Thursday, May 12. 2011
Just got a piece of email from Craig Aaron at freepress.net. I get a lot of mail like this but this is the first time I've just copied it verbatim:
Baker's new position is actually Senior Vice President of Government Affairs, working directly for Comcast. Baker was appointed to the FCC by Obama, assuming office July 31, 2009, and has been an opponent of "net neutrality" ever since she landed. She's listed as a Republican, married to the son of Reagan-Bush consigliere James Baker. I have no idea how she got appointed, but this is a question that anyone who thought that Obama might actually change anything important needs to contemplate.
Whether this is the most blatant corruption ever is something we can debate. When Boeing paid Pentagon procurer Darleen Druyun off with a Vice President job, she (but not the Boeing execs who hired her) wound up in jail. When Billy Tauzin pushed the Medicare D bill through the House -- the one that prohibited the government from negotiating prices with pharmaceutical companies -- he didn't even bother to finish his term before cashing in as President and CEO of PhRMA, the pharmaceutical industry lobbying conglomerate. Those are two of the more blatant cases I can think of, but there are many more. On Obama's watch, the biggest one thus far has been Peter Orszag, who served as CBO Director before landing the job as Citigroup's Vice Chairman of Global Banking: you can say that was less blatant, but Orszag was an important peripheral figure in the bank bailouts and the new job is worth millions.
I'm sure we'll be hearing much more about this over the next few weeks, including numerous campaign quotes from Obama about how he was going to clean up the stench of corruption that smells just like this.
Don't have any new links, but the NLRB ruling against Boeing for building a new aircraft assembly plant in South Carolina is heating up. Boeing is acting dumbfounded, as well you might expect given how little flack they've gotten for their anti-union activities in the recent past. (Among other things, when the office workers in Wichita unionized, Boeing sold off the plant in a private equity deal, then managed to decertify the union from the tiny rump group they kept for military work.) What I find even more disturbing than the anti-union aspects of the South Carolina move is that they got the state to fork over $900 million in bribes to build the plant. Even there, only the size of the booty is surprising: for quite a while now Boeing has made a practice of selling jobs to state and local politicians, both in the US and abroad. Their whole business swims in an ocean of corruption: that they can't deliver new aircraft like the 787 and that they aircraft they do sell like the 737 have been turning up to be defective is a side effect. Like all good US corporations, their real business is making money for investors (and upper management), and their products hardly matter.
Thursday, January 27. 2011
That's as far as my links go back -- about the point when I first noticed her. Her pieces tackle real world problems, but always with the methodological logic that makes economics the dismal science it aspires to be. This logic has its own inner beauty, and its ability to trivialize human concerns turns out to be part of its utility. Still, Udall never lost track of those concerns; she somehow managed to bring the logic back to real issues and problems, and she often brought back some new insight into them that I previously didn't have. That actually doesn't happen all that often -- we are all much more comfortable reading things that confirm what we already think we know -- and that's what landed her on my short list. As far as economists are concerned, I feel now almost exactly the way I felt when George P. Brockway died. I've read more than a hundred books on economics, but most of what I actually learned came from Brockway. I don't have enough perspective to measure Udall, but hardly anyone I've read in the last year has been more rewarding.
I should spend some time digging back through the many pieces I missed. I'd like to quote one at some length here, partly because it's more personal than I suggested above was her norm: 'Tis the Season . . .:
She did come back, and wrote several brilliant pieces, the last, What Price Microfinance?, posted on Jan. 17, the day she died.
Looking around her blog, before I close I can't help but share the two quotes Udall picked out from the original girl economist, Joan Robinson (incidentally, one of the first economists I read at any length):
I spend some time looking for further information about Udall. Came up with many tearful links to the announcement, but not much else, other than this:
Friday, January 7. 2011
I've been meaning to write about Maxine Udall's Company Store Redux post. It's based on a paper by Michael Kumhof and Romain Ranciere called "Inequality, Leverage, and Crises." As economists like to do, this builds its understanding around a simplified model, dividing the world into two income groups: workers and investors:
Udall goes on to describe mining company stores in terms that will be familiar to anyone who recalls Tennessee Ernie Ford's "Sixteen Tons" (actually a Merle Travis song, and worth seeking out in the original, although Ford's version is the one permanently etched in my mind, probably the most-played record I owned in the late 1950s). The key point is that when corporate control is so complete, wages just recycle back to the company in a closed loop -- kind of like the old joke about the bar that only rents you beer. The result:
That's a pretty bad situation, at least if you're a worker or a servant, but it also turns out to be unsustainable:
My emphasis there, because that's the point I want to make sure you all get. The so-called investor class has pretty much had free reign to run the world company store since the early 1980s. They've become ever more dominant, ever more powerful, and ever more exposed to the absurdity of their political chokehold on the economy. The crisis occurred because they extended debt to people who couldn't afford it and justified it by pointing to asset values inflated by their own excesses. This basic critique has been made now and then -- David Harvey's The Enigma of Capital and the Crises of Capitalism (2010, Oxford University Press) is pretty dry but gets it right. The important thing about this piece is that it's one of the very few pieces that zeroes in on the only viable solution. As Kumhof and Ranciere put it:
Udall added the emphasis in her quote. Nice to have some theory here, but this should also be clear from practical examples. The US economy grew much faster from 1945-70 when real working class incomes were on the rise than it has from 1980-2010 when real incomes have been stagnant at best, even while asset prices inflated even faster. Even today, when you look at economies that are actually growing at significant rates -- China, India, Brazil -- one thing they have in common is that they are places where workers' real incomes and standards of living are growing (regardless of how pitiful they may seem relative to US and Europe). Moreover, real investments -- that is, investments that actually bother to increase productive capability -- are most often made in economies where real wages are growing (as opposed to the US, a capitalist nation with an ever-dwindling capital resource base, because we don't have the political will to halt its erosion). As Udall concludes:
I've been trying to make this point all along, so let me reiterate: the only way to get the American economy going again -- seriously, the only way to save capitalism -- is to increase demand from the bottom of the economy up, and that can't be done without a redistribution of wealth and won't be done without a redistribution of political power. There are lots of ways to do this, and it doesn't have to result in perfect equality or anything close to it (although that would be nice), but it can't be faked (as it has through the extension of debt over the last twenty years). Still, we are a long ways from recognizing this truth, and will suffer mightily until we do.
