Last week the NY Times published an op-ed by the tax cutting foursome, Steve Forbes, Larry Kudlow, Arthur B. Laffer and Stephen Moore, Why Are Republicans Making Tax Reform So Hard?
And then Jared Bernstein ripped it apart Supply-side, trickle-down nonsense on the NYT oped page.
The Washington Post reports Here’s the real Rust Belt jobs problem — and it’s not offshoring or automation
Since the corporate mergers and restructurings in the 1980s, most cities depend not on one or two large factories but on many small subsidiary operations — light manufacturing, food processing, professional service firms, call centers, hotels and retail. These smaller subsidiaries mostly move between struggling cities and towns rather than leaving for other countries.
But they offer few ‘good’ unionized jobs. For instance, in the 1970s, the local meat packing plant hired thousands and paid $15 an hour. But the Tyson Foods or John Morrell plant that replaced it employs hundreds and may pay about $10.
Much of the blame for that falls on federal policy. Unions have been hobbled by a changing legal environment. A corporate merger wave unleashed by financial deregulation eliminated local owners who paid workers living wages and contributed generously to their towns. Tax code changes led to ballooning senior managers’ earnings at the expense of line-workers’ wages. Without changing the federal policies that led to these trends, bringing manufacturing back will not create good, safe jobs.
The New York Times had a really neat interactive graphic, You Draw It: What Got Better or Worse During Obama’s Presidency. They show seven stats, showing the graph for the Bush years with space for the Obama years for you to fill in and then compare with history. I was pretty good on three of them. Right on average on two and grossly wrong on two. Give it a try.
Since Lawrence Kudlow and Stephen Moore are now advisors to Trump, Mark Thoma explains yet again Here's what really caused the housing crisis.
“A lot of the narrative of the financial crisis has been that this [loan] origination process was broken, and therefore a lot of marginal and unsustainable borrowers got access to funding. In our opinion, the facts don’t line up with this narrative. … Calling this crisis a subprime crisis is a misnomer. In fact, it was a prime crisis.”
There are other reasons to doubt that subprime borrowers were responsible for the financial crisis. For one, a large number of subprime mortgages originated in non-CRA banks, and “none of the 300+ mortgage originators that imploded were depository banks covered by the CRA.”
As noted in a study by McClatchy from 2008, “Federal Reserve Board data show that more than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions;” “private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year;” and “only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.”
A second question to ask is why, if the CRA and subprime borrowing were the problem, did a very similar housing bubble and financial crisis occur in scores of other countries that didn’t have legislation like this?
A third argument, the one Kudlow and Moore cite, is that declining lending standards by Fannie and Freddie brought about by the requirements of the CRA helped fuel subprime loans. But once again, this argument doesn’t stand up to scrutiny.
As Barry Ritholtz pointed out in 2011, “The relative market share of Fannie Mae and Freddie Mac dropped from a high of 57 percent of all new mortgage originations in 2003, down to 37 percent as the bubble was developing in 2005–06.”
The reason Fannie and Freddie were losing market share is that loan standards on mortgages issued by private lenders were falling. Fannie and Freddie eventually adjusted some of their conditions for obtaining a loan in an attempt to prevent a further loss in market share, but it’s very clear that they were followers, not leaders, in the erosion of lending standards.
Update: More here: Why these economists say the usual explanation for the financial crisis is wrong
Steven Benen wrote Wealthy would reap a windfall under Paul Ryan's plan:
Ryan’s tax plan is crafted in such a way as to give 99.6% of the benefits to the wealthiest of the wealthy by 2025. The other 0.4% would be divided up across the other 99% of us.
This is a feature, not a bug, of the House Speaker’s approach to economic policy. Ryan genuinely believes that massive tax breaks for those at the very top will spur economic growth that would, in time, benefit everyone. For the Wisconsin congressman, trickle-down policy, its track record notwithstanding, remains the most responsible course to broad national prosperity.
If that means designing a tax plan that’s ridiculously tilted towards the rich, so be it. Anyone who questions the wisdom of such a proposal will face accusations of ‘class warfare’ – a phrase intended to end all conversations – as if Ryan isn’t trying to redistribute wealth from the bottom up.
In March, asked about tax reform, the House Speaker told CNBC, ‘I do not like the idea of buying into these distributional tables.’ In other words, Ryan doesn’t like any kind of analysis that shows who benefits most (and least) from his economic plans."
Lots of articles today, too many of interest to link to. I read how it will be bad for everyone, scientists, young, bankers, automakers, David Cameron, the UK itself, etc. Here are a couple of others:
John Van Reenen on Vox, An expert sums up the economic consensus about Brexit. It’s bad.
John Harris in the guardian makes the case, 'If you've got money, you vote in ... if you haven't got money, you vote out'.
Kottke does nice job relating The Industrial Revolution, climate change, and Brexit.
I also liked Perry Metzger's tweet, "Event chain so far: 9/11 → Iraq War → Syrian Civil War → European immigration crisis → Brexit"
I cite Sarah Kliff often for her articles on the health care system. Her latest is: Unpaid, stressed, and confused: patients are the health care system's free labor "I write a lot about health care for my job here at Vox, and have spent the past seven years covering and explaining the American health care system. But there was something I didn't understand about American health care until this experience. It is the considerable burden our fragmented system puts on patients to coordinate their own care."
Her problems of doctors giving her unfillable written prescriptions and telling her to schedule an MRI are not at all my experience. My doctors usually send the prescription directly to my pharmacy and I get a phone call or text message when it's ready to pick up. In fact my problem is I get too many 9am phone calls from my pharmacy, asking me about an out-of-date prescription and do I want to fill it and I can't seem to make them stop. Also, my doctors are good about scheduling tests for me. But coordinating among specialists is problem; you get handed off to another and never know when to go back to the first and then you get conflicting diagnoses. Then there's all the billing, from the insurance company, the doctor and the facility. The numbers often don't match up and the various billing codes are indecipherable. Some I can pay online, some I can't, even for doctors that are down the hall from each other. And of course, when you don't know what's wrong and they ask if you want a test that may help, you don't find out until two months after you have the test that it's $800 out of your pocket. Ugh.
Brad DeLong, Future Economists Will Probably Call This Decade the 'Longest Depression'
Economist Joe Stiglitz warned back in 2010 that the world risked sliding into a 'Great Malaise.' This week, he followed up on that grim prediction, saying, 'We didn't do what was needed, and we have ended up precisely where I feared we would.'
The problems we face now, Stiglitz points out, include 'a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity.'
He says the only cure is an increase in aggregate demand, far-reaching redistribution of income and deep reform of our financial system. The obstacles to this cure, he writes, 'are not rooted in economics, but in politics and ideology.'"
"What we need now is 1) debt relief to unwind the overhang and 2) much tighter financial regulation to prevent the growth of new fragilities. And if those prove inconsistent with full recovery, then we need massive government spending on infrastructure and other investments financed by money printing until full employment is reattained."
Jared Bernstein points out, Real earnings, real anger "I realized this AM that it would be interesting to look at the trend in real manufacturing wages for blue collar workers in Michigan. While the national real wage has been flat, that of MI has fallen steeply. Nothing you wouldn’t know if you follow this sort of thing, but if you’re trying to figure out why a bunch of voters are pissed off right now, here’s a picture."
Scott Walker was first elected governor in 2011 and last year signed a right to work law (after saying for years that he wasn't interested because unions were cooperating with him).
Kevin Drum on Trumps claims about the unemployment rate: U6 Is Now the Last Refuge of Scoundrels . "On Tuesday Donald Trump repeated his fatuous nonsense about the real unemployment rate being 42 percent."
Trump is obviously just making shit up, but the 10 percent number is colorably legitimate. It's officially called U6, a measure of unemployment plus folks who have been forced to work part time plus workers who are 'marginally attached' to the labor force. Right now it stands at 9.9 percent.
But you can't just toss this out as a slippery way of making the economy seem like it's in horrible shape. If you're going to tout U6, you have to compare it to what's normal for U6. And what's normal in an expanding economy is about 8.9 percent. This means that even big, bad U6 is within a hair of its full-employment value."
Tim O'Reilly brilliantly explains What Paul Graham Is Missing About Inequality. He ends with:
When a startup doesn’t have an underlying business model that will eventually produce real revenues and profits, and the only way for its founders to get rich is to sell to another company or to investors, you have to ask yourself whether that startup is really just a financial instrument, not that dissimilar to the CDOs of the 2008 financial crisis — a way of extracting value from the economy without actually creating it.
But it's worth reading the whole thing.
Matt O'Brien writes in WonkBlog, The Federal Reