CNN: A News Junkie's YouTube

It occurred to me today.  I don't go to CNN.com for serious news about the world.  I go there for wackie videos or stories about the man eating elvis impersonator who was actually a cat on human growth hormone, particularly when I'm feeling bored or looking for a bit of cheap entertainment.  Did you check the link?  Did you?  Totally fooled you didn't I?  But you checked, not because of the improbability of seing a cat on HGH impersonating Elvis and eating a human, you checked because you thought you might actually see such a thing on CNN.  Today they've posted videos about Leopard attacks, yesterday, the top ten deer attacks of 2010.  Is it worse that I go to this site to get this information, or worse that this once credible news source uses these inane come-ons to drive up site traffic.

My post will prop up site circulation for CNN.  So will the fact that I will have used CNN, a total of 10 times.  Such is the magic (CNN) of search engine engineering (CNN rocks!)  Honestly, I'm not really disappointed with CNN.  The news network that I grew up with is gone, but then again, I preferred Dan Rather at CBS anyway, he was the anchor of my youth, and the only newsman for whom I ever felt any real connection to (CNN sucks!)  It's really just a sad commentary on (CNN) squandered intellectual capital.  Good luck and goodbye CNN, and if a man eating Elvis impersonator ever shows up, you can bet I'll post the link ASAP.

The Shoelace by Charles Bukowski

The Shoelace



a woman, a
tire that’s flat, a
disease, a
desire: fears in front of you,
fears that hold so still
you can study them
like pieces on a
chessboard…
it’s not the large things that
send a man to the
madhouse. death he’s ready for, or
murder, incest, robbery, fire, flood…
no, it’s the continuing series of small tragedies
that send a man to the
madhouse…
not the death of his love
but a shoelace that snaps
with no time left …
The dread of life
is that swarm of trivialities
that can kill quicker than cancer
and which are always there -
licence plates or taxes
or expired driver’s license,
or hiring or firing,
doing it or having it done to you, or
roaches or flies or a
broken hook on a
screen, or out of gas
or too much gas,
the sink’s stopped-up, the landlord’s drunk,
the president doesn’t care and the governor’s
crazy.
lightswitch broken, mattress like a
porcupine;
$105 for a tune-up, carburetor and fuel pump at
sears roebuck;
and the phone bill’s up and the, market’s
down
and the toilet chain is
broken,
and the light has burned out -
the hall light, the front light, the back light,
the inner light; it’s
darker than hell
and twice as
expensive.
then there’s always crabs and ingrown toenails
and people who insist they’re
your friends;
there’s always that and worse;
leaky faucet, christ and christmas;
blue salami, 9 day rains,
50 cent avocados
and purple
liverwurst.

or making it
as a waitress at norm’s on the split shift,
or as an emptier of
bedpans,
or as a carwash or a busboy
or a stealer of old lady’s purses
leaving them screaming on the sidewalks
with broken arms at the age of 80.

suddenly
2 red lights in your rear view mirror
and blood in your
underwear;
toothache, and $979 for a bridge
$300 for a gold
tooth,
and china and russia and america, and
long hair and short hair and no
hair, and beards and no
faces, and plenty of zigzag but no
pot, except maybe one to piss in
and the other one around your
gut.

with each broken shoelace
out of one hundred broken shoelaces,
one man, one woman, one
thing
enters a
madhouse.

so be careful
when you
bend over.

----it's been one of those months.

The American People

I'm so damn sick of this.  Disclosure:  This is a rant.

Can we please stop talking about The American People?  It's such bullpuckey.  There is no American People, there are 280 million completely different people, who poll differently every month on a variety of issues, and in polls that are poorly or leadingly worded to begin with.  And that doesn't even begin to address the sample.

No one.  Not me.  Not you.  Not Sean Hannity, not Bill Maher, not Chris Mathews, not Tucker Carlson, not Keith Olbermann, not Rush Limbaugh, not Rachel Maddow, not Sarah Palin.  Not the President, not the former president, or any former president.

Anytime someone uses this term your ears should perk up and your bullshit bell should start ringing.  It's a rhetorical trick and it's completely meaningless.

Tax Cuts: Apologists in Full Swing

So the first day was anger, and then we skipped two stages of grief and went right to acceptance?  The real tragedy here is that there was never any evidence on the other side of the debate.  The two main arguments for keeping the tax cuts were that they would hurt employment, and that it would decrease overall investment.

The first point was picked apart by Andrew Leonard at Salon yesterday, "that, at best, extending all the tax cuts would lower the U.S. unemployment rate by an additional 0.1 percent by the end of 2012" Add to that the fact that American's tax burden is the lowest its been in 60 years.  American's corporate tax burden is the lowest it's been in 60 years by A LOT.  See the gap between the middle blue hue and the darkest blue, see how it gradually disappears?

The second point is defrayed by the simple fact that corporations are getting the highest profits ever recorded (link to Department of Commerce press release), and are getting the largest pay checks ever reported, and it doesn't matter if 10% of the country is unemployed, because they're obviously the ones who deserve to be, because corporate income taxes are just 11% of 2010's Federal budget receipts, whereas individual and social insurance count for another 82%.  And with all of that money, the Fed still has to grease the wheels with quantitative easing because corporations are hoarding they dolla bills instead of spending them!

And now they're framing this as a New Stimulus bill (link to David Leonhardt's Op-Ed in the NYTimes.)  Right, good frame Democrats, it's not like the Stimulus plan is the most hated American program in the past decade when only 29% of the people think it accomplished anything.  How?  Well, because of the unemployment benefits for starters.  How else?  Because of the 2% cut in the payroll tax.  My prof spoke about this last night, and was completely mystified, couldn't think of any stimulative effect this was going to have.  And in fact, since the payroll tax pays into Social Security is more likely to reduce American's retirement funds than anything else.  My favorite line:  "In exchange, Republicans agreed to extend unemployment benefits, cut payroll taxes and business taxes, and extend a grab bag of tax credits for college tuition and other items." Oh, I'm sure Obama had to suck a couple to get the Republicans to agree to a cut in business taxes.  Puhleeease!

One last point.  I've soliloquised before on why I think tax cuts are the worst kind of stimulus.  I won't belabor the point.  Standard economic theory has proven that the multiplier is much higher for direct government spending than it is for tax cuts.  While stimulus was always a terrible a word, weak, pitiful, indirect, and bureaucratic, this only qualifies as a stimulus in the most threadbare sense of the term.

For the record, I'm told my vernacular is somewhat offensive here.  I have the highest esteem for the President, and there's no shame in "sucking a couple" of lollipops.

Also, I'd like to add a correction to yesterday's post.  I indicated that the expiry of the tax cuts would have an immediate effect come April.  I asked my tax professor about this.  He said that the effects would occur immediately, bringing higher government revenues to bear immediately.  Remember that pay-as-you-go means just that.  Tax Day is just when you find out what, how much, if anything, you may have overpaid.  Also, even if taxes were to go up, if the Republican Congress were to revisit the issue and get a bill passed, it could take effect more or less immediately, and at least all of us would be able to file an amended return.  No harm, no foul.

The Symbolic Victory

Short post today:  So Mr. Obama caved again on the Bush tax-cuts.  I'm not surprised.  My main comment came from two quotes in the New York Times, from the President.

“I know there’s some people in my own party and in the other party who would rather prolong this battle, even if we can’t reach a compromise,” Mr. Obama said in announcing the bipartisan agreement on tax cuts and unemployment benefits. “But I’m not willing to let working families across this country become collateral damage for political warfare here in Washington.”

and

“Sympathetic as I am to those who prefer a fight over compromise, as much as the political wisdom may dictate fighting over solving problems, it would be the wrong thing to do,” he said. “The American people didn’t send us here to wage symbolic battles or win symbolic victories.”

How, Mr. President, are the taxcuts symbolic?  This will have immediate effects in your income, your tax revenue, and you'll feel it in five months.  That's just about the opposite from symbolic, that's real and immediate, and a major problem.  Don't try to bamboozle me with your fancy, empty, words.

