Friday, June 29, 2012

The utterly nonsensical "We're on the road to becoming Greece" hype

If a politician - or, worse, an economist - claims that the US is in danger of becoming "Greece", it's a signal that the person is either a shameless ideologue stooping to dishonest rhetoric idiot who doesn't have a clue. Mitt Romney's intellectually frivolous and politically hysterical claim that President Obama is taking us "forward on the way to Greece" probably qualifies him as some combination of the two.  

Matthew O'Brien at The Atlantic deals this nonsensical "Road to Greece!" rhetoric a death blow:

Greece is almost certainly Greece. That goes without saying.
Got it? 

But there's one country that definitely isn't Greece. That's the United States.

Let's step back. What makes a country "Greece"? It's become shorthand for wild government overspending -- especially on entitlements. Paul Ryan says we don't have long to avoid the same fate... that absent drastic reform -- read: cuts -- to the social safety net, we'll end up in penury like the Greeks.

It's a scary story. But it's just a scare story. Yes, we have a long-term healthcare spending problem. But that doesn't make us Greece. Heck, Greece isn't even Greece. At least not the "Greece" that's become such a political football. The evidence -- or lack thereof -- is in the chart below. It compares each country's average social spending since 1999, via the OECD, against its current borrowing costs. See the pattern?

There is none. Europe's biggest social spenders don't have any problems. And Europe's biggest problem countries don't spend that much on social programs. The death knell of the welfare state this is not. 

Here's the dirty little secret of the euro debt crisis. There is no euro debt crisis. There is a euro crisis. The debt is a symptom of the crisis of the common currency.* Europe's bailed out countries all saw piles of capital pour in during the boom, only to pour out during the bust. They were left with inflated, uncompetitive wages -- and that's sent them into deep slumps. That's been despite lower social spending than their northern euro neighbors...

The ACA SCOTUS Decision - some very bad people held in check

Professor Krugman reminds us of the dishonesty and cruelty of the opposition to ACA:
(T)he law that the Supreme Court upheld is an act of human decency that is also fiscally responsible. It’s not perfect, by a long shot — it is, after all, originally a Republican plan, devised long ago as a way to forestall the obvious alternative of extending Medicare to cover everyone. As a result, it’s an awkward hybrid of public and private insurance that isn’t the way anyone would have designed a system from scratch. And there will be a long struggle to make it better, just as there was for Social Security. (Bring back the public option!) But it’s still a big step toward a better — and by that I mean morally better — society.

Which brings us to the nature of the people who tried to kill health reform — and who will, of course, continue their efforts despite this unexpected defeat. 

At one level, the most striking thing about the campaign against reform was its dishonesty. 

Remember “death panels”? Remember how reform’s opponents would, in the same breath, accuse Mr. Obama of promoting big government and denounce him for cutting Medicare? Politics ain’t beanbag, but, even in these partisan times, the unscrupulous nature of the campaign against reform was exceptional. And, rest assured, all the old lies and probably a bunch of new ones will be rolled out again in the wake of the Supreme Court’s decision. Let’s hope the Democrats are ready. 

But what was and is really striking about the anti-reformers is their cruelty. It would be one thing if, at any point, they had offered any hint of an alternative proposal to help Americans with pre-existing conditions, Americans who simply can’t afford expensive individual insurance, Americans who lose coverage along with their jobs. But it has long been obvious that the opposition’s goal is simply to kill reform, never mind the human consequences. We should all be thankful that, for the moment at least, that effort has failed. 

Let me add a final word on the Supreme Court. 

Before the arguments began, the overwhelming consensus among legal experts who aren’t hard-core conservatives — and even among some who are — was that Obamacare was clearly constitutional. And, in the end, thanks to Chief Justice John Roberts Jr., the court upheld that view. But four justices dissented, and did so in extreme terms, proclaiming not just the much-disputed individual mandate but the whole act unconstitutional. Given prevailing legal opinion, it’s hard to see that position as anything but naked partisanship.

