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 (link.reuters.com/vec68s), 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.

TWO TAX SYSTEMS

Maestro

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."

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...

Chart from Mark Thoma, Economist's View

Jersey Shore

Professor Krugman:

For some time now (Jersey Guv Chris) Christie has been touting what he calls the “Jersey comeback.” Even before his latest outburst, it was hard to see what he was talking about: yes, there have been some job gains in the McMansion State since Mr. Christie took office, but they have lagged gains both in the nation as a whole and in New York and Connecticut, the obvious points of comparison.

Yet Mr. Christie has been adamant that New Jersey is on the way back, and that this makes room for, you guessed it, tax cuts that would disproportionately benefit the wealthy.

Last week reality hit: David Rosen, the state’s independent, nonpartisan budget analyst, told legislators that the state faces a $1.3 billion shortfall. How did the governor respond? 

First, by attacking the messenger. According to Mr. Christie, Mr. Rosen — a veteran public servant whose office usually makes more accurate budget forecasts than the state’s governor — is “the Dr. Kevorkian of the numbers.” Civility! 

Keynes and fiscal irresponsibility

Econospeak corrects some confusion over Keynes and long-term debt that's pushed by the "Reagan taught us deficits don't matter" BizarroWorld "Keynesianism" that rears it's head on the Right when it's "more tax cuts" time and magically disappears when the agenda morphs into "cut entitlements":

Keynes was not in favor of the type of long-term fiscal irresponsibility that we have witnessed say in the United States during the Administrations of Ronald Reagan and George W. Bush. Yes I know proponents of the 1981 and 2001 tax cuts could argue that we were not at full employment when these tax cuts were passed. However, the 1981 tax cut was not needed to get us back to full employment. Volcker’s [contractionary] monetary policy – for better or worse (worse in my view) – was the main driving factor for the U.S. economy. And we know George W. Bush pursued a host of fiscal policies that were more long-term in nature and all fiscally irresponsible. If [anyone] thinks Lord Keynes would have approved these episodes of fiscal stimulus – I submit he’s very ignorant of the brand of economics that Lord Keynes and economists like Paul Krugman strive to describe.

More Keynesian Blather From Paul Krugman...

 You can't shut Paul Krugman up:

(I)f you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression.

Oh, wait a minute.  That was Mitt Romney doing that Beltway "gaffe" thing, where blurting out the truth is seen as a "mistake," especially when it runs counter to every crank proposal Romney has endorsed that has been forthcoming from the Ryan Austerity Megaphone of the GOP - the dominant party "intelligentsia," who are either economically illiterate or WANT to plunge the country into even deeper extended depression.

Jon Chait notes: "Romney says this as if it’s completely obvious that reducing the deficit in the short term would throw the economy back into recession, even though he and his party have been arguing the opposite case with hysterical fervor. Republicans have committed themselves to Austrian economic notions and other hoary doctrines justifying the position that reducing deficits is a helpful way out of a liquidity trap"

I'm not convinced Willard M. Romney is particularly smart, but it's clear that beneath the nauseating facade of sheer cynicism there's still some small grain of common sense.  The fact that he's a practiced liar when glibly espousing the GOP far Right's agenda as his own - albeit subject to the occasional "Beltway gaffe" as in the CNN interview - appears to be the only "redeeming" feature of his candidacy, not a fatal flaw.  Which is pathetic.

(updated)

This Just In! Presidential Aspirant Can Read a Balance Sheet!

Good discussion of Romney and Bain by Martin Bashir and guests, standing in for Lawrence O'Donnell last night - special props to Joy-Ann Reid for devastating take-down of Willard's reference to Bain's Steel Dynamics start-up, which leaned heavily on tax-payer subsidies - including a tax increase - to make a large profit:

 

Visit msnbc.com for breaking news, world news, and news about the economy

Is Greed Good? Professor Krugman Wonks Us Out With the Data

Krugman @ NYT:

From "Mitt Romney Is a Tool" - K. Genius & TBX

As the debate moves – appropriately! – to a discussion of Romney’s career at Bain, one thing I’ve noticed is that everyone on the right, and a fair number of people who should know better, basically believes that Gordon Gekko was right. Before the Gekkos came along, they assert, American business was sluggish, unproductive, and uncompetitive. Then came the LBOs and all that, and our economic energy was unleashed.

As I said, everyone on the right knows that this happened. Needless to say, none of it is at all true.

Let’s look at how trends changed after 1980 or so, when the underlying rules of American business (and politics) shifted. Start with productivity – I use a log scale, so that the slope of the trend represents the rate of growth. See the big acceleration? Neither do I – productivity growth has actually been slower since the rise of Bain-type operators.

