent line), I repeat my thought that we are not headed for a double-dip recession.

The US New and World Report begs to differ.

According to the latest figures, the U.S. economy created 117,000 new jobs, causing the unemployment rate to drop slightly, from 9.2 percent in June to 9.1 percent in July. But, as Jeff Cox writes over at CNBC, “there is far more than meets the eye” to this bit of economic good news, which is certainly nothing to cheer about.

The U.S. Bureau of Labor Statistics breakdown says there were 139,296,000 people working in July, compared to 139,334,000 the month before, or a drop of 38,000. That’s because, as a number of labor economists point out, the disparity is the result of something the government calls “discouraged workers”—people who don’t have jobs but were not looking for work during the reporting period.”

This is where the numbers showed a really big spike—up from 982,000 to 1.119 million, a difference of 137,000 or a 14 percent increase. These folks are generally not included in the government’s various job measures,” Cox wrote, adding that if you count those people as part of the workforce, the job creation and drop in unemployment disappear.

Other signs of continued weakness in the recovery include that the percentage of long-term unemployed remained unchanged in July and that the labor force participation rate has continued its downward trend since the beginning of the recession, dropping 0.2 percentage point to 63.9 percent in July. This is, the Congressional Joint Economic Committee reports, “the lowest labor participation rate in the United States since January 1984.” [See a collection of political cartoons on the economy.]

Addressing the weak numbers, the White House continues to point fingers almost everywhere except at itself—which is where the blame belongs. President Barack Obama, who, along with congressional Democratic leaders, promised that unemployment would not exceed 8 percent as long as the stimulus package was approved, has yet to explain how he could have been so tragically wrong.

The great thing about being a conservative is that no matter what it happening, it proves that their economic theories are correct. Kudlow:

Over two years of so-called economic recovery, growth has averaged about 2.5 percent. It fell to less than 1 percent in the first half of this year, largely from a commodity-price shock that included oil-, gasoline-, and food-price spikes. That price shock resulted mainly from the Fed’s QE2 depreciation of the dollar — a big mistake. It eroded real consumer incomes and spending.

Let’s ask Economist Online what it thinks about the dollar.

Put dollar depreciation in historical perspective

It’s a brand new year. I thought I’d have some big-picture review of what’s going on in the world economy today. Here is my first piece on US dollar.

The graph below will scare you a lot…in fact, the dollar index fall from 115 in 2002 to mid 70s at the end of 2007, that equals a 33% drop.

Hmmm, a sharp drop, isn’t it? But wait a minute, have we witnessed the similar happened before? Let’s look at the following graph and have some historical perspective. From 1985 to 1989, the trade-weighted dollar index actually had a bigger fall, from 145 to 90, almost down 38%, and it fell even further until 1995.

Holy Dollar Depreciation, Batman! It fell even more under Reagan than it did during Obama!


Lately, the dollar has stabilized and energy prices have come down quite a bit. That will reduce inflation and support better consumer spending. Businesses are already highly profitable and cash-rich. They are investing some of that, but not nearly enough to create sufficient new jobs. Who would, with all these Washington policies?

It’s not lack of demand, it’s politics!

Finally, the Fed remains ultra-easy with excess liquidity and a zero interest rate.

So it looks to me like we will return to the sub-par 2.5 percent growth trend rather than dip back into recession. However, at this pace, unemployment may hover around 9 percent right up to election time next year.

More spending won’t do it Mr. President. Tax and regulatory incentives will.

Cut taxes and regulations and watch the economy boom–for the very rich. Who are doing quite well now as it is.

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Barack Obama = Lot

I won’t post it here—the full text would be so NSFW that Lee Papa might hesitate—but here’s the outline:

UPDATE: I was correct about Mr. Papa’s likely reaction being more moderate, but he’s more lucid that Ezra (or Greg Sargent) has been so far today. Of course, “more lucid than people employed by the Washington Post who are not Michael Dirda” is not something that attracts readers, so I’ll just say: go read. And then program “Bachmann-Perry Overdrive” into your Word Macros, since it will be Very Useful.

Barack Obama has a private talk with his daughters, in which he explains that Mitch McConnell made some demands, but he Nobly and Gloriously Reached a Compromise. He explains the deal to his daughters and how he Really Worked in Their Best Interests.

Those who have read their Bibles are referred to the first half of Genesis 19. Those who don’t want to think about it are referred to Buce, who is (as with Mark Thoma and Brad DeLong) nicer than I am.