Wednesday, June 27, 2012

Europe's Deficit Hawks

Paul Krugman explains how Europe's version of "deficit hawks" operate:
Spain has troubled banks that desperately need more capital, but the Spanish government...faces questions about its own solvency.

So what should European leaders — who have an overwhelming interest in containing the Spanish crisis — do? It seems obvious that European creditor nations need, one way or another, to assume some of the financial risks facing Spanish banks. No, Germany won’t like it — but with the very survival of the euro at stake, a bit of financial risk should be a small consideration. 

But no. Europe’s “solution” was to lend money to the Spanish government, and tell that government to bail out its own banks. It took financial markets no time at all to figure out that this solved nothing, that it just put Spain’s government more deeply in debt. And the European crisis is now deeper than ever.
Let's get this straight.  The leaders counseling austerity and cutting government spending sink Spain's crisis-ridden economy into deeper bail out the banks.  If ever there was evidence of the fraudulence and class warfare foundations of "austerity economics," this is it. 

Tuesday, June 26, 2012

Our Independent Judiciary

Ezra Klein at WaPo:
“Over the past two years, the Republican Party has slowly been building a permission structure for the five Republicans on the Supreme Court to feel comfortable doing something nobody thought they could do: Violate the existing understanding of the commerce clause and, in perhaps the most significant moment of judicial activism since the New Deal, overturn either all or part of the Affordable Care Act. The first step was perhaps the hardest: The Republican Party had to take an official and unanimous stand against the constitutionality of the individual mandate. Typically, it's not that difficult for the opposition party to oppose the least popular element in the majority party's signature initiative. But the individual mandate was a policy idea Republicans had thought of in the late 1980s and supported for two decades. They had to, in effect, persuade every Republican to say that the policy they had been supporting was an unconstitutional assault on liberty.”

Monday, June 25, 2012

Eliminating state income taxes doesn't help growth or revenues

Governors seeking to expand their economies by eliminating income taxes find little support for the idea in the record of U.S. states that lack such a levy.

The BGOV Barometer shows the nine states with the highest personal income taxes on residents outperformed or kept pace on average with the nine that don’t tax their residents’ incomes, according to a study of economic output, unemployment and household income by the nonpartisan Institute on Taxation and Economic Policy.

Mr. Laffer & his curve.
The findings show cutting state income taxes to stimulate growth relies on “flawed analysis” based on the theories of economist Arthur Laffer, said Carl Davis, a senior analyst at ITEP in Washington and author of the report. Laffer’s work was cited by Republican Governors Sam Brownback of Kansas and Mary Fallin of Oklahoma as a reason to cut income taxes as a way to stimulate job growth and attract business.

“Being low-tax doesn’t generate economic competitiveness or long-term economic viability,” said Ralph Martire, executive director at the nonpartisan Center for Tax and Budget Accountability in Chicago...

Median household income declined an average 0.7 percent among the nine “high-rate” states, compared with a 3.5 percent drop in the nine states without such a levy. The study found no difference in the average unemployment rate between the two groups of states. The time period of the report includes the 18- month recession that ended in June 2009.

“States that have higher overall taxes have better capacity to weather economic downturns,” Martire said. “Then they can maintain their spending on the salary of workers, who then go out and spend their paychecks on the local economy.” ...

“Those who don’t believe in Santa Claus or the Easter Bunny anymore, and actually look at facts and data, recognize that since supply-side economics has been implemented in America, the complete opposite of what supply siders had promised has occurred,” Martire said.
 HT: John Thompson

Saturday, June 23, 2012

" Corporate Profits Just Hit An All-Time High, Wages Just Hit An All-Time Low"

 Henry Blodgett @ Business Insider:
In case you need more confirmation that the US economy is out of balance, here are three charts for you.

1) Corporate profit margins just hit an all-time high. Companies are making more per dollar of sales than they ever have before. (And some people are still saying that companies are suffering from "too much regulation" and "too many taxes." Maybe little companies are, but big ones certainly aren't).