The "Austerity Cliff" and the GOP's Military Keynesians

 Brian Beutler at TPM:

A giant austerity bomb is timed to go off at the beginning of next year, and the threat of significantly higher taxes and lower spending has Republicans running around the Capitol sounding more like John Maynard Keynes than John Boehner.

Automatic, across-the-board reductions to domestic and defense spending, combined with the looming expiration of the Bush tax cuts, will dramatically consolidate the budget in the next calendar year, if Congress does nothing. And despite bemoaning deficits throughout the Obama years, the GOP’s suddenly come around to the view that cutting government spending is a job killer.

Just listen to Sen. John Cornyn (R-TX).

“Just when you thought the economic news could not get much worse with slow economic growth, with reduced wages because of higher costs, and with many people simply giving up looking for work with the lowest labor participation rate we’ve had in some time,” Cornyn warned reporters in the Capitol Tuesday, “we have an entirely predictable and preventable jobs crisis approaching in January, where because of the sequestration [automatic spending cuts], my state alone will lose 91,000 private sector jobs — and there are about a million private sector jobs at risk if the sequestration goes into effect on January 2.

This marks the return of the Defense Keynesians — Republicans who admit that government spending supports job growth in a weak economy, if and only if that spending is directed toward the military.

As luck would have it, a new Congressional Budget Office concludes Republicans are right about the economic consequences of defense cuts — but that their other fiscal priorities are just as perilous for economic growth.

If all the fiscal tightening scheduled for the beginning of the year is allowed to take effect, it will take a huge bite out of the projected deficit for the coming fiscal year.

Unfortunately, it’ll take a similarly large bite out of GDP — enough to threaten a new recession. And the resulting job losses would reduce tax revenues and increase spending on jobless benefits enough to undo billions of dollars in direct deficit reduction.

Willard M. Romney's Debt and Deficits Hustle

Romney: "Today America faces a financial crisis of debt and 

spending that threatens what it means to be an American."

Center for American Progress: 

There’s one major problem with Romney’s rhetoric: his economic plan makes the debt worse. Romney’s tax plan gives a 20 percent across-the-board tax cut to all Americans and repeals the Alternative Minimum Tax, costing $10.7 trillion over the next decade and reducing federal revenues to just 15 percent of GDP, according to Center for American Progress Director of Tax and Budget Policy Michael Linden. Romney hasn’t offered a plan to pay for those cuts, instead simply asserting that he will balance the budget.

But balancing the budget under those terms would be next to impossible. Even if Romney limits tax deductions for the richest Americans as he says he would, he would need 6.5 percent economic growth for the next five years to keep his plan from adding to the deficit. To put that in perspective, the best five-year period of growth since World War II was from 1961 to 1966, when the economy grew at 5.8 percent per year.

"Deja Vu Debacle"

 Paul Krugman @ New York Times:

Sometimes it’s hard to explain why we need strong financial regulation — especially in an era saturated with pro-business, pro-market propaganda. So we should always be grateful when someone makes the case for regulation more compelling and easier to understand. And this week, that means offering a special shout-out to two men: Jamie Dimon and Mitt Romney...

First...let me talk about Mr. Romney, whose remarks about those troubles were so off-point that they constitute a teachable moment. 

Here’s what the presumptive Republican presidential nominee said about JPMorgan’s $2 billion loss (which may actually have been $3 billion, or $5 billion, or more, but who’s counting?): “This was a loss to shareholders and owners of JPMorgan and that’s the way America works. Some people experienced a loss in this case because of a bad decision. By the way, there was someone who made a gain.” 

What’s wrong with this statement? Well,...it’s not O.K. for banks to take the kinds of risks that are acceptable for individuals, because when banks take on too much risk they put the whole economy in jeopardy — unless they can count on being bailed out. And the prospect of such bailouts, of course, only strengthens the case that banks shouldn’t be allowed to run wild, since they are in effect gambling with taxpayers’ money.

Incidentally, how is it possible that Mr. Romney doesn’t understand all of this? His whole candidacy is based on the claim that his experience at extracting money from troubled businesses means that he’ll know how to run the economy — yet whenever he talks about economic policy, he comes across as completely clueless...

Jamie Dimon is no Jimmy Stewart. But he has, in a way, been playing Jimmy Stewart on TV, posing as a responsible banker who knows how to manage risk — and therefore the point man in Wall Street’s fight to block any tightening of regulations despite the immense damage deregulated banks have already inflicted on our economy. Trust us, Mr. Dimon has in effect been saying, we’ve got this covered and it won’t happen again. 