What would the world have been like if Obama had just let this one through?  Simple, if debate had continued, the tax cuts would be finished.  Oh sure, the Republican congress would force him to reinstate the cuts, but they would be for 2012, not 2011.  And unemployment benefits, again the president has ceded the ground to the Republicans.  He had a great playing card to use against them, now the 99ers won'y have any electoral will or capacity to for 18 months.  True, that makes it a campaign issue, but surviving for half a year without benefits is much easier than surviving two whole years without benefits.  That's some political football right there.  And the Republicans would never have let it gone on for that long anyway.

Mid Term Thoughts, Tax cuts and Quantitative Easing

Sorry for the absence.  My new job is a major stress, and grad school is kicking my ass.

Ok.  Disappointment.  Given that the Republicans will not add ANYTHING to the debate for the next two years owing to a strategic necessity to get a Republican into office in 2012, I despair.  Not for partisan reasons, but that means that the suffering of the middle class and the poor will continue for at least another six years, if not worsen.  Already displays of racism, and calls for insurrection, and secession abound, what else is in store?

Tax Cuts.  We've discussed this a great deal in my tax class, and even though my tax professor has argued against letting them expire, the only argument he can offer in support is that "you don't raise taxes in a bad economy."  Which is exactly the opposite of the truth.  Taxes are predominantly raised during bad economic times.  Why else?  Government revenues are up when people are employed and making money.  And government automatic stabilizers need funds during the down times.  That said, I think the best graphic I've seen yet on this was in the Rachel Maddow show (god bless her).  Deficit concerns aide, do 98% of Americans really want to underwrite that massive bloat, for rich arseholes who did more to contribute to the recession than any other demographic?

Quantitative Easing.  I love this term.  I want to write a song about it.  Or a poem.  We keep a bottle of Quantitative Easing under the nightstand.  There's a lot of on air blather about this out there, but there a couple of things you should know.  The main concerns are inflation, capital flight, and deficits.  The fears of inflation are irrelevant right now, inflation is at all time lows.  One of the commentators linked to above insists that the Fed can directly increase inflation by creating money in bonds.  This is the Fed's job, they do it everyday, and the fed uses the same metrics to calculate inflation regardless of how they choose to do it.  If inflation gets too high, the Fed can simply retire the debt.  This is ordinary monetary policy, what's unordinary is the fantastic amount of money they're planning on creating.  Capital flight fears are more interesting.  They suggest that the new money coming into the system won't be used in this country at all, it will be used in growth markets like China and India, where GDP is going up 10% a year.  This seems a more reasonable critique to me, but to be fair, investment in developing markets helps us too.  As the standard of living rises in the developing world, labor prices increase.  There are huge rumblings of this occurring in China and India already. Which means the gross export inequities between East and West will eventually have to end.

Anyway, I have one simple argument for Quantitative Easing.  The Fed doesn't need Congress to do it, and the economy needs something, now.  And given the disastrous midterms, Obi One Bernanke, you're our only hope.

Fyi:  You need to watch this video:

November 2nd Midterm Elections

On the eve of the November midterms I feel inclined to make a few comments and predictions. First of all, as a movement, I believe that the Tea Party will be merely a blip on the American radar. History will call it for what it was, a fringe movement supported by hypocrites and co-opted almost immediately by cynical Republican operatives. The same ones who cynically co-opted the Christian Coalition, the Moral Majority, Goldwaterism, and the John Birch society, funded by people whose views are rooted first and foremost in aristocratic elitism and monetary interest in only their own wealth.

Let’s get that straight. Not in the wealth of others, or in the strength of the economy as a whole—just. for. themselves. Why? Because they are only interested in perpetuating their own power, and who can blame them? Recessions are gold to the railroad tycoons. Their assets may lose value, but they’re not interested in money, so much as they’re interested in wealth. And wealth is as much or more, about power and privilege, than dolla dolla bills yo. And when everyone else’s assets crumple to zero, they’ll still be standing with absolutely no competition. They can refinance their corporations, shelter their revenues from taxes, and buy out the crumbling competition with little risk to themselves. They are the owners of the commodities, and hey, people gotta eat.

The only ones who can stand up to power like that is the government. Which has always been the reason to support a strong federal government. By using the lever of government spending, the federal government can upset the power of the oligarchs and reshuffle the economic spectrum. The rich will stay rich, and the poor will stay poor, but their will be new rich, younger rich, that are nearer to their middle class roots. New rich with new ideas.

This is what happened in America. It’s why America was dubbed a “post-racial” society after Obama’s election. The wealth of the industrial north was built on the backs of newer tycoons, people whose livelihoods weren’t dependent on slave labor, and the inherent racism necessary for slave labor to exist. And now, with gay marriage just on the horizon, the investment bankers, and “New Yawk” lawyers, might still call each other “gay,” and deride all those “trannies” who come out for Pride day, but they’re young, and not actually opposed to gay rights. They’re insecure and immature, but not inherently racist or homophobic. How could they be, they were born in an age where young pioneers were setting up gay rights clubs in their own high schools across the nation.

But to the Old Guard, this is anathema. Economic reshuffling brings change, and threatens to make them irrelevant—less powerful, not less wealthy. So new blood at the top is dangerous.

But before I go any further, this is not the year for Democrats and liberals everywhere to be complacent. Despite our unhappiness with the present climate, the capitulation by our own President on human rights issues like Guantanamo, or the List Project to Resettle Iraqi Allies, the lack of precise financial reform, or the public option for healthcare—it is important to realize that the right, Tea Party or Republican, is so thoroughly and completely an intellectually bankrupt movement that to allow them even one step further into the body politic is to risk everything. And in less than two years, the Democrats have achieved more than eight years of true blue Republican rule. So, go to the polls tomorrow, and vote Left.

In Memoriam: the 109th Congress

Thou waitest for the spark from heaven: and we,

Light half-believers of our casual creeds,
Who never deeply felt, nor clearly willed . . .
Who hesitate and falter life away,
And lose tomorrow the ground won today –
Ah! Do not we, wanderer! Await it too?



--Mathew Arnold

Judging the Stimulus

This post, as so many of mine are, was spawned by listening to the planet money podcast on a similar topic. There were a few things they didn’t cover, or didn’t cover sufficiently, which I’d like to address.

A third of the stimulus was tax cuts.

I’ve written about tax cuts before. Let me say again, the stimulative factor of tax cuts is pretty low, and only really effects certain demographics. They’re political fodder, because people like the way tax cuts sound, but not the way bailouts sound. Mind you, if the individual was bailed out, they might be singing a different tune. But anybody who draws a wage in this country, who is above the poverty level, pays taxes in the pay-as-you-go system. Meaning that, you and your employer, pay your taxes through a withholding each pay period. When you get excited about tax cuts, you think, oh goodie, I’ll have more of my pay check. But that isn’t necessarily so. If they change the tax rate, it would definitely recalculate, but changing the tax rates is even harder to do politically than getting bailout money—and for very good reasons. Otherwise, so long as your withholdings remain the same, the same amount gets withdrawn out of your pay check. No more money in your account, that is, until you get your refund. Or unless you got one of those measly stimulus checks.

So in other words, for most of the populace, a third of the bailout money, was doled out in tax cuts that will get spent in one month the following year. Same with your stimulus checks. Spent the day after they were received. Yeah, that will influence demand for the year.

And that’s if you spent it, if you’re like most people, you’re just barely getting by, and you’ve got bills piling up frenetically. So your stimulus checks don’t stimulate demand at all, instead they go into the accounts receivables of your phone company, mortgage, lease, college loan, or what have you. Which is money, get this, that they’ve likely already booked as income! So no new demand there!

A third was doled out in the form of transfer payments:

Transfer payments is a fancy economic term, all it means basically, is money you’re entitled to without working for it. Social Security, Unemployment, you get the picture. This money is definitely more effective as a stimulus. Even the Miltonians agree these can be pretty effective. They’re called automatic stabilizers, payments that get made through current welfare systems that help even out the blips. It’s getting paid out more often, at different times. That props up demand, which is great, but not good. The Miltonians of the world hate this, because they argue that it’s “fake” demand. And its hard to resist this argument. The only argument against it, is that its kicking the can down the road until the good ship Economy rights itself (Keynsian) or spreading the pain of recession indefinitely (Miltonian/Hayekian). Personally, I favor the Keynsian approach here. The good ship Economy is such a complicated thing, that kicking the can down the road indefinitely is entirely possible, and the next good wave that hits, will take care of any debts accrued during the can-kicking phase. Problem is, how long till the next innovation? And won’t that just be a bubble economy too?