2) Fewer Americans are working than at any time in the past three decades. One reason corporations are so profitable is that they don't employ as many Americans as they used to.

3) Wages as a percent of the economy are at an all-time low. This is both cause and effect. One reason companies are so profitable is that they're paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those "wages" are other companies' revenue.

In short, our current system and philosophy is creating a country of a few million overlords and 300+ million serfs.

That's not what has made America a great country. It's also not what most people think America is supposed to be about.

So we might want to rethink that.

Meanwhile, if you want to know more about what's wrong with the economy, flip through these charts:

Okay, Folks, Let's Put Aside Politics And Look At The Facts...

Friday, June 22, 2012

The "Job Creator"

 Washington Post:

Mitt Romney’s financial company, Bain Capital, invested in a series of firms that specialized in relocating jobs done by American workers to new facilities in low-wage countries like China and India.

During the nearly 15 years that Romney was actively involved in running Bain, a private equity firm that he founded, it owned companies that were pioneers in the practice of shipping work from the United States to overseas call centers and factories making computer components, according to filings with the Securities and Exchange Commission.

America in decline

David Cay Johnston @ Reuters:
A broad swath of official economic data shows that America and its people are in much worse shape than when we paid higher taxes, higher interest rates and made more of the manufactured goods we use.

The numbers since the turn of the millennium point to even worse times ahead if we stay the course. Let’s look at the official numbers in today’s dollars and then what can be done to change course.

First, incomes and jobs since 2000 measured per American:

Internal Revenue Service data show that average adjusted gross income fell $2,699 through 2010 or 9 percent, compared to 2000. That’s the equivalent of making it through Thanksgiving weekend and then having no income for the rest of the year.

Had average incomes just stayed at the level in 2000, Americans through 2009 would have earned $3.5 trillion more income, the equivalent of $26,000 per taxpayer over a decade. Preliminary 2010 data show a partial rebound, reducing the shortfall by a fifth to $2.8 trillion or $21,000 per taxpayer.

Wages per capita in 2010 were 4.3 percent less than in 2000, effectively reducing to 50 weeks the pay for 52 weeks of work. The median wage in 2010 fell back to the level of 1999, with half of workers grossing less than $507 a week, half more, Social Security tax data show. The bottom third, 50 million workers, averaged just $116 a week in 2010.

Social Security and Census data show that the number of people with any work increased just 1.5 percent from 2000 to 2010 while population grew 6.4 times faster. That’s why millions of people cannot find work no matter how hard they try.

In May, nearly 23 million workers, 14.8 percent, were jobless or underemployed, the Bureau of Labor Statistics reported...


"Twilight of the Elites"

Rachel Maddow talks with Chris Hayes about inequality
and our increasingly out-of-touch, dysfunctional elites:

Tuesday, June 19, 2012

"What Bernanke Can Do..."

 Dean Baker:
The Federal Reserve Board's open market committee meeting this week likely presents the FOMC with its last opportunity to boost the economy before the end of the year. While the FOMC meets every six weeks, as a practical matter, the FOMC has historically been very reluctant to take major moves close to an election...

The fact that the economy can use an additional boost should not be in dispute. The rate of job creation in the last two months understates the underlying growth path, since it is essentially a payback from the stronger growth due to an unusually mild winter.

Even the 165,000-a-month average rate of job creation for the last five months is far too slow. With the economy needing roughly 100,000 new jobs a month just to keep pace with labor force growth, it would take us more than 12 years to make up our 10 million jobs deficit at this point.

If there is a clear need for more rapid growth, the data also show there is no downside risk of excessive inflation. The consumer price index fell 0.3% in May. It has risen by just 1.7% over the last year. (The core index rose 0.2% last month and is up 2.3% over the last year.)

Of course, many of us have argued that higher than normal inflation would be desirable, in any case. It would reduce real interest rates in a world where the Fed has already pushed the nominal federal funds rate as low as it possibly can. That would provide businesses with more incentive to invest. Higher inflation should also help to lift house prices, helping homeowners to rebuild equity.