Now the truth is coming out. That multibillion-dollar loss wasn’t an isolated event; it was an accident waiting to happen. For even as Mr. Dimon was giving speeches about responsible banking, his own institution was heaping on the risk. “The unit at the center of JPMorgan’s $2 billion trading loss,” reports The Financial Times, “has built up positions totaling more than $100 billion in asset-backed securities and structured products — the complex, risky bonds at the center of the financial crisis in 2008. These holdings are in addition to those in credit derivatives which led to the losses." ...  It really is déjà vu all over again. 

A prosperous middle class is central to economic productivity and income inequality is a threat to our economic and political health

 Heather Boushey and Adam Hersh at Center for American Progress:

To say that the middle class is important to our economy may seem noncontroversial to most Americans. After all, most of us self-identify as middle class, and members of the middle class observe every day how their work contributes to the economy, hear weekly how their spending is a leading indicator for economic prognosticators, and see every month how jobs numbers, which primarily reflect middle-class jobs, are taken as the key measure of how the economy is faring. And as growing income inequality has risen in the nation’s consciousness, the plight of the middle class has become a common topic in the press and policy circles.

For most economists, however, the concepts of “middle class” or even inequality have not had a prominent place in our thinking about how an economy grows. This, however, is beginning to change. One reason for the change is that the levels of inequality and the financial stress on the middle class have risen dramatically and have reached levels that motivate a closer investigation. The interaction and concurrence of rising inequality with the financial collapse and the Great Recession have, in particular, raised new issues about whether a weakened middle class and rising inequality should be part of our thinking about the drivers of economic growth.

"Taxing the rich to make investments...is the single shrewdest thing we can do for the middle-class, for the poor...and for the rich"

Millionaire tech investor Nick Hanauer gave a talk at Technology Entertainment and Design - which regularly posts the equivalent of video essays on it's popular site - but it was apparently kept off of the site because the presumed audience of wealthy entrepreneurs wouldn't want to hear Hanauer's message of "taxing the rich" as "the single shrewdest thing we can do." There's a lot of applause for Hanauer in the room. One wonders why TED found Hannauer's timely and insightful talk troublesome:

HT: Rob Grocholski

Volcker: "If you want to gamble in derivatives, surrender your banking license"

Former Treasury Secretary Paul Volcker on JP Morgan/Chase:

A battle looms over "Simpson-Bowles" - among Democrats

Simpson: "Veterans...are not helping the country in this fiscal mess."

Richard Eskow of Campaign for America's Future files this harsh, utterly depressing report from the "Deficit Summit." Unfortunately, it rings true. The 2012 election is going to take most liberal folks' eyes off of this ball, but a major fight is looming - and within Democratic circles - over the Simpson-Bowles "bi-partisan" plan to gut government programs and shift wealth even more toward the 1% than it already has.

Establishment Democrats are embracing an approach to "deficit reduction" that privileges the 1% and ignores the centrality of unemployment as the nation's #1 problem.  And they ignore the fact that worrisome long-term deficit projections are - above all else - rooted in the need to reform our health care delivery system.  Medicare has nothing to do with that problem - other than providing the most cost-effective approach to health insurance that exists currently in the US.  Medicare doesn't drive the problem of health care costs as % of GDP - it lessens them. Address the larger issue and long-term federal deficits are easily managed.

Be prepared for the looming deficit battle - because these "rich white guys" clearly are. And be prepared to draw lines in the sand against a significant cohort of establishment  Democrats and administration insiders.

Eskrow:

Today a bunch of rich white guys held a "Fiscal Summit" and agreed that:

1. Despite the fact that unemployment is causing untold suffering for millions of people, it's not very important.

2. Despite the fact that wage stagnation is destroying the middle class, that's not important either.

3. Despite the fact that we need the social safety net more than ever after what they've done to the economy, it's expendable.

4. Despite the fact that our government can borrow money at record low rates and use it to put people to work, thereby ending the recession and jumpstarting the economy, that option's not even worth discussing.

5. Despite the fact that these men all possess great power, wealth, and/or influence, everything that's wrong with the economy is your fault.

6. Since it's all your fault, you better get ready to pay up.

Oh, and one other thing:

7. They're all very smart and very brave. It's too bad the rest of you people are such jerks.

"Make Banking Boring"

NYT's Joe Nocera:

Let’s begin by stipulating the obvious: nobody outside of JPMorgan Chase knows for sure what really happened with those trades that have cost it so much money and done such severe damage to its once stellar reputation. 