Tuesday, October 12. 2010
Peter Diamond is one of the winners of the Nobel Prize for Economics this year. He was also one of Obama's appointees to the Federal Reserve Board of Governors that's being held up by Republican obstructions in the Senate. The Federal Reserve, you may recall, has a legal mandate to promote full employment. Diamond is one of the world's foremost scholars in researching why unemployment remains a persistent problem, lagging as it does well into so-called recoveries, so you might think that he'd be a useful person to have working on the problem -- actually, under current circumstances, what may be the biggest, most immediate problem we face right now. But a lot of people in business don't see any real problem with persistent longterm unemployment, and not just because bankers dread inflation. Unemployed workers drag the whole labor market down, which tilts the balance of power to capitalists, and capitalists have found, at least since the 1970s, that there is more profit to be made at the expense of labor than through growth that they would have had to share with labor. (You may also recall how helpful economists were back in the 1970s with their NAIRU theories: Non-Accelerating Inflation Rate of Unemployment, the idea that the only way to limit inflation -- which is to say, to protect the value of money -- is to throw people out of work.) I don't know that Diamond would go as far as I'm suggesting -- Paul Krugman, for instance, still seems to think that NAIRU is solid economics and not just class war -- but he clearly makes Republicans like Sen. Richard Shelby nervous.
Some relevant links:
Sunday, August 29. 2010
Andrew Leonard: "I was wrong again!" What Ben Bernanke meant to say: A pretty apt translation of the Fed Chairman's speech to the choir in Jackson Hole. Most memorable line: "The working class is unbelievably screwed." Followed by the gratuitous, "This is kind of bumming me out." It's not like Obama had no choice but to renominate Bush's top pick for the Federal Reserve chairmanship. The chatter campaign behind giving him a second term was based on his supposed success but any way you slice it we're worse off now than when Bush nominated Bernanke in the first place. It's bad enough when Obama recycles Clinton advisers; it's downright indecent when he keeps Bush cronies in office.
Andrew Leonard: Paul Krugman: "I told you so, again": This was written over a week ago, so it doesn't include Krugman's latest Predictions I Wish Had Been Wrong:
But Leonard is right that that "Reading Paul Krugman's blog these days is like looking into a hall of mirrors, infinitely refracting the same message: I told you so." I'm not sure that Krugman's prescription for the stimulus was big enough but he was sure right that Obama's figure was way too small. I see today that Laura Tyson has a New York Times op-ed on Why We Need a Second Stimulus, so maybe that's something that Obama will finally run on even though passing it has no chance in the current Congress. She doesn't note that at least since Nixon Republicans have a perfect record of supporting stimulus spending when in office and only opposing it when they think the Democrats will get blamed for the economic downturn. One thing that Krugman points out is that austerity-minded Germany has actually done more stimulus spending than the US given how Obama's efforts have been eroded by cuts in state and local spending. You'd think they could have thought that through, and moreover that they could have explained the analysis, but they don't seem to have even tried. In fact, Christina Romer's analysis was in Krugman's range, about double what Obama asked for, so you can't even say they didn't have the analysis. They just didn't have the guts to level with the American people, and that at a time when they had virtually nothing to lose.
The old saw is that hindsight's 20/20, but that's clearly wrong here. Even Obama's hindsight isn't that good. On the other hand, people like Krugman and Leonard keep seeing these things as they're happening.
Wednesday, August 11. 2010
Matthew Yglesias: Progressive Consumption Taxes. I meant to write something about this a few weeks ago, but it slipped out of my consciousness, until Yglesias brought it up again. What he calls a "progressive consumption tax" is actually an opt-out income tax: it lets rich people opt out of paying income tax on any money they choose to save rather than spend. I can think of several things wrong with this.
For starters, consumption taxes should be point-of-sale, since that's precisely when one has the money to pay them -- if the tax pushes the price above what you are willing to pay, then you walk away from the purchase. (Sales taxes depress economic activity a bit, but more often than not you need what you're buying so you pay the tax. Sales taxes also depress profits a bit, since every now and then a seller will settle for a bit less profit rather than losing the sale.) The problem is that point-of-sale taxes can't be progressive unless you can distinguish how much buyers have bought in the past, something that would take a lot of nosey bureaucracy and would still be almost laughably easy to subvert. (You could, of course, tax more expensive items or certain kinds of items at higher rates, which would make a sales tax somewhat progressive, but that gets real complicated real fast.) Robert Frank's scheme gets around this problem by taxing income minus savings, so the rap on consumption is false advertising.
The bigger question is why exempt savings, especially since savings is simply what people who have too much money have left over after they've bought everything they needed. For years and years economists lecture us on the virtue of savings, arguing that the economy depends on investors, that government policy should do everything possible to increase savings. We already bend over backwards to encourage savings, deferring taxes on retirement accounts, deducting taxes on home borrowing, barely taxing dividends and capital gains. One paradox is that with all of this policy favoring savings the nationwide savings rate keeps dropping -- which of course is cited as evidence that we need even more favorable treatment of savings. Also curious is that the rare occasion where savings goes up is precisely when the economy as a whole tanks. So why on earth should we think that savings drives the economy?
Well, the reason some people say that is because pretty much by definition savings is the exclusive defining trait of the rich: people who have more money than they need to satisfy their consumption desires have savings, and people who don't don't. Sure, there are marginal cases where poor people scrimp to save something away, and there are rich people who come up with ever more fanciful ways to squander their money, and you're no doubt right to find the former virtuous and the latter foolish, to expect that the former will improve their lot and the latter will throw it away. But what's good for individuals is often irrelevant to the whole economy or society. (Drug use is often tragic for individuals but is big business coming and going for the economy as a whole.) So whenever you hear someone talking on about how we need more savings, what he's saying is that rich people should be able to dig deeper into your pockets. Encouraging savings is one of the main ways we allow our country to become more and more inequal.
Another big way we make wealth more inequal is by flattening the tax rate. That's what repeated movements to cut "marginal" tax rates have done. Shifting to sales taxes, which are necessarily flat, also favors inequality. And capped payroll taxes and special treatment for unearned income is even more regressive than flat tax rates. The only real way to keep inequality from getting way out of hand -- as it's pretty much done in America, and done even worse in the crony capitalist havens of the developing world -- is to progressively tax excess income, which is to say: what we need to do is to tax savings. Frank and Yglesias imagine they can make up for the inherent shortcomings of their scheme by jacking up the tax rates on extravagant spenders. That might help a little, but the opt-out nature of their scheme is a big and dangerous loophole.
I've written a lot about taxes in the past so let me reiterate a few points:
Most people on the left instinctively reject non-progressive or even regressive taxes, probably because they are tired of losing battles over progressive income and estate taxes. You can have a progressive tax system with a lot of regressive or flat taxes if the progressive component is truly effective. Similarly, people on the left rarely care to cut or eliminate property taxes because taxing property is a straightforward way to soak the rich, but the need to save for property taxes introduces a lot of distortions in the system.
This all seems to self-evident to me that sometimes I think someone should set up a soapbox and campaign on these ideas -- I'm tempted to call them Smart Taxes. (Can't use Fair Tax, which has already been debased to sheer stupidity. How can anyone think that eliminating a one-page rate table simplifies the tax code, as compared to the thousands of pages of FASB rules that try to figure out what is income and deductible expense, a problem that will persist no matter what the rate.) But this sort of jiggering of the tax system is just a nice way to make the system a bit more efficient and sensible. The real question is whether we want to live in a more equitable society, whether we appreciate the core values of mutual respect, openness, fair treatment, equal opportunity, honesty. There is much research, as well as common sense, that shows that more equitable societies are happier, less stressful, more productive societies. If you want that, then devising a tax system to represent those values is straightforward. Meanwhile, the people who don't want that will be screaming bloody murder over any scheme that hints at progressivism, even one like Yglesias and Frank proposed with an opt-out for the superrich.
Wednesday, July 28. 2010
Something I meant to add to yesterday's "The Raw and the Cooked" post but ran out of time and/or patience. One point there is that I recognize that where one stands on global warming is more often than not consistent with one's political stance. Leftists of most stripes not only see the need for aggressive state intervention to mitigate (or even better to reverse) the global warming trend, they tend to insist that the dire threat of global warming commands us to adopt their policy directions. One reason I'm especially cognizant of this is that I've recently read two books that do just that.
One is Bill McKibben: Eaarth: Making a Life on a Tough New Planet; the other is Juliet B. Schor: Plenitude: The New Economics of True Wealth. Neither book has much to say about global warming, other than to assert that the global warming crisis makes their economic schemes all that more urgent.
McKibben, whose first book, The End of Nature was one of the first books on the subject back in 1989, does have an introductory chapter which reads like a catalog of horrors, but he's more interested in reprising his 2007 book Deep Economy: The Wealth of Communities and the Durable Future -- you wouldn't be wrong to think of the new book as a mash-up of the two previous books -- which is to say he's primarily concerned with promoting the ideal of small scale local economies. McKibben builds on a lot of recent work, especially regarding food, but his basic ideas have been kicking around for decades now, developed by people like Murray Bookchin and Paul Goodman who developed them without the slightest concern for global warming.
Schor is a sociologist who at least as far back as the early 1990s decided that the rat race isn't all it's cracked up to be. She's expressed that in at least two previous books: The Overworked American: The Unexpected Decline of Leisure (1992) and The Overspent American: Why We Want Want We Don't Need (1998). The new book goes further toward sketching out a more satisfying economy based on less overwork and overspending. And while global warming and peak oil play into her rationales, there's no reason to think she'd think differently if they weren't factors at all. Again, her ideas aren't terribly original -- Goodman and Bookchin have been there, as well as Marxists like Paul Sweezy and Andre Gorz, and for that matter the notion even shows up in John Maynard Keynes, who -- see John Skidelsky: Keynes: The Return of the Master -- saw capitalism as a path to "the good life" rather than an end in itself.
You can click on the links, including the cover images, to pick up a fair sampling of quotes from each book.
The economic visions of McKibben and Schor are only two of many possible programs that can be hitched to global warming, but all but the most dystopian involve taking deliberate and systematic direction to mitigate (or better still to reverse) the consequences. The proposals of someone like Al Gore or the various thinkers in the Obama administration hardly seem to me to be leftist, but conservatives are stuck in such a rut of denial they can't even warm up to market-oriented approaches like cap-and-trade or tax credits to stimulate investment in non-carbon-based energy sources -- ideas that used to come out of conservative think tanks when thinking was still permitted.
There is, of course, something disingenuous about hoisting one's pet ideas (or nonsense) up whatever flag pole seems to be getting attention, but that doesn't invalidate them -- best to try to sort out each problem and each proposal on its own terms. McKibben and Schor (and for that matter Skidelsky/Keynes) offer attractive notions of how to re-engineer the economy to make is more satisfying, and that seems like something worth thinking about -- at least on the left, where we believe that how we run the world is at least largely a matter of choice.
PS: It finally occurs to me that one defense of Schor and McKibben is that if one adopted their economic ideas, there would be an immediate and substantial reduction in the forces driving global warming. Again, if you choose an economy meant to satisfy the needs and desires of its inhabitants, you'd come up with something that doesn't just drown us in destabilizing pollutants, like we have gotten from laissez faire approaches.
One might also add that the cap-and-trade people are the real conservatives, since they're basically trying to stabilize the existing system using levers that are consistent with its current operation. Again, the right fails to conserve anything; they're happy to let the economy flail itself to death in contradictions they're too ignorant and/or uncaring to even recognize.
Tuesday, July 13. 2010
Matthew Yglesias: Taxophobia: I read the referenced posts by Greg Mankiw and Brad DeLong, and don't think they're really saying what Yglesias thinks they're saying, but Yglesias does sum up one political view that seems to be well entrenched if not necessarily spreading wide:
Mankiw's nonsense can be highlighted in three lines:
Let's start in the middle: nobody is arguing for "historically unprecedented levels of taxation" -- I'd be inclined to kick up the estate tax a notch, but I don't see a need for 90% marginal tax rates. (I'd cap top bracket income taxes around 50%, where they might be aggravating but wouldn't be a real disincentive -- which is not to say that higher, truly disincentivizing tax rates wouldn't have social value in capping greed.) Nor do any currently projectable federal debt levels require unprecedented levels of taxation. So a key part of Mankiw's argument -- my second quote above is an elaboration of the second point alluded to in the first quote -- is sheer demagoguery. Moreover, refuting it lets us invoke historical cases. In particular, the period when the US had its highest tax rates was exactly the period when the nation's economy grew the fastest, which at the very least lends no credence to the claim that raising tax levels depresses the economy.
The first point about Ricardian effects strains credulity. Is anyone ever so smart that they can correctly anticipate how future events will eventually prefer investment decisions today? It's easy to pile on counterexamples: when did the inevitability of a bubble of real estate or high-tech stocks or Dutch tulips bursting ever inhibit that bubble from developing? If there is any one thing you can count on it's that business only thinks in the short term. There may be good reasons to worry about the long term, but the current behaviour of business isn't one of them.
The third quote raises two problems. While it is true that current tax policy allowances and deductions affects business behaviour inasmuch as it adjusts (or distorts) prices, it isn't at all clear that overall tax levels have much effect except on distribution -- low tax rates let profits accumulate much faster (making the rich much richer and increasing inequality) while high tax rates slow down that accumulation, but there is little evidence of whole industries boarding up due to higher tax rates. More generally, investors -- i.e., people with more money than they can consume -- will seek out higher returns but will settle for the best returns they can get, folding only when there are no profits to be had at all. As long as tax levels allow for some profits, and the taxes are then recirculated as spending, it's hard to see how higher tax levels depress the economy -- at most they depress the upper classes, which isn't necessarily a bad thing.
The other canard is the bit about the economy "reaching its full potential." I have no idea what Mankiw thinks this means, especially since he implies that it relates to low taxes. A more plausible definition would tie "full potential" to full employment. We tend to think ass backwards on this issue: that a booming economy causes fuller employment, rather than that fuller employment is what makes the economy bloom; much as we are led to believe that business investment creates jobs, as opposed to realizing that labor is what creates all that we value in the economy. For various reasons, capitalists left to their own devices never produce full employment. The only way to get there is for government to fill the gap, both by spending to prop up the private sector and by creating jobs directly. And to pay for those jobs you have to raise taxes, and the most productive way to do that -- with inequality approaching historically unprecedented levels, and especially with the the rich sitting on cash they can't find productive investments for -- is to target the rich.
And that's the deeper context for Mankiw's argument. It's not just that he dislikes taxes. Just as important is that he isn't bothered by unemployment. In fact, I think you'll find that he rather likes unemployment: more unemployment means cheaper labor, less pressure to share profits, tilting the balance of power toward capital. Friendly economists may pollute the air with Ricardian mumbo jumbo, but the prime reason capitalists don't like taxes, labor rights, and any sort of government action to create jobs or lessen the pain of unemployment is that they don't want to share. In fact, their power viz. labor matters so much that they'd rather suffer through a sluggish economy than lose any of their relative advantages.
One problem here is that in polite political discourse, Mankiw et al. can't just come out and say, "hey! we like this 10% unemployment, we like that the safety net is unraveling, we're looking forward to squeezing labor even harder." Rather, they talk about how we can't afford the deficit (sooner or later, at least in some crackpot theories), about how taxes only hurt the economy (and therefore how we can't fix the deficit problem). They have to pretend that only the richer rich create jobs (even though most of their gains have come from bidding up each other's assets), and that the economy they build somehow benefits us all.
One thing Yglesias is right about is that Krugman, DeLong, et al. are "a bit too literal in their disagreements with the center-of-center economists [whoever that is] of the world." I have three or four recent books on why Ricardo was full of shit, but that's not what this is really about. It's really about power: who pays and who benefits. And that reflects a fundamental difference in worldviews: do we share the world, or do we compete for its spoils? The Great Depression and WWII shocked people into a sense that we're all in this together, and out of that we forged a more equitable society, based on labor rights, a safety net, and steep progressive taxation to pay for it. It wasn't perfect, and flaws going back to the beginning would eventually undermine it. But in the 1970s the rich revolted, exploiting their substantial advantages for political and economic gain, and they have gradually tore the social compact apart while compounding problems. The eight disastrous years of George Bush led to a change of leadership, but sadly, pathetically not to a change in thinking. We are in the midst of a one-sided class war, where the putative defenders of the non-rich don't even recognize they're being fired on, and don't make more than the most paltry efforts to defend the people who voted them in.
On the other hand, I don't blame Krugman and DeLong for focusing on the economic nonsense. They've worked hard to keep the economists from pulling the wool over our eyes. I blame the Democratic Party politicos, starting with the guy in the White House, for not finding principled political issues to run on and drive home, such as the need for full employment to lift working wages, and more progressive taxes to level the playing field; the need to get out of the global war business -- one which only serves to fund the right and keep the left on the defensive -- and the need to reverse the great risk shift -- the real security threat that most Americans face these days.
Sunday, July 4. 2010
Actually, I wonder how many Americans recall that the War for Independence (and for that matter the War of 1812) was fought against Great Britain -- let alone that Afghanistan fought its own War for Independence against the British, at least three times in the 19th century, and serially over the last 30 years against Russia and the United States -- with Britain, recapitulating centuries of bad habits, once again sending troops without even the pretense of empire for an excuse.
Independence from colonial rule is a powerful idea, one that was proclaimed on July 4, 1776, and has reverberated throughout the world ever since -- even in Gaza one might find Thomas Jefferson's words inspirational. However, they are words given scant lip service in America for quite a while now. We snatched Independence away from Cuba and the Philippines in 1898, setting up direct rule in the latter and sending massive troops in to beat down a revolt that continues to this day -- despite the end of colonial rule in 1946 but possibly because we still have troops stationed there. In Cuba we set up a crony regime that protected our business interests until thrown out by Castro's revolution, an offense we protract by sanctions meant to keep Cuba isolated and poor.
One thing that especially strikes me looking back to 1776 from the present day is that the people we call the Founding Fathers all believed in the idea of a public interest, and in forging a constitutional republic were willing to subject their individual private interests to the will of the public. That's a notion that we scarcely even give lip service to anymore. Washington, and for that matter every state house and most city halls, is swarming with interest group lobbies, dedicated to the Adam Smith conceit that if everyone pursues their own private interest it will all work out in the end. (Smith, an enlightenment figure whose landmark The Wealth of Nations is the other thing 1776 is remembered for, most assuredly didn't think that in general, and his famous quote is dripping with irony.)
Crowson is surely wrong that BP's big blowout in the Gulf of Mexico is revenge for Independence. For one thing all that happened to long ago to carry over to BP's bottom line. For another, BP has enjoyed a lot more political clout, and has made a lot more money, in Washington since the 1950s than most American citizens have. BP was originally called the Anglo-Iranian Oil Company because most of their assets were in Iran, at least until Iran tried to nationalize them in the early 1950s. The US government has done a lot of favors for a lot of companies, but rarely have we stuck our necks out so far as we did in 1953, when the CIA orchestrated a coup in Iran to replace their democratic government with an absolute monarch and a brutal police state, starting an era of ill feelings between Iran and the US that persists today -- that is in fact why we fear Iran's nuclear power program may indeed turn into revenge. Looking the other way when BP violates hundreds of safety rules is a pretty small favor compared to overthrowing a country and launching a series of conflicts that 57 years later are presently tying down a couple hundred thousand US troops at an utter waste of trillions of dollars. Bad as the oil leak has been, it will be months or years before the disaster BP created in the Gulf will compare to the disaster BP created in the Middle East.
David Kocieniewski: As Oil Industry Fights a Tax, It Reaps Subsidies: When I was growing up, one of the hottest tax issues in the country was over the "oil depletion allowance," which was a rule that allowed the oil industry to pretend for tax purposes that when it pumped oil up from the ground it was losing money. This was a period when taxes in general were high for the rich and their businesses, so the tax savings awarded the oil industry produced some amazing distortions. In particular, it allowed oilmen to become fabulously rich -- the richest man in America at the time was J. Paul Getty, but he was followed by all sorts of Hunts and Rockefellers -- and that money turned them into political powers. And while oil industry moguls were utterly dependent on the state to favor them with laws that ensured their wealth, they gravitated almost without exception to the far right fringe of the political spectrum, bankrolling Barry Goldwater and Ronald Reagan and the Bushes, the political powers who have turned this country upside down. The oil depletion allowance isn't so much of a deal now that most of America's oil has been pumped, but the oil moguls -- increasingly including corporations based abroad like BP -- have all sorts of new ways to cheat their taxes and accumulate money and power. This article details some:
Again, the thing that bothers me most about these tax breaks is that the profits wind up supporting such retrograde political forces.
Thursday, June 24. 2010
Paul Krugman: Now and Later: It's been a long time since I've found myself disagreeing with Krugman, so I should flag this one. He's arguing that deficits are a matter that we should deal with eventually, but not now when interest rates are near-zero and still not low enough to bring down the unemployment rate, and he's right there. Where he's wrong is in arguing that we shouldn't raise any taxes while the economy is such a basket case. He gives as an example of the kind of tax he'd like to see later: a 5% VAT. That is indeed a tax that would reduce demand and slow the economy down, so he's probably right in that specific case, but one thing you could do now is pass a VAT and index it against the unemployment rate, or make it conditionally kick in only when unemployment drops below 7% (to follow up on a suggestion he makes). On the other hand, I don't see any problem raising marginal income tax rates on the undertaxed rich right now, and even less on raising taxes on capital gains (which in a recession are most likely currently depressed but will bounce back quickly later) and on estates (the one case where the tax rate doesn't affect behavior, except maybe to promote charity). Any and all of these proposals would dramatically improve the long-term debt question, but there are extra advantages in focusing tax increases on the rich, especially now. But focused taxes on the rich do two additional things that when you get down to it are pretty important: it takes money away from private savings and speculation and gives it to government which is certain to spend it (even if not necessarily all that wisely), accelerating the flow of money through the economy and thereby putting more people to work; and if steep enough it will start to reverse the trend toward extreme inequality and everything that comes with it -- the whole conservative agenda.
As for a VAT, I think it does make sense for several reasons: it means that more taxes will be paid through corporations in a relatively obscure manner so it will make people less conscious of how much tax they pay; it scales easily to higher tax flows; it puts pressure on companies to reduce prices and/or it helps to drive wages and productivity up; it provides a framework that can be adjusted to price in externalities (e.g., the VAT rate can vary by product to factor in hidden costs). But a VAT is a pretty flat tax. It doesn't do anything to counter the gross inequality due to the accumulation of capital and all of its attendant ills. That's why we need steeply progressive taxes, on incomes, and especially on estates. (I'd also make corporate taxes at least mildly progressive, to undercut economies of scale and restore the possibility of competition between small and large firms. I'd also do a lot more, but that's getting further afield.)
Of course, some people would complain that if we did raise taxes now the government would spend it all, putting us at least as far in debt, if not farther. There's a word for that: stimulus. One thing Krugman was right about is that we needed a lot more of that than Obama's stimulus bill provided for, and we still need more.
Wednesday, June 16. 2010
I saw a bit on the PBS news last night interviewing Nouriel Roubini and Nassim Taleb, both given high marks for predicting the financial meltdown that kicked off the current deep recession. I expected both to have something worthwhile to say, but all they could talk about was looming national debts and the dire need for the US to adopt spending cuts to keep the US from becoming another Greece, where a debt crisis is forcing the nation to, uh, cut spending. In particular, the US should cut back on stimulus spending because it risks driving up future interest rates triggering a "double dip recession" -- not bothering to mention that government spending, including lavish subsidies to the banking industry, is the only thing that kept the meltdown from sinking into a repeat of the Great Depression, and that what little stabilization of the recession as we have seen is clearly due to the meager stimulus spending we have in place.
Roubini pointed out that the alternatives for the budget deficits are cutting spending, raising taxes, or inflating away the debt, and he sloughed off the latter as "inflation tax" as if that was reason enough. The fact is that cutting spending depresses the economy directly, whereas increasing taxes has at most a secondary effect, and not necessarily a bad one: it would mostly affect the rich, who aren't investing their money productively anyway, and it might encourage the government to spend even more, which would stimulate the economy. Inflating debt away has a mixed bag of winners and losers, but the latter are concentrated in the banking sector where the asset-price bubbles, and hence the bad loans, started. Moreover, it's not just the government that's deep in debt these days. A good dose of inflation would help anyone with an underwater mortgage and/or a lot of credit card debt.
Paul Volcker, another supposedly sane economist but deep down a fanatic deficit hawk, has an alarmist piece in New York Review of Books called The Time We Have Is Growing Short, which turns out to be another weeper over the debt. Raghuram Rajan is pushing for higher interest rates -- one problem he cited is low unemployment in Brazil (seems like a problem we'd like to have here). The list goes on and on -- Paul Krugman has been writing about virtually nothing else the last couple of weeks (cf. The Seductiveness of Demands for Pain, Strange Arguments for Higher Rates, The Bad Logic of Fiscal Austerity, et passim.) On a gross political level, you can see how the Republicans might want to keep the recession going thinking that Obama will get blamed for it in 2012 (like FDR was in 1936?), or that the bankers are just pushing debt/inflation bugaboos as a way of reassuring themselves that they're still heavyweight powers. But surely the dismal scientists aren't so crass? Rather, by denying Keynes on countervaling stimulus spending, they're proving him right on how the real root of the problems is the persistence of bad ideas.
Thursday, May 27. 2010
Steven Erlanger: Europeans Fear Crisis Threatens Liberal Benefits: No surprise that the New York Times doesn't run new news on Sundays, but this putting this retrograde opinion piece on the front page was a low blow:
Austerity is a technical term for screwing working people to prop up the monetary standard and salvage the losses of the rich. It tends to corrode vital social infrastructure, and as such to undermine the nation's ability to grow out of a slump. The IMF has been prescribing austerity to debtor nations for decades now in a self-perpetuating cycle of crises. While the IMF has mostly beat up on second and third world countries, the political right has ambitions of reducing Europe and America to same fate. After all, in a world of slackening growth how else can the rich keep getting richer than by pillaging everyone else?
There's no special reason why Europe's demographics should take a toll on lifestyles. Throughout the past century, reduced population growth and longer lifespans have correlated with -- most likely resulted in -- major gains in per capita wealth. The only reason why Europe's growth has lagged relative to the U.S. is that Europeans have chosen to take more of their gains in the form of free time, a healthy recognition that economics isn't all there is to life, and that material accumulation has limits and diminishing returns. Americans have been slower to recognize this because we live under a system of politically induced risk -- cf. Jacob Hacker's The Great Risk Shift, although there is much more to this, ranging from the everyday art of advertising to the cult of counterterrorism.
Forty-some years ago I read something I found really profound: that if we limited production to goods that people actually needed and came up with an efficient distribution system, we could maintain our current standard of living with less than 20% of the labor then expended. (I haven't been able to find the quote recently, but I'm pretty sure it came from Paul Sweezy.) Since then we've enjoyed 40 years of technological progress, which have created a few needs we hadn't appreciated back then but also significantly reduced the amount of work to produce what we did understand. One indication of the extend of technological progress is that a little more than a century ago agriculture consumed 90% of U.S. labor, whereas now 3% of the workforce feed three times as many people (plus produce enough surplus that we're converting corn to ethanol, something that makes little economic sense). The labor behind manufacturing has also steadily shrunk since mid-century, even if we control for displaced jobs due to increased imports. The remainder has been sopped up by services, a mixed bag of useful and useless efforts, with many specific tasks also made more efficient.
GDP growth has never been a very satisfactory measure of human betterment. It includes all sorts of useless activity and even benefits from fits of destruction and reconstruction. Erlanger includes the following complaint:
Actually, Europe benefited doubly from abjuring war, both by cutting out spending that didn't translate into better lives, and by foregoing the destruction war brings. Without war, their young men became productive workers instead of casualties. Without war, their buildings and infrastructure remained intact and useful. Without war they could invest for the long haul. Admittedly, they gave up some economic growth in the process, but doing so allowed them to work to advance instead of catch up and recover, and to find satisfactory limits to growth, which will help them to better survive future resource crunches. All this fretting about Europe's future is a front masking real anxiety about America, where we have yet to learn these lessons.
For instance, the French spend about half as much for their extravagant health care system as we pay for our miserly one. The difference of 8% of GDP alone translates into about four extra weeks of vacation time. The problem that besets Europe isn't not having enough workers to do the work; it's not having enough money because the rich keep using their political clout to suck it up. But that's a problem with lots of solutions, but they're political: taxing the rich, regulating their scams and shenanigans, even inflating the money supply. One I'm personally fond of is promoting cost-saving, value-enhancing competition, especially by whittling away monopoly and scale advantages. But it's not an economic problem. The fact is that post-WWII economies grew faster when they were more equitable than at any time after the right rose to hegemony.
Paul Krugman: Reasons to Despair: Just one of a whole series of posts and columns from Krugman lamenting a fog of nonsense that has settled in over politics in Washington, especially regarding debt and inflation. The result is likely to be a forced stagnation, as is spelled out in Krugman's Lost Decade Looming? column. Andrew Leonard comments:
Emphasis Leonard's. Governments have a checkered history of solving problems, especially when under the corrupt influence of private interests, but in principle they are the only important organization representing any sort of public interest, and they are capable of large-scale deliberate action when so moved. The right wants to keep that fundamental fact out of circulation, and one of the best ways they've found to do so is to corrupt and debauch government.
Sunday, May 2. 2010
I've been rather neglectful of BP's big oil spill off the coast of Louisiana this week. It is an important story for lots of reasons. In particular, it reminds us yet again how incapable we are at judging unlikely but catastrophic risks. Human nature has something to do with this, but we should recognize that our economic system is stacked the same way. As long as the oil was flowing BP was making money. Now that the rig has blown up and is leaking oil, BP is losing money, but a big part of the clean up comes out of taxpayer funds, and BP's liability for damages is limited by law. And the worst that can happen to BP is that they go bankrupt and reshuffle their assets and liabilities to default on this particular disaster -- leaving even more for taxpayers to sweep up, or otherwise suffer.
As it turns out, Fox Entertainer Sarah Palin is in Wichita tonight for a big speech event. Well, maybe not so big: at last report the $92 tickets were going for $15. I doubt that her speech is going to have much to do with oil, but she's so identified with the "drill, baby, drill" chant that she's sure to be tarred by the spill. In fact, see Richard Crowson's editorial cartoon today:
The Eagle's Republican-friendly editorial writer Philip Brownlee blogged:
Not sure what the weasel-wording around Bush means. BP started drilling this particular well in 2009, so the planning period must have been mostly on Bush's watch, although the decision to lease the area could have been earlier. [The Thunder Horse field was discovered in 1999, so exploration predates Bush but production was planned and approved under Bush, with the first well coming on line in May 2008.] Bush hardly ever saw a proposal from an oil company he didn't like, but offshore drilling has never been popular in Florida, so that entered into his political calculations, but didn't motivate him to limit offshore drilling near Louisiana.
Obama's administration is unlikely to have had anything to do with this particular well, but his announcement that he would open up offshore drilling around Florida and up the Atlantic coast has turned out to be unfortunate -- whatever the opposite of prescient is. Certainly the safety record he cited need to be recalibrated. Meanwhile, here's what Obama had to say about offshore drilling before he outsmarted himself.
Frank Smith forwarded a couple of short bits he had written and addressed to "the Beagle, Salon.com, Anchorage Daily News and Alaska Dispatch":
The second one:
Lisa Margonelli: A Spill of Our Own: Opening line: "The history of American oil spills is the history of the environmental movement." Much as we underestimate the risks associated with all sorts of ventures, we tend to overreact to disasters -- or would were it not for the countervailing efforts of industry lobbyists. (Maybe if Al-Qaeda had a lobby comparable to AIPAC we wouldn't have gone so far off the deep end as we did in response to 9/11.) Spills seem to be an inevitable side-effect of using oil -- at the very least, there is a trade-off which means that avoiding spills costs more money, ultimately making oil more expensive (and less profitable) than we expect. One way we've cheaped out is to let other people suffer the environmental costs of producing our oil:
Editorially, I'd quibble with the word "strong" to describe US environmental laws: obviously they're not strong enough, falling short of Brazil and Norway, which require automatic systems to cut off flow when a platform sinks. That the US does a better job of regulating environmental risks than Kazakhstan or Nigeria isn't much comfort.
Glenn Morton: BP's Thunder Horse to Under-Perform in the Wake of the Deepwater Horizon Blowout? One more point worth making is that it's long been clear that deep water offshore drilling would be very expensive and would not significantly extend the earth's accessible oil reserves. The Thunder Horse field was touted as a big deal in 1999 when it was discovered, projected to yield more than a billion barrels of oil. It now looks like it's already peaked, and will fall far short. Bummer. Actually, triple bummer, and then some.
Thursday, April 22. 2010
Gabriel Winant: You don't know Orwellian until you know Frank Luntz: Luntz's specialty is creating those annoying catchphrases that do so much to obscure and confuse real issues, like "death tax" to characterize estate taxes -- which if seriously implemented and seriously progressive would help limit the concentration of wealth in inherited aristocracies, as well as raise significant taxes in a way that creates no drag on the economy. (Estate taxes are almost unique in that even a 100% tax would have no behavioral effect -- people are no more or less likely to die regardless of the tax rate. Moreover, they would be especially effective in stimulating the economy, as they would force the liquidation of pent-up assets.) Luntz provided much of the noise on the health care and finance reform debates, but he's not just a reactionary strategist and ideologue, like Grover Norquist and William Kristol. The deeper problem is that what he does is profoundly destructive of communication, and as such of reason. He reduces words to tools for manipulation, to weapons for hidden purposes. As such, he seeks to undermine communication, and ultimately reason. He harkens a new dark age, where we parry slogans like brand names, unable to understand what's going and unable to reason our way back to reality. Tastes great! Less filling! All other alternatives excluded.
Needless to say, there's nothing terribly original about Luntz. The advertising trade broke the ground he treads on, an arena of deceitfulness that largely succeeded because so little of import actually dependend on it. I still believe that the single thing that did the most damage to American political discourse -- that, increasingly, is making discourse impossible -- was advertising-supported television.
Matthew Yglesias: Higher Taxes: The Solution to Obscene Wall Street Profits: One thing people that hardly ever comes up in griping about the obscene growth in executive pay is the growth has taken place in the context of significantly lowering tax rates on that same pay. The same trend applies to the entire finance industry, which represents a little less than 20% of the economy but typically captures more like 40% of all corporate profits -- and that's generally after the obscene salaries and bonuses and the like have been taken out.
Perhaps the best way to look at this is to turn the equation around. It is often said that raising marginal tax rates on the rich would be counterproductive because it would reduce their incentive to invest and make more money, which is supposedly crucial for driving the economy. This never made much sense to me. Maybe a worker would cut back on extra hours if taxed at an exorbitant rate -- for argument's purposes, the workers in this example usually turn out to be brain surgeons -- but people who make their money off their money have little time and leisure to gain by not working their money, even if the real return is very much diminished by taxes. What high taxes would do to them is to shift their focus from short-term gains to long-term accumulation -- it's hard to see that as a negative in an economy where there is way too much short-term focus. What is diminished in a high marginal tax world is the value of higher salaries -- the bigger the tax cut, the less they're worth seeking, and the less they're worth paying out.
Of course, that's just hypothetical thinking. There's a real world test case we can consult: in the 1940s and 1950s top income tax rates in the US climbed to 90%; during those same years the economy grew at rates never equalled before or since. The finance industry was much more regulated then, but managed to thrive while extracting far less toll from the economy. The more equitable economy translated into a dominant middle class. Moreover, there are other examples, especially in Europe. And there are counterexamples, especially in kleptocracies where government honchos like Suharto and Mobutu were able to suck up multi-billion-dollar fortunes tax free.
So I think the conclusion has to be that higher marginal taxes on the rich is a win-win proposition: more tax revenue, which can be redistributed downward to counter all the ways the rich get richer; but also more cautious, longer-term, less larcenous behavior from the rich.
Thursday, March 25. 2010
John Cassidy: No Credit: Subtitle: "Timothy Geithner's financial plan is working -- and making him very unpopular." Geithner's plan, like Paulson's plan which Geithner was so much involved in, was to solve the banks' liquidity problem by letting them draw all the money they needed, while doing as little as possible to change the structure or the moral attitudes of the industry. Whether this was the best thing for America, or more narrowly the Obama administration, as well as for the banks, is hard to say, but Geithner tries to make that case. It's hard to take, partly because the banks have taken so much and offered so little in return -- the notion that saving the banks will restore the credit lines needed to jumpstart the real economy is still pure hypothesis. And partly because Geithner is so much a creature of the peculiar symbiosis between the banks and government that he can't see how extraordinary the relationship is, let alone how corrupting.
Cassidy offers a hint of other ways the crisis could have been handled:
This didn't happen mostly because there was no political will to make it happen. Partly Obama's advisers, and no doubt Obama himself, are pinned down by bad theory -- that government cannot run a bank, and that government has no business running a bank, despite the fact that many things that banks are currently doing badly are critical to the economy, and as such to government. I recently read Cassidy's book, How Markets Fail: The Logic of Economic Calamities, which does a good job of answering the theory trappings that underlie the crisis and still handicap recovery. (If you want a bit more attitude to go with the same critique, I also recommend Yves Smith's Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism.)
John Cassidy: On Tim Geithner. Blog post, has some further notes on the Geithner piece. Also a good example of why blogs are a good idea: there's always plenty more to say about an article that has been squished into print space, including the background story of why the article got written in the first place. Cassidy's blog is proving consistently interesting, including this little tidbit on why so few banking failures have been prosecuted.