However, even if the Fed is unwilling to accept the idea that it should promote higher inflation, as Chairman Ben Bernanke used to recommend back in his days as economics professor, it should at least be confident that the data show no reason to be concerned about inflation exceeding its target... There are two routes the Fed can go.

Monday, June 18, 2012

Common Sense Conservatism

"It's Even Worse Than It Looks"

Michael DeLong (corrected) on "It's Even Worse Than It Looks" - the book by two centrist political analysts who have not been invited to a single major Sunday talk show to discuss their new work, presumably because they depart from the "wisdom of centrism" and state the plain fact that the GOP has become little more than a party of obstruction and right-wing ideology:
Thomas Mann and Norman Ornstein’s It's Even Worse Than It Looks convinced me that having a political system where corporations can spend unlimited amounts of money for or against politicians is a recipe for favoritism and corruption. We need to reduce the influence of money in politics.

But there's much more to the book than that. Here are some of my thoughts:
Both Mann and Orntein have written about Congress for many years. Both are well-respected centrist scholars. They know what they are talking about. And both Mann and Ornstein agree that politics today is far worse than usual: that our political process right now is unusually broken...
Both Democrats and Republicans now view each other as adversaries. Republicans, however, are far more unified and obstructionist--and also have become more conservative in part because of primary challenges.

Obstruction has been taken to ridiculous levels, with Republicans now using holds and filibusters to block nominees and legislation. Obama nominated economist Peter Diamond to the Federal Reserve. Senator Richard Shelby placed a hold on his nomination, claiming he was too inexperienced for the job. While being delayed, Diamond was awarded the Nobel Prize in Economics. Shelby kept blocking his nomination. After a year of waiting, Diamond withdrew. Other nominees, such as Donald Berwick (to head the Center for Medicare and Medicaid Services) and Richard Cordray (to head the Consumer Financial Protection Bureau) were also blocked. Every one of Obama's bills has had to get 60 votes or more to pass, due to the threat of the filibuster.

Republican obstruction is not entirely new. In a 1993 memorandum, William Kristol urged Senator Bob Dole and other Republicans to oppose Bill Clinton's health care plan “sight unseen”, no matter what the substance of the policy he proposed. Passage of any health care reform at all, he argued, would harm the Republican Party.

It is good to see two respected centrist observers of Congress recognizing that Republican obstruction of Obama's proposals is largely driven by a desire to hurt him politically, no matter what its effect on the country.

So are there any solutions to our current state of affairs?

"Small Business Owners’ Views on Implementing the Affordable Care Act" (aka What the Chamber of Commerce and NFIB won't tell you)

From research by The Small Business Majority, independent small business advocates:

The Supreme Court is expected to hand down its decision any day in the case against the Affordable Care Act, filed by the National Federation of Independent Business (NFIB) and state attorneys general.
The polling of 800 small business owners in eight states (Florida, Illinois, Louisiana, Michigan, Missouri, New York, Texas and Virginia) found 50% of small business owners want the healthcare reform law upheld—either as is or with minor changes—while only one-third want the Supreme Court to overturn it. Once small business owners learn more about the law, their support for keeping it intact—either as is or with minor changes—rises to 56 percent, while opposition falls to just 28 percent...A 55% majority say they want it upheld because we need to make sure everyone has health coverage.
Via Kay at Balloon Juice.