In his conference call last Thursday, Jamie Dimon, the bank’s chief executive, characterized the trades as “stupid,” but refused to get into any specifics. Even hedge fund managers on the other side of the JPMorgan trades have been able to cobble together only bits and pieces. Most of the emphasis has been on the credit derivative business managed by one Bruno Iksil in JPMorgan’s London office — a k a the “London whale.” Yet from what I hear, his losses probably won’t total more than $600 million — while the bank’s total losses have reached $2.3 billion, and could well hit $4 billion, according to The Wall Street Journal. Where are the rest of the losses coming from? As I say, nobody knows. 

Still, we know enough to be able to make some informed judgments. We know that JPMorgan, awash in taxpayer-insured deposits, took some of that money — around $62 billion at last count — and decided to invest it in corporate debt, which had the potential to generate higher returns than, say, old-fashioned loans...

We know that JPMorgan’s chief investment office, which had orchestrated the debt purchases, decided to hedge the entire portfolio by selling credit default swaps against a corporate bond index. You remember our old friends, credit default swaps, don’t you? Three years ago, they nearly brought down the financial world. Not content with its hedge, it then hedged against the hedge. It was all very complex, of course, and all done in the name of “risk management.”

The Tragedy of Long-Term Unemployment

Dean Baker and Kevin Hassett @ New York Times:

THE American economy is experiencing a crisis in long-term unemployment that has enormous human and economic costs.

In 2007, before the Great Recession, people who were looking for work for more than six months — the definition of long-term unemployment — accounted for just 0.8 percent of the labor force. The recession has radically changed this picture. In 2010, the long-term unemployed accounted for 4.2 percent of the work force. That figure would be 50 percent higher if we added the people who gave up looking for work.

Long-term unemployment is experienced disproportionately by the young, the old, the less educated, and African-American and Latino workers.

While older workers are less likely to be laid off than younger workers, they are about half as likely to be rehired. One result is that older workers have seen the largest proportionate increase in unemployment in this downturn. The number of unemployed people between ages 50 and 65 has more than doubled.

The prospects for the re-employment of older workers deteriorate sharply the longer they are unemployed. A worker between ages 50 and 61 who has been unemployed for 17 months has only about a 9 percent chance of finding a new job in the next three months. A worker who is 62 or older and in the same situation has only about a 6 percent chance. As unemployment increases in duration, these slim chances drop steadily.

The result is nothing short of a national emergency. Millions of workers have been disconnected from the work force, and possibly even from society. If they are not reconnected, the costs to them and to society will be grim.

Jamie Dimon's Folly

 Henry Blodgett @ Business Insider:

Yesterday's JP Morgan implosion has now put any lingering questions to rest.
Wall Street banks simply cannot be trusted to manage the massive risks they are taking.

After the financial crisis, when most of the world's banks were revealed to have been run by reckless gamblers, a couple of institutions stood above the fray.
JP Morgan was one of them.

The idiocy of a handful of gamblers should not be construed as a problem with the system as a whole, institutions like JP Morgan said.

Well-run banks should be trusted not to be so colossally reckless and stupid.

Well-run banks should be allowed to manage their own risks. Well-run banks should not be hammered with straight-jacket regulations that would stymie their marvelous and creative innovation. Well-run banks should be free to look after themselves, like responsible adults.

And the banking lobbying engine rushed this message to Washington and threw money around. And the lobby quickly persuaded Congress that Wall Street was fine, that the financial crisis was an aberration, that Wall Street should be left alone.
JP Morgan was the prime engine of this message. And its brilliant CEO, Jamie Dimon, was Wall Street's defiant Adult-In-Chief. 

Dimon had credibility, because unlike all the other incompetent banks, his bank hadn't imploded and brought the system to the edge of catastrophe...

But now JP Morgan has blown up.

So we finally know the truth about Wall Street, a truth most Wall Street observers have known all along:

Wall Street can't be trusted to manage—or even correctly assess—its own risks.

"Easy Useless Economics"

Currently reading Professor Krugman's "End This Depression Now!", from which he's essentially lifted today's column in the NYTs.  A Must Read!  Krugman's also been batting down - without mentioning names - some of the nonsense that's being peddled by his "colleague" David Brooks about structural problems trumping any effective solutions to the current crisis.

Money quote today is Krugman quoting Keynes - "Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the sea is flat again":

A few days ago, I read an authoritative-sounding paper in The American Economic Review, one of the leading journals in the field, arguing at length that the nation’s high unemployment rate had deep structural roots and wasn’t amenable to any quick solution. The author’s diagnosis was that the U.S. economy just wasn’t flexible enough to cope with rapid technological change. The paper was especially critical of programs like unemployment insurance, which it argued actually hurt workers because they reduced the incentive to adjust. 

