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

Why Does Hillary Clinton Think We Want Elizabeth Warren to Be Vulnerable?

Hillary Clinton says women are “held to a totally different standard” in politics — and that it’s been that way since she first ran for office.

“You’re expected to be both strong and vulnerable at the same time,” Clinton said in BuzzFeed’s “Another Round” podcast that was published online Sunday. “That’s not easy to do.”

The Democratic frontrunner said it’s “frustrating” for women in “any profession” to be criticized for being themselves.

“It’s just so hard to get people to realize that, you know, we’re all different,” Clinton said. “We may all be women, but we all have our strengths, we all have our weaknesses. We get up every morning and do the best we can. And eventually people either get you or they don’t.”

Clinton said she faced similar sexist questions when she first ran for Senate in 1999 and again during the 2008 presidential campaign — but, interestingly, not during her time as secretary of state.

“Because I wasn’t in politics, people were really nice,” Clinton said. “They said all kinds of nice things about me, which, you know, I appreciated.”

But that changed when she announced her 2016 presidential bid.

“How is a woman supposed to behave? Well, how about the way she is,” Clinton said. “And then people have to figure out her as opposed to her having to figure out everybody else.”

Hillary Clinton: ‘How is a woman supposed to behave? Well, how about the way she is’, Dylan Stableford, Yahoo Politics, yesterday

Yup.  We definitely expect Elizabeth Warren to be both strong and vulnerable.  And since she’s only one of those things, we Democrats are darned lucky that she’s not running for the presidential nomination!

Heck, I’m not sure Warren will even be reelected to the Senate, unless she adopts Barbara Mikulski’s or Debbie Stabenow’s feigning-vulnerability thing. They did it so well that they have both had a cakewalk to reelection.  Mikulski, repeatedly!  And Stabenow, in a swing state!

What concerns me most about Hillary Clinton’s candidacy is that she believes, obviously unshakably, that what really matters in this election is herHer personality.  Her gender.  Her ongoing, decades-long war with the Republican Party, not about policy but instead about her.  It permeates every single thing about her campaign.  Because ultimately, yes, it does show, to use her words, the way she is.

One of the ways she is is a politician who is paying consultants exorbitant fees to advise her that she should be a guest on one after another comedy-skit show or women’s daytime interview show, and talk about herself and act silly.  But who apparently don’t advise her that, maybe, her actual problem is that she never actually engages in a back-and-forth discussion publicly about policy specifics and their impact, and that her vaunted toughness toward Republicans has almost nothing to do with the specifics their economic and fiscal policy proposals but instead in defending herself against their allegations of misconduct.

See?  She can go toe-to-toe with those Republicans!  Just not in explaining that, contrary to their incessant claims, this country’s most successful and creative period was when income taxes were far more progressive, and far higher for higher-income individuals and for corporations, than they have been during periods of slow economic growth.  And that it was during those decades that most of this country’s dramatic upward mobility occurred.

And that while, say, Marco Rubio makes patently ridiculous claims like that Uber couldn’t exist in any other country because only in the United States is it not banned by regulations instituted at the behest of taxicab drivers and taxicab company owners.  And even here in the United States it didn’t exist in Miami when it did exist in New York City because of those of those regulations that taxicab drivers had managed to successfully lobby the city’s government to kill Uber’s plan to that city.

Mm-hmm.  Only the likes of taxicab drivers lobby for favorable legislation and contracts.  Not, say, private prison corporations.  Although, of course, private corporations taking over government functions in exchange for payment to them of huge public funds and payment by them to, say, Marco Rubio’s campaign funds is capitalism!  And democracy!  Unlike taxicab driver and labor union lobbying.

And Uber operates not just in the United States but in cities all over the world.  Even in Scandinavia.  And also in Miami.  But it didn’t start in Miami.  Probably because of the strength of the taxicab driver lobby there.

For months and months after Clinton announced her candidacy, as it started to become clear that it wasn’t quite taking off as they’d expected, her campaign engaged in an intense attempt via political journalists to characterize her as a wonk. Repeatedly, sometimes several within a few days, there were articles describing her as a wonk.  Which, it turns out, now means, simply, a claimed interest in policy.  (Jeb Bush began to borrow the he’s-a-Wonk-campaign campaign strategy, also with some success.  Jeb Bush is not a wonk, but he is a Wonk.  Then again, he can explain why the left wants slow growth; it’s that it means people are more dependent upon government.”  The thing is, though, that he can’t explain why his brother wanted slow growth.  Or at least wanted much slower growth than lefty Obama has wanted.  Or, if he’s wonkish enough to know why, he has so far kept it to himself.)

After reading yet another Hillary-Clinton’s-a-wonk article, circa July, shortly after she made political headlines with an addition to her website in which she assured small-business owners and people who aspire to be one that she fully understood that the biggest problem in starting and then in owning a small business is federal regulation, and that she planned to get right on that as soon as she’s inaugurated, I said to myself:

Yep.  She’s a wonk.  It’s just that she’s a wonk who thinks small businesses are regulated mainly by the federal government, and  thinks that the locale and the nature of the business are irrelevant to the type of regulations required to start and then operat a small business.

It didn’t occur to her, apparently, to not condescend to small-business owners and aspirants, and state that most small-business regulation is not by the federal government but by states and municipalities. Much less did she think that maybe she should point out that, regarding small businesses, federal regulation usually supports them as against mega-businesses that control such things as credit/debit card payment methods and fees, and as against business-sector monopolies.  That’s what the Durbin Amendment and the Sherman Antitrust Act respectively do.

Then again, in order for her to do that she’d have to have the ability to do that, as well as the willingness to do it.  Bernie Sanders has the ability to do that.  And does do it. So does Clinton’s husband, even now; he did it, extemporaneously, on some complex subject—I can’t remember what, but I read about it—when he appeared recently on some interview show.  Granted, they’re both men.  But Elizabeth Warren is a woman, and she can, and does, do it too.

Hillary Clinton speaks only in soundbites because, apparently, she thinks only in soundbites.  And because, maybe after all, and for all her feminism talk, she believes that complex discussion of such things as the Sherman Antitrust Act and the level of its enforcement (or lack of it), and of Keynesian economics, and of the actual history of federal taxation, spending, and regulation—and the actual nature of federal regulation—are subjects only for male politicians to discuss with journalists for the enlightenment of the hoi polloi.

Clinton doesn’t have to show she’s vulnerable.  But, oh, she does.

And she doesn’t realize that it is she who is really the one with the gender bias.  Or at least for whom it will forever be the 1990s.

Yves Smith has been all over the Standard Chartered story

Tax evaders (and those who aide them), not regulatory complexities, cause tax evasion

by Linda Beale

Tax evaders (and those who aide them), not regulatory complexities, cause tax evasion

The July 24 New York Times Magazine carries an article by Adam D entitled My Big Fat Belizean, Singaporean Bank Account.

The author shows how easy it was for him to establish a secret offshore bank account that would allow him to evade US (and other nation’s) taxes with ease. It only cost around a thousand dollars, and the firms that do this for a living can set you up with a fake corporation in one tax haven and a real bank account in another, both of them sworn to secrecy about your identity as a US citizen and complicit in aiding wealthy taxpayers in avoiding required reporting to the IRS.
And that means a lot of moolah gets stashed abroad, and a lot of taxes remain unpaid.

The Tax Justice Network, a global research firm that advocates against such havens, suggests that the amount hidden offshore is between $21 trillion and $32 trillion. If properly taxed, that could yield more than $200 billion in revenue around the world. Furthermore, because a 2010 McKinsey & Company report estimated the world’s financial assets at about $200 trillion, somewhere around 10 percent or more of the world’s wealth is effectively invisible. And it’s also almost certainly in the hands of the people and institutions that most actively influence major investment decisions. Id.

So far, so good. But where the author goes wrong is in his ruminations about the reasons such shenanigans go on. He thinks it is because regulations and tax laws are so complex.

One often-overlooked lesson of the financial crisis is that shenanigans don’t happen in the absence of regulation; they happen when regulations are exceedingly complex and involve confusing, overlapping regulatory authorities.

Pshaw. This is, quite simply, garbage regulatory mythology. Shenanigans happen in brute force capitalism–the kind we’ve had in place for the last few decades–until there is one dominant beast who controls everything. Regulations ain’t the cause.

Every simple rule becomes an opportunity for “inventive” tax lawyers and those with wealth desirous of hiding it or evading taxes on it to come up with “creative” solutions that skip around, over, or under the law. When tax administrators find out what is going on, they can sometimes take immediate steps. Often it requires legislation and regulation, and in the time it takes to create the lock on the door that the evaders broke through, lots of taxes have been evaded. And as soon as the lock goes on, the inventive tax lawyers and wealthy tax evaders get busy at their manipulative game again. So there is a spiral of complexity to deal with the problem caused by sophisticated taxpayers seeking sophisticated help to avoid or evade taxes.

This “regulations and complexity are the cause of offshoring and tax cheating” nonsense sounds about like the 2001 arguments made by many on the corporatist right for reducing tax rates. First, the proponents of lower taxes noted that there was a considerable amount of cheating via tax shelters by the wealthy and big corporations. Then, the illogical next step was taken: if only the wealthy just had to pay a little less in taxes, they’d be good citizens and quit using tax shelters, the Republican head of the Joint Economic Committee opined. HA. If you lower the rate today, the greedy ones just demand a lower rate than that the next day. We’ve seen that play out as the corporate lobbyists got a twenty-year-long wish list fulfilled in the 2003 Bush tax cuts, then came back for more the next year and the next (and are still demanding even more today).

cross posted with ataxingmatter

The Blog Post to End All Blog Posts: 1 of 2

On this Armistice Veteran’s Day, let’s try to do a counterfactual and Make Brad DeLong Happy.*

Let’s assume that the Gramm-Leach-Bliley—commonly referred to, incorrectly, as “the repeal of Glass_Steagall”—is A Good Thing. Well, I won’t go that far. An Inevitable Thing. [Many sentences about Larry Summers omitted here.] After all, anyone who was paying attention knew that Glass-Steagall had already been shivved several times by 1999, and that letting Citi buy Travelers banks buy insurance companies (and vice versa) was only a matter of time.

(If you tell me that’s a good thing, I’m going to point out that the risks of banks and the risks of insurance companies are the same, that combining them in no way makes the financial system safer or improves risk management, and that, therefore, you’re an idiot. But pointing something so fundamental out to a Summers or a Bob Rubin would be like telling your two-year-old not to pull the cat’s tail; the only question is who ends up getting stitches.)

Let’s assume that commercial banks, investment banks, and insurance companies are essentially fungible entities. What will we see?:

  1. Commercial banks will be able to outcompete investment banks, due to Gresham’s Law. They have more money, and can afford to make mistakes.
  2. As a result of this, investment banks, with less capital and therefore less room for mistakes, will become more likely to fail as independent entities. (You would have to be stupid, or McMegan, to assume the brunt of the damage would go the other way.)
    1. Morgan Stanley Dean Witter, which occurred two years earlier, will serve as a warning sign that will be ignored by the banks, which “know” that the acquisition was backwards
    2. J.P. Morgan will be acquired by Manny HannyChase,
    3. Goldman Sachs has to go public to acquire capital; Jon Corzine is forced out because he realizes (having seen Bear and Merrill and Morgan Stanley do it before) that it will fundamentally destroy the incentive structure and culture of the firm.
    4. Investors working on the Greater Fool Theory will decide that Investment Banks might win the battle, and will bid up the BSCs and LEHs of the world, figuring that either (a) they will be acquired (JPM) or (b) they will grow on their own (GS, MS). This will be temporarily self-fulfilling, until it isn’t.

  3. Insurance companies will move more into banking services (as their subsidiaries have for years) in search of more cash to search for more yield and more long-term investments and short-term arbitrage. Since they do much of this now, the only additional risk will be if there is a flurry of mergers. Or a rogue insurance company. And that would never happen in insurance, just as it would never happen in energy.
  4. There will be very little demand from banks to buy insurance companies outright, since (a) there are very few Sandy Weill’s in the market and (b) even Citigroup used to be able to admit mistakes.

So what do we have, post-Gramm, Leach, Bliley? A marginal-at-best difference from 1997. The high likelihood that investment banks will lose the battle they’ve been fighting to less capable but better capitalized entities. A growing encroachment of insurance companies into the banking industry, while bankers go for the easy prey (IBs). The same consolidation and move toward plutocracy-pandering that was the rule.

Short version: there isn’t a fundamental change in the management, financing, or control of anything that arises from Gramm-Leach-Bliley or its predecessor. There is, as Ben Bernanke noted, “a failure of economic engineering and economic management,” but it’s marginal, and there’s a strong possibility that the system can recover.

But there are two later pieces of legislation that do cause a fundamental shift.

Next rock: 2000 and 2005; Summers and Biden pillage while Geithner fiddles.

*The more I think about this, the more I expect to fail, for reasons stated elsewhere. But it is NaNoWriMo, so this is at worst part of my 50,000 words.

Guest post: Frequently Maligned Class Action Lawsuits Actually Deter Financial Wrongdoing

By Jeff McCord is a former US Senate staffer, Securities Investor Protection Corp (SIPC) executive and has been a free-lance journalist for Dow Jones publications. His academic background in economics includes post-graduate work at the London School of Economics and George Washington University.


Though often criticized as frivolous and lacking economic benefit, new research by finance and accounting professors at Rutgers and Emory universities’ business schools finds that class action lawsuits are a strong deterrent to misrepresenting corporate financial results and other wrongdoing.  And, in many instances class actions are a stronger deterrent than SEC enforcement.
“Our research found statistically and economically significant deterrence associated with both SEC enforcement and class action lawsuits,” said Simi Kedia, Ph.D, MBA, associate professor of finance at Rutgers University School of Business in an interview with The Investor Advocate.  “We looked at firms in the same industry as the enforcement target and found that the average peer firm subject to SEC action and/or litigation reduces discretionary accruals (i.e., reporting as sales transactions for which payment has not been received) equivalent to 14 percent to 22 percent of the median return on assets in the aftermath of such enforcement.”
The study, a working paper presented at a couple conferences and now being circulated for comment before publication, measured the effectiveness of the two primary methods of federal securities regulatory and law enforcement:  “public” enforcement by the Securities and Exchange Commission; and, “private” enforcement through securities class action lawsuits.
Regulatory Failures Enhance Importance of Class Actions
A recent story by the New York Times’ Gretchen Morgenson reported on why private lawsuits are particularly important at a time when federal failure to enforce the law is considered one cause of our on-going financial-economic crisis and of public discontent with government:
“When federal authorities don’t fulfill their obligation to enforce the law, they essentially give an imprimatur to the financial entities to do whatever they want and disregard the law,” said Kathleen C. Engel, a professor at Suffolk University Law School in Boston. “To the extent there are places where shareholders and borrowers can pursue claims, they are really serving the function of the government. They are our private attorneys general.”
Lawsuits have long been a crucial method for shareholders to recover losses. A February letter to the Securities and Exchange Commission from the general counsel of the California Public Employees’ Retirement System noted that private litigants in the 100 largest securities class action settlements had recovered $46.7 billion for defrauded shareholders.”
“I am not surprised at all that rigorous unbiased research now proves class action law suits are a robust deterrent to financial fraud and wrongdoing,” explained Salvatore J. Graziano, Esq., president of the National Association of Shareholder and Consumer Attorneys.  “On behalf of defrauded institutional investor clients, securities plaintiffs’ attorneys routinely conduct thorough and ground breaking investigations of corporate defendants including securing information from knowledgeable former employees in our civil prosecutions.  In fact, private investor lawsuits at times also help further investigations by the SEC and other federal agencies.”
Indeed, the new study found that in cases where both the SEC and class action lawsuits take action, on average private lawsuits precede SEC action by 297 days .
Not surprisingly, the strongest deterrence effect was found when both SEC proceedings and class actions are launched.
Class Actions Recover More Money & Can be Stronger Deterrent than SEC
“Class action lawsuits, although often maligned as frivolous and socially wasteful, can have positive externalities by curbing aggressive reporting behavior of peer firms,” the paper by Dr. Kedia and her colleagues states.  Indeed, class action lawsuits recover far more money – twice as much or more — from wrongdoers than SEC actions, according to sources cited by the professors.  And, in most situations, the deterrence value of class actions (in the absence of SEC enforcement) is actually stronger than that of the SEC when acting without a corresponding class action.
This first study to validate the enforcement value of class actions through empirical research was conducted by Dr. Kedia and Shivaram Rajgopal, Ph.D., Chartered Accountant and Schaefer Chaired Professor of Accounting at Emory University’s Goizueta Business School, with Jared Jennings, a doctoral student at the University of Washington’s school of business.  Their paper, entitled “The Deterrence Effects of SEC Enforcement and Class Action Litigation,” reports their analysis of 474 SEC actions alleging financial statement misrepresentation and 1,111 class action lawsuits alleging violations of Generally Accepted Accounting Procedures during 1996 through 2006. The paper was first circulated for comment in June. 
Among other findings, the professors reported:
— “The SEC publicly targets a very small fraction of firms – in our sample only 0.74% of firms were subject to SEC enforcement. At these low levels of enforcement, a substantial fraction of misreporting is likely to go undetected.  Therefore, if potential miscreants consider the probability of detection to be too low, they are unlikely to change their behavior.”
— “Securities class action litigation for alleged reporting irregularities is more likely against an average firm – in our sample 1.28% of firms are subject to class action litigation.  The greater likelihood of class action litigation, combined with higher monetary sanctions, likely renders lawsuits as a potentially effective way to deter reporting irregularities at peer firms.
The purpose of the research was to empirically measure the value of SEC enforcement actions at a time when the Commission has been criticized as ineffective.  It also sought to assess the value of securities class action lawsuits, a legal remedy for investors and private enforcement mechanism that has been attacked for many years within corporate and political arenas.

Jeff publishes a blog ( to help promote investor protection and sustainable economic growth by reporting on securities regulatory and other investor-related news and developments ignored by mainstream media. He may be reached at

Obama and Regulatory Uncertainty

One of the current Republican talking point is that a major reason that firms are not hiring is regulatory uncertainty.

Of course there is little or no evidence to support this argument and virtually every poll of business and especially small business shows that fear of regulation is a very minor factor in current business decisions. The dominant factor in poll after poll is inadequate demand.

ON 11 June 2004 Milton Friedman published an interesting article in the Wall Street Journal Editorial Page called “Freedom’s Friend” [reprint available here], where he proposed that the number of pages in the Federal Register could be used as a measure of government’s interference in people lives and a measure of freedom.

I’ve looked at this measure before, back in 2008. Given this new Republican talking point it seems a good time to revisit it, so I’ve updated the data to include the first two years of the Obama administration. The chart compares the average number of pages published in the Federal Register each year. This measure allows you to compare the number of pages in four-year and eight-year administrations, as well as the number in the first two years of the Obama administration. If you tried to chart the total number of pages published over an administration, you could not make this type of comparison very well.

Milton Friedman wanted to use this approach to demonstrate that Reagan interfered in people freedom less than other presidents. He clearly made that point, and if you update the chart it shows that Bush II set the all time record for the number of pages in the Federal Register. Of course, the Republicans would deny that the record level of interference in people’s freedom by President Bush caused business to limit hiring.

But in the first two years of the Obama administration the number of pages in the Federal Register averaged 75,875 as compared to and average of 75,894 under Bush. So far Obama appears to have published -0.02% fewer regulations than Bush. Of course, he still has time to move ahead of Bush. But as of yet this measure implies that there is actually less regulatory uncertainty under Obama than there was under Bush when the Republicans obviously made no claims about regulatory uncertainty restraining employment.

I wonder if anyone in the press would pick up this point and actually question some Republican when they make this talking point.

I clearly miss [the late] Mark Haines of CNBC, who would regularly call politicians or other fools on such talking points. This would clearly give someone else at CNBC the chance to pick up where Mark Haines left off.

At least, I hope some other popular bloggers will spread this analysis.

Health Care Thoughts: Regulations Gone Wild

As Rusty presents his short ‘thoughts’ on the administrative end of the national healthcare reform process, I noticed some readers have taken the problems he notes as indicative that the whole process is flawed and destructive. I do believe that is a wrong tack to take and will not serve to learn more of what is happening in the process. The US public has only begun to take note of the growing necessity of deciding not only public spending but the huge costs to the current private system. Changes are happening in that area as well.

The steadily increasing complexity of insurance billing and particular contracts with groups is simply bypassed in macro discussions but has profound effects on delivery of services and costs. We glibly point to general ‘benefits’ sections of insurance as the ‘worth’ of plans and that justify the ‘premium’ schedules….not the real contracts on the other side of service delivery. Many general public discussions ignore the trends in the private sector. The overall costs of the system itself as the ‘cost curve’ bends downward without much general scrutiny will impact more than the handy medicaid and elderly targets in the political discourse..

Health Care Thoughts: Regulations Gone Wild

My favorite nurse has been attending in-services and doing some computer seminars on long-term care nursing. She is not happy.

She sat down the other evening and put together a list of 15 major regulatory driven changes in procedures and/or documentation. In reviewing the list, she determined that 2 or maybe 3 of the changes will improve the quality of care or the safety of residents.

So what about the rest?

She doubts that changing a 16 step process for administering sterile eye drops to an 18 step process will have much value. If she uses the 16 step process in the presence of a state or federal surveyor the facility would be cited for inadequate care, even though the care is perfect.

And the triplicate procedures for verifying narcotics are ever expanding into four and five step processes repeated multiple times each day (the DEA, having won the war on drugs, has been hounding nursing homes on paperwork).

Keep in mind a nursing home has much more extensive documentation rules that even an acute care hospital, with less staff.

When business and professional people complain about federal regulations, many academics and left leaning politicians pooh-pooh them as greedy whiners, but in the real world there are real impacts of regulations, not all positive.

Tom aka Rusty Rustbelt

Is the House Trying to Encourage Criminal Activity?

I left out of the last post why David Vitter (claims) he is blocking the two SEC nominees:

Sen. David Vitter (R., La.) will block two nominees to the Securities and Exchange Commission until the agency announces whether victims of R. Allen Stanford’s alleged Ponzi scheme are owed compensation from the Securities Investor Protection Corp….

“We’ve known for some time that the SEC waited far too long to take action against Allen Stanford, and now they’re dragging their feet in responding to the victims. I will continue to hold them accountable—including holding these nominations—until these fraud victims get an up-or-down answer from the SEC,” Mr. Vitter said in a statement.

Well, economics can help him here. Even old economics, such as the pieces cited by Casey Mulligan in a disingenuous piece he wrote for the NYT last week. (No NYT link from this non-subscriber. I believe the NBER pieces are ungated, but haven’t checked from a network without access.) As the Stigler piece notes, optimal spending should be based on your expectation of catching criminal activity.*

So I expect that David Vitter is up in arms about what his colleagues in the House are doing:

The Republican-led House of Representatives is poised to pass, as early as Wednesday, a sweeping spending bill that would slash funding for the regulatory agency responsible for policing against excessive speculation and price manipulation in oil markets.

This rather understates the CFTC’s purvey. As their website notes:

Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency’s mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000….

[T]he futures industry has become increasingly varied over time and today encompasses a vast array of highly complex financial futures contracts.

Today, the CFTC assures the economic utility of the futures markets by encouraging their competitiveness and efficiency, protecting market participants against fraud, manipulation, and abusive trading practices, and by ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk. [emphasis mine]

That’s right; the CFTC is responsible for regulating derivative trading activity. Which is why…

The Obama administration requested more than $300 million for the fiscal year that ends on Sept. 30, a steep increase because the CFTC gained sweeping new powers under last year’s broad revamp of financial regulation—short-handed as the Dodd-Frank Act.

This is pure Stigler. More responsibility, higher expectation of detecting malfeasance, higher budget necessary for optimal crime enforcement. Otherwise, you end up more criminal activity going undetected as the risk of being caught is reduced.**

So what is the House doing?

The House bill would provide $171.9 million for the agency, a decrease of about $30 million from the $202.2 million given to the agency the prior year.

With the duties expanded by around 50%, the budget gets cut by 15%. Within the Stigler framework, we should expect (without any multiplier effect***) that it will be 43% less likely that any given criminal activity that falls under the CFTC’s jurisdiction will be detected and prosecuted.

The House wants to make the Stanford Ponzi scheme, or something similar, more likely to occur. Will David Vitter be decrying this, even as he blocks nominees?

*That this concept is outdated at best is subject for a future post, but it’s a fine baseline assumption.

**As I said, it’s a simplified model, but functional if one assumes continuities.

***Short version: this is where the model needs to be revised. The incentives to commit crimes are greater (detection less likely). That Mulligan could find no better cite than these works as the defence of his idiocy (as noted, no NYT link from me) is damning.

Get the Lead Out II

There is an absolutely serious hypothesis that the sharp drop in violent crime in the USA since the early 1990s is due to the EPA and, in particular, to the shift from leaded to unleaded gasoline roughly two decades earlier.

Kevin Drum notes that James Q. Wilson ascribes about half of the total decline to lead exposure. The hypothesis makes sense, lead poisoning too mild to cause other symptoms is very strongly correlated across individuals with violent behavior.

The hypothesis has clear implications for violent crime in other countries, since the USA banned lead early. The UK went unleaded in 1986 12 years after the USA. The USA violent crime peak came in 1995. So the predicted UK crime peak would be in 2007.

In get the lead out I, I thought the USA went unleaded (for new cars) in 1973 so with an arithmetic fail, I predicted 2008 for the UK. Notably, the post is dated 2008 so I had only a very tiny bit of data.

Now they have the number of reported violent crimes for two more years 2008/9 and 2009/0 (I have no idea why they report by a period other than the calender year).

I have a huge ugly pdf with the data I need and much much more.

The bottom line is that the total number of violent crimes was basically identical in 2004/5 2005/6 and 2006/7 then declined about 17% by 2009/10. The predicted peak of 2007 corresponds about as precisely to the data as is conceivable. This really was an out of sample prediction (except I forgot the year of the US requirement that new cars use unleaded but that’s my fault not the fault of the lead hypothesis).

A hypothesis has yielded a correct out of sample prediction about violent crime rates. This isn’t just extrapolating the trend, the prediction was made right at the time of the predicted peak.

The problem is that I have too much data. I have an illegible screen shot, but I will just retype the relevant numbers after the jump.

update: My post with the prediction (and mis remembered date of unleaded in the USA) is here. I would have just edited without admitting it was an update, but Mark Sadowski has already commented on the post (I thought he was more into geld than lead).

The numbers
Total Violence Against the Person Offences

1998/99 502,778
1999/00 581,034
2000/01 800,913
2001/02 850,326
2002/03 845,078
2003/04 967,228
2004/05 1,048,095
2005/06 1,059,583
2006/07 1,046,187
2007/08 961,099
2008/09 903,447
2009/10 871,712

ABA Tax Section Report on the Economic Substance Doctrine

by Linda Beale

ABA Tax Section Report on the Economic Substance Doctrine
crossposted with Ataxingmatter

The ABA Tax Section put together a large working group to write a report on the newly codified economic substance provision–Download ABA Economic Substance. Comments on Notice 2010-62.

The working group was led by several people, including Michael Desmond, who just happened to be at Treasury during the Bush Administration.  (There are lots of people in private practice now, writing reports on government decisions, who were in government under Bush just a while ago.  Is that a good thing?  I suppose it has its pluses and minuses.  On the plus side, it ensures that there are always those in practice who understand how government works and where important decisions can get hung up or expedited.  ON the minus side, the very decisions that were put in place during a person’s tenure in government may be susceptible to persuasive lobbying (using that insider perspective) from those who worked on the provision in government and now comment on it on the outside.)

The practitioner community is generally concerned that the codification of the economic substance doctrine will mean that it will “chill” regular business transactions because of the uncertainty regarding its exact application.  So the report asks for clarification–just what are the transactions that are susceptible to the application of economic substance, what is a substantial purpose, what does it mean to have a potential for profit, how do we know when state tax provisions are related to federal tax provisions, and what, in fact, does “economic substance doctrine” mean.

While the desire for absolute clarity is understandable, I am not sure that it is a desire that the Treasury should attempt to satisfy.  One of the benefits of judicial doctrines, compared to very specific statutory anti-abuse provisions, is their flexibility.  Courts, in the context of particular cases, review the circumstances of a transaction and conclude that it lacks economic substance.  The doctrine has developed as part of the federal common law of tax, and it has gone through periods of being particularly useful in curbing super-aggressive tax avoidance shelters.

For people like me who were worried that codification of the doctrine could lead to its demise by narrowing its scope and defining away its power to adapt to unforeseen abusive pattersn (and to create enough uncertainty among tax practitioners to discourage the most aggressive tax return gambits), the ABA’s demand for “clarification” is therefore worrisome.  If we take Congress at its word, it expected the courts to continue applying the doctrine in the circumstances in which they applied the doctrine before codification.  Codification solves the problem of different tests for economic substance applied in different jurisdictions by settling on one test, but it leaves it to the courts’ careful case-by-case analysis to add more meat to the bones of the test.  This is as it should be.

Practitioners would nonetheless like an “angel” list of transactions to which the economic substance doctrine can’t apply.  Treasury has wisely refused, since the power of the doctrine is in looking beyond form to substance and recognizing that abusive transactions (shelters) are highly innovational within the confines of existing statutory provisions.  The creation of an angel list would be an invitation for creative tax genuises to manipulate code sections to create an abusive transaction out of the angel one.

Let’s be honest.  Many practitioners would also like to see the significant test for business purpose narrowed in scope.  Here too I disagree.  it is important for transactions that are honored in their form for tax purposes to have a significant purpose that is germane to the business and not conjured up solely to achieve favorable tax results.

While some guidance would be helpful, Treasury should be careful not to put the pliable economic substance doctrine into a straitjacket that limits its ability to police aggressive transactions.