Friday, September 30, 2011

GOP Candidate Could Be Voters' Best Bet Against Obama In 2012

GOP opting for the "canned" candidate?
My new nickname for Romney: Spam Man.
Edible, long shelf life, but unsavory.

GOP Candidate Could Be Voters' Best Bet Against Obama In 2012


For job creation, size still matters

Looking at a sample of [U.S.] companies created from 2004 to 2008 ... only 3 percent added more than 10 employees during that time. An even smaller proportion had applied or were in the process of applying for patents. (So much for being seedbeds of innovation.) Many small businesses simply go bust after a few years.

Indeed, according to data compiled by the U.S. Census/SBA, the "churn" of small businesses in most years is more than 85 percent.

Moreover, jobs at larger companies offer more stable employment, and better wages & benefits. This is true in the rest of the world, too.

According to one study, the higher a country's national wealth, the fewer small enterprises it has. Why? Because larger companies are more productive (perhaps because they attract better managers) and add more value.

Perhaps one take-away from this, as BB suggests, is if quality job creation is the goal, then U.S. policy should seek to woo more large businesses away from other countries, instead of giving yet more tax giveaways and loan guarantees to U.S. small businesses. It also causes us to re-consider (I can't believe I'm saying this) the efficacy of so-called "corporate welfare."

Political candidates' promises to provide even more government help for small business may be smart populist politics, since about 90 percent of U.S. firms employe fewer than 20 people, but it is not necessarily good policy.

Concludes the article's author Charles Kenny:

In the developing world, support for small businesses through tools such as microfinance is part of a safety net to help those who lack better employment opportunities. But in the U.S. and Europe it is far more often a subsidy to people making a lifestyle choice that reduces national productivity, which doesn't help the economy or promote job creation. Extolling small business might be a good way for politicians to win elections. But when it comes to creating jobs, size still matters.

Politicians may love to extol the virtues of small business, but big companies are still the key to growth
By Charles Kenny
September 28, 2011 | Bloomberg Businessweek

Ominous interview with Dr. Doom

Should we pay attention to one of the only guys who predicted the global financial crisis, even if the solutions he offers run counter to the growing global consensus that austerity (what I call the "hunker down" approach) is the answer? Heck, yeah! He's Dr. Doom! Perhaps soon to be known as Dr. Double Dip.

September 23, 2011 | Emerging Markets

Fears have grown this week that we are on the verge of a new global financial crisis. What's your view?

In my view there is a high likelihood that there is going to be another global financial crisis. My data suggests that most advanced economies are already entering a recession. We're not any more in an anaemic recovery, we're not any more at stall speed. We're at the beginning of a contraction. I think there's a contraction already in most of the eurozone, there is a contraction in the US, also in the UK. That's the first point.

The second point is we're running out of policy bullets – monetary, fiscal – backstopping the financial system.

And third, the eurozone is a source of systemic risk. If there is a disorderly situation in the eurozone it's going to be worse than Lehman.

At this point it's not any more Greece or Ireland or Portugal. The contagion has spread to Italy and Spain. In the case of Italy and Spain the critical thing is that even if you believe that Italy and Spain are illiquid but solvent, even adjusting from the reforms, they've lost credibility in the markets. It's going to take them at least a year to regain it.

Therefore you need a lender of last resort to backstop the sovereigns until they regain the credibility to avoid spreads going up and leading to a self-fulfilling run. And there are only a very few options, none of them feasible. One of them is the [eurobonds]. It's going to take at least two years until they can pass that and it's going to be approved by a treaty.

The other option is the ECB doing the dirty job. But the ECB constitutionally, legally, is not allowed to be a systemic lender of last resort for sovereigns.

The third option is to triple the EFSF (European Financial Stability Facility). But they're not even able to pass the current extension of the EFSF. If tomorrow the Germans have to triple the EFSF, that is a political mission impossible.

So my worry is that the EFSF is going to run out of money and then there is not going to be a lender of last resort to backstop Italy and Spain. And that could be a source of a systemic break down of the eurozone, with global financial consequences worse than Lehman.

What can policymakers do now to minimize the inevitable fallout?

I wrote a paper recently in which I have an eight-point plan to highlight the kind of policies which are needed. One, much more monetary and quantitative easing, not just quantitative easing but credit easing. Two, short-term fiscal stimulus in the countries that can still do it. The US, UK, Germany, core of the Eurozone, Japan, it's the periphery that's doing fiscal retrenchment. You have to postpone the austerity. In the short-run, we need fiscal stimulus. We need to provide massive amounts of lender-of-last-resort support to Italy and Spain to make sure that illiquid but solvent sovereigns do not have a self-fulfilling run. We need an orderly restructuring of the debt of governments, of banks, of households that are insolvent. We need to have a massive recapitalization of the European banks through a TARP (Troubled Asset Relief Programme) type of programme for the European banks. We need to support emerging markets by providing monetary and fiscal support to the countries that are going to get in trouble, and to provide support through the IMF and other international financial institutions. We have to provide credit to small and medium-sized enterprises and households that are squeezed. We need to have also an orderly exit of countries that are not going to regain competitiveness in the eurozone, like Greece and potentially also Portugal. And you have to do this in a clear, holistic and front-loaded way. So there are many things that we need to do. I fear that the politicians in the US, in Europe, in UK are not going to have the political willingness to do it in their own countries, let alone coordinate it internationally.

So what's the likely outcome given this policy gridlock in the key countries?

At this point the debate is not whether we're going to have a double dip or not: the double dip has started. The only question is: are we going to have a mild recession that's going to last for three quarters in advanced economies or are we going to have a severe recession and another global financial crisis? The answer to that question depends on whether you can keep Italy and Spain together. It's not even about Greece.

That depends on Germany taking the risk of essentially backstopping Italy and Spain – or the EFSF, e-bond, or the ECB doing the job. Because whichever way you do it, today the German taxpayer is backstopping German debts and the ones of Greece, Ireland and Portugal. But you need now to backstop EU3 trillion of Italian and Spanish debt. That implies that if Italy and Spain are not illiquid but solvent, but they are insolvent Germany takes a huge amount of credit risk. Germany and France could both lose their triple-A status. So there is political resistance to this quasi-fiscal union in Germany and the core of the eurozone.

But if you don't do it, it'll be a disorderly break-up of the eurozone. So you need to go in the direction of a quasi-fiscal union in the sense of providing liquidity support to illiquid but solvent sovereigns that are too big to fail and too big to be saved. That's the key issue.

How quickly are markets likely to turn aggressively on Italy and Spain?

Well Italian spreads are already 500 basis points. Even if the EFSF is approved – because right now the backstop is provided by the ECB but the ECB has said 'it is not my job' – we need three times the EFSF. Once the EFSF is approved, out of the E440 billion, half of it has already been committed to Greece, Ireland and Portugal and to their banks.

So markets are going to look through it and say there are only E200 billion left and we're going to run out of those E200 billion, at the rate at which there is pressure now on Italy and Spain, by the year-end at the latest or by March of next year.

If it takes two years until an e-bond is essentially voted, you have a window of two years or a year and a half in which Italy and Spain risk losing market access without there being an alternative. You need either e-bonds or EFSF or the ECB to do the job. So that's the risk and it's going to happen soon enough.

People are going to see it as soon as the EFSF is approved and people realize that there is not enough money.

This is clearly a European problem with global consequences – but which nevertheless requires a European solution. Is there anything the international community can feasibly do?

Well you have to make an agreement that we need, for example, coordinated monetary expansion among advanced economies. We need a coordinated agreement that we need a fiscal stimulus in all advanced economies, apart from those in the peripheral eurozone that are forced to do fiscal austerity. We need to have a commitment to a mechanism that provides liquidity support to Italy and Spain that is three or four times larger than the E440 billion. We need to have a European plan to essentially recapitalize, Tarp-style, the European banks.

You need to do lots of things that show that you see what the problem is and you're willing to do whatever is necessary to avoid a freefall. You need to do it within the eurozone and you need to do some things on a global basis like the monetary and fiscal stimulus.

I don't think we're going to get there. Tim Geithner went to the [Econfin] minister's meeting [last week] and he was told: 'don't come and tell us what to do, we want fiscal austerity we don't want to recapitalize the banks, we don't want monetary expansion.'

So there is a fundamental disagreement between US, Europe, UK and Japan – even on the necessary policies. That's the gridlock.

So in light of this gridlock, the paralysis among the big decision-making bodies, where is the leadership in this crisis? Where should it come from?

Well we are in a G-zero world in which the US used to impose its own will on the global economy. Today it is under geopolitical and financial stress and the US cannot essentially impose its own will.

So the leadership now has to come out of Germany – either Germany takes the risk, the credit risk of backstopping Italy and Spain, which is a risk, but saves the eurozone. Or if Germany is not willing to do that then you have the destruction of the eurozone.

At this point the Free Democrats [in Germany] are against it and therefore [Chancellor Angela] Merkel will have to do a radical policy change: changing coalition, dumping the Free Democrats and going for a grand coalition either with the Greens and/or the Social Democrats who are willing to take a chance for Europe.