O.K., there’s something I didn’t tell you: The paper in question was published in June 1939. Just a few months later, World War II broke out, and the United States — though not yet at war itself — began a large military buildup, finally providing fiscal stimulus on a scale commensurate with the depth of the slump. And, in the two years after that article about the impossibility of rapid job creation was published, U.S. nonfarm employment rose 20 percent — the equivalent of creating 26 million jobs today. 

So now we’re in another depression, not as bad as the last one, but bad enough. And, once again, authoritative-sounding figures insist that our problems are “structural,” that they can’t be fixed quickly. We must focus on the long run, such people say, believing that they are being responsible. But the reality is that they’re being deeply irresponsible. 

The Real Deficit Story

It can't be repeated enough - Dave Johnson @ Campaign for America's Future:

Atrios says it: Eschaton: Planning For 10 Years From Now

"Listen, government has got plenty of money."

The last time the an administration did the supposedly responsible thing, the fiscal "hawks" suddenly decided that the worst possible thing was no longer a deficit, but a surplus, and that therefore it was necessary to have massive tax cuts for rich people.

And they will, of course, do it again.

Any time any DC elite complains about "the deficit" remind them that when Clinton left office we had a huge surplus, so big that at the rate it was being paid down the entire US debt was going to be paid off in 10 years. Bush demanded that we give back the people's money and Greenspan warned of the danger of paying off the debt. Etc. Etc. Etc. Then Bush doubled military spending -- and started two wars on top of that!

So we went from big surplus to huge, huge deficits. Bush said it was "incredibly positive news" when we went back into deficit spending. He said it was good news because it continued the plan to use debt to force the government to cut back. He said that. It was the plan. (Don't take my word for it, click the links.)

The Reagan people said it too, back when they started the massive deficit spending. It was the plan: force the country into massive debt, "starve the beast," and use that to force the government out of business, or at least to be "small enough to drown in a bathtub." They forced the tax cuts and Reagan said this was "cutting the government's allowance." The point was to use revenue cutbacks to force government to shrink, to get out of the way of the 1%.
 

Now that government is very much out of the way of the 1% we are seeing how things work out when the 1% dominate everything.

They called it "strategic deficits." They said it was the plan to force the country into debt, and then they would demand that we cut the things that government does for the 99%, in order to further enrich the 1%. They would scare everyone by saying that the debt will destroy us so we have to cut back. That was the plan. They said that was the plan. And now that the plan is being executed, we should understand that it was the plan and not fall for it!

They said it was the plan. So as the plan unfolds, don't be so surprised.

The Job Creators

Bloomberg:

The BGOV Barometer shows that since Democrat John F. Kennedy took office in January 1961, non-government payrolls in the U.S. swelled by almost 42 million jobs under Democrats, compared with 24 million for Republican presidents, according to Labor Department figures.

Democrats hold the edge though they occupied the Oval Office for 23 years since Kennedy’s inauguration, compared with 28 for the Republicans. Through April, Democratic presidents accounted for an average of 150,000 additional private-sector paychecks per month over that period, more than double the 71,000 average for Republicans

"Learned Helplessness" in Hard Times

Economist Robin Wells @ The Guardian:

Yet another disappointing statistic today from the US labor market – only 115,000 jobs added in April, barely enough to keep the unemployment rate from rising given the growth in population, and a significant fall from the 154,000 jobs added in March. While not necessarily a sign that the economy is headed for another turn downward, April's job numbers signal a repeat of the pattern seen in 2011 – a recovery that is halting, unpredictable, and agonizingly slow...

And it's not surprising given the continued heavy drag on the economy from high levels of household debt, high oil prices, and significant budget cutbacks by state and local governments. Moreover, the longer the economy limps along, the harder it appears to be for policymakers to accept that another outcome is possible. Months with stronger numbers will be seen as confirmation that the economy is turning the corner, and months with weaker numbers will be seen as confirmation that there's little one can do in the face of the need for longterm adjustments in the economy. Learned helplessness sets in.

One could not have asked for a clearer example of learned helplessness than Ben Bernanke's recent press conference, where he labeled calls for further Fed stimulus "reckless" and appeals for a higher inflation target "irresponsible" because it would, in his view, sacrifice its commitment to a 2% inflation target. Higher inflation helps stimulate a depressed economy as consumers and businesses find it less appealing to sit on cash, and it reduces the real cost of pre-existing debt. Ironic given that a 4% inflation rate during the Reagan years was considered perfectly acceptable...