The last third went into what I call Restructuring Stimulus. This to me is the most effective stimulus there is. Unfortunately, it’s the hardest to quantify. One way to look at it is in terms of jobs saved. How many construction companies hired workers for these projects? How much were they paid? That typically is how these sorts of stimulus get quantified. I think that’s a load of bull pucky. Why? A stimulus is supposed to stimulate demand, and as Mark Zandy said, by that measure the stimulus was a complete success. Demand perked up, and GDP began to rise again (which by the way is the definition of a recession anyway, the percent by which the GDP is rising). But that doesn’t fix anything, because it still rides on the concept of the market being an all seeing entity, that will right itself given time. The purpose of Restructuring stimulus isn’t to prop demand, it’s to streamline the costs of production. This was the real success of the pre-war build up. The way American factories built up to meet the demands of the government for arms, was a story of effective production. The story of how Harry Hopkins got millions of Americans work, how the TVA gave electricity to much of the south for the first time, these are stories of how the costs of production were effectively lowered. And that is what real stimulus ought to do—lower the costs of production. How do you that? Road building, train building, that’s all part of it. Getting laborers to where the market needs them cheaply and effectively. That’s why infrastructure spending is so important, particularly as a gateway to capital. It’s actually cheaper for American companies like Dell, to ship their computer parts six thousand miles, crossing the Atlantic multiple times, to bring their products to market, because the costs of shipping them in any one country is far too prohibitive. That’s great for globalization, but terrible for the environment, and terrible for our economy.

So yes, like the great unwashed, I don’t think the stimulus was particularly effective, only a third of it got spent the way I think it ought to have been. But, another third of that was very effective at keeping people out of the streets.  And, America without the stimulus? Full scale race riots, rampant power outages, civic services plummeting, healthcare costs exorbitant crippling families for generations, dogs and cats, living together, mass pandemonium.

Tax Post 3: The Bush Taxcuts and the Sunset Strip

Disclaimer:  I stayed up till 5 in the morning last night.  And I got to work on time this morning.  So I'm a little out of it.

Anyway, the Bush tax cuts are a big deal right now, and our tax professor has furnished me with many excellent links and class discussions on the topic.

Let me lay it out for you.  The Bush tax cuts, set to expire in 2009, are being currently reviewed for an extension for 2010.  I think it likely that they'll get passed, because of the political clout of the angry rich.  That is a link to Paul Krugman's article on this subject.  Almost every link here will give you a better treatment of the subject than I will, but I shall press on nonetheless.

So there are a couple of ways to cut taxes.  One is to cut the tax rate.  This is the graduated percentage of taxable income that you and your employer pay out of your wages, after taking the standard deduction or itemizing, you may get something back, you may owe.  The other way is referred to as backdoor tax increase, and selacious references aside, it's a really simple concept.  If you can't increase the tax rate, the only other way to increase tax revenues is to increase the tax base.  Namely, what you can tax.  Bush I was famous for his "No New Taxes" and as Clinton would razz him for later, taxes went up.  But tax rates did not.  They just made real estate more taxable.  Anyway, that was a digression.

Bush II's tax cuts in 2003 changed the tax rates.  They also backdoored a number of other tax cuts.  That's right, you can shrink the tax base too in that manner.  Think about it as a fraction, increasing or decreasing the denominator has a directly correlative effect on the take.  Enough about backdoors.  Here's the rub, take a look at the chart below:

I was looking for bracket population data to match with these numbers but haven't been able to find much save for the fact that the first bracket grosses more than 373,000 in taxable income, and comprises less than 1% of the population.  Remember, that taxable income has already had above the line and below the line deductions from it.  It is not what you get on your pay stub.  So anyone who falls into that taxbracket likely makes at least double that and half of it isn't taxed already.

Anyway, the crux of this post is this:  The reason the Bush taxcuts are expiring is because they would have never passed through Congress if they had been completely honest.  I don't mean to infer foulplay, just dirty pool.  Per a rule established in the last decade, all budget increases have to be balanced by budget cuts.  Which means that every tax cut comes with a price tag, i.e. the money that tax isn't taking in, that 4.6 percent of the top 1% taxable income (and so on down the line).   If they'd made the cuts permanent, or if they begin extending them indefinitely, it will cost the government 700 billion dollars.  But the republithugs played this pretty smart, they knew that it's harder to enact new taxes than it is to cut taxes.  Now that the cuts are set to expire the hue and cry is to keep extending them.

AEI op-ed in NYTimes: Looks like Women are Equal, Break Out the Champagne

So the American Enterprise Institute published a truly bizarre op-ed in the New York Times today by Christina Hoff Sommers.  Apparently, women's pay is completely equal, and the Pay Check Fairness Act is unduly onerous on American Business, and will crush the spirit of free enterprise.  Of course, those guys at the AEI ain't dummies, they got a woman to write it.  No woman would ever act against the best interests of her sex, so clearly, she must be unbiased.  Oh wait, it's the AEI.  I provided the link to Sommers wikipedia page, nevermind that it quotes ridiculous sources like Reason magazine, it does quote the Washington Post book review of her book The War Against Boys. Her reviewer ended his critique with "[the] book is a work of neither dispassionate social science nor reflective scholarship; it is a conservative polemic."

As usual, the prominent spector of a litigious society looms large in this article.  The AEI purports to defend American business from increased sexual discrimination litigation.  If the AEI spent half as much time promoting behaviors that would decrease the need for discrimination litigation as it does defending unethical business practices (businesses who pay it's wage in donations btw,) it might actually manage to do some good on both fronts.

The whole point of her letter, that there is no need for the act because the pay discrepancy has nothing to do with women being less competent, is defended by Sommers completely unsupported statement that "It overlooks mountains of research showing that discrimination plays little role in pay disparities between men and women."  Not a single link to these mountains of research.  I mean, not even one?  No wait, Sommers does post to another bastion of equal rights, the Wall Street Journal, in the form of a new survey of census data run by Reach Advisors.  That survey caused quite a buzz, but Salon called up the analyst for clarification and there are some important "buts..."  I won't bore you with them, Salon's Tracy Clark Florey, did an excellent job of it. To quote Florey's summation "The fact that ladies these days are getting their learn on like never before, and that this gap is most notable in communities with "knowledge-based" job markets that prize higher education, sends a clear message of how we can help young men to catch up."

Sommers' next point remarks on a quote from a BLS report, “may be almost entirely the result of the individual choices being made by both male and female workers.”  In the end, Sommers' point is that women seem to work in the social services, and in education and entertainment, and less in the sciences.  She explains that it is flawed reasoning to have this bill signed now when the debate is ongoing, and that "Under the bill, it’s not enough for an employer to guard against intentional discrimination; it also has to police potentially discriminatory assumptions behind market-driven wage disparities that have nothing to do with sexism."  Well, duh!

The point of the act is that it's a tune-up of an act that is already on the books, the Equal Pay Act of 1963.  To fix some of the things that the original act, after thirty seven years, hasn't quite gotten right.  They're not wrong, the trope that math is for boys, reading and art is for girls is still widely upheld, in sciences, but also the financial services industry.  How many girl quants are there out there?  And why?  Is it sexual dimorphism that women aren't equipped with the brains to do math?  To conduct scientific research?  Women and men make their career choices fairly early on, as in, what sort of groups and activities they belong to from the earliest of ages.  And those choices inform their career trajectories for their entire lives.  If misconceptions about what "women are good at" still abound, then the point of the act is completely defendable.

Sommer's last paragraph was what really galled:  "The Paycheck Fairness bill would set women against men, empower trial lawyers and activists, perpetuate falsehoods about the status of women in the workplace and create havoc in a precarious job market. It is 1970s-style gender-war feminism for a society that should be celebrating its success in substantially, if not yet completely, overcoming sex-based workplace discrimination." 