I don't know, however, whether within the CDU there are very different views. Some are more Europhile, some of them are less. It's not obvious they're going to be willing to make that political decision. That's the critical thing that has to happen. So there has to be a change in coalition in Germany to make that option viable and likely.

But there is not much time to do it. Because even if the EFSF is approved – and it's already being delayed – people the next day are going to see through it and see that there is not enough money for Italy and Spain. And we need much more money. That's going to be the key thing. We don't have much time. That's the problem.

How much time do we have left?

We have three months, through the end of the year. Given the current market pressure on Italy and Spain, the EFSF, even if it's approved, is going to run out of money. By the way, the EFSF is not even pre-funded. It has to borrow. It's going to run out of money and then you have the same problem. So markets are going to look through it and realize there is not enough money and they're going to put pressure on Italy and Spain, even if tomorrow the EFSF is approved.

The markets today are telling Italy and Spain we need fiscal austerity and Italy and Spain are doing more of it. Tomorrow, once they do it, there will be an even more severe recession in the eurozone and in Italy and Spain. People are going to say 'fine, you're doing the fiscal budget reduction but now you're spinning into a recession.'

So you're not going to be debt sustainable because you've got no growth. So unless we have a strategy to restore growth in the eurozone in the short run, there needs to be monetary policy easing on a massive scale: weakening of the euro, fiscal stimulus by Germany and the core, backstopping Italy and Spain and doing anything else in terms of infrastructure spending to boost the growth of the periphery that's now spinning into a recession.

Unless all these things happen it's not going to be sustainable. So liquidity support is not enough. You need to restore growth not three years from now, not five years from now through structural reforms, you've got to do it today. Otherwise it's not going to be sustainable. And the eurozone now is spinning into a recession again.

The signs from policymakers are not encouraging. Germany's finance minister was reported to have said that the G20 was largely in agreement that a fiscal stimulus is simply not needed now. What do you make of that?

That's nonsense. The IMF has it right. [IMF managing director] Christine Lagarde has it right. If everybody does fiscal austerity at a time when private demand is falling again you're going to have another global depression. We're going to make exactly the same mistake like during the Great Depression, when we took away the fiscal stimulus too soon. That is a huge risk right now.

Where does this all lead us? The risk in your view is of another Great Depression. But even respectable European politicians are talking not just an economic depression but possibly even worse consequences over the next decade or so. Bearing European history in mind, where does this take us?

In the 1930s, because we made a major policy mistake, we went through financial instability, defaults, currency devaluations, printing money, capital controls, trade wars, populism, a bunch of radical, populist, aggressive regimes coming to power from Germany to Italy to Spain to Japan, and then we ended up with World War II.

Now I'm not predicting World War III but seriously, if there was a global financial crisis after the first one, then we go into depression: the political and social instability in Europe and other advanced economies is going to become extremely severe. And that's something we have to worry about.

What about the countries in the world with relatively healthy balance sheets? What about the large emerging nations? What should their response be this time? What can China do at this time?

China has to change radically its growth model because it's not sustainable. They talk about increasing consumption, but consumption as a share of GDP has fallen from 50% to 40% to 35%, now it's 33%. And fixed investment has gone from 30% to 40% and now 50% of GDP.

China is going to have in two years its own hard landing. There's so much overcapacity, from real estate to infrastructure to manufacturing that unless they change their growth model to rely more on consumption and less on fixed investment, eventually there will be a hard landing in China. So it's not any more an issue of net exports.

They have reacted to the collapse of their net exports by boosting fixed investment rather than consumption. So they have to radically change their growth model and the sooner they do it the better for them and for the global economy.

Where does that leave China with respect to either a willingness or capacity to react with similar vigour to today's crisis as they did in 2008?

Well, if there is a recession in the G3, China is going to do more monetary, fiscal and credit stimulus. They're going to kick the can down the road for another year because in a year from now they're going to change their own leadership. But that creates even more imbalances because the only thing they know to do is more infrastructure, more real estate, more manufacturing and industrial capacity by the SOEs (state-owned enterprises). So they make the investment bubble even worse and the hard landing is going to be even worse down the line. What they need is radical policies that lead them to save less and consume more. But it will take them 10, 20 years of policy changes to achieve that. I fear they're not going to do it in time.

G20 leaders are telling us that they simply need to keep markets calm until the EFSF is agreed in mid-October. Are they deluding themselves? If we don't get a meaningful statement this weekend what are we likely to see in the markets next week?

The uncertainty, the volatility, the risk aversion is rising. I fear they're not going to reach an agreement along the lines of what I've proposed and therefore there will be more turmoil, more uncertainty, more volatility, more risk aversion. And even approving the EFSF in the current format is not going to be enough. So if it's approved people are going to say 'hey it's not enough money.' Two, there's fiscal austerity but there is no growth. So Italy and Spain are toast unless we have triple or quadruple the amount of official resources to backstop them. So, much more needs to be done and I fear the G20 are not going to say anything meaningful in this regard.

Wednesday, September 14, 2011

Libertarians patently wrong on theory of money, barter

Hey, you libertards (a term I use with the utmost possible affection) who hate paper money, listen up!

Here's a history + economics lesson all in one. Read, learn, and enjoy. E-mail me if you have any questions.

Just another case of actual human/historical fact absolutely contradicting Randian/libertarian wishful thinking about how human beings actually interact.

A Reply to Robert Murphy's 'Have Anthropologists Overturned Menger?
By David Graeber
September 13, 2011 | Naked Capitalism

Ron Paul's campaign mgr. couldn't afford medical care

Can't afford health care? Join libertarian Ron Paul's presidential campaign! Up to $400,000 for loyal idiots! It's that easy. (No guarantee you'll survive, though. Ayn Rand is an angry God.)

By Sam Stein
September 14, 2011 | Huffington Post

Palestinine's statehood bid in UN will show true stripes

I have no idea how much air time this is getting in the U.S. MSM (methinks not much at all), but it's incredibly significant historically.

It's not the least significant and accidental that Palestinians have taken this step under Pres. Obama, i.e. a Democratic administration: Palestinians have realized that political stripes in the U.S. don't matter, and they can't depend on a "liberal" U.S. president to represent them fairly. This is a move of desperation.

Certainly this motion will be carried by the majority of the UN, and vetoed by the U.S. More interestingly, who else will vote it down? Not all the countries secretly lobbying the Palestinians to abandon this vote in the UN, that's for sure -- their home populations won't stand for it.

There is enormous hypocrisy and grandstanding at work here. We can only praise the U.S. for maintaining a foolish, evil consistency in siding with Israel's opposition to the rest of the world, our "liberal" Democrat president notwithstanding.

by Sheera Frenel
September 14, 2011 | NPR

Cheney 'embarrassed' by S&P now, but not then

Yeah, the same guy who said "deficits don't matter" was embarrassed by S&P's downgrade of U.S. debt, although he was not at all embarrassed by S&P's estimation of sub-crime crap as AAA, which was a direct cause of the Great Recession and the resulting U.S. fiscal crisis.

Just goes to show you whose side the puppet masters are on. (Hint: Not yours).

By Amanda Terkel
September 14, 2011 | Huffington Post

Here is a real man

I don't use the word hero too lightly, but Charles Howard of Kentucky is one.

He has black lung but he continues to work in coal mines, and he continues to blow the whistle -- and be vindicated -- for unsafe working conditions for himself and his fellow miners. He is not some "movement" nerd with no skin in the game; he continues to work in, and will probably die from, Kentucky's coal mines.

All you who purport to be for the working man, for the Little Guy, should bow your heads in homage to this real man.

By Dave Jamieson
September 14, 2011 | Huffington Post

Perry apologizing for doing the right thing

Rick Perry is getting slammed by his own party for doing the sensible, moral thing.

Now he's trying to backpedal.

What does that tell you about him and today's GOP?

Rick Perry's HPV Vaccine Law Sparks Political Fight That Ignores Health Issues

By Laura Bassett

September 13, 2011 | Huffington Post


Time to end the War on Terra

Is it time to end this costly, pointless, bloody war? Um, yeah. Duh.

You can catch the full Intelligence Squared debate here.

P.S. - I found it funny the guys arguing "No" to the motion in this debate had a large, direct financial interest in continuing the war on terror. No conflict of interest there, no sir!

September 13, 2011 | NPR

Firms confirm: U.S. middle class is gone

WSJ cites some cheerful statistics about the U.S. middle class, or what's left of it:

At the end of March, Americans had $6.1 trillion in equity in their houses—the value of the house minus mortgages—half the 2006 level, according to the Federal Reserve. ... [T]he net worth—household assets minus debts—of the middle fifth of American households grew by 2.4% a year between 2001 and 2007 and plunged by 26.2% in the following two years.

Since the private sector knows best, and since Proctor & Gamble is perhaps #1 at consumer marketing, then P&G's decision to exclude the middle class from its future marketing efforts is very telling. Wal-Mart and Target are losing customers while Dollar General stores are selling more food items than ever. Meanwhile, luxury retailers like Estee Lauder, Saks, Neiman Marcus, and Tiffany & Co. are going more high-end because only their rich customers have any money.

It turns out that bailed-out TBTF bank Citigroup has been preaching its "Consumer Hourglass Theory" to its investment clients since 2009.

Said Citigroup analyst Deborah Weinswig: "Companies have thought that if you're in the middle, you're safe. But that's not where the consumer is any more—the consumer hourglass is more pronounced now than ever."

That's not where the consumer is anymore. Chilling words, if you think about them.

By Ellen Byron
September 12, 2011 | Wall Street Journal

Texas leads in requests for federal relief

So it turns out that the secession-ready Republic of Texas has had the most federal disaster declarations since the federal government started keeping track: 86. This means that they ask for the most federal disaster assistance.

Independent, my ass!

By Mark Memmott
September 13, 2011 | NPR

Tuesday, September 13, 2011

There goes 'Bama, negotiating with himself again

Jesus, Obama's such a pathetic pussy.

Before he even tries to use the bully pulpit or begins negotiating with Republicans he starts backing off and making concessions, while protesting that he's standing firm! What a laugh! Reminds me of health care, when he refused to propose a bill, and started the process with closed-door negotiations with insurance and pharma companies when he gave away the store.

Obama: perhaps the worst negotiator in the White House ever.

FBI interrogator: Less Kiefer Sutherland, more Julia Roberts

The book The Black Banners looks like the opposite of "24." The author's anecdote about interrogating bin Laden's personal secretary Ali al-Bahlul is particularly enlightening. From what we're told by hot-headed pundits and two-fisted politicians, the only way to get information out of hardened terrorists is to waterboard, torture, starve and humiliate them. Not so. It's more like: eat, pray, drink. Practically a Julia Roberts movie!

September 12, 2011 | Morning Edition on NPR

On Sept. 12, 2001, Ali H. Soufan, a special agent with the FBI, was handed a secret file. Soufan had spent nearly a decade investigating terrorism cases, like the bombing of the U.S.S. Cole. He says that this file was one he had requested before the attacks, and that had it been given to him earlier it may have helped to prevent them.

Following 9/11, Soufan interrogated suspects as one of the few FBI agents at the time who spoke Arabic. In a new book, The Black Banners: The Inside Story of 9/11 and the War Against al-Qaeda, out today, he reveals many long-held secrets about both the operations of terrorists as well as the American efforts to find and bring them to justice, including how he was able to elicit confessions from members of al-Qaeda.

According to his book, and as he tells NPR's Steve Inskeep, Soufan's interrogations did not involve the physical technique known as waterboarding, but rather involved conversations that hinged on what each man knew.

"You interview a lot of people and the most important thing during interviews is to have the person talk," Soufan says. "And then you can figure out: he's lying here, he's not lying there, maybe he's trying to hide something here."

One of the men he interrogated was Abu Zubaydah, who had been captured in Pakistan after the 9/11 attacks, and whom the Bush administration thought was a high-ranking al-Qaeda official. Soufan says though assessment was incorrect, Abu Zubaydah did give up valuable information.

"From the very beginning, Abu Zubaydah was very cooperative, and he provided the information that led us to identify the mastermind of 9/11, which is Khalid Sheikh Muhammed," Soufan says. "He also provided significant details about the plot and how the plot came to be."

Why would a terrorist volunteer such information?

"We were nice to him," Soufan says. "I mean, we had a lot of things going on, you know? He knew that we knew everything about him. We knew even what his mother used to call him as a child. He was not providing information just because he wanted to provide information. He was providing information because he's trying to convey to us that, 'Look, I am cooperating with you.' But at the same time, he didn't know what we knew. And we started playing this mental poker game with him, if you want to call it, and [got] more and more information from him."

Soufan says that the information stopped flowing after the arrival of a man he calls Boris.

"At the time, we were really surprised, because we had a good team on the ground and then we found that someone had hired this psychologist who supposedly was an expert. And when I spoke with him about his level of expertise, we were dumbfounded," Soufan says. Boris had not ever conducted an interrogation and lacked the team's depth of knowledge about al-Qaeda. He told Soufan, "I do know human nature."

"Unfortunately, he knew neither," Soufan says.

Boris employed what was referred to by former CIA director George Tenet as "standard interrogation techniques."

"And the standard interrogation techniques at the time was believed to be nudity, was believed to be sleep deprivation, loud noise," Soufan says. "And we had many problems with this technique. First of all, if it's working, why break it? if someone is talking, the best thing you can do is keep him talking. The number two issue is al-Qaeda and their associates, and Islamic extremists in general, they are anticipating to be tortured when they get caught."

Many of these extremists have been through jails in the Middle East, Soufan says, and "expect to be beaten, they expect to be burned, their nails to be pulled out, they expect to be sodomized. I mean, there is a lot of sick things that happens over there. And now we are saying that we're going to take your clothes off, we're going to put some loud music on, and you're going to cooperate. He's not going to cooperate because he's gonna see how long can he endure the treatment that you're giving him. And you know with 'enhanced' interrogation techniques, you hit the last one we have, which is waterboarding. So when you get [to] waterboarding, what do you do? You keep doing it again and again, in the case of Abu Zubaydah 83 times. In the case of KSM, 183 times. You know when do you realize that it's not working? 102nd time? 101st time? When?"

After his retirement from the FBI, Soufan testified before a Senate Administrative Oversight and the Courts subcommittee on the Bush administration's interrogation and detention program. He spoke to the subcommittee from behind a black screen to protect his identity.

"As I mentioned in my Senate statement, Abu Zubaydah stopped talking. So for a few days we didn't get one single piece of information. Just a day before that started, we get that KSM is the mastermind of 9/11," he says.

In The Black Banners, Soufan repeatedly uses a word not usually associated with interrogation to refer to another suspect, a man by the name of Ali al-Bahlul. Soufan visited Bahlul in Guantanamo, where the military explained that the prisoner was cooperative, and that there was no reason to believe that he was dangerous. His story: that he went to Afghanistan to teach the Quran to poor Afghanis.

"So when we had him brought to the interrogation room, I just felt that there is something wrong with this guy," Soufan says. I mean, he is saying all the rhetoric. He is repeating all the counter-narrative of al-Qaeda. He is very knowledgeable about it. But that means he is also very knowledgeable about al-Qaeda's rhetoric. So I was the devil's advocate here."

Soufan says that he began arguing on behalf of al-Qaeda, "from political perspective and from ideological perspective," and that during the debate, he stopped taking notes, which upset Bahlul.

"He asked me, 'So why are you not taking notes?' And I said, you know, 'I respected you this whole time. I never lied to you. I'm telling you who I am and why I'm here, but I don't see the same from you.' And this is the last thing somebody like him, who claims that he is pious, want to hear from someone," Soufan says. "So I explain to him that I know a lot about him, I know who he really is, and then I ask him to go and pray. So he went, he prayed, he came back. I gave him a cookie, if you want to eat a cookie. So he was chewing on the cookie and he was looking down on the floor and then he looked at me and he said, 'I am Anas al Makki. That's my Qaeda name.'"

The man they had known as Bahlul explained that he was actually a leader of al-Qaeda, and a personal secretary of Osama bin Laden. "What do you want to know?" he asked.

"I said, 'Do you want some tea?' He almost spit the cookies from his mouth," Soufan says. "He said, 'I just told you who I am, and you're just asking me if I want tea?' I said, 'Well, I knew that, but now I know you're respecting me, so I'm offering you some tea.' I had no clue who the guy was."

Al Makki eventually revealed that while the Sept. 11 attacks were being carried out, bin Laden was attempting to use a satellite to watch the destruction on television.

"He said that he was not able to get a signal because they were running away and they were hiding in the mountains somewhere," Soufan says. "So they ended up listening to it on the radio. He talked about different individuals in the group. He talked about the structure. And he is now going to be serving his life in jail."

85% of fed. employees outside Wash, DC

About 85 percent of federal employees live and work outside Washington, many of them in tiny counties where Big Guvmint is the major employer.

That's right, Tea Partyers: cut federal jobs, get your neighbor fired.

By Ed O'Keefe
September 12, 2011 | Federal Eye, Washington Post

The Economist: Spending cuts now are dumb

Wow, even The Economist, by no means a liberal rag, is agreeing with the Krugmans and Stiglitzes on what ails the major economies:

"The left is right on one thing: the main cause of the current high joblessness is the severity of the last recession and the weakness of the subsequent recovery. Yet the West's economies have embarked on contractionary policies. [...] the main culprit is a collective, premature shift to fiscal austerity by governments." [Emphasis mine.]

I don't agree with The Economist's hint, however, that something structural has changed in the employment picture. If that were true then we'd be seeing some industries with very strong hiring, others very weak. As it stands, hiring is down across the board -- which means the real culprit is a lack of aggregate demand. They trot out high male unemployment (the "man-cession") as an example of a structural change ... but that can easily be explained by the facts that men are overrepresented in construction and transportation, two of the hardest hit sectors. But now it seems those jobs are coming back, and men are getting hired faster than women.

It is not impossible for politicians to reduce the West's frighteningly high unemployment levels
September 10, 2011 | The Economist

Strategic advice for liberal-progressive losers

Kline's critical essay is excellent but long so I'll quote selectively:

"At best, progressives seek to convert.... Thus, they don't frame what they engage in as a fight but rather as a debate."

"It is difficult to think of a major progressive policy which commands less than a plurality. This situation is one reason for the lazy reliance upon electioneering by progressives, they know that their issues are popular, in principle at least. Rather childishly, they just want a show of hands then, as if that is what goes on really in elections."

"One could say unflatteringly that the goal of 'progressives' in activism is to raise their personal karma by standing up for what is right."

And here's how Kline sums it up, how radical leftists like moi can win:

"Money is not the main problem; feet on the ground moving forward are the real problem. A discrete agenda pursued full-time by experienced organizers is the solution. Less talk, and more walk. Progressives have successfully stamped Big Capital as 'anti-us' historically, and they need to return to this. Those active for social reform have to forget about the electoral cycle. They have to forget about what the lunatic Right is doing as much as possible and concentrate on what they themselves are in process of accomplishing. They need a compact reform agenda (yes, bullet points and not more than ten of them). They need a defined activist strategy, no matter how large the difficulties or time horizon appear. They need to build genuinely activist organizations with specific plans to achieve a core set of goals. And they have to reclaim militancy as a word, and deed, of pride. If they do those things, they will make real progress, and moreover they will be ready when the moment comes for breakthrough amongst the wider society."

On third thought, this is a stinging rebuke to me and basically everybody who spends most of their spare time & energy blogging, posting, linking, and writing stuff to support their liberal-progressive causes. Because basically, Kline is saying (while writing/blogging, OK I get the irony here), that preaching to the choir won't cut it, that nothing was ever won politically by persuasion but only by pounding electorally those folks who hate your guts. 'Nords, it doesn't matter what Americans think, it matters how their politicians vote. Point taken. Blog on!....

By Richard Kline
September 11, 2011 | Naked Capitalism

Monday, September 12, 2011

'Tea Party Zombies Must Die' is wholesome American fun

After an irate conservative clued me in, I played a quick game of Tea Party Zombies Must Die. As a big zombie enthusiast but a retard at first-person shooters, I can say it ain't bad. My favorite was the siamese Koch Bros. zombie with six limbs.

Look, I don't see what all the hubbub is about. First, Tea Partyers like guns. Second, people kill people, not guns or violent video games. Third, there are no zombies in the Bible, hence everybody knows they're only make-believe good fun. Fourth, even if they were real, everybody knows that zombies aren't people; that's why there are no laws against killing zombies. (However there are laws against desecrating a corpse, so... in practice you may have a hard time proving to law enforcement officers, ex post facto, that those were indeed zombies you mutilated with a crowbar and riddled with an AK.)

By Joshua Rhett Miller
September 9, 2011 | FOXNews

Our really kinky ancient ancestors

"We found evidence for hybridization between modern humans and archaic forms in Africa. It looks like our lineage has always exchanged genes with their more morphologically diverged neighbors," said the paper's main author Michael Hammer about human-ape "relations" in Africa between 20,000 and 60,000 years ago.

"We think there were probably thousands of interbreeding events. It happened relatively extensively and regularly."

[Insert monkey sex joke here. Preferably one involving Rick Perry and/or Michele Bachmann and Intelligent Design.]

September 6, 2011 | ScienceDaily

Friday, September 9, 2011

Stiglitz: Jobs attainable, require political will

From my favorite bearded liberal Nobel economist.

By Joseph E. Stiglitz
September 7, 2011 | Politico

The country is — or should be — focused on jobs. Some 25 million Americans who want a full-time job can't get one. The youth unemployment rate is as much as twice that of the already unacceptable national average.

America has always thought of itself as a land of opportunity — but where is the opportunity for our youngsters who face such bleak prospects? Historically, those who lose their jobs quickly got another, but an increasingly large fraction of the unemployed — now more than 40 percent — have been out of work for more than six months.

President Barack Obama will deliver an address Thursday outlining his vision of what can be done. Others should be doing the same.

Around the country there is growing pessimism. The rhetoric will be fine. But is there anything that anyone can really do — given the country's looming debt and deficit?

The answer from economics is: There is plenty we can do to create jobs and promote growth.

There are policies that can do this and, over the intermediate to long term, lower the ratio of debt to gross domestic product. There are even things that, if less effective in creating jobs, could also protect the deficit in the short run.

But whether politics allows us to do what we can — and should — do is another matter.

The pessimism is understandable. Monetary policy, one of the main instruments for managing the macro-economy, has proved ineffective — and will likely continue to be. It's a delusion to think it can get us out of the mess it helped create. We need to admit it to ourselves.

Meanwhile, the large deficits and national debt apparently preclude the use of fiscal policy. Or so it is claimed. And there is no consensus on which fiscal policy might work.

Are we doomed to an extended period of Japanese-style malaise — until the excess leverage and real capacity works its way out? The answer, I have suggested, is a resounding "no." More accurately: This outcome is not inevitable.

First, we must dispose two myths. One is that reducing the deficit will restore the economy. You don't create jobs and growth by firing workers and cutting spending. The reason that firms with access to capital are not investing and hiring is that there is insufficient demand for their products. Weakening demand — what austerity means — only discourages investment and hiring.

As Paul Krugman emphasizes, there is no "confidence fairy" that magically inspires investors once they see the deficit go down. We've tried that experiment — over and over. Using the austerity formula, then-President Herbert Hoover converted the stock market crash into the Great Depression. I saw firsthand how the International Monetary Fund's imposed austerity on East Asian countries converted downturns into recessions and recessions into depressions.

I don't understand why, with such strong evidence, any country would impose this on itself. Even the IMF now recognizes you need fiscal support.

The second myth is that the stimulus didn't work. The purported evidence for this belief is simple: Unemployment peaked at 10 percent — and is still more than 9 percent. (More accurate measures put the number far higher.) The administration had announced, however, that with the stimulus, it would reach only 8 percent.

The administration did make one big error, which I pointed out in my book "Freefall" — it vastly underestimated the severity of the crisis it inherited.

Without the stimulus, however, unemployment would have peaked at more than 12 percent. There is no doubt that the stimulus could have been better designed. But it did bring unemployment down significantly from what it otherwise would have been. The stimulus worked. It was just not big enough, and it didn't last long enough: The administration underestimated the crisis's durability as well as its depth.

Thinking about the deficit, we need to reflect back 10 years, when the country had such a large surplus at 2 percent of GDP that the Federal Reserve Bank chairman worried we would soon pay off the entire national debt — making the conduct of monetary policy difficult. Knowing how we went from that situation to this helps us think through how to solve the deficit problem.

There have been four major changes: First, tax cuts beyond the country's ability to afford. Second, two costly wars and soaring military expenditures — contributing roughly $2.5 trillion to our debt. Third, Medicare Part D — and the provision restricting government, the largest drug buyer, from negotiating with pharmaceutical companies, at a cost of hundreds of billions of dollars over 10 years. Fourth, the recession.

Reversing these four policies would quickly put the country on the road of fiscal responsibility. The single most important thing, however, is putting America back to work: Higher incomes mean higher tax revenues.

But how do we get America back to work now? The best way is to use this opportunity — with remarkably low long-term interest rates — to make long-term investments that America so badly needs in infrastructure, technology and education.

We should focus on investments that both yield high returns and are labor intensive. These complement private investments — they increase private returns and so simultaneously encourage the private sector.

Helping states pay for education would also quickly save thousands of jobs. It makes no sense for a rich country, which recognizes education's importance, to be laying off teachers — especially when global competition is so fierce. Countries with a better educated labor force will do better. Moreover, education and job training are essential if we are to restructure our economy for the 21st century.

The advantage of having underinvested in the public sector for so long is that we have many high-return opportunities. The increased output in the short run and increased growth in the long run can generate more than enough tax revenues to pay the low interest on the debt. The result is that our debt will decrease, our GDP will increase and the debt to GDP ratio will improve.

No analyst would ever look at just a firm's debt — he would examine both sides of the balance sheet, assets and liabilities. What I am urging is that we do the same for the U.S. government — and get over deficit fetishism.

If we can't, there is another, not as powerful but still very effective, way of creating jobs. Economists have long seen that simultaneously increasing expenditures and taxes in a balanced way increases GDP. The amount that GDP is increased for every dollar of increased taxes and spending is called the "balanced-budget multiplier."

With well-designed tax increases — focused on upper-income Americans, corporations that aren't investing in America or closing tax loopholes — and smart expenditure programs that are focused on investments, the multiplier is between 2 and 3.

This means asking the upper 1 percent of our country, who now garner some 25 percent of all U.S. income, to pay a little more in taxes — or just pay their fair share. Investing this could have a significant effect on output and employment. And because the economy would grow more in the future, again, the debt to GDP ratio would come down.

There are some taxes that could actually improve the efficiency of the economy and the quality of life, with an even bigger effect on national output, if we correctly measure output. I chaired an International Commission on the Measurement of Economic Performance and Social Progress, which identified large flaws in our current system of measurement.

There is a basic principle in economics: It is better to tax bad things that generate negative externalities than good things. The implication is that we should tax pollution or destabilizing financial transactions. There are also other ways of raising revenues — better auctions of our country's natural resources, for example.

If, for some reason, such revenue enhancements are ruled out — and there is no good economic reason why they should be — there is still room to maneuver. The government can change the design of tax and expenditure programs — even within the current budget envelope.

Increasing taxes at the top, for example, and lowering taxes at the bottom will lead to more consumption spending. Increasing taxes on corporations that don't invest in America and lowering them on those that do would encourage more investment. The multiplier — the amount GDP increases per dollar spent — for spending on foreign wars, for example, is far lower than education, so shifting money here stimulates the economy.

There are things we can do beyond the budget. The government should have some influence over the banks, particularly given the enormous debt they owe us for their rescue. Carrots and sticks can encourage more lending to small- and medium-sized businesses and to restructure more mortgages. It is inexcusable that we have done so little to help homeowners, and as long as the foreclosures continue apace, the real estate market will continue to be weak.

The banks' anti-competitive credit card practices also essentially impose a tax on every transaction — but it is a tax with revenues that go to fill the banks' coffers, not for any public purpose — including lowering the national debt. Stronger enforcement of antitrust laws against the banks would also be a boon to many small businesses.

In short, we are not out of ammunition. Our predicament is not a matter of economics. Theory and experience show that our arsenal is still strong. Of course, the deficit and debt do limit what we can do. But even within these confines, we can create jobs and expand the economy — and simultaneously bring down the debt to GDP ratio.

It is simply a matter of politics: whether we choose to take the steps we need to take to restore our economy to prosperity.

Progressive tax + public goods = National happiness?

Statistics from all over the world are all well and good, but hey, psychologists, there is a little thing that's proven and it's called American Exceptionalism. Which means the rules for everybody else don't apply to us Yanks.

In America, the pursuit of happiness isn't in building good public transport, education, health care, etc., it's in chasing that one-in-a-million lottery ticket to rich assholedom.

And I don't know about you, but it's gonna happen for me, just you wait! I'm gonna be the exception.

By Alexander Eichler
September 8, 2011 | Huffington Post

Detractors of Warren Buffett take note: The more a country taxes its richest citizens, the happier everyone in that country will be.

Such are the findings of a new study, led by University of Virginia psychologist Shigehiro Oishi, which compares 54 different countries and finds a correlation between progressive tax policies -- that is, higher tax rates for higher tax brackets -- and overall contentedness.

It may not be the case that a progressive tax system automatically leads to a happier population, however. The report emphasizes that what matters is what governments do with the tax dollars they collect.

"[A] key to a happy society is quality public and common goods," a draft of the report notes. "[E]ven if a society does not adopt a progressive tax, as long as it can afford good public transportation, education system, health care, and so forth, citizens are likely to be happy."

The study observed the highest rates of "life satisfaction" in Canada, New Zealand, the Netherlands and a number of Nordic countries, including Norway, Denmark, Finland and Sweden -- all nations that consistently rank high whenever countries are compared on the basis of happiness.

The study also noted that many of these nations tax their richest citizens at a much higher rate than their poorest. Several other nations displayed a correlation between progressive tax rates and happiness, including Israel, France and the U.K.

A number of organizations have ranked nations by happiness in recent years, and offered a raft of explanations for why certain countries seem more satisfied than others. An extensive Gallup study in 2010 concluded that while rich countries are generally happier, so are societies where interpersonal relationships tend to be strong.

In June, 24/7 Wall St. analyzed a quality-of-life survey performed by the Organization for Economic Co-operation and Development, and noted that natural resources, economic stability, a strong services sector and "a good balance of work and leisure time" are all correlated with national happiness.

In the study examining the link between happiness and progressive taxes, the U.S. ranked fairly high among nations for happiness, but has only a mildly progressive tax policy. Some two dozen countries have tax policies more progressive than the United States', including Belgium, Mexico, Germany, Pakistan, Vietnam, Japan and Morocco.

UN economic report: 'We need to reverse course quickly'

For Tea Partyers, hearing this report calling for more & bigger fiscal stimulus in developed countries must be likes listening to metal scratching a chalk board.

Sometimes the truth hurts.

By Tom Miles
September 6, 2011 | Reuters

The pursuit of austerity measures and deficit cuts is pushing the world economy toward disaster in a misguided attempt to please global financial markets, the annual report of the United Nations economic thinktank UNCTAD said on Tuesday.

The report, entitled "Post-crisis policy challenges in the world economy," savaged U.S. and European economic policies and called for wage increases, stricter regulation of financial markets, including a return to a system of managed exchange rates, and a conscious break with market-led thinking.

"The message here is very pragmatic: we need to reverse our course quickly," said UNCTAD Secretary General Supachai Panitchpakdi.

Supachai, a former head of the World Trade Organization, said the policy response to the crisis, with an emphasis on fiscal tightening, was misconceived and inept.

The report's lead author Heiner Flassbeck said the global economic situation was extremely dangerous and, without more stimulus, a decade of stagnation was the best-case scenario.

The current policies were a disaster, said Flassbeck, head of the globalization and development strategies division at the U.N. Conference on Trade and Development, and a former deputy finance minister in Germany.

"If interests rates everywhere are zero, and if governments stick to the policy of not only keeping fiscal deficits where they are but retrenching, cutting public expenditure, then we will end up in permanent recession," he said.

"Unemployment depends very much on demand. And if you have no demand then you need government to step in with a huge program for stimulating the economy. This was the U.S. scenario in the past. Now it's worse because wages are rising less than in the past so you're going to need a bigger stimulus program."

The recovery from the financial crisis was not only jobless, which was to be expected, but it was also "wageless," he said, with Americans, Japanese and Europeans -- 70 percent of the world economy -- expecting their incomes to stagnate.

In its last report a year ago, UNCTAD said a premature removal of stimulus policies might cause a deflationary spiral with attendant slumps in growth and employment around the world.

"Let's not fool ourselves. This is a realistic scenario for the whole developed world, if we do not understand the lessons now, and really quickly, because we do not have other instruments any more," Flassbeck told a news conference to launch this year's report.

"To revive the economy with a wageless recovery with diminished expectations by the private economy, by private households, what are the instruments at hand? There is nothing."

He said that even if things go well, global economic growth would slow to about 1.5 percent in 2012, less than half the U.N. forecast of 3.1 percent growth for this year.


The report put much of the blame for the crisis on deregulation of financial markets, which it said invited destabilizing "herd behavior" by speculators, and allowed an over-concentration of banking activities.

"What we've seen in the past and we never learn is that countries seem to have excessive belief in the financial markets. And we've seen time and again that financial markets are not very sound in their judgment," said Supachai.

"But still people keep thinking that they are doing these austerity measures because they want to please the markets so that the markets give them better ratings, including the rating agencies which do not always produce the best assessment."

Flassbeck said the herd mentality was evident whenever equity markets and commodity markets all lurch in tandem on the same day, an effect that could not conceivably be caused by real swings in demand. But the world was ignoring it, he said.

"If the G20 negotiations were not confidential I would tell you that it's ignored even there," he said.

A November summit of the 20 biggest economies would reach "extremely weak" conclusions on tackling the crisis and would underestimate the influence of financial markets, he said.

"We have three areas where the G20 wanted to be strong. The first is the coordination of economic policy: nothing. The second is commodities speculation: more or less nothing; and the third is international global monetary order: nothing. So that's the result of nine months deliberation by the G20."

The U.N. report said the world should introduce a system of rules-based floating exchange rates, which would kill off distorting "carry trades" in which investors borrow currencies with low interest rates to buy higher-yielding currencies.

The system would be based on divergences between the consumer prices or interest rates applicable to different currencies, and unlike the defunct Bretton Woods system, it would cater for continual adjustments in exchange rates.

Who's to blame for wealth inequality?


By Brian Montopoli
September 7, 2011 | CBS News

Take a moment and think about how you feel wealth should, ideally, be spread among the American people.

If you're like the average respondent in a 2010 Harvard Business School/Duke University study, your response was this: The richest top 20 percent of society, as determined by net worth, should control 32 percent of the wealth. The bottom 20 percent should control about ten percent. And the rest should be spread out among the 60 percent in the middle, with higher-earners taking a slightly larger share.

It probably won't surprise you to hear that those figures don't match reality. But you might well be shocked by just how far off they are. In the study, Americans were asked how they thought wealth was actually distributed; they estimated that the top 20 percent controlled about 59 percent of the nation's wealth, while the bottom controlled about three percent.

