The Inspector General's Tale

 Gretchen Morgenson @ NYT:

Nearly four years after Washington began its huge rescues of banks with taxpayer dollars, an important player in this, one of the great financial dramas of all time, is offering a damning account of how the Bush and Obama administrations handled the whole episode. 

He is Neil Barofsky. Remember him — the man whose job it was to police the $700 billion Troubled Asset Relief Program? And his new account, a book titled “Bailout” (Free Press), to be published on Tuesday, is a must-read. 

His story is illuminating, if deeply depressing. We tag along with Mr. Barofsky, a former federal prosecutor, as he walks into a political buzz saw as the special inspector general for TARP. 

Government officials, he says, eagerly served Wall Street interests at the public’s expense, and regulators were captured by the very industry they were supposed to be regulating. He says he was warned about being too aggressive in his work, lest he jeopardize his future career. 

Romney's remarkable distance from the values of normal Americans

Professor Krugman on Willard's attitude toward the little people and his fraudulent, crackpot characterizations of President Obama:

It’s no secret that, at this point, many of America’s richest men — including some former Obama supporters — hate, just hate, President Obama. Why? Well, according to them, it’s because he “demonizes” business — or as Mitt Romney put it earlier this week, he “attacks success.” Listening to them, you’d think that the president was the second coming of Huey Long, preaching class hatred and the need to soak the rich. 

Needless to say, this is crazy. In fact, Mr. Obama always bends over backward to declare his support for free enterprise and his belief that getting rich is perfectly fine. All that he has done is to suggest that sometimes businesses behave badly, and that this is one reason we need things like financial regulation. No matter: even this hint that sometimes the rich aren’t completely praiseworthy has been enough to drive plutocrats wild. For two years or more, Wall Street in particular has been crying: “Ma! He’s looking at me funny!” 

Wait, there’s more. Not only do many of the superrich feel deeply aggrieved at the notion that anyone in their class might face criticism, they also insist that their perception that Mr. Obama doesn’t like them is at the root of our economic problems. Businesses aren’t investing, they say, because business leaders don’t feel valued. Mr. Romney repeated this line, too, arguing that because the president attacks success “we have less success.” 

This, too, is crazy (and it’s disturbing that Mr. Romney appears to share this delusional view about what ails our economy). There’s no mystery about the reasons the economic recovery has been so weak. Housing is still depressed in the aftermath of a huge bubble, and consumer demand is being held back by the high levels of household debt that are the legacy of that bubble. Business investment has actually held up fairly well given this weakness in demand. Why should businesses invest more when they don’t have enough customers to make full use of the capacity they already have? 

Seeing through the "Simpson-Bowles consensus"

The much vaunted Bowles-Simpson anti-deficit commission came to no agreement on a plan - but that hasn't stopped the chairmen, corporate Democrat Erskine Bowles and testy former-congressman Alan "Grandpa" Simpson, from using their names to promote a package under the "Simpson-Bowles Commission" brand. It's not a good plan, primarily because it attempts to cap government revenues arbitrarily, cuts Social Security and raises the retirement age.  

While it's not nearly as crackpot or cruel as the "Ryan Plan" pushed by the boyish Ayn Rand acolyte who is a hero of the Tea Party Right, "Simpson-Bowles" is just the kind of "deficit reduction" one would expect from a Democrat from the investment banker wing of the party, allied with a mean-spirited, financially-cushioned-by-a-government-pension old coot who considers the AARP a threat to America and  wants to raise the retirement age for folks who actually have to work hard for a living to 70.

In polite circles where Paul Ryan's Tea Party patent medicine is viewed as a bit too toxic, "Simpson-Bowles" has  become shorthand for some imaginary cross-partisan "consensus" (even though it's rejected emphatically among GOP pols captured by dogmatic anti-tax ideology spread by a spectrum of interests from the Chamber of Commerce to far-right cranks like the "No Tax Increase" Pledge-Master Grover Norquist.)  Typically "deep-thinker" mediocrities like Tom Friedman and David Brooks will both refer to "Simpson Bowles" as the Gold Standard for fiscal strategies moving forward. Even Democratic Minority leader Nancy Pelosi has suggested she "could live with Simpson-Bowles."  This mainstreaming of "Simpson-Bowles" cutting Social Security and arbitrarily limiting government spending in a period when the economy calls for more and our infrastructure is in shambles is a trend that needs to be pushed back.  The proposal being pushed by these two commission appointees is not acceptable.