How to End This Depression

Paul Krugman says "it's easy":

The depression we’re in is essentially gratuitous: we don’t need to be suffering so much pain and destroying so many lives. We could end it both more easily and more quickly than anyone imagines — anyone, that is, except those who have actually studied the economics of depressed economies and the historical evidence on how policies work in such economies.


The truth is that recovery would be almost ridiculously easy to achieve: all we need is to reverse the austerity policies of the past couple of years and temporarily boost spending. Never mind all the talk of how we have a long-run problem that can’t have a short-run solution—this may sound sophisticated, but it isn’t. With a boost in spending, we could be back to more or less full employment faster than anyone imagines.

But don’t we have to worry about long-run budget deficits? Keynes wrote that “the boom, not the slump, is the time for austerity.” Now, as I argue in my forthcoming book—and show later in the data discussed in this article—is the time for the government to spend more until the private sector is ready to carry the economy forward again. At that point, the US would be in a far better position to deal with deficits, entitlements, and the costs of financing them.
 

Meanwhile, the strong measures that would all go a long way toward lifting us out of this depression should include, among other policies, increased federal aid to state and local governments, which would restore the jobs of many public employees; a more aggressive approach by the Federal Reserve to quantitative easing (that is, purchasing bonds in an attempt to reduce long-term interest rates); and less timid efforts by the Obama administration to reduce homeowner debt...

The politics of achieving that?  Okay, that's more difficult. Krugman discusses the evidence for his argument and the obstacles to achieving rational policy to end what he forthrightly calls "this depression" at length in his current New York Review of Books article, HERE.

"Rebellion at the Fed"

Matthew O'Brien at The Atlantic:

Chicago Federal Reserve president Charles Evans doesn't look the part of a heretic. But in the cozy, conservative club that is central banking, he certainly qualifies. While most of his colleagues at the Fed have recently taken an even more hawkish turn, Evans remains a champion of additional monetary stimulus. And on Tuesday he took an even bigger step: He became the first sitting Fed member to endorse nominal GDP (NGDP) level targeting... 

 The Fed famously has a dual mandate: It's supposed to promote the maximum level of employment consistent with its two-percent inflation target. In reality, this dual mandate often looks more like a single inflation mandate. NGDP level targeting would do away with this problem by rolling the mandates together. And right now, that would mean a much more aggressive Federal Reserve... 

In the end, this is really a clash over inflation. After all, we're talking about central bankers here. The first group is worried that by effectively printing more money to goose the economy (better known to in policy circles as "quantitative easing"), the Fed has already created future inflation. The second group isn't worried about the money that's already been printed, but believes that running the presses any further will create future inflation. Finally, a third group is worried that if the Fed doesn't print more money, there won't be enough inflation to keep the economy healthy. Evans belongs to the last camp.

European Austerity - Wrong Diagnosis & Wrong Medicine

Former Treasury Secretary & Harvard-based charmer Larry Summers explains why austerity schemes give him a headache - read his entire piece at the Financial Times HERE:

Unfortunately, Europe has misdiagnosed its problems and set the wrong strategic course. Outside Greece, which represents only 2 per cent of the eurozone, profligacy is not the root cause of problems. Spain and Ireland stood out for their low ratios of debt to gross domestic product five years ago with ratios well below Germany. Italy had a high debt ratio but a very favourable deficit position. Europe’s problem countries are in trouble because the financial crisis under way since 2008 has damaged their financial systems and led to a collapse in growth. High deficits are much more a symptom than a cause of their problems.

Treating symptoms rather than causes is usually a good way to make a patient worse. So it is in Europe. Its financial problems stem from lack of growth...

Stiglitz: "We're in the 5th year of crisis and we haven't solved it."

Nobel Prize-winning economist Joseph Stiglitz on academic economists and the current economic crisis:

Joe Stiglitz at Occupy Wall Street

Academic economists played a big role in causing the crisis. Their models were overly simplified, distorted, and left out the most important aspects. Those faulty models then encouraged policy-makers to believe that the markets would solve all the problems. 

Before the crisis, if I had been a narrow-minded economist, I would have been very pleased to see that academics had a big impact on policy. But unfortunately that was bad for the world. After the crisis, you would have hoped that the academic profession had changed and that policy-making had changed with it and would become more skeptical and cautious. You would have expected that after all the wrong predictions of the past, politics would have demanded from academics a rethinking of their theories. I am broadly disappointed on all accounts...