Umm, set women against men?  Really?  Are they going to commence armed hostilities?  Will women start packing heat when they come into the office?  I'm sorry Sommers, I don't get it.  Empower trial lawyers and activists?  Wow, well that's your mission statement right there, I guess the other three hundred words of your letter were just icing on the cake.  Trial lawyers are already empowered, and the deck is stacked on defense, settlements have gone down, and been winnowed away for decades from that 1970s gonzo-style feminism that so galled Sommers.  And what, on earth is wrong with empowering activisim?  Oh wait, you mean liberal activism, so say so lady.  Perpetuate falsehoods?  Now wait a darn minute.  All of the works you cited effectively stated that there was still a wage disparity, just that they had reversed in some instances, and that they were harder to ascertain.  Not that the wage disparity was a falsehood.  That's just blatant spin.  Havoc in a precarious work environment?  Funny that on the one hand, some of her friends at the AEI  want to get rid of unfair labor practices like affirmative action, when male blacks are the single largest unemployed bracket, but on the other hand, it makes affirmative action seem like a swell idea to counter all this rampant feminism going on here. 

It comes down to this:  I find it hard to have an honest discussion with a paid conservative thinktank, who historically aren't interested in equal rights so much as a misperceived notion of the bottom line.  When the only argument against is higher operating costs due to increased litigation, well, I'm sorry, I just don't bite.

1 in 7 Americans lives in Poverty--But they're probably just slackers

So, front page of the New York Times, declaims, Poverty Rate Rose Sharply in 2009.  Not a surprise, really, but it's good that the Times picked up on the story.  I mean, probably not good for the midterms, but hopefully the news will serve to rejigger the Democratic Party to leave behind the spector of the deficit, and think about getting Americans work, and saving the middle class.

Why the middle class, and not the poor?  Well, look at it like this.  Programs for the poor are sinkhole programs.  Necessary evils.  That money is not helping the poor advance, or get out of poverty, it's less than substistence wages.  It's just barely making it.  It's wage slavery.  But it's the only thing they got.  But helping the middle class, that's another story. 

Helping the middle class is economic stimulus.  New business growth will explode, new jobs will appear, education will be more affordable, healthcare reform will lighten the burden of medical hardship.  Providing longer maternity leaves, and giving them to men will encourage young families to stay engaged in the workforce, and continue their careers without fear of economic reprisal.

So, tonight after my tax class, I'm going to raise a pint to the Census bureau and Elizabeth Warren.

Read Salon's Interview with Elizabeth Warren

This is the reason why I write here, this is at the core of what being a RavingLeftatic is all about.  Kudos to Elizabeth Warren, kudos to Salon.com:

"I guess it is a fundamental belief that people are doing the best they can. It is easy when you are successful to think that you did it all by yourself and to forget that you didn’t. You got here because a lot of things broke your way. You were lucky enough to be born into a family that could afford to take care of you well. You were lucky enough to be able to have a family that could pay for you to go to school or buy your way out of scrapes. And to people who have had a lot of luck and don’t acknowledge that -- the world looks like a total meritocracy, right? I’m on top because I really won, because I am better than everyone else."

Tax Post 2: How the Effect of Taxes on Economic Stimulus is Nil

I'm still enjoying tax class, but it has gotten MUCH harder.  And if anyone can point out an answer manual for the South Western book, I'd appreciate it.  I saw a "study guide" for it, for $40, but it's difficult to say whether or not it includes the answers to the practice questions.

I never understand why they don't just include the answers.  How else are you supposed to know if you're right or not?

Anyway, I've been thinking a lot about taxes.  One of the big things you learn in Macro and in Tax is that there is a very serious societal element in how we structure our tax codes.  So for example, the fact that Child Support is considered an exclusion for gross income is a sop to both working mothers, and divorced working dads.  The fact that there is something collegially known as the Innocent Spouse rule, a way for abandoned spouses to file as heads of household instead of married filing separately, which has a lower standard deduction, than head of household, allows an abandoned spouse to keep more of her income.

Ok, now as a RavingLeftatic, I think these things are nice.  But we come back to something that I touched upon in my first Tax post, namely, the concept of equability.  On the surface, these tax breaks are great.  But I'm a fairly intelligent guy, fairly well educated guy, and I don't know about half of these things.  And I could rightly be accused of stereotyping.  But give me a break, is it crazy to assume that in a nation where 28% of the populace believes that the moonlanding was staged, wouldn't know how to do their taxes?  Now, to be fair, as a single white male, I am taxed the absolute highest of any category, so the reason for my lackadaisical tax attitude might well be simple ignorance based on use.  I might well have dependents in the near future, dependents possibly including my older relatives.  How many low class, middle low class people know about the qualifying relative tests, or can perform the gross income test.  I'm reading the damn tax book and I can't figure it out.

I would certainly admit that there are some who do take advantage of these things.  And certainly, many of those people simply go to H&R block to get their taxes done because they can't be bothered with it.  But who can say how effective that is?  Roughly 65% of taxpayers use the standard deduction, 22 million Americans and Canadians filed with H&R block in 2007.  That's not a huge percentage, but it could easily include the poorest caste of American life.  Of course, the poorest caste don't even have to file if they're under the Standard Deduction limit.

Anyway, my point is this.  If taxation is supposed to have successful influences on society, than there has to be a real bias toward the middle class and the rich, people who can afford to hire a professional, or take the time to figure out how to best manipulate the tax code to best fit their situation.  That, and as we discussed from Macro, the multiplier for a dollar of tax released back into the economy is much lower than the value of a dollar directly spent.  So the next time, some pundit shouts from the mountain top how they provided a great tax break for working moms or some such, ask him if that money would have been better spent actually providing services and job training for that working mother.

PlanetMoney: The Pelican Bill

So, Planetmoney did an interesting post on July 30th, about the environmental costs of the BP spill.  It's an interesting piece.  As we've discussed environmental costs are not included in GDP.  One of the reasons for this is because its difficult to effectively cost the effects on the environment.

In this case, they decided to price a pelican.  In point of fact, a much more valuable way to have done it was to tally up the price of shrimp in the Gulf of Mexico, but hey, I guess they wanted something that was more esoteric in value.

There first stop was to a bird lover, who paid up to $500 for a Pelican.  One of the hosts scoffed at this, saying that what a rare bird collector and preservationist would pay isn't the best estimate.  The second stop was Hollywood.  Hollywood, being in the business of accurately fabricating real life, rents pelicans.  That price was even higher, at $4,500 a day.

But here's where it gets interesting.  They talked to Gardner Brown, of the University of Washington, about his work valuing a wild duck.  This theory, called contingent valuation makes some interesting points:  1)  Nature is a public resource, ostensibly, we are ALL owners.  So while, we may not value a pelican particularly highly, maybe a few cents, in aggregate, the value of that pelican can be quite high.  Also, and this is the reason for this post, Brown, whose work was done for licensing and wildlife hunting issues, would go up to hunters and ask what price would they pay for one more duck.  One of the planetmoney hosts again scoffed at this, implying that hunters aren't necessarily experts, or that they wouldn't necessarily be honest.  He further stated that a survey isn't the same as a live market.  While these are good questions, I think a really obvious point would be that:

If my government were really interested in conservation, then they would pay hunters to stop hunting.  Recognizing that hunting is the source of their livelihood, the price of a duck is the hunters gross income.  It's not preferable, for obvious reasons, I mean, you'd have to be able to prove that this was your only source of income, and then what?  You would get paid to sit around all day?  This isn't a big problem in North America, but in the African bush, it's a very big problem.  In fact, AIDS was probably loosed on the world through a very similar transmission, people hunting and eating infected chimpanzees.  Bush meat is very popular in developing countries.  Not only is it cheaper than going to the market, there is also a blackmarket value for interesting animal parts.  Completely aside from the blackmarket value, is the superstitious value of eating gorilla balls for virility.

TAX: The Federal Income Tax Post 1

So in keeping with my earlier desire to keep my blogging relevant to my classes, I am now enrolled in my first tax class, and my first management class.  Honestly, I don't have high expectations about the management class, I'm enjoying it so far, but that's not the same as finding it useful or learning something from it.

I'm only two classes into Tax yet, and I only received my book yesterday, so I'm not too far in yet.  Already I find it very interesting.  I think most people, myself included, get turned off from tax because of the excessive number of rules and the oppressive nature of being taxed.  Just the title of the class hits the snooze button for most people.  And yet...