Ethan Pollack at Economic Policy Institute, who served as a Bowles-Simpson Commission staffer, explains the flaws of the anti-deficit strategy being pushed by the chairmen and embraced by many in the pundit class:

Yesterday, a selection of past members of the Bowles-Simpson commission, anti-deficit groups like the Peterson Foundation and the Committee for a Responsible Federal Budget, and a handful of retired politicians launched the Fix the Debt Campaign in order to push a deficit reduction package in line with the original Bowles-Simpson framework (full disclosure: I served on the Bowles-Simpson commission staff in fall 2010). The event was characterized by high-minded rhetoric about coming together and solving problems and little in the way of specific policies, a reflection of the fact that in the year-and-a-half since its initial release, the Bowles-Simpson proposal has become more a symbol of seriousness and bipartisanship than an actual set of discrete recommendations that can be analyzed.

This is unfortunate because the proposal itself is pretty detailed, and although it has some good components, it also has some major flaws that—without serious revision—should render it an inappropriate template for deficit reduction.

1) It would weaken the economy by cutting way too fast

The cost of electoral disaster in 2010 and the stakes in 2012

Economist Brad DeLong:

Suppose that Obama's voters had turned out in 2010 to vote for down ballot offices in as large numbers as they turned out in 2008. Where would the US economy be now?

There would have been no tea party Republican Governors' slashing of state employment, with attendance multiplier effect putting downward pressure on there and neighboring economies. There would have been no debt ceiling crisis to add substantially to economic uncertainty and increase the flight to quality. There would have been Larry Summers infrastructure bank, which would now be pumping out $200 billion a year in badly needed infrastructure investment.

Add all those up, and you get on economy with between $300 billion and $600 billion more of annual spending, depending on the multiplier. That is an economy with unemployment rate in the low 7s or the 6 percents. That's an economy growing at 3 to 4% per year instead of 1 to 2% per year. That some economy with a lower projected deficits and debt to GDP ratio then the economy we have today.

The failure of marginal Obama 2008 voters to turn out for down ballot candidates in 2010 was a disaster for America.

The election of Mitt Romney and a supporting congress this November would be a much bigger disaster for America. Think of the trainwreck that has been the Conservative government in Britain since 2010. And square it.

Mitt Romney & GOP 2012: Where The Money Comes From 2

Rachel Maddow looks at the Romney/GOP Deep-Pockets PacMan. Sheldon Adelson's foreign casino empire is a Chinese-government-sheltered enterprise steeped in corruption and bribery:

 

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Mitt Romney: Where the money comes from

It's useful, given the disingenuous (at best) pushback from the Romney campaign sewer against President Obama's reminder that the US government has, as a matter of American History 101, assisted our "job creators" in succeeding, from the railroads to the internet, to examine just how the Champion of "Private Equity" - Willard Mitt Romney - managed the Salt Lake City Olympics.  This episode is an activity of his that has come under little-to-zero scrutiny, other than as a "fine whine" to dodge any responsibility or benefit as CEO and 100% shareholder of Bain Capital from some job-killing investment decisions he doesn't want to account for or is embarrassed by that transpired after 1999. This by Donald Bartlett and James Steele from the Sports Illustrated archives (via Charles Pierce) :

The 996% Man

Federal spending for the Salt Lake City Games will average $625,000 for each of the 2,400 athletes who will compete. (Not a penny of it will go to the athletes.) That's a 996% increase from the $57,000 average for the 1996 Atlanta Olympics. It's a staggering 5,582% jump from the $11,000 average for the 1984 Summer Games in Los Angeles. Again, these are inflation-adjusted dollars. (If the minimum wage had gone up at the same pace since '84, the average McDonald's hamburger flipper today would earn $190 an hour.)