Within academia, those who believed in free markets before the crisis still do so today. A few people have shifted, and I want to give credit to them for saying: “We were wrong. We underestimated this or that aspect of our models.” But for the most part, the response was different. Believers in the free market have not revised their beliefs...

If my forecast about the consequences of austerity is correct, you will see a new round of protest movements. We had a crisis in 2008. We are now in the fifth year of crisis, and we haven’t solved it. There’s not even a light at the end of the tunnel. When we come to that conclusion, the discourse will change...

Foreclosures on the rise

HousingWire:

More than half of U.S. major cities showed an increase in foreclosures since the end of last year, according to RealtyTrac.

Mortgage servicers put a freeze on the process in 2010 to correct affidavit problems and resolve investigations from federal regulators and the state attorneys general. A $25 billion settlement approved in March brought new standards and relief requirements for struggling homeowners.

As servicers adjusted, foreclosures began to increase in different areas of the country during the first quarter.

Filings increased in 26 of 50 largest cities, led by Pittsburgh, where foreclosures jumped 49% from the previous three months.

Heather McGhee of Demos Talks With Bill Moyers on Student Debt

Via truthout

Breakin' Down Student Loan Interest Rates

Jimmy Fallon and a friend, 'splain it:

Why does the GOP lie so much? Because when they tell the truth, it doesn't go well...

Hispanic radio talk show host, Fernando Espuelas:  "(T)here’s some analysis now that is being published talking about the Bush years being the slowest period of job creation since those statistics were created. Is this a different program or is this that program just updated?"
 
Alexandra Franceschi, Spokeswoman for the Republican National Committee: "I think it’s that program, just updated."

"No End in Sight" to Unemployment

James Surowiecki at The New Yorker:

The talk in Washington these days is all about budget deficits, tax rates, and the “fiscal crisis” that supposedly looms in our near future. But this chatter has eclipsed a much more pressing crisis here and now: almost thirteen million Americans are still unemployed. Though the job market has shown some signs of life in recent months, the latest figures on new jobs and on unemployment-insurance claims have been decidedly unimpressive. We are stuck with an unemployment rate three points higher than the postwar average, and the percentage of working adult Americans is as low as it’s been in almost thirty years. What’s most troubling is that so much of this unemployment is long-term. Forty per cent of the unemployed have been without a job for six months or more—a much higher rate than in any recession since the Second World War—and the average length of unemployment is about forty weeks, a number that has changed very little since 2010. The economic recovery has now lasted nearly three years, but for millions of Americans it hasn’t yet begun. 

Being unemployed is even more disastrous for individuals than you’d expect. Aside from the obvious harm—poverty, difficulty paying off debts—it seems to directly affect people’s health, particularly that of older workers. A study by the economists Till von Wachter and Daniel Sullivan found that among experienced male workers who lost their jobs during the 1981-82 recession mortality rates soared in the year after the layoffs. And the effects of unemployment linger. Many studies have shown that the lifetime earnings of workers who become unemployed during a recession are permanently reduced, and von Wachter and Sullivan found that mortality rates among laid-off workers were much higher than average even twenty years afterward.

"Is high public debt harmful for economic growth?"

 VOX:

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.
-- Mark Twain

Do high levels of public debt reduce economic growth? This is an important policy question. A positive answer would imply that, even if effective in the short-run, expansionary fiscal policies that increase the debt-to-GDP ratio may reduce long-run growth, and thus partly (or fully) negate the positive effects of the fiscal stimulus.

Most policymakers do seem to think that debt reduces growth. This view is in line with the results of a growing empirical literature which shows that there is a negative correlation between public debt and economic growth, and finds that this correlation becomes particularly strong when public debt approaches 100% of GDP (Reinhart and Rogoff 2010a, 2010b; Kumar and Woo 2010; Cecchetti et al. 2011).

Debt and Growth - What Causes What?

The Case Against Lehman Brothers

Very interesting 60 Minutes piece on the Lehman Brothers downfall:

  Via Economist's View

The virtues of expansionary monetary policy

Professor Krugman, at his NYT blog:

These past few years have been lean times in many respects — but they’ve been boom years for agonizingly dumb, pound-your-head-on-the-table economic fallacies. The latest fad — illustrated by this piece in today’s WSJ — is that expansionary monetary policy is a giveaway to banks and plutocrats generally. Indeed, that WSJ screed actually claims that the whole 1 versus 99 thing should really be about reining in or maybe abolishing the Fed. And unfortunately, some good people... have bought into at least some version of this story.

What’s wrong with the idea that running the printing presses is a giveaway to plutocrats? Let me count the ways.

Happy Tax Day!

From American Prospect and Demos:

1. The government has collected less in taxes as a proportion of the economy in the past three years than it has in any three-year period since World War II, and tax rates are at historic lows.

2. One out of three multi-millionaires pays a lower percentage of their income in taxes than the vast majority of people making $60,000 a year.

3. Chairman Paul Ryan’s budget proposal, which has been praised by Governor Romney, would deliver benefits to people with incomes over $1 million that are 10 times greater than the benefits to those earning $40,000 or less.

The Buffet Rule filibustered by GOP's Senate minority

Mitt declares his stay-at-home wife Ann "lackng the dignity of work"

"Big news week" for FOX, GOP hacks and a desperate Romney campaign boils down to a Hypocrites' Kerfuffle. Up w/ Chris Hayes has it:

Visit msnbc.com for breaking news, world news, and news about the economy

Europe's Disastrous Austerity Strategy

 Paul Krugman expresses deep, deep misgivings about Europe's chances to avert even worse economic calamity:

Just a few months ago I was feeling some hope about Europe. You may recall that late last fall Europe appeared to be on the verge of financial meltdown; but the European Central Bank, Europe’s counterpart to the Fed, came to the Continent’s rescue. It offered Europe’s banks open-ended credit lines as long as they put up the bonds of European governments as collateral; this directly supported the banks and indirectly supported the governments, and put an end to the panic. 

The question then was whether this brave and effective action would be the start of a broader rethink, whether European leaders would use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place. 

But they didn’t. Instead, they doubled down on their failed policies and ideas. And it’s getting harder and harder to believe that anything will get them to change course. 

The "War" Party

 

     (Nick Anderson @ Houston Chronicle)

Occupy Wall Street (1765 Edition)

Letter to the New York Gazette, 1765 that shows the "We Are the 99%" Movement to be as American as apple pie:

"Some Individuals of our Countrymen, by the Smiles of Providence or some other Means, are enabled to roll in their four–wheel'd Carriages, and can support the Expence of good Houses, rich Furniture, and Luxurious Living. But, is it equitable that 99, or rather 999 should suffer for the Extravagance or Grandeur of one? Especially when it is consider’d, that Men frequently owe their Wealth to the Impoverishment of their Neighbours."

Pres. Obama makes Wall Street's "enemies list" - Good for him!

 Bill Moyers and Michael Winship @ Salon:

Benjamin Franklin, who used his many talents to become a wealthy man, famously said that the only things certain in life are death and taxes.  But if you’re a corporate CEO in America today, even they can be put on the back burner – death held at bay by the best medical care money can buy and the latest in surgical and life extension techniques, taxes conveniently shunted aside courtesy of loopholes, overseas investment and governments that conveniently look the other way.

In a story headlined, “For Big Companies, Life Is Good,” the Wall Street Journal reports that big American companies have emerged from the deepest recession since World War II more profitable than ever: flush with cash, less burdened by debt, and with a greater share of the country’s income. But, the paper notes, “Many of the 1.1 million jobs the big companies added since 2007 were outside the U.S. So, too, was much of the $1.2 trillion added to corporate treasuries.”

To add to this embarrassment of riches, the consumer group Citizens for Tax Justice reports that more than two dozen major corporations  — including GE, Boeing, Mattel and Verizon — paid no federal taxes between 2008 and 2011. They got a corporate tax break that was broadly supported by Republicans and Democrats alike.

Corporate taxes today are at a 40-year-low — even as the executive suites at big corporations have become throne rooms where the crown jewels wind up in the personal vault of the CEO.

Then look at this report in The New York Times: Last year, among the 100 best-paid CEOs, the median income was more than 14 million, compared with the average annual American salary of $45,230. Combined, this happy hundred executives pulled down more than two billion dollars.

What’s more, according to the Times “… these CEO’s might seem like pikers. Top hedge fund managers collectively earned $14.4 billion last year.”  No wonder some of them are fighting to kill a provision in the recent Dodd-Frank reform law that would require disclosing the ratio of CEO pay to the median pay of their employees. One never wishes to upset the help, you know. It can lead to unrest.

That’s Wall Street — the metaphorical bestiary of the financial universe.  But there’s nothing metaphorical about the earnings of hedge fund tigers, private equity lions, and the top dogs at those big banks that were bailed out by tax dollars after they helped chase our economy off a cliff.

So what do these big moneyed nabobs have to complain about? Why are they whining about reform? And why are they funneling cash to super PACs aimed at bringing down Barack Obama, who many of them supported four years ago?