That wasn't even close: In reality, the top 20 percent controlled about 84 percent of the wealth, while the bottom quintile controlled just 0.1 percent. The combined net worth of the bottom 40 percent, in fact, accounted for just 0.3 percent of the nation's wealth. (See chart below, where that bottom 40 percent doesn't even show up.)

Table - Wealth Divide

One indicator of where you fall on the spectrum is race: White households, on average, had a median wealth of $113,149 in 2009 - 20 times the median wealth of black households ($5,677) and 18 times that of Hispanic households ($6,325). That's the largest gap between whites and minorities since the census started tracking such data in 1984.

It's not just wealth. In 2007, U.S. income inequality hit its highest mark since just ahead of the Great Depression in 1929. And that was before the current recession brought joblessness and financial peril to scores of Americans, most of whom are on the wrong side of the wealth divide.

According to the CIA's World Factbook, the United States now ranks 39th in the world when it comes to income inequality. What that means is that only 38 out of 136 countries have a less equitable distribution of income than the United States; the list of countries with a more equitable income distribution includes Iran, Russia, Turkmenistan and Yemen.

The financial gap has been widening. As economist Joseph Stiglitz documented in Vanity Fair in May, the top one percent of Americans have gone from taking 12 percent of the nation's wealth 25 years ago to taking nearly a quarter today. Over the past decade, the income of the top one percent has risen 18 percent; the income of Americans in the middle, meanwhile, has fallen.

And consider this: As of 2009, according to Politifact, the net worth of the nation's 400 wealthiest Americans was higher than the net worth of the bottom 50 percent of the nation's households.

"We have this growing elite that makes the economy of the United States look more like a banana republic than an economic democracy," says Democratic Rep. Jan Schakowsky of Illinois.

There isn't a one-sentence explanation for why America's wealth gap is far wider than Americans say they want it to be - and why it is growing ever wider. But a good place to start is with the decisions made by elected officials in Washington, many of whom are themselves in the top one percent.

Those decisions tend to follow the desires of the affluent. In his 2008 book Unequal Democracy, Vanderbilt political scientist Larry Bartels looked at how senators responded to the preferences of their constituents. Bartels found that senators are "fairly responsive" to the preferences of those in the upper third of income distribution, less responsive to those in the middle third, and "not at all responsive to the preferences of constituents in the bottom third of the income distribution."

In other words, the data suggested that if you're in that bottom third in terms of income, it really doesn't matter what you think - your senator effectively doesn't care.

A bias toward the desires of the wealthiest Americans has resulted in policies that critics say exacerbate the wealth and income divide - among them reduced capital gains tax rates, deregulation of the financial system and a reduction of tax rates on high earners. They say many politicians largely serve the wealthy and leave those on the bottom behind, pointing out that the minimum wage is currently lower than it was 30 years ago after accounting for inflation.

The growing wealth gap is "not an accident or a force of nature, it's clearly the result of public policy," says Schakowsky.

The Illinois lawmaker acknowledges that her party deserves some of the blame - in 1999, for example, many Democrats voted for the repeal of the Glass-Steagall Act separating commercial and investment banks, which most economists say contributed to the 2008 economic meltdown. (Schakowsky did not vote for repeal.) But she says Republicans are largely responsible for the widening income gap, pointing to a policy-based "attack on organized labor" and other initiatives.

"I would say that much more of this has to be laid at the feet of Republicans," she said. "Surely the way out is being blockaded by the Republicans. I don't know that there's any economist right now that would say it's more important to reduce the debt and deficit then to spend and create jobs and stimulate the economy. It's just wrong."

Schakowsky introduced a bill earlier this year to increase marginal tax rates for those making more than $1 million to 45 percent, with the marginal rate going up to 49 percent for income over $1 billion. "We need tax fairness in this country, and the Republicans right now are on a crusade against low-income people," she says.

Conservatives reject this formulation. Kevin A. Hassett, a senior fellow at the American Enterprise Institute, says the focus should be poverty, not inequality; he calls it "immoral" and "unethical" for Democrats to push a "spread the wealth philosophy." Hassett points to Democratic efforts to increase the top marginal tax rate in individuals -- a position some Republicans have deemed "class warfare."

"When you put a high top rate in it will cause economic damage, and that income damage will tend to impact people on the bottom end of the income distribution because they're the most vulnerable," he said. In pushing for an increase in taxes on high earners, he said, Democrats are making a "calculated appeal to the median voter's greed" - and are putting politics "ahead of social justice."

Douglas Holtz-Eakin, the former director of the Congressional Budget Office and chief economic policy adviser to John McCain's 2008 presidential bid, argues that globalization - not congressional policy - has been the key force in exacerbating the wealth and income gaps. When the labor force became "flat" in the 1990s, he said, the economic value of Americans near the bottom of the economic ladder decreased.

"If you bring in billions of new low-skilled laborers into the world economy, the relative value of low-skilled workers go down," said Holtz-Eakin. "I don't think there's anything about a tax policy that's going to undo that. It's a global force." Holtz-Eakin argues that instead of "economically damaging redistribution policies," Congress should be focused on improving education so that low-skilled workers have financial capital.

In their 2010 book "Winner-Take-All Politics," political scientists Jacob S. Hacker and Paul Pierson examined the structural methods through which Washington produces policy that benefits high-income Americans. The key, they found, was the organized pressure put on lawmakers - which includes lobbying, campaign contributions, ginned-up "grassroots" movements and implicit or explicit threats to support rivals.

"Congress is really often responding to organized pressure," Pierson says. "So organization matters enormously, and that has an implication for inequality because businesses and the affluent tend to be a lot more organized than anybody else."

Organized pressure is one reason the government is legally prohibited from bargaining with the pharmaceutical industry over drug prices despite being the largest purchaser of its products; such pressure also helps explain why the Defense Department's budget has spiraled from $51 billion in 1963 to more than $700 billion today.

Former New York Democratic Rep. John Hall, who lost his seat in the 2010 midterm elections, said the pressure on lawmakers to court affluent interests - and craft policy that will make them happy - is intense.

"I would guess that the average member of the House spends at least 30 percent of their time doing fundraising," said Hall. "And it starts right after the election."

He says lawmakers are constantly cultivating "lobbyists or other people who have a lot of money" in order to get reelected, arguing the process "just skews the democracy from one man/one vote to one dollar/one vote."

The situation came under some scrutiny in 2008, when lawmakers' sanctioning of a deregulated financial system resulted in a worldwide economic breakdown and a recession that has endured to this day. Anger over that event - and the bailouts that followed - gave rise to the Tea Party movement, which ostensibly reflected voter anger at a political system corrupted by influence.

But according to Pierson, all voter anger has done is "empower people who are doing everything they can to make inequality worse." The Republican candidates for president - most of whom claim Tea Party allegiance - are now calling for increased taxes on the poor and reduced taxes on the rich. And they want to repeal the Dodd-Frank Wall Street reform bill meant to provide some protection to consumers from the excesses of a deregulated financial industry. (It should be noted that conservatives like Hassett would argue these actions actually help the poor by reducing the tax burden on job creators and eliminating regulations that can hamper productivity.)

Mitt Romney, one of the frontrunners for the GOP nomination, unveiled a job-creation plan Tuesday that eliminates capital gains taxes on many taxpayers and opposes union interests; his chief rival, longtime Texas governor Rick Perry, touts his economic record while presiding over a state with the fourth-highest poverty rate and the highest-percentage of minimum wage jobs in the nation.

Last January, the Supreme Court eliminated restrictions on the right of corporations to spend unlimited amounts on politics, making it easier for wealthy organizations and individuals to apply pressure to lawmakers. The 2012 election cycle has seen the rise of so-called "Super PACs," massive political action committees raising tens of millions of dollars to help candidates win elections.

Meanwhile, outside groups like Crossroads GPS serve as a conduit for anonymous donors to pour further millions into the political system each election cycle - and their influence can often decide which candidate makes it to Washington. Schakowsky says the influx of hundreds of millions of dollars into the political system explains why many Americans cast ballots for lawmakers who back policies that widen the wealth and income gap. "The electoral environment is very skewed right now to the wealthiest Americans," she says.

Pierson argues that since it's effectively impossible to get money out of politics, the best hope for the middle and lower classes is to organize and exert pressure that counterbalances the influence of the wealthy. Some such groups, like the AARP, already exist, and organized labor has long been a major force in politics -- though the labor movement has suffered a decades-long decline in membership and influence. Asked if the wealth gap could get wide enough to spur more Americans to organize to counterbalance the influence of those at the top of the ladder, Pierson was pessimistic.

"I'd like to say yes to that," he said, "but there's nothing in the experience of the last couple of decades that makes me confident that when people get frustrated they'll produce the kind of politics that are going to reverse things."

Thursday, September 8, 2011

(YAWN) Another multi-victim shooting rampage

Said one witness who saw the shooter entering the Nevada IHOP: "I had my pistol; [but] I wasn't going up against an automatic rifle. I'm sorry. I wish I would have shot him in the back now as he was going toward IHOP, but I wasn't clear on the situation."

Obviously the answer is for more Americans to carry AK-47s so they're not outgunned by mentally disturbed shooters with AK-47s.

We also need to shoot more people in the back.

Guns keep us safe! Guns don't kill people, people kill people! And some people are just evil and disturbed, and there is absolutely nothing we can do to prevent such shooting rampages except arm all the good people of America to the teeth.

By Mark Memmott and Eyder Peralta
September 7, 2011 | NPR

Wednesday, September 7, 2011

Post Office gets a raw deal

I've written before about how the U.S. Postal Service, which is mentioned in the U.S. Constitution, gets a raw deal from Congress. Meanwhile, many Americans castigate it as a model of "government" inefficiency.

First, let's recall that the USPS gets no money from the federal gov't. Zero.

Second, let's recall that Congress has obligated the Postal Service to fully fund in the present its future pension obligations, something no other gov't agency or private corporation is required to do, not even Social Security! (Indeed, most private firms with pensions have simply abandoned them.) So, the Postal Service's impending "bankruptcy" is a direct result of its inability to fully cover an obligatory pension fund payment this year of $5.5 billion (!).

Third, Congress continues to mandate both Saturday delivery and "universal delivery" to every podunk address with a mailbox -- and each delivery has to cost the same, since Congress decides the price of stamps, not the Postal Service, which is not allowed to react to the "free market."

Finally, Congress forbids the USPS from introducing innovative revenue-generating measures such as selling additional items and services, like banking (in Japan the Post Office is the country's largest deposit bank). By the way, the NYT article misses the major reason why USPS is low on revenue. It's not just because of the Internet and UPS/FedEx/DHL, but also because the recession and lower economic activity in the country has drastically lowered year-on-year postal volume.

So don't you dare listen to those who say the Postal Service is a sick dog and an example of how government never works. It's run as a business which must cover all its own costs, unfortunately, in fulfilling its mandate, it is micro-managed and hamstrung by Congress.

By Steven Greenhouse
September 4, 2011 | New York Times

Monday, September 5, 2011

The faux moderation of 'shared sacrifice'

I was trying to suspend judgment as I read Yale professor Stephen L. Carter's call for "shared sacrifice" from all Americans, because he was trying to sound all reasonable and non-partisan. Then I hit the following paragraph, and I was certain he was either ignorant or a fraud:
But progressivity is merely one factor in working out tax rates. It isn't the reason taxes exist. They exist to raise revenue, a point easily forgotten in the rhetoric of the day. And there isn't nearly enough income in the upper bracket to make a serious dent in the nation's debt.
First part -- true. Second part -- dead wrong. And he either knew it, so he didn't even attempt to back up this bald assertion, or else he was too lazy to look up actual statistics on U.S. personal income, taxation, and government spending. A correct understanding of all three is required to determine things like Americans' tax-paying ability and tax fairness.

So let's look at the truth, starting on the personal income side.

Between 1947 and 1973, the typical American family's income roughly doubled in real terms. Not so after. Excluding the top percentile, from 1976 to 2007, average real incomes in the U.S. grew by only 17.9 percent, compared to, say, 26.4 percent income growth among the bottom 99 percent in France over the same period.

Meanwhile, the top 1 percent of U.S. income earners captured 58 percent of total income growth. And between 1979 and 2007, after-tax income for the wealthiest 1 percent of Americans rose by 281 percent!

Correspondingly, real average U.S. wages have been flat since 1973, with a slight uptick from 1995-2001, but over the past two years actually falling, although U.S. workers' productivity (output per hour) has increased steadily over the entire period. (See income-output charts here.) Economics tells us that rising productivity translates to rising income; refer to the figures above to see where most of that income went.

Today the average per capita income of Americans is $25,000; and real median household income is below $50,000. 46,000,000 Americans must rely on food stamps. Two-thirds of Americans could not scrape together $1,000 for an emergency expense right now if they had to. And one-third of Americans has no savings.

By contrast, today the top 20 percent of income earners owns 75 percent of all U.S. net wealth, with the top 1 percent alone owning about 35 percent of all net wealth and 43 percent of all financial wealth. Furthermore, the top 10 percent controls 98 percent of all financial securities, and 81 percent of all stocks and mutual funds. The top 1 percent alone controls 61 percent of all financial securities! (To put this much financial wealth into historical context, consider that, even with its recent falls, the Dow Jones Industrial Average today is higher than it was in the bubble period of early 2006, as is today's NASDAQ, so the rich are still doing very well for themselves.)

Perhaps most tellingly, today the 400 wealthiest Americans own more wealth than the bottom 50 percent of all American households. You have to reach back to the Great Depression to find income inequality this great.

Next, the taxation side.

Faced with a national debt approaching $15 trillion, and a recent report that Americans are paying the smallest share of their income in taxes since 1958, it seems logical -- nay, unavoidable, to consider tax increases. But taxes on whose income? Again, let's briefly look at the history that got us here.

From 1965 to 1978, the top marginal tax rate was steady at 70 percent for individuals making at least $100,000, heads of households making at least $180,000, and married couples making over $200,000.

Then under Ronald Reagan, as income inequality inexplicably increased, the tax burden on Americans shifted from the very rich to everybody else: in 1982 he cut off the top three income brackets, thereby reducing the top rate to 50 percent, and set the top income threshold at $85,600 for couples, $41,500 for singles, and $60,600 for heads of households. Later Reagan further reduced the top rate to 38.5 percent, then 28 percent.

More significantly, over two terms Reagan reduced the number of tax brackets from 16 to five to only two. This last change, with the 1987 tax reform act, was nominally a tax decrease of $8.9 billion, but what it did was flatten the overall tax burden, making it less progressive, i.e. "shared sacrifice" in Prof. Carter's terms. (See Reagan's budget director Bruce Bartlett's instructive op-ed on the flattening of federal income tax rates from Reagan to the present.)

In 1992, G.H.W. Bush inched the top rate up to 31 percent by adding a third (top) bracket, caught hell for it from Republicans, and lost the next election to a mega-rich right-leaning third-party candidate. Then during the economic boom of the Clinton years, the top rate was increased slightly to 40 percent; meanwhile, Clinton added two top tax brackets for individuals making over $115,000 or heads of households making over $127,000, i.e. taxes on the middle class hardly increased. Clinton's nudge back toward the historical norm was labelled by Republicans as "the largest peacetime tax increase in American history." Incidentally, Clinton ended his second term with the first U.S. budget surplus since -- there's that fateful year again -- 1973.

And during the G.W. Bush years the top rate was lowered to 35 percent, where it remains today for single or head of household tax filers earning over $379,000 per year. Bush also added a new bottom rate of 10 percent.

Overall, we can see that, starting in the 1980s, the rich sloughed the tax burden off their shoulders and onto those of the middle class, whose income was never sufficient to cover rising federal expenditures.

Although it is true, as many Republicans remind us, that the richest 20 percent of Americans pays nearly 70 percent of federal taxes, and the top 1 percent alone pays nearly 30 percent, it is also true that the richest 20 percent earns more than 60 percent of all U.S. income, and the top 1 percent alone earns more than 20 percent. From that perspective, our tax system appears only mildly progressive.

If we look at all taxes (federal, state, and local) -- although Prof. Carter instructs us not to -- and compare them to relative incomes, then we clearly see how the system skews toward the very rich's favor. The top 20 percent (top quintile) of U.S. income earners pays about 30 percent of its annual income in taxes, whereas the bottom 20 percent (bottom quintile) pays about 17 percent of its income, the second quintile pays about 20 percent, the third (middle) quintile pays 25 percent of its income, and the fourth quintile pays nearly 29 percent. That is, overall effective U.S. tax rates are highly regressive. Which Prof. Carter says he is against.

As a final note on taxes, I must respond to Carter's misleading statement that, "When almost half of households pay no federal income taxes, the concept of shared sacrifice vanishes, and America becomes not that to which we contribute but that from which we receive." Indeed, about 46 percent of U.S. households will have no tax liability in 2011, but 17 percent of them because they are elderly with little or no income. Given their lifetime of working and paying taxes, we should be fine with that. So actually less than 30 percent of households pays no income tax, and of those, 28.3 percent does pay payroll tax (plus state and local taxes). Lastly, not to get too wonky but, due to popular tax credits, much of that 28.3 percent does pay federal income tax, too, they just get it refunded once a year, hence they do "share the pain" of having income tax deducted from every paycheck as they try to make ends meet, although I realize that doesn't lower the deficit.

That leads us, finally, to the federal spending side.

The income disbalances and flattening of tax rates described above started at about the same time the U.S. started to rack up massive annual budget deficits, first under Jimmy Carter (-$288 billion), then ballooning under Ronald Reagan by $1.8 trillion, G.H.W. Bush by $1.4 trillion, Bill Clinton by $1.4 trillion, then G.W. Bush by $6.1 trillion (!). Much to everyone's dismay, since Barack Obama took office the federal debt has increased by about $4 trillion -- but this was mostly due to plummeting tax receipts, both from G.W. Bush's tax cuts (which Obama kept in place) and the worst economy since the Great Depression. (Note: only Bill Clinton decreased America's debt-to-GDP ratio, meaning the national economy grew faster than the national debt.)

One might suppose that all this spending went to shore up the incomes of poorer Americans, yet a comparative analysis of social spending shows the U.S. spends about as much as Canada and Australia as a percent of GDP, which both have a much smaller debt-to-GDP ratio than the U.S. (Note: we should not include SS and Medicare in this discussion because they are not funded from income tax, the subject at hand). No, the biggest increase since the 1970s has been in defense spending, especially the $2 trillion already spent in Iraq and Afghanistan.

So we see that the same presidents who preached lower taxes on the rich were the same ones who blew up the national debt. Coincidence? I think not.

This is all related to the neo-liberal consensus over the past 30 years that: 1) the very rich, especially those who earn income from capital as opposed to wages, power our (consumption-driven) economy, while workers are but inputs who have no choice but to lower themselves to the cheapest standards of global labor supply; and 2) low taxation on the rich is the only economic instrument in government's toolbox, both in good times to reward them for their investments, and in bad times to encourage them to continue investing. The unspoken last word in this consensus is that 3) government spending is "out of control"... except for the things we can't live without. Too bad we can't agree what those are.

But back to Prof. Carter, who argues, basically, that it would not be fair to increase taxes on those Americans making more than $379,000 per year, nor would it be useful, because their income isn't great enough "to make a serious dent in the nation's debt."

Yet what is unfair about letting the Bush tax cuts expire for the top 2 percent, saving $700 billion over 10 years? Or better yet, going back to the 1986 top rate of 50 percent, and levying it on individuals making over $379,000 per year? And why not do as America's richest man Warren Buffet suggested, and create new top tax brackets for those making over $1 million (about 315,000 households or 375,000 individual taxpayers) and $10 million (over 8,000 households) per year? Indeed, if the super rich don't have any money to pay off our nation's debt, as Carter claims, then my goodness, who in America does?

Beyond a real progressive income tax, there are other ways to share our sacrifice, like a 0.5 percent financial transaction tax as in the UK and EU, which could raise over $175 billion per year in the U.S. yet hardly be felt by individual investors. And various luxury or excise taxes. Not to mention closing corporate tax loopholes and shutting down offshore tax havens, which, according to the NYT, have helped to reduce the corporate share of U.S. tax receipts from 30 percent in the 1950s to 6.6 percent in 2009.

Carter purports to show why Democrats and Republicans are both wrong on taxes, but he spends most of his op-ed urging cuts in federal employees' salaries and tax increases on the bottom half of income earners, both of which Democrats oppose. Well this Democrat smells a red herring. Morally, historically and arithmetically Carter's arguments don't add up.

Happy Labor Day!

By Stephen L. Carter
September 1, 2011 | Bloomberg

Taxes are in bad political odor these days. True, there has been no era in which taxation was popular, but we seem to have reached a moment of particular confusion. We have one major party dedicated to the bizarre principle that nothing that is not taxed now should ever be taxed again, and another dedicated to the equally bizarre principle that taxes are a magical elixir that will eliminate the nation's indebtedness while touching only those who happen to own private jets.

In this strange and wondrous atmosphere, I would like to say a word or two in defense of taxation, and then to suggest that each party is on the track of an important truth, even if, in the rush for partisan advantage, each also misunderstands the virtues of its own position.

Taxes will inevitably go up. The Democrats are right about that much. Alas, they get the reason wrong every time they try to explain. The reason taxes must rise is not that millionaires and billionaires have too much money, or that corporations aren't paying their fair share. It's that the federal government, under the joint leadership of the two parties, has fallen so deeply into debt that its need has grown desperate. Under no plausible scenario are we going to grow ourselves out of the remarkable hole we have dug. In what ought to be a national embarrassment, our government needs more revenue to pay not for a more glorious future but for a tragically wasted past.

Narrow Tax Base

The Republicans, too, are wrong, in their opposition to any increase in any taxes for any reason. But they are right that the Democrats have made an absurd fetish of progressivity, and that the constant chatter about asking the rich to sacrifice makes it sound as if taxes are the punishment one suffers for success. And they are right in admitting, in their unguarded moments, what the Simpson-Bowles Commission pointed out: that the tax base is too narrow.

[ Progressivity isn't a "fetish," it's both a moral fairness question -- those who earn more, pay more -- and a question of math -- the bottom income earners in America have nothing to contribute to federal coffers: they have zero or negative net worth, and will for the next decade at least, since the housing bubble was their only source of wealth. - J ]

The middle of a fragile recovery may not be the proper time to increase taxes. This is particularly true given that Americans are, at the moment, highly leveraged, and many might have to take on additional debt in order to pay additional taxes. Perhaps we would be wise to wait until what Harvard University economist Kenneth Rogoff calls "the Great Contraction" -- getting rid of debt -- has run its course.

But rise taxes eventually will, and, if we are smart, they will cover a broader base. Indeed, it is at once amusing and depressing to hear all the talk of shared sacrifice when we are discussing tax increases mainly on those earning more than $250,000 a year. Part of the magic of this figure may be that few federal employees get paid as much. But one in five earns upward of $100,000 a year.

This is worth mentioning because there isn't much in the way of shared sacrifice when a taxpayer who makes, say, $275,000 a year has to pay an extra 3 percent on the amount over $250,000 ($750) while a civil servant earning, say, $175,000 a year retains all of her income. Bear in mind that a tax increase is, in effect, a reduction in income. If sacrifice is to be truly shared, why not ask federal employees to accept an across-the- board salary reduction of, say, 2 percent?

Shared Sacrifice

True, this wouldn't yield much revenue. The most recent publicly available figures, for 2009, put federal nondefense salary spending at a bit more than $15 billion a month, or $180 billion a year. Even if (as seems likely) the figure has now reached $200 billion, a 2 percent cut would save a mere $4 billion annually. Yet, as a symbolic gesture, it would do far more than any presidential address to convince voters that the government is serious about shared sacrifice.

I don't suggest this plan because I think federal employees are overpaid. I don't. But neither are the vast majority of those who happen to earn more than $250,000 in the private sector. Still, if cutting federal salaries in return for cutting the income of other taxpayers seems too much to ask, perhaps we should consider another way of sharing the sacrifice: We should broaden the tax base. Simpson-Bowles suggests reducing rates as part of the broadening, while also removing most deductions. Many liberals object that the plan would reduce the progressivity of the tax code. But this response is a non sequitur.

The progressive tax structure rests upon the eminently sensible notion that those who earn more should be taxed at a higher rate. Those of us who have benefited more -- whether because of hard work or good luck or, probably most often, some combination of the two -- ought to pay a larger part of the revenue burden. We can afford it, and, as my late father often reminded me (borrowing without attribution from Oliver Wendell Holmes), to pay taxes to the government of the U.S. is a privilege.

But progressivity is merely one factor in working out tax rates. It isn't the reason taxes exist. They exist to raise revenue, a point easily forgotten in the rhetoric of the day. And there isn't nearly enough income in the upper bracket to make a serious dent in the nation's debt.

Liberals are fond of quoting from a 1936 speech in which President Franklin Roosevelt decried "a small but powerful group which has fought the extension of those benefits, because it did not want to pay a fair share of their cost." Nice line. But it's easy to forget that F.D.R., in the very same paragraph, reminded his listeners of the "vast majority of citizens who believe the benefits of democracy should be extended and who are willing to pay their fair share to extend them."

Paying More

Precisely right. A vast majority of Americans should be willing to pay taxes. All but the very poorest should contribute financially to the great American experiment. The shared sacrifice should certainly be progressive, but it should also be shared. When almost half of households pay no federal income taxes, the concept of shared sacrifice vanishes, and America becomes not that to which we contribute but that from which we receive.

(It is frequently said, in response to this argument, that almost all employed Americans are taxed by the federal government, because they pay Social Security and Medicare taxes. But these, at least in theory, are special-purpose levies, flowing into accounts that will someday benefit the payer personally. If in fact these fees simply constitute a part of the tax burden for general purposes of governance, Washington is free to confess at any time to decades of misleading the public.)

Taxes are in themselves neither good nor evil, and both parties should stop talking as though they are. They are simply one among many ways of raising revenue. There was a time when the federal government relied almost entirely on import duties for its income. Lately its addiction has been to borrowed money. Perhaps a future generation will discover some other magical means for supporting the state. In the meanwhile, if indeed we need to sacrifice, let's at least sacrifice together.

[ This is a lame attempt by Carter to set up an "equal wrong" on both sides so he can knock down Democrats. But Democrats have never blessed or glorified taxation as a virtue in itself. Certainly no politician is dumb enough to call taxes "good," but only necessary. On the other hand, Republicans do call taxation "stealing" and IRS agents "thieves" and "thugs." - J ]