A 996% increase in Federal Spending...for Olympic games that Willard claims he "rescued!"  Gotta love those "free enterprise" Republicans like Willard.  The hypocrisy reeks! Can we afford to let him try to "rescue" our nation's economy with a record like that?

(Check out Charles Pierce entire piece at Esquire as well as the amazing archived article from SI.)
 

Mitt Romney: "Where the Money Lives"

Vanity Fair: "For all Mitt Romney’s touting of his business record, when it comes to his own money the Republican nominee is remarkably shy about disclosing numbers and investments. Nicholas Shaxson delves into the murky world of offshore finance, revealing loopholes that allow the very wealthy to skirt tax laws, and investigating just how much of Romney’s fortune (with $30 million in Bain Capital funds in the Cayman Islands alone?) looks pretty strange for a presidential candidate."  Read the entire investigative piece on Romney's shadowy finances HERE.

Let’s try to stick to the real world

Aaron Carrol at The Incidental Economist responds to a fact-challenged hit piece on Medicaid by Tyler Cowan in the NYTs:

I get a bit  annoyed when people claim that we can’t “afford” more government intervention or, god-forbid, single-payer. That kind of statement willfully ignores the fact that every country that has MORE government intervention spends LESS.

I get a bit annoyed by the claim that an expansion of government insurance leads to lines and waiting when lots of countries have universal access and less of a wait-time problem than we do. Moreover, almost no one makes this argument when we expand private insurance, only government.

I get a bit annoyed by blanket claims that doctors won’t accept Medicaid. Such statements often ignore the fact that the majority of Medicaid beneficiaries are children and pregnant women. We don’t need all types of doctors to accept Medicaid patients in equal numbers. They also ignore the fact that lots of doctors won’t accept new patients with Medicare or private insurance, either.

source: Washington Post-ABC News Poll, 4/14-17/11

I get a bit annoyed when people just claim government programs are “unpopular”. Like Medicare? I don’t think so. Is there any evidence that Medicaid is unpopular? I’d like to see it. Personally, I think that the fact that (a) all 50 states have bought in over time and (b) the Supreme Court just rules that threatening to take it away is “coercive” speaks to the opposite. Additionally, polling shows the opposite ...

I get a bit annoyed at the blanket acceptance of the awesomeness of the free market in health care, when there is no phenomenal evidence of its success. And again, those countries with less free market are cheaper, universal, and often just as good. So why are we always trying to run away from them?

Look, I get that people may not like the political implications of those systems. They may not like the governments that produce them. They may not like the lack of choice inherent in such systems. They may not like the potential  limitations within them for making money, and therefore for innovation. But we need to stop making stuff up about them.

"Romney’s Bain Yielded Private Gains, Socialized Losses"

 Anthony Luzzatto Gardner @ Bloomberg:

Mitt Romney touts his business acumen and job-creation record as a key qualification for being the next U.S. president.

What’s clear from a review of the public record during his management of the private-equity firm Bain Capital from 1985 to 1999 is that Romney was fabulously successful in generating high returns for its investors. He did so, in large part, through heavy use of tax-deductible debt, usually to finance outsized dividends for the firm’s partners and investors. When some of the investments went bad, workers and creditors felt most of the pain. Romney privatized the gains and socialized the losses.

What’s less clear is how his skills are relevant to the job of overseeing the U.S. economy, strengthening competitiveness and looking out for the welfare of the general public, especially the middle class.

Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, later wound up in bankruptcy. It’s worth examining some of them to understand Romney’s investment style at Bain Capital.

The Wall Street Culture of Corruption

From "Up w/Chris Hayes"

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"The greatest lie ever told..."

The Ed Show blog exposes the "big lie" - recyled daily by Mitt Romney, the GOP and the FOX News/wingnut blog nexus - that President Obama has brought the country higher taxes:

The greatest lie ever told, the ones Republicans most want you to believe, is that President Obama is a classic tax and spend liberal.

In truth, under Obama taxes have hit a 30-year low, in part because of tax cuts enacted by the president as part of the stimulus package.

Average federal tax rates are lower than they were under Ronald Reagan, George H.W. Bush, Bill Clinton and George W. Bush.

These are numbers from the Congressional Budget Office and it doesn't matter if you look at just income taxes or all federal taxes combined, under President Obama, taxes are at a 30 year low.

The CBO report only goes through 2009, but since then, President Obama has lowered taxes even more with the payroll tax cut...

The GOP's lies about taxes

 Robert Reich:

To hear the media report it, President Obama is proposing a tax increase on wealthy Americans. That’s misleading at best. He’s proposing that everyone receive a continuation of the Bush tax cuts on the first $250,000 of their incomes. Any dollars they earn in excess of $250,000 will be taxed at the old Clinton-era rates.

Get it? Everyone is treated exactly the same. Everyone gets a one-year extension of the Bush tax cut on the first $250,000 of income. No “class warfare.”

Yet regressive Republicans want Americans to believe differently. The editorial writers of the Wall Street Journal say the President wants to extend the Bush tax cuts only “for some taxpayers.” They urge House Republicans to extend the Bush tax cuts for “everyone” and thereby put Senate Democrats on the spot by “forcing them to choose between extending rates for everyone and accepting Mr. Obama’s tax increase.”

Pure demagoguery. 

Regressives also want Americans to think the President’s proposal would hurt “tens of thousands of job-creating businesses,” as the Journal puts it.

More baloney.

"The basic structure of the world’s financial system has once again been exposed as fundamentally broken..."

Matt Yglesias:

You may not be interested in the Libor—the London Interbank Offered Rate—but the Libor is interested in you. Even though the typical American is never going to seek an interbank loan in London, the number is used as a benchmark for a wide range of other financial instruments.

Credit instruments with variable interest rates—private student loans, auto loans, adjustable-rate mortgages, credit cards, etc.—need to be indexed to some underlying marker of the overall cost of funds within the financial system. Often that’s something called the “prime rate” set here in the United States, but it’s also frequently the Libor.

So growing evidence that Libor numbers have been deliberately manipulated by banks for years means that millions of people have been paying the wrong interest rate on all manner of financial products. Vast sums of money have been wrongly snatched from innocent people and created equally vast undeserved windfalls for others. The basic structure of the world’s financial system has once again been exposed as fundamentally broken...

Public sector austerity is killing economic recovery

Heidi Shierholz and Josh Bivens at Economic Policy Institute explain that cutbacks in the public sector are the key to understanding the current stagnant "recovery" that has turned deep recession into lingering depression.  The private sector - while still not robust enough, given the deep trough created by the 2008 financial meltdown - is recovering at a pace consistent with previous recessions.  But prior recessions weren't accompanied by cutbacks in state and local employment that we are currently seeing.  As Bivens and Sheirholz demonstrate, this strangling of the public sector is the single biggest difference from previous recessions that weighs upon current potential recovery:

(T)he most glaring weakness in the current recovery relative to previous ones is the unprecedented public-sector job loss seen over the last three years. The figure belowshows that private sector job growth in the current recovery is close to that of the recovery following the early 1990s recession and is substantially stronger than the recovery following the early 2000s recession.



Yet, as the figure below shows, the public sector has seen massive job loss in the current recovery—largely due to budget cuts at the state and local level — which represents a serious drag that was not weighing on earlier recoveries.



How many more jobs would we have if the public sector hadn’t been shedding jobs for the last three years?  The simplest answer is that the public sector has shed 627,000 jobs since June 2009.  However, this raw job-loss figure understates the drag of public-sector employment relative to how the economy functions normally.

LIBOR Ruckus

More on LIBOR - an entertaining (believe it or not)
LIBOR scandal segment on UP w/ Chris Hayes:

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LIBOR - More dirty banksters' laundry

Joe Nocera at NYTs:

Here in the early stages of the Libor scandal — and, yes, this thing is far from over — there are two big surprises.

The first is that the bankers, traders, executives and others involved would so openly and, in some cases, gleefully collude to manipulate this key interest rate for their own benefit. With all the seedy bank behavior that has been exposed since the financial crisis, it’s stunning that there’s still dirty laundry left to be aired. We’ve had predatory subprime lending, fraudulent ratings, excessive risk-taking and even clients being taken advantage of in order to unload toxic mortgages. 

Yet even with these precedents, the Libor scandal still manages to shock. Libor — that’s the London interbank offered rate — represents a series of interest rates at which banks make unsecured loans to each other. More important, it is a benchmark that many financial instruments are pegged to. The Commodity Futures Trading Commission, which doggedly pursued the wrongdoing and brought the scandal to light, estimates that some $350 trillion worth of derivatives and $10 trillion worth of loans are based on Libor. 

With so much depending on this one critical interest rate, there shouldn’t ever be a question about its reliability. Yet beginning in 2005, according to the C.F.T.C. and the Justice Department, derivative traders at Barclays, the too-big-to-fail British bank, with the active involvement of traders at other yet-unnamed banks, persuaded their fellow bank employees to submit Libor numbers that were shaded in ways that would help ensure their trades were profitable. Even Robert Diamond Jr., the former Barclays chief executive who lost his job over the scandal, said that reading the traders’ e-mails made him “physically ill.” 

Where's the ACA tax?

James Kwak at Baseline Scenario explains the "tax" impact of ACA:

So the new Republican argument (which Mitt Romney was against before he was in favor of it) is that the individual mandate is an oppressive tax on the middle class. Cute, isn’t it, adopting John Roberts’s argument?

First of all, there’s the little matter that the word “tax” in legal doctrine means something different from the word “tax” in ordinary English. And there’s nothing wrong with that. Plenty of words have precise legal meanings that would be foreign to ordinary English speakers, like “negligent,” “reckless,” “material,” and so on, and billions of dollars turn on those precise legal meanings. But that’s not going to sway many people, so let’s go to the numbers.

The ACA "tax" and the insanity of contemporary "conservatism"

The professional Right truly don't have a clue, will say anything no matter how absurd, "can't handle the truth" and are totally in the grip of their unhinged resentments and hate-mongering:

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ACA & SCOTUS

Jeffrey Toobin at The New Yorker has a good, cautionary post-mortem on the "controversial" decision by Justice Roberts to split his decision and uphold health care reform as constitutional under the taxing powers of Congress:

When Chief Justice John Roberts emerged from behind the red curtain and took his seat at the center of the Supreme Court bench last Thursday, he did not look like his usual self. The brisk confidence of the Midwestern burgher was absent, replaced by a more sombre mien. His eyes were red-rimmed and downcast, his voice nearly a mumble. The announcement of the Court’s decision in National Federation of Independent Business v. Sebelius was clearly an unhappy duty for him. It’s easy to see why. By affirming the constitutionality of the Affordable Care Act—the legislative cornerstone of Barack Obama’s Presidency—Roberts was disappointing those closest to him. Roberts was a professional Republican: a staffer in the Reagan and Bush I Administrations, a judge and a Justice thanks to Bush II. And here, alone and exposed, Roberts joined with the Court’s four liberals to dash the Republican Party’s most fervent wishes. It was a singular act of courage.

One hopes, then, that it is not too churlish to point out that this should have been an easy case. The core dispute before the Court involved the portion of the A.C.A. which requires all Americans, eventually, to have health insurance. Failure to comply with the so-called individual mandate subjects scofflaws to a modest fee, to be paid when they file their tax returns. The basic idea for the mandate had bounced around policy circles for years, usually with Republican sponsors. As governor of Massachusetts, Mitt Romney implemented an individual-mandate system; as President, Obama based his proposal, more or less, on Romney’s. For two decades—from the mandate’s début in a policy proposal released by the right-wing Heritage Foundation to shortly before Congress voted on the A.C.A.—no one suggested that there was any constitutional problem with the idea. This is because there isn’t one.

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 or...an 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.

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 debt...to bail out the banks.  If ever there was evidence of the fraudulence and class warfare foundations of "austerity economics," this is it. 

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.”

Eliminating state income taxes doesn't help growth or revenues

Bloomberg:

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

" 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).

Business Insider, St. Louis Fed

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.

Business Insider, St. Louis Fed

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.

Business Insider, St. Louis Fed

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...

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...

PRESSURE ON WAGES

"Twilight of the Elites"

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

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"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.

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.

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.

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.

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

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

At NYTs, Former Council of Economic Advisors Chair Christina Romer:

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.