Side note: Anyone who thinks Ezra Klein is anything but a tool of Fred Hiatt is referred to his multiple cheerings of a deal that cuts growth (h/t lauren in comments at Mark Thoma’s place, who is apparently an Internet Explorer user).

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And the Wrong Words Make You Listen in this Criminal World

Mark Thoma, who supported (and probably voted for) the man during the primaries, is dumuch more gracious than I am:

A vague promise from Democrats about the future is all but worthless right now, we’ve had too many promises broken already. Obama’s promises in particular mean nothing.

The nicest thing I can do is describe this as BarryO’s “Only Nixon could go to China moment.” But that’s because that slimy cocksucker was willing to sell out two countries—Formosa and Tibet—so he could discuss panda sex with Margaret Trudeau.

Obama’s version is selling out Democrats and Middle-Class and Aspiring Middle-Class Americans. When the best hope is that Stan Collender is right that bending over and sucking off isn’t going to be good enough for House Republicans, it’s time for all you idiots who said no one should run against BarryO “from the left” to do the honorable thing and find your wakizashi and prepare four cups of sake. (I’m certain there will be plenty of kaishkunin volunteers to aid you in Doing the Right Thing.)

Democrats may still run someone against Obama from the left, though Timothy McVeigh is unavailable. But the attempt to destroy their political viability has been executed perfectly. Glad BarryO “plays eleven-dimensional chess” now?

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A Billion Here, A Billion There…

This is why Andrew Leonard (h/t Yves Smith) gets paid for blogging and I don’t. He tries to do the impossible: make sense out of Michelle Bachmann’s “economics“:

1) The interest can easily be paid for …

Bachmann is making the argument here that the U.S. can choose to pay its creditors — the various holders of government-issued debt — first, and thus not technically be in default. It’s an open question whether credit rating agencies and bond investors will accept that technicality. China might get paid in full, but millions of Americans would immediate get stiffed. Of course, Bachmann doesn’t mention that choosing such a strategy would require extraordinarily severe and immediate spending cuts — around $4.5 billion a day — in programs such as Social Security, Medicare, defense, unemployment benefits, et cetera. Economists generally agree — the negative economic impacts of such drastic short-term cuts in government spending would almost surely drive the U.S. straight back into recession.

Furthermore, a failure to reach agreement on the debt limit would guarantee bond market jitters, pushing up interest rates and raising the cost at which the U.S. government can borrow funds — and thus end up increasing the deficit.

So what happened today? There was a seven-year Treasury auction:

Today the 7 yr saw a yield of 2.43%, 3 bps above the when issued

The WI is where that same note was trading even as it was being auctioned. Which works out to be about a 19.2 cent reduction per $100 of security.

19.2 cents doesn’t sound like much, but there was almost $30 Billion in securities issued. So that’s $55,642,171
that didn’t get paid to the U.S. Treasury (or $57,433,536 if you’re counting the Open Market Activities).

Even if you want to be generous and assume—it’s crazy optimistic, but let’s be really generous—that half a basis point of that is just a long tail (not entirely unreasonable, but rather generous), there are still $46,376,844 (or $47,869,918) that just got left on the table out of fear of near-term deficit issues.

Not incidentally, that’s $46-57+ million dollars that isn’t available for maneuvering to avoid an official default (as opposed to the practical default that has been in effect for almost two months now). From just one of the nearly 300 auctions that are held every year.

But not raising the debt ceiling won’t mean anything. Michelle Bachmann assures us that just because Social Security/Disability/Medicare etc. payments won’t be made for August 3rd, it’s not a problem.

Sooner or later, we’ll be talking about really money. Right now, it’s just your mother’s livelihood. But at least that money has been saved by those who are investing in seven-year Treasuries. Maybe they’ll loan her some of that savings. Oh, right:

At least we know where they got the money to buy the notes.

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Abolish the Republican Party Now

If I made this up, you would never believe me:

“He informed me by text while he was on the floor,” [Erie County Republican Chairman Nicholas A.] Langworthy said of [New York, State Sen. Mark J.] Grisanti’s Friday vote. “I urged him to stick by his word he had given. The people elected him on what he ran on. This is not tax policy or something. This is important stuff.” [emphasis mine]

Good to know The Republican Party has ceased to give a shit about anything for which the Ancestral Party stood.

(via Lance)

cross-posted from Skippy

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Being Early to the Party: Bad for Links, But Good for Information

Yahoo! News, Tuesday early afternoon

Dr. Black, Wednesday, just before noon.

Brad DeLong, about fifteen minutes after Dr. Black

Me, Monday morning.

But this isn’t a “First Mover” claim. It’s a note that there are no “savings” in getting rid of the website. There aren’t even the “registration fee” that applies to private enterprises. Commenter Bryan at Skippy notes:

The Federal government is the registrar for the .gov TLD [Top Level Domain], so the only cost is storage and bandwidth on government servers.

The cost of locating and removing a site is probably the equivalent of 20 years of ignoring it.

So not only is “the Sheriff” going after chump change, the actions aren’t even going to save any money.

The difference between Joe Biden and Paul Ryan appears to be that one isn’t even talking about real money.

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Why Would Anyone Call Congressman Ryan’s Plan "a Budget"?

More on the health-care later, but let me be clear:

Congressman Paul Ryan’s “plan” is NOT a budget.

Budgets show Sources and Uses. As the CBO analysis makes clear, this “budget” is no more a budget than Ryan’s last round of fakery. To wit:

The path for revenues as a percentage of GDP was specified by Chairman Ryan’s staff. The path rises steadily from about 15 percent of GDP in 2010 to 19 percent in 2028 and remains at that level thereafter. There were no specifications of particular revenue provisions that would generate that path. (CBO, page 11; emphasis mine)

This is the equivalent of my current household budget, which is heavily dependent upon winning the lottery sometime in the next three years even though there is no provision for buying tickets.

I’ll call Ryan’s proposal a budget when—as, for instance, Obama’s does—he specifies Sources as well as Uses. Until then:

And, with due respects to the alcoholic lout, sometimes a fantasy is not all you need.

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Duncan Black, Ph.D. who Specializes in the Economies of Cities, Explains It All to You

Bruce has made this point repeatedly. Dr. Black puts it in more direct language:

[I]nevitably the Social Security Trustees will, perfectly justifiably, tweak a few assumptions about future economic activity so that there will be a DOOM scenario, an EVERYTHING’S AWESOME scenario, and a “uh oh maybe in about 40 years we will have a problem” scenario. And then Fred Hiatt will print another million ZOMG WE MUST DESTROY SOCIAL SECURITY NOW IN ORDER TO SAVE IT FORTY YEARS FROM NOW columns and some future president will marvel at those worthless IOUS and blah blah blah.

We know how this works.

And the Sensible Centrists* are gathering behind someone who wants to do just that.

When the Voice in the Wilderness is Andrew Samwick (who is at least honest about his willingness to steal from the Trust Fund), two things are certain:

  1. Jason Furman should work on his c.v., and
  2. Even as only Nixon could go to China (because only Nixon was enough of a bastard to sacrifice Tibet to Chou En-Lai), only the Obama Administration can turn the Social Safety Net into something the Republicans “saved” (by making it look like Dresden).

UPDATE: Tim Duy at his branch of Ecoonomist’s View piles on (h/t Steve Randy Waldman‘s Twitter feed, or maybe Felix Salmon‘s), giving the lie to whatever was left of the DeLong argument that being left of a cadre of Bob Rubins makes one a “liberal.” Pull quote:

The strong Dollar policy takes shape in 1995. At that point, Rubin made it clear that the rest of the world was free to manipulate the value of the US Dollar to pursue their own mercantilist interests. This should have been more obvious at the time given that China was last named a currency manipulator was 1994, but the immensity of that decision was lost as the tech boom engulfed America.

Moreover, Rubin adds insult to injury in the Asian Financial Crisis, by using the IMF as a club to enact far reaching reforms on nations seeking aid. The lesson learned – never, ever run a current account deficit. Accumulating massive reserves is the absolute only way to guarantee you can always tell the nice men from the IMF and the US Treasury to get off your front porch.

Go Read the Whole Thing.

Full Disclosure Update: Bob Rubin’s son is a college classmate of mine. Haven’t really seen him in the past not-quite-thirty years.

*I’m 99.44% certain those are assigned correctly. The Sensible one thinks that “attempt[ing] to push Clinton administration economic policy a little further to the left” was a Liberal position, while the Centrist is stupid enough not to believe people who have said for years that they intend to pick his pocket have something valuable to contribute to a discussion of his welfare, and does not remember that he lived through a decade when “the program [was] officially in balance.”

If H*ll exists as a form of reincarnation, my next life will be spent as a Centrist. If all my sins are venial and Purgatory awaits, I could live with being Sensible. At least until my neighbors couldn’t send their academically-achieving issue to college for purely monetary reasons, after which point I would consider this post to be rampant optimism.

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