Some history of the Federal Income Tax.  The first tax was established in 1861.  It was established during the Civil War, and raised some 376 million, which, in todays dollars is 9.4 billion.  It was repealed immediately following the war.  The next attempt was in 1894.  This bill was opposed by the Supreme Court in Pollock v. Farmers Loan & Trust Co. on the basis that the tax was not, as demanded by the constitution apportioned properly, and thus unconstitutional.  Than in 1909, the first Corporate Income Tax was successfuly installed, and by 1913, the 16th Amendment was ratified and made the Pollock case irrelevant.  "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

A couple of other interesting things:  Adam Smith came up with what we call the four canons of taxation, which are still used as general rules today.  They are
1) Equality-fair and equitable
2) Convenience-administrative simplicity
3) Certainty-easy to predict
4) Economy-nominal collection costs and minimal compliance costs

For those who prefer the flat tax, and say progressive taxation isn't fair and equitable, a very interesting argument is made in two parts.  First, the poor spend a greater percentage of their income.  Myself, as a member of the middle class spend roughly 80% of my income every year.  And that figure doesn't even include rent, which means that in many months, I actually overspend my income.  Taking 10% away from me, is much more detrimental than taking 10% from the upper class, and downright crushing from the working class. 

Second, the justification for taking a higher percentage from the middle class and the rich, is rooted in the concept, that the higher your wealth, the more you are actually able to partake in society, and so a higher percentage of tax is justifiable.  This is very much the case.  Think about it:  If I were to get an IRS field audit, I would have to hire a tax attorney to represent me.  Though there are places like legal-aid for the poor, it is undeniable that those with money, get better justice.  It is undeniable that those who can afford personal finance, brokers, and other representative expertise glean more from society than the poor and disenfranchised--And these rewards are in many cases intangible, and without apparent monetary value.  I should note that the last 100 words are so my own.

Another thing our professor noted about the flat tax is that even if a legislator were to somehow squeeze it through, private interests would then begin carving out their own exemptions anyway and we'd just be back where we were before.

The WTC Mosque, Racism, and Extremeism

So the following are not my words, but are reprinted with permission from my dearest friend.  Her take on it is exactly what I would have said.  I removed a few typos, but have basically reproduced spot on.

I feel like I've been waiting almost 10 years for people to realize what assholes they were after the WTC fell - all the rhetoric, the fundamental misunderstanding of what this religion is or isn't, how different it is from region to region, the US' role in sowing the seeds in Pakistan/that the guys that sit in caves and plan this shit are a step above the avergae fundamentalist - they see everyone as a legitimate target. Nothing doing - I'm still hearing this crap. Maybe I'm a weirdo, but I've really enjoyed the influx of muslims into the cities that I've lived in. I grew up in a pastey white [town]. Nothing wrong with that, but there is something kind of cool about seeing a guy pray on a mat one the sidewalk or at work. There is something kind of homey and pleasant about seeing someone who hasn't been here for very long (generationally speaking) make their home in the same town, go to the same stores, take the same trains, get pissed off at the same traffic, suffer the same nasty heat or bad snow clearance. People should be embarassed about this discussion, the way that any of the rich right wingers over here tossing around fascist rhetoric in or eugenics sentiment in the 1930s should have been embarassed by 1939.

Ultimately, what really bothers me about this entire discussion is that there was a hostage taking across the street yesterday. I walked by this girl around 7 am. She was dressed in evening clothes, clearly uncomfortable, no shoes...on the phone. When strolled back around the corner a 1/2 hour later the entire street was filled with cops - 50 cops maybe. She was being interviewed. Some guy in this virtually abandonned building had held her for hours. I saw her right after she escaped. About a year ago, I found a human tooth in front of this building. Not to distract from the clear nastiness that this girl went through, but this is my reality. This is where I live. That I can rhyme off local terror plots and attempted attacks that have been uncovered/happened over the last 5 years casually and it's no big thing is a little fucked up. Yesterday day a guy was sentenced for "The Subway Terror Plot" and I have to admit, I can't even remember him being arrested. I have no idea what this plot was about. Add in this guy who was in time square, the JFK gas line bomb plot, the 23 guys out in Queens, and the other guy with no game who tried to buy explosives from an undercover agent, and that's a lot of plots to uncover since 2007. Those are just the ones I know about.

Since living here I have worked beside a building when it was hit by a plane, ran to midtown to find [a friend] after a steam pipe exploded on his block and shot boiling hot water hundreds of feet into the sky, smelled maple syrup scent wafting over the city for no particular reason, watched ConEd lines explode on my block , heard a ConEd manhole explode right after I entered a building- and then there is just the shit I've read - the guy walking down the UWS with two electric hack saws attacking people, the guy that chopped up the postal worker on the subway platform while MTA employees ignored him, the cops sodomizing a drunk guy in the Bronx with a radio antenna, the cops firing hundreds of rounds at this guy leaving a strip club the night before his wedding, the persistent threat of dying in a ConEd street shock. I'm sure there are many more things - but the point is I live here. I have to deal with the persistent threat of being blown up on purpose or by accident. I'm so tired of hearing about 9/11 measures in places that will be lucky if they are mentioned in the national news this year.....or next 5 years. I'm tired of hearing people recount to me where they were [on 911], like I could possibly relate - I wasn't here. I'm especially tired of people who will never see a day of the sort of shit that goes on everywhere else in the world use the phrase "well, since 9/11" in reference to security, or their vacation or their job. I don't like to use the phrase, and I live here. I really am all for empathy - I think everyone should strive to be empathetic - but every time someone says it I just want to shake them by the shoulders and say "get over it. this didn't happen to you".

As for the Mosque: There has been a plan in place for many years to develop a friendship center of sorts on the WTC site. The Mosque is a small part of a larger educational institution whose entire purpose is Islamic outreach and community good will for non-muslims and the NYC arts and education scene. My understanding is that it is supposed to be like an Islamic 92nd street Y/Symphony Space. I have to tell you - the 92nd street Y sometimes brings people like Alan Dershowitz - promoting torture as an anti-terror technique and anilation of Islamic states, but most of their programming is actually things like Jane Goodall talks chimpanzees, followed by Yo Yo Ma discusses his love of cooking. It's more or less an inoccuous setting, with some religious services, a fantastic gym, lots of great educational programs, some with a Jewish tilt- but everyone is welcome. That's the model [that] has been used to set up this Islamic education center. No one had a problem with this group moving into the WTC when they were one of the very few (and let me emphasize this - very, very few) groups to actually lease or buy property within sight of the WTC. This is a right wing political complaint, in part.... A big part of this battle has to do with basic NYC-to fed politics....in my view anyway.

I'm not sure if you have seen the WTC site. It is enormous. This center could be close to the center of that area of Manhattan and still be on the corner of this site. Fact is, the city can't afford to not lease any area around there. We need the taxes. The entire downtown area around the WTC is a skeleton and has been since I got here. There are few restaurants, no cultural sites and most of those banks moved to Midtown. This was an area that was really hard to find affordable space in 10 years ago. [My friend's] firm just moved down there because the rent is cheap. They can't give space away and the place is desperate for anything of any cultural significance. How it is that these people are not kissing the feet of this NGO is beyond me. That said, most people registering a negative opinion fall into one of two groups as far as I can tell - a) Europeans (the BBC will not shut up about it) and b) small firey contingents within the 911 victim groups. The latter still feels that nothing should be built on this site at all. The subways have only just been rerouted to this area and foundation work on this buildings only just started because this group of people have routinely sued the city over site designs, water access - private viewing areas to mourn, architectural firms...and it just goes on. The arguers in that group, in my view, are really holding up what is in the best interests of all of us - development, taxes and moving on.

Therein ends my friends piece.  I have just a couple of things to point out.  First of all, as a minor correction, I know that churches are typically tax exempt, so I'm not sure that the city gains a tax benefit.  They would certainly gain a benefit from the 120 million in jobs, materials and construction.  Given the money multiplier in spending, it's probably more on the order of 200 million for NYC.  Particularly in an area, where she correctly notes, has been moderately depressed for the past eight years.  Moreover, the city has been trying to make over the Financial District into a living breathing community for a dozen years now, with only moderate success.  An outreach center such as this would add a lot of value to the community.  On an economic note, such edifices would usually add property value.  Given the racist concerns of Americans, I think there might be a moderate dip in property value, but, this would eventually net out as people moved on to the next outrage du jour.  A couple of other things.  As someone intimitely familiar with the area.  The Burlington Coat Factory slated for the site, is not even visible from the WTC.  Granted, when both buildings are up, they may well be viewable.  But for the average tourist, you probably wouldn't even know where to look.  The present building is an exceedingly ugly piece of property, empty, home to vagrants and physical refuse.  That sure celebrates American enterprise.