Saturday, June 16, 2012

Dean Baker explains the world to a remarkably incoherent and confused David Brooks

Dean Baker at CEPR Beat The Press: "David Brooks Says That...Republicans Are Not Very Good At Arithmetic"
That probably was not his intention, but that is the only conclusion that numerate readers can take away from his column. He tells readers that:
"But many Republicans have now come to the conclusion that the welfare-state model is in its death throes."
He points to the crises in Greece, Spain, and Italy and then adds:
"In the decades after World War II, the U.S. economy grew by well over 3 percent a year, on average. But, since then, it has failed to keep pace with changing realities. The average growth was a paltry 1.7 percent annually between 2000 and 2009. It averaged 0.6 percent growth between 2009 and 2011. Wages have failed to keep up with productivity. Family net worth is back at the same level it was at 20 years ago."
There are a number of problems with this story. First Greece, Spain, and Italy have among the least developed welfare states in Europe. If someone wants to make an argument that there is some inherent problem with the welfare state model then we should look for crises in Sweden, Denmark and Germany, all states with far more generous welfare states than these Mediterranean countries. In fact, the welfare states of northern Europe are doing relatively well through the crisis, it is difficult to understand how anyone can look at the pattern of the crisis across Europe and conclude that it implies that the welfare state model has reached its end.

Brooks account of U.S. growth is just bizarre. Did he somehow miss the collapse of the housing bubble? If he excluded the period since the crisis then there is not much of a case for a weakening economy. The economy definitely did better in the three decades immediately following World War II, when the top marginal tax rate was between 70-90 percent than it did in the post-Reagan years, but there was a substantial uptick in productivity growth in the mid-90s. The second half of that decade saw the strongest sustained growth since the early 70s, with workers up and down the income latter sharing in the gains of productivity growth.

The economy did turn down with the collapse of the stock bubble in 2000-2002, but it is hard to see how Republicans tie the collapse of this bubble to the death throes of the welfare state, just as it is difficult to see how the more recent collapse of the housing bubble implies the death throes of the welfare state. In principle the Los Angeles Kings victory in the Stanley Cup could also signal the death throes of the welfare state, but it is not easy to see the connection. The more obvious take away from this story is that a corrupt financial sector can wreck the economy.

In terms of the link between wages and productivity growth, Brooks Republican friends seem to be in an inverted world. If this is the concern, then the welfare states in Europe would seem to be the answer, not the problem.

Wednesday, June 13, 2012

End This Depression Now! - Aid to the States Edition

Ben Polak and Peter K. Schott explain at NYT's Economix why unemployment is far greater for much longer into the "recovery" phase of the private sector in this extended recession:

Why is the recovery from this recession different from recoveries from past recessions? In the previous two recessions, it took 32 months for nonfarm employment to reattain its June 1990 peak, and 48 months for it to reattain its January 2001 peak. Assuming the economy keeps adding nonfarm employment at the current rate, it will have taken 88 months to reattain its January 2008 peak. The explanation most often heard is that “financial crises are different”: after a debt crisis, shaken consumers are reluctant to spend and shaken firms are reluctant to hire, slowing private-sector job growth even after the recession has bottomed out.

There is some truth in this, but it is not the whole story. In fact, while the latest recession was particularly deep, the recovery in private-sector employment, once it finally started, has not been particularly slow by recent historical standards. In the 27 months since the start of the current employment recovery, the private sector has added 4.3 million jobs, fewer than the 5.0 million it added in the 27 months after February 1992 but not many fewer than the 4.5 million it added in the equivalent period after August 2003.

Source: Bureau of Labor Statistics
But there is something historically different about this recession and its aftermath: in the past, local government employment has been almost recession-proof. This time it’s not.

End This Depression Now! - Infrastructure Edition

Ezra Klein, filling in for Dr. Maddow,  proposes the most immediate
and essential investment in jobs we can make - and at rock bottom prices!
Repair our crumbling infrastructure.

Sunday, June 10, 2012

Chris Hayes asks a rude question: "Is Ben Benanke trying to get Mitt Romney elected President?"

An appeal to the Fed - take aggressive action to help recovery

THE next meeting of Federal Reserve policy makers, on June 19 and 20, will probably be contentious. The latest employment report, showing anemic job growth for a third consecutive month and an uptick in unemployment, will surely make some Fed members want to take additional expansionary action. Others, however, appear steadfastly opposed.
The argument for additional monetary action is straightforward. By law, the Fed is supposed to aim for maximum employment and stable prices. But the unemployment rate is 8.2 percent — a good two percentage points above what even the most pessimistic members say is its sustainable level. Moreover, the spate of disappointing data and the deepening crisis in Europe make continued weakness all too likely...

