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

The most money goes to which law enforcement agency?

Think Progress offers a note of caution when we think we have reality nailed for government spending and results. And how ‘public displays’ by our politicians offer up little information:

During the 2012 fiscal year, the federal government spent more on immigration enforcement — $18 billion — than on every other federal law enforcement agencies combined, according to a new report from the Migration Policy Institute. The spending on Immigration and Customs Enforcement and Customs and Border Protection dwarfs the combined $14.4 billion spent on the FBI; Bureau of Alcohol, Tobacco, Firearms and Explosives; Drug Enforcement Administration and U.S. Secret Service.

The U.S. has spent more than $187 billion on immigration enforcement since President Reagan signed the Immigration Reform and Control Act in 1986 — which first made it illegal for employers to hire undocumented workers along with strengthening U.S. border security. Adjusted for inflation, the U.S. now spends 15 times as much on immigration enforcement as it did in the mid-1980s. And the number of deportations and immigration-related prosecutions has also jumped along with the increased spending:

What’s a person to do? or ‘motivated avoidance’

What’s a person to do? or ‘Motivated avoidance’

 From the American Psychological Association comes two studies here and here.

Individuals are often confronted with information that they do not know how to comprehend or evaluate, even though this information can be of critical importance to the self (or society as a whole). In the case of energy, nearly 40% of respondents in a Public Agenda (2009) survey could not identify a fossil fuel. Nearly one third could not identify a renewable energy source and incorrectly believed that solar energy contributes to global warming. This lack of knowledge should be of concern to these individuals, as 89% of respondents worry about increasing fuel costs, and 71% worry about global warming.
The economy serves as another example.

Approximately half of surveyed adults did not know what an increase in gross domestic product meant and thought that “money holds its value well in times of inflation” (National Council on Economic Education, 2005). Worse still, in a national survey of American adults, 54% of respondents did not know what a subprime mortgage was (Center for Economic and Entrepreneurial Literacy, 2009), despite the fact that the subprime mortgage crisis was a significant contributor to the economic recession that began in 2008, and almost certainly affected some substantial portion of those surveyed. In short, it is apparent that a solid grasp of the basics (let alone the complexities) of these domains elude many people, and there appears to be a discrepancy between how much people know about social issues and their importance and relevance to one’s day-to-day life.

Given the psychological discomfort associated with epistemic uncertainty, one appealing way to deal with the anxiety of being unable to comprehend or manage information is to simply outsource personal responsibility to supposed qualified others. This strategy may, at times, be considerably more appealing than seeking
out knowledge and information for oneself, which assumes that people have the time and ability to sieve through challenging, and potentially threatening, information. The amount of information available to us to sort, comprehend, and assimilate has substantially increased due to technological advances, all of which compete for our time and attention. As a result, trade-offs have been made over time whereby society’s members have forfeited a certain amount of autonomy to have these burdens placed onto systems of power composed of knowledgeable others. Society has prescribed that, for example, our health is managed by health professionals, our buildings by engineers and contractors, and, relevant to the present research, our social and economic security is managed by the government. Indeed, survey data show that 88% of adult respondents thought it was very important for politicians to have a good understanding of economics,

only are people motivated to avoid social issues when they feel issues are complex—thus maintaining their present level of unfamiliarity— but this effect appears strongest for those issues believed to be most urgent and serious. It is at times when change is most needed, therefore, that people may become the most likely to
defend the status quo and agents of sociopolitical systems. As such, the present studies suggest that rather than ensuring those in charge are maximally qualified to be in charge, and rather than remaining especially attuned to any limitations of the system, the psychological processes that are instigated when issues are seen as both severe and complex may limit any criticism of the current system and its decision-making process. And, perhaps even more critically, they may also prevent the types of behaviors, such as information gathering, that are necessary to efficacious social action
(Attari et al., 2010; Larrick & Soll, 2008).

italics are mine

QEII: Who really owns US Treasury Debt

by Bruce Webb

Okay readers and Bears, give me a hand here, because some of our standard narrative on ‘unsustainable’ US debt seems to be turned on its head. The standard narrative is simple: we have $13 trillion in US Treasury debt, and most of it, or at least the new issuances are dependent on the Chinese Central Bank continuing to purchase that debt. Which in turn has led to such things as that new ad; How Great Nations Fall: “Now They Work for Us”. Well how does this actually stand up to numeric scrutiny?

Okay the first place to start is Treasury’s Debt to the Penny web application where we are dutifully told that total ‘Public Debt’ is $13.723 trillion as of close of business Tuesday Election Day. But as Bear readers know that total is broken into two sub-totals ‘Debt Held by the Public’ and ‘Intragovernmental Holdings’ with the respective totals being $9.133 trillion and $4.590 trillion. And of that latter we know that $2.6 trillion is held in the Social Security Trust Funds. Now some opponents of Social Security claim that the Trust Funds just hold ‘Phony IOUs’ which on their logic means that they, and so presumedly the rest of ‘Intragovernmental Holdings’ are not really debt at all and really should be using the $9 trillion as ‘Real’ debt. But even without assenting to this phony argument it is true that Special Treasuries are not marketable. Which doesn’t mean they don’t have value but does ensure that they will never flood the market which only has theoretical access to the $9 trillion in Regular treasuries in current circulation.

Of that $9 trillion how much is actually owned by foreigners and specifically the Chinese Central Bank? Well we need to turn to another Treasury tool: Foreign Holders of US Treasuries where we find out that total foreign holdings are estimated at $4.213 trillion of which $2.772 are considered ‘Foreign Official’ , that is presumedly foreign exchange reserves by various central banks, while total Chinese mainland holdings are $868.4 billion. Now we could argue whether we should add Hong Kong’s total of $137.8 billion to that or ask with Brad Setser how much of holdings in ‘Carib Banking Centers’, the Channel Islands offshore banks included under ‘Great Britain’ or the traditional havens for safe money of Luxembourg and Switzerland are really held on behalf of China but I think we would be hard pressed to come up with a total of more than $1.1-$1.2 trillion held by Chinese private and public entities. Which is less than 10% of total ‘Public Debt’ and perhaps 13% of ‘Debt Held by the Public’. This is hardly an ‘ownership’ position. Plus if we look at month to month totals we see that ‘Mainland China’ holdings are down significantly from their peaks last fall at $938.3 billion even as total foreign holdings are up $636 billion over that time. Meaning that contrary to popular belief not all of our financial eggs are actually in a Chinese basket, other countries are stepping up to the plate as needed.

But Chinese holdings are just the background for this post which was inspired by some really provocative numbers in this NYT story this morning: Fed Will Buy $600 Billion in Debt, Hoping to Spur Growth. When we put the numbers in this article in the context of the numbers, a new and startling narrative starts to emerge. But you will have to chase this post under the fold to see it.

The starting point are these three grafs:

The Fed said it would buy an additional $600 billion in long-term Treasury securities by the end of June 2011, somewhat more than the $300 billion to $500 billion that many in the markets had expected.

The central bank said it would also continue its program, announced in August, of reinvesting proceeds from its mortgage-related holdings to buy Treasury debt. The Fed now expects to reinvest $250 billion to $300 billion under that program by the end of June, making the total asset purchases in the range of $850 billion to $900 billion.

That would just about double the $800 billion or so in Treasury debt currently on the Fed’s balance sheet.

Time to break out that four-function calculator: After subtracting $4.590 trillion of mostly unmarketable ‘Intragovernmental Holdings’ we are left with the $9.133 trillion of ‘Debt Held by the Public’. Of that $2.772 are in ‘Foreign Official’ of which some (large?) percentage will be in essentially irreducable foreign currency reserves by the various Central Banks, leaving maybe as little as $7 trillion actually exposed to the market on any given day minus whatever is held by various private entities and sovereign wealth funds in the typical ‘flight to safety’ function of U.S. Treasuries. Now what the NYT is telling us is that the Fed ALREADY holds $800 billion of that and is prepared to purchase some $900 billion more over the next year putting it on track to holding around 25% of the total market for Treasuries. Which by my calculations will make it the second largest creditor of the Federal Government after Social Security. But where Social Security mostly contents itself it taking its interest payments in the form of Special Treasuries, i.e. the government’s own paper, the Fed turns over all its profits from operations over to the Treasury, which in this case includes all the interest on the near trillion dollars in debt they are buying.

In the face of all the screeching by the deficit hawks about unsustainable debt and debt service and $13 trillion and our children and grand-children what are the implications of between Intragovernmental Holdings and the Fed balance sheet that more than half of that debt is held by the Federal Government or its Agencies (of which I am going to count the fed as one). Are all of those folk who claim that ‘Governments can’t really owe themselves their own debt’ in relation to Social Security simply willing to discount ‘real’ debt by 50% and more? Because apparently the Fed is confident enough in its and the Treasury’s credit that it is willing to snap up a full eighth of current Debt Held by the Public in purchases on the open market.

I don’t know what all this means, as I have said before I am a number pointer and not a number cruncher, but these numbers seem pretty eye-opening to me. Crunch away me hearties!

(BTW this also raises questions about the so-far Invisible Bond Vigilantes. After you subtract out ‘Intragovernmental Holdings’, the Fed balance sheet and ‘Foreign Official’ you start to see a ‘tail wagging dog’ story emerging, who exactly do you make a run on the dollar when the Fed is offering to buy pretty much everything you are willing to sell?)

Welfare vs Social Insurance in the USA

Robert Waldmann

Among experts, there is a widespread view that people in the USA support social insurance an oppose welfare. It is a fact that they support social security old age and disability pensions and hated AFDC. It is suspected that describing social security as a pension plan with mandatory participation is part of the explanation of this. Therefore, some (including the Clinton treasuries first assistant secretary for policy analysis Alicia Munnell) argue that it is important to preserve some link between contributions and benefits in the social security system.

I think that we have performed and experiment which refutes this hypothesis.

It is called Medicare. Medicare part A is a social insurance program like social security old age and disability pensions. Medicare part D sure isn’t – it’s an unfunded entitlement. I don’t know about parts B and C (I think they are basically funded from general revenues).

That’s the point. Compared to many angrybears I am very ignorant about Medicare, but I suspect that I know about as much as the median voter. If the form of financing had such an important impact on public opinion, why doesn’t the public know more about the form of financing ?

My reading of the evidence is that Medicare A through D is very popular, that different approaches to financing have so little effect on public opinion that it can’t be detected.

Frankly, I think this is proof that the social insurance hypothesis is false. At least I don’t see how the evidence could possibly conceivably be any stronger.