Finally, let me put it in blue and white.  If you are Anti-Islam, you are racist.  The protestors should be honest about this one thing.  They are not protecting the sanctity of anything.  They have veiled their blaring racism with vague talk about "honoring the victims."  We as a people have a greater responsibility to humanity, and that is protecting one of the central tenets of democracy:  freedom to worship.

Thoughts on the Environment

I've always held that there is no rational reason to believe that global warming is a hoax, or that concerns about protecting the environment are unwarranted.

Here's a simple test.  If you were taking a nature walk through your local preserve, and you decided to have a little mid-hike repast, let's say a candy bar, would you dump the wrapper on the ground?  Or would you put it away in your bag to dispose of later.

I'd like to think that even the staunchest global warming denier would choose to save the wrapper for the next garbage can he sees.  I could be wrong about that.  I'd like to think that anyone who is hiking in the forest would be offended by seeing someone else's wrapper on the trail ahead of him.  Hiking in nature is all about breathing fresh air, seeing, remembering that primal forces exist outside of the realm of man, looking for wildlife, enjoying the cheap showiness of nature, what better way to be dragged forcibly back to earth than a filthy three musketeers wrapper on the ground.

Whether or not you believe in the established science of global warming, whether or not you think the whole thing is a hoax or a giant conspiracy, if you pass that test, you should be all about passing environmental protection laws.  Let's put the wrappers in the garbage can please.  It's not just a courtesy, it's an homage, an ode, a benediction to the forces that keep us living on this planet.

The only rational argument to environmental protection has been that there is a tremendous expense to it.  An expense that would cause irreparable harm to the economy.

Where is the harm in factories not dumping waste chemicals into the sky, the sea, rivers and lakes?  It's an added expense to the bottom line, but environmental costs have economic repercussions.  Let alone the healthcare costs of widescale poisoning.  Our oceans are undergoing massive irreversible extinctions--that's a much larger cost to jobs, food prices, local economies than an added surcharge on the price of goods.  Moreover, these costs are largely projected.  The Clean Air Act of 1963, passed by the Kennedy White House, under the guidance of Sen. Ed Muskie (D) didn't uproot the financial underpinnings of the country.  The sixties were largely a period of economic prosperity, despite the turmoil of anti-war fervor.  GDP more than doubled in the next decade.  So why is there an assumption that these costs would cripple production?  Also, there is a very real possibility that these expenses would get recirculated as consumer spending in the new economy, increasing jobs, and overall GDP growth.

I know I know, what about jobs.  If Massey Energy decides to buy a mine in India and leave the USA, where will the jobs go?  I suggest we worry about that when it happens.  Increased regulation doesn't cause capital flight, it inhibits it.  Think about the economic crisis.  Did companies move their assets out of the U.S.?  Absolutely not, they moved their money into it, because our regulatory environment makes certain guarantees to corporations.

Lower costs encourage capital flight, but overall lower production costs have already caused some companies to move their operations.  Moreover, the U.S. economy is shifting away from these types of exports, and should shift away from them.  An educated populace is in demand over the world, and that should be our most valuable export.  Anyway, I'm going far afield from the topic du jour.

I keep coming back to it: Here is the reason for protecting the environment. Who is the only group to gain by deregulating, anti-regulation environmental protection laws? Mass industrialists. Everyone else stands to gain except for management. And mass industrialists do not want what we need. They have the money and the power to live the way they choose, wherever they choose to live it.  But clean air, clean water, clean food, and the continued survival of the all the genetic diversity our planet can muster, that's what we need. And that's in jeopordy because of the short term needs of less than one percent of the population.

New Deflation Fears

I' been singin' this song for two years now.  Inflation is not a fear relevant to our current economic situation:  Deflation is.  And now the Fed is worrying about it too.  But what can the Fed do?  Interest rates are already at zero.  They could buy more treasury notes and increase the money supply, go negative interest, but is that really desirable?

Monetary policy has failed--except for Bernanke's landmark moves to save the financial system from complete meltdown, the country needs a blood transfusion, stat.  And that means, yooouuu guessed it!  More government spending!

Here's the thing.  While politicans respond to polls and Fox news fears about the federal deficit, the States are in serious trouble.  We all know about California, but that's only the tip of the iceberg.  And the states can't run deficits.  They are constitutionally unable to run deficits.  Except for one state, Vermont.  So when the government can't afford to pay their employees, the only way to close the budget will be to institute mass layoffs or accept federal subsidies.  Watch those Republican governer's squirm as they bitch about government spending with their mouths, and greedily go for all the cash they can grab with their hands.  We've already seen that in Louisana.  Go Bobby Jindal!

Let's see who to can first?  Everyone hates bureaucrat's, let's can them.  So no state licensing, no state medical billing, no consumer protection=no new businesses.  Not to mention that every single one of those guys will be eligible for unemployment, raising the deficit higher.  No wait, Republicans want to eliminate unemployment checks.  Ok, that's great.  Well, millions of people aren't going to starve to death, and there are no jobs to have, so let's riot.  So crime will go up, but wait, we've cut down the police force to minimal staffing requirements.  Not to mention our nonexistent state fire departments, so you can count on raging neighborhood fires.  Thousands of homeless.  But wait, let's cut the teachers.  That's a good idea.  So, business goes on as usual except for the fact that public education is at a stand still.  Well at least childcare will go up.  Oh wait, that's not counted in GDP, so there again, continue the downward spiral.  But don't we want to grow the economy?  Not allow for a productivity gap larger than anything the world has experienced since World War II?  Don't count on it.  What else?  Road maintence down, accidents up.  No courts, no justice.  Let alone the markets.  If the SEC were to dissolve say, public companies would be under no obligation to tell the truth to their investors.  Everyone would declare famous profits, and the market would crash in disbelief. 

So yay states rights.  Yay right to life.  Yay personal responsibility.  Boo gay marriage.  Boo Mexicans.  Boo Muslims. 

Yay chaos and anarchy.

So I'm being a little overboard.  True.  If any of this happens at all, it won't happen overnight.  And all it takes will be a taste of blood letting in the streets before politicans on both sides of the aisle get off their hands.  But lest we forget, think Summer of 1967, 1968, and 1969.  Riots and assassinations.  Police brutality, John Birch Society, Black Panthers, riots in a dozen major American cities.  All this has happened here before.  And it can happen again.  And it will happen again.

So forgive me for not being concerned about the deficit.  America's venerability as a debt guaranteeing society does not depend on today's Federal Deficit, it depends on its political stability.  America's economic future does not depend on the money it owes today, it depends on the investment it makes on its people tomorrow.

So Americans vote Democratic.  We ain't great, but we've passed two major, historical pieces of legislation with absolutely no help from the opposition party.  And we're already seeing the effects.  Remember overdraft charges?  In 5 days, you'll never see another overdraft charge again*.  That's what we call consumer protection.

*Caveat.  Provided you 1) opt out.  And 2) This means your card will get declined, so mind your balance!

Why the Moral Hazard Argument Fails

Ok, this post should be more accurately titled, several reasons why the moral hazard argument fails.  So the progenitor of this post is a July planetmoney podcast about the financial reform act.  I'm not going to rehash the podcast.  Listen to it yourself.  One of the contributors stated the argument for moral hazard.  Namely, if bad behavior isn't punished, bad behavior will continue unabated, and in fact, worsen to the point of systemic failure.  In the case of finance, this argument was applied most recently to Lehman Brothers during the financial crisis.  Hank Paulsen was worried that if the government bailed out Lehman, than it would send the message to the markets, no worries no foul, go ahead and invest poorly and mismanage your companies, because you've got a money back guarantee.  And of course, Paulsen let Lehman collapse, and the market dropped a thousand points overnight.  That in itself is an argument against moral hazard, but that's not where I'm going with this.