Some Fed members contend that monetary policy has already done its share. Other policy makers, they say, need to step up. Both the Fed’s chairman and its vice chairwoman have talked about the need for additional near-term fiscal stimulus as part of a gradual deficit-reduction plan. And many Fed committee members have called for a more aggressive housing policy. Indeed, the Fed raised some hackles in January when it sent an unbidden white paper to Congress, outlining possible administrative and legislative initiatives to deal with problems like foreclosures and underwater homeowners. 

I agree that we need more effective fiscal and housing policies. But neither is likely to happen, at least not before the presidential election. As a result, the Fed is the only plausible source of immediate help for the American economy. It was set up as an independent body precisely so that somebody can do what’s right when politicians can’t or won’t. 

Thursday, June 7, 2012

The Very Serious, Very Crazy People

Martin Wolf at Financial Times, via The Professor:
Austerians - Brit PM Cameron and German Chancellor Merkel

Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events.

Compared to Reagan, Obama is shrinking government spending

From Krugman, Reagan vs. Obama - increases in government spending:

Reagan, of course, is the blue - with huge increases in government spending per capita, and Obama is the red - with smaller increases, and significant decreases in state and local spending due to deep recession.  Mind you, these low rates of spending in an ongoing high-unemployment, reduced-consumer-demand depression are not a good thing - but the facts accentuate the hypocrisy and lies of the GOP and "Tea Party" crazies. 

Two tax systems - one for the super-rich, one for wage-earners

David Cay Johnston:

Six American families paid no federal income taxes in 2009 while making something on the order of $200 million each. This is one of many stunning revelations in new IRS data that deserves a thorough airing in this year's election campaign.

The data, posted on the IRS website last week, brings into sharp focus the debate over whether the rich need more tax cuts (Mitt Romney and congressional Republicans) or should pay higher rates (President Obama and most Democrats).

The annual report (, which the IRS typically releases with a two-year delay, covers the 400 tax returns reporting the highest incomes in 2009. These families reported an average income of $202.4 million, down for the second year as the Great Recession slashed their capital gains.

In addition to the six who paid no tax, another 110 families paid 15 percent or less in federal income taxes. That's the same federal tax rate as a single worker who made $61,500 in 2009.

Overall, the top 400 paid an average income tax rate of 19.9 percent, the same rate paid by a single worker who made $110,000 in 2009. The top 400 earned five times that much every day.

Just 82 of the top 400 were taxed in accord with the Buffett rule, which proposes a minimum tax of 30 percent on annual incomes greater than $1 million.

Let's return for a moment to the single worker who made $61,500 in 2009 and paid 15 percent of his salary in federal income taxes. The top 400 made more every three hours than he did in a year, and yet many of them paid the same or a lower tax rate, according to the data in the report.

On top of his $9,225 federal income tax, he also paid $9,409 in payroll taxes, which include Social Security and Medicare taxes. Half of the payroll tax was deducted from his check. His employer paid the other half, which was really hidden wages taxed at a 100 percent tax rate.

His total federal tax burden was 30.3 percent, exactly 50 percent more than the 20.2 percent tax burden, measured the same way, on the 400 at the top.


Saturday, June 2, 2012


The Professor notes more out of sorrow than anger:
"(L)ook at the man who insisted that credit default swaps had made the financial system stable, that there was no housing bubble, that the housing market was poised for recovery in 2006, telling us that with interest rates at their lowest levels ever, what we need to worry about most is … the threat of rising interest rates."

Friday, June 1, 2012

Tax Cuts Uber Alles

There's a simple formula for job creation - cut taxes!  Here's the rock-solid, faith-based, empirical, wishin' & hopin' evidence from St. Reagan's reign as Holy Patron of the Job Creators:

Oh, wait a minute...