Here's the point.  The fear of moral hazard shows a fundamental lack of understanding about human motivations.  Humans not only repeatedly act against their own best interest, they are effected by both short term and long term interests in unpredictable ways.  Economists are particularly guilty of this, and this is why behavioral economics is becoming a big field.  So to draw a coralary here, the argument for capital punishment has always been:  It's a deterrent to the most heinous of crimes.  Well, dozens of studies over the years have proven that to be false.  There is no deterrent factor to the practice of capital punishment.  Likewise, the notion of certain corporate death ("CCD"), provides no fear for companies, or investors to change their habits. 

Why is that?  Companies aren't people.  Even the smallest company isn't a person.  While people may act to prevent their own death, there is no consistent rationality to demonstrate even that fact.  But even if you assume it's truth--and I don't--the fact is that companies never act like people.  The larger you are, the less of an identity you have.  AIG, for example, is composed of hundreds of small companies that were eaten by the larger fish, who kept three quarters of the staff, dumped the rest, claimed the assets for the parent's balance sheet and wrote off the liabilities as a restructuring charge.  Hundreds of different entities, all moving about on their own recognizance.  All loosely controlled by corporate management.  But even that doesn't hold true because, though company loyalty is a nice thing for managers, even managers routinely betray their company's best interests for temporarl payoffs that may or may not exist.  The runaway derivatives trading of the last decade is ample proof for that.  No one knew that George Bush, a Republican president, was going to issue the largest bank bailout in American history, the only reason the bailout was assumed was because we all knew deep down that letting everyone fail who deserved it would have been total death for the country, for the world.  Simply put, the argument for Moral Hazard relies on so many baseless assumptions that the only rational way to prove it would be to rely on statistical data, of which there isn't enough to come up with even a biased sample.

But even this isn't exactly the topic I wanted to rave about.  The guys at Planetmoney believe that if you guarantee companies, and risk moral hazard, you risk destabilizing the markets in an exceedingly critical way.  This would be true, if it were a risk.  I don't think it is, unpredictable risks aside.  And don't talk to me about Black Swans, because the financial crisis wasn't unpredictable.  Everyone and their blind, three legged hamster knew it was coming.

Listen: If I buy, again let's use everyone's favorite bully boy, AIG stock, I'm not buying it on the premise that the money is safe, but that I expect to make money on the return.  This is critical to my point.  The safest possible investment you can make, is in treasury stocks, so this can't be a matter of mere safety.  We're talking about returns.  So when I buy AIG stock, it might be nice to know it's backed by the government, but I'm buying it because I think it's undervalued and that it will reap a decent profit in terms of dividend, and in terms of rising stock price.  And that means, that I have to know something about AIG.  The Planetmoney men were concerned that the destablization would occur because the values would become essentially meaningless.  While that is a valid fear for entirely different reasons, like short-selling, I don't think there's any real fear of that for the overall market for stocks.  You have to know something about the company, you have to be making and upgrading your assessments of your positions.  And you have to do it fairly often.  And that means people making valuations--people struggling to name the price of an asset.  And that's what the market is--a place where prices are named and called.  To wit, a government backstop on corporate assets doesn't have the catastrophic effect on markets that media fear mongers would have us believe. 

Shirley Brown the Red Herring

I won't bother you with the fine details of this story.  If you haven't seen it, you're probably better off staying with the rock you've been living under.

Here's the skinny.  Shirley Brown works at the Department of Agriculture, an Obama appointee.  She's a black woman.  This is important, so remember that.  She gave a speech that was startlingly honest.  When a poor white couple came to the department for help, it gave her pause.  That's all.  Andrew Breitbart, Fox News, and Bill O'Reilly later, she was fired.

My issue is this:  Blacks in the America have cause for racism.  That doesn't make it right, but it is completely justifiable.  The reason why it's a problem because as a public official, her duty is to all Americans.  But, various American authorities have been viruluently anti-black since the country's inception.  Many of them had public heads who were completely open about their racism.

So for a blackwoman to feel two ways about helping a poor white couple, that's A-O-K.  She did help them, and the family went public, thanking her profusely for aid.

Here's the kicker, and this is what pisses me off.  Glen Beck and his ilk are the first to decry "white racism."  But "white racism" is a shield, a red herring, and blackhearted lie for what is actually racism against blacks.  These proponents, so vociferously defending the beknighted white class from their oppressors, are guilty of outright racism.  I don't care how many black friends they have.  No one can legitimately deny that minorities have it worse in this country than the white majority.  Are their poor whites?  Of course.  Do I feel for them?  Absolutely.  Would I like them to find government aid?  You bet I would.  But are they victims?  No.

I'm still reading Nixonland.  Yes, still.  I hope to finish it before I finish my degree in three years.  That's my goal.  But Nixonland is a really prescient piece because it discusses exactly the last time the U.S. was this racially bestirred.  Yeah, whites today got it pretty good.  Equal housing laws are pretty good right now, no thanks to white racists who voted against the Fair Housing Act in 1968 (Title VIII of the Civil Rights Act) so there aren't any riots.  And ghettos, though still nasty, aren't even a quarter of what they looked like forty years ago.  But that doesn't mean we can't go back there.  And people like Glen Beck, Bill O'Reilly, and Andrew Breitbart are pissing gasoline on the hay in the barn.

And it will work.  The hate will build, and this laughably entitled "post racial era" will end in a heart beat as the violence escalates.

Freedom of speech doesn't give you the right to be an asshole.  Someone needs to put that on a bumpersticker for me.

For you deficit hawks

So, there is a great movement afoot to stymie macroeconomic expansionary policy for the remainder of Obama's term, and if, god forbid, a Republican takes office, clearly for his term (and one term it will be if they attempt to real in the deficit).

So the federal deficit stands at 13 trillion dollars.  Check out the linked site.  It's pretty amazing.  That's a pretty large number, and it's pretty scary for most Americans.  But for all the wrong reasons.  The reasons I've heard counted include inflation, China, bonds, and personal savings.  I'm going to handle some of these in this post.

Inflation--First of all, there's been almost no signs of inflation.  Infact, inflation rates were negative for much of 2009 and are hovering at 2% for most of 2010.  As Paul Krugman has pointed out ad nauseum, the real risk we run is deflation.  That's where prices get so low that production levels decline because firms no longer have the capacity to produce.  Deflation is a nasty spiral, and it's not entirely clear how to get out of it, once the spiral begin.  That's in comparison to inflation, for which we have a number of well practiced tools.  If that's the case, why are so many people worried about inflation?  Well, simple, when debts are so huge, it's been the practice of floating currencies to print more money.  By expanding the money supply, you can pay your debts, up until the point that your currency loses all value.  That's how Germany attempted to deal with WWI reparations.  But there are absolutely no signs of this happening.  2% inflation is exceptionally low.  Remember, in the recessions of the 80s, inflation climbed as high as 14%, in 2006, inflation was higher than it is now, at 4%.  The Taylor rule, pegs good inflation exactly at 2%.

China-Bonds--I'll handle these two together because they're related.  So, to raise the money supply, the Fed sells treasury bonds on the open market.  Commercial banks buy them, but also the central banks of other countries buy them too.  And, as you've no doubt heard, China owns a whole bunch!  Five years ago, they owned nearly 850 billion.  These fears about China have been going on for thirty years, and are a bad hangover from the Cold War.  The fact is, China's been a great bogeyman for U.S. politicians, particularly Republithugs, for years.  And I'm not really sure why.  Is it that they think China will invade?  Such a thing, while catastrophic if it occurred, is so unlikely as to be pure fantasy.  More likely, people are worried over the vast effects that the Chinese exert over our economy.  There are some major levers that the Chinese have, by owning so much debt, not to mention the equities they own in the country and the world, but the most troubling to U.S. politicians currently, is how they devalue their own currency.  So the aggregate demand equation goes as follows.  Aggregate Demand= C+I+G+(X-MI).  That is, Consumer Spending + Investment + Government Spending + Exports minus Imports.  The most popular way to stimulate demand is by becoming an export nation.  No one likes the government to spend, consumers always spend at the Marginal Propensity to Consume (MPC) which is directly related to their income (excepting cheap credit!).  Investment means, new houses and new factories, so it's hard to stimulate that (the only way is through tax credits, which might not accomplish anything anyway).  And that leaves exports.  And there are several ways to stimulate exports.  Have a cheap dollar, and have a cheap labor force.  China values its currency against the U.S. dollar.  But it does so at 8 to 1 (7 to 1 since mid 2009. )

But this nebulous fear of the Chinese, is just that, nebulous.  China doesn't want to change it's relationship with the U.S.  They've attained great wealth through us.  We are their biggest customers!  And if they undermine the U.S. capacity to repay it's debts, they'll be forced to take a major writedown.  A writedown that could destabilize their entire political system (already on the verge of destablizing).

Let's not talk about war.  It's silly.  Plus, both the U.S. and China have spent billions on war plans that will go into effect the minute hostilities break out anyway. 

All of this to say, don't worry about the deficit.  Worry about employment and economic change.

Employment speaks for itself.  The unemployment rate is bad, 9.5%, again worse in the 80s, and full employment is actually around 5% unemployment, but still bad enough to be a game changing issue this November. So new jobs need to be created.  And that means more stimulus.  People are fond of pointing to Japan's lost generation as a benchmark for when increased government spending did not raise aggregate demand--but Japan is very different from the U.S.  Moreover, Japan left its lost generation with state of the art urban areas, transportation of all varieties.  Whereas our infrastructure is still decaying faster than it can be rebuilt, despite the stimulus money already spent.  Moreover, why the hell is Obama building more roads?  Repair the existing, add a lane or two if you must, but the stimulus money really needs to come to expanding urban areas.  We no longer have a factory or agricultural based economy.  To be sure large percentages of our GDP come from those industries, but the largest stake came from our health and finance sectors.  These are urban professionals!

This is where we get down to the real problem here.  Change.  Nothing's changed.  The internet bubble is gone, so is the housing bubble.  How do we spur real change?  Innovation.  Where are the innovators?  They're going to business school instead of engineering school because the payoff's higher.  The U.S. should be dumping a load of stimulus funds on universities.  The coffers of the NIH and the WHO need to be replenished.  Disclaimer: I'm engaged to a graduate student, so I have a financial interest here.  But where is the next thing going to come from?  Not better coffee, not a new brand of food, not a new iPod, or iPhone.  It's going to be game changing when it happens, but it will only happen here if we invest in our human capital.

Enough.  I need to get to work.
Change

Macroeconomics Post 3: The Role of the Federal Reserve

So the last chapter before the final was an illuminating one, in part because it dealt with one of the central debates of economic policy.  In the the common parlance of liberals and conservatives, the issue has been framed by conservatives as the role of "big government."  But, the book explains, this is a read herring.  The issue for Macroeconomists has nothing to do with the size of government, because that is fiscal policy--it's a different issue.  Most economists believe in the economy's auto-stabilizers like unemployment insurance and the graduated income tax.  The issue, says Baumol, is actually the degree to which the government attempts to regulate the economy, or to what degree the "self-corrective" market is allowed to be free.  This battle largely takes place at the Federal Reserve.

So the Federal Reserve can affect the economy in several ways.  1)  They can change the interest rate 2)  They can change the money supply.  There is a third way that is rarely used 3)  It can change the reserve ratio for banks.  The Big Debate in Macro is whether or not the Fed should worry about 1, or 2. 

Keynsians think the Fed should concentrate on the interest rate.  This keeps the interest rate relatively stable, and with several underlying assumptions, it helps expansionary policy work effectively to stimulate the economy.  The monetarists, lead by Milton Friedman and his ilk, believe that the key is actually the money supply.  They think the interest rate should be determined by supply and demand.  The key concern of the monetarists is inflation, and when the Fed lowers the interest rate, they expand the money supply--and chance inflation.  Now in practice this hasn't really been the case.  The correlation between low interest rates and high inflation hasn't really born out.  Even when adjusted for the "two year lag" that monetarists believe affect inflation numbers.

Anyway, economics is over now, but it was a fascinating class that I wish we could have gone more into depth on.  Next stop Forensic Accounting and Tax!

Art or Bonds?

Just a quick post here.  Planetmoney did a good little podcast on the economics of art selling.  As an art hobbyist, I found it intriguing because I do occasionally produce canvases, and I do occasionally have an opportunity to try and sell them.

The gist of the podcast is that the return on Bonds is always higher than the physical investment of a piece of art.  Well duh.  It turns out that one of the metrics of a how a painting is sold turns out to be popular swings in taste.  Though not surprising, this can have alarming effects on the price of your art investment.  A Van Gogh will always be worth millions, but if French Impressionism goes out of style, that could shave millions of dollars off your investment.  Whereas your investment in a bond is by its very nature a fixed investment.

There is one thing that they don't talk about in the podcast which surprised me.  Art is very fragile, and very space consuming.  One of the things we learn about in economics is that money, by it's very nature has to be fairly easy to store, and it has to be easily divisible and difficult to counterfeit.  There is a ton of risk in the art market that what you're buying is a fake, and moreover, if the housekeeper decides to dust the painting with dillouted ammonia, he'll destroy a 20m dollar investment in five minutes!  Your whole house could burn down and everything in it, and a bond will still retain its value, so long as the company, or government which backs it continues to exist.  It's funny too, because just the day before, "All Things Considered" ran its own podcast on the artmarket and they talked to an art seller whose client had had that very thing happen to him.  His housekeeper ruined his investment.

I am a nobody, and my art is only midling realism.  I paint mostly acyrylic and oil canvases between 8.5 x 11 and 30 x 40 inches.  In fact, a 30 x 40, canvas is the largest canvas I've ever worked on.  I may have the opportunity to sell some of my paintings fairly soon, so how would I price them?  And what am I likely to get for them?  So here, you have a piece that I have never shown before, that I am going to attempt to sell, it's an oil painting of a famous Japenese Garden in Florida.  It's 30 x 40 inches, and comes preframed, as in, I wanted to hang it myself and framed it to make it look nicer.  Cheap frame, but it looks good.  So how much, and what can I expect?  Well, the painting is only one of its kind.  Not easy to reproduce.  Even the cost of getting a lamine of the painting would be a good $100, though the price would then come down on each print thereafter.  Morevoer, getting it properly scanned at this point would require removing it from the stretchers which would damage the painting considerably.  Printing it based on a photograph?  Possible, but getting that well done would be fairly arduous as well, and lighting and veneer are critical issues.  What is this painting worth to me?  Well, two women in my life like it very much, and both would like to keep it.  But at least one wouldn't begrudge a little extra flow, and a little extra wall space.  Given that the painting took me three years to complete (long periods of no work done) my asking price is $2,000.  But, as with any work of art, I would expect to bargain on the price.  Is it worth 2,000?  Certainly, my name will never be worth anything, at least, not as a painter.  But sentimentally, the painting is definitely worth that much to me.  But I could piss $500 away in two weeks, and there I am, without one of the two oil paintings I've done.  Is that sentimentality worth a payment on my debt that would be negligable at best?  No.

Here's another one.  An oil 30x40 of the Rio Grande.  Also framed.  I have far fewer takers on this one, though as a painting I enjoy it more because of the feeling of space that the Rio Grande valley evokes.  Again, I'd ask for $2,000.  But neither of the two women in my life who wanted the first painting are particularly interested in this one.  Neither of them were cowboys for Halloween, I guess.  But I'd be more willing to part with this painting because it would make at least one of the women in my life very happy.  Particularly if I made a buck for it.  But here again, we come into some interesting economics about art.  I have a target audience for this, I know a guy who hails from this part of the world.  Would he be interested in a painting like this?  I have no idea, but if anyone would, it would be him.

Which leads me to the last topic for today.  Prices.  Prices are determined by the negotiations of buyers and sellers.  If there are no buyers for a particular asset, it's difficult to set a price.  This, we're told, is the reason why toxic assets had such variable values during the height of the crisis.  Or at least, that's what Planetmoney would have us believe.  But the avabilability of buyers and sellers is really only one aspect of price.  This is why so many long term investors, like those who buy and sell for pension funds, have such a negative feeling for shortsellers.  They aren't bothering to value an asset based on its actual worth or quality, but on speculation that the price will drop because of external market factors.  If the factors were internal, it would be a variant of insider trading.  If the perceived demand for my paintings is low, so is the value.  If the perceived quality of my paintings is low, so is the value.  But if the quality of my painting is perceived as really high, and demand is still low, then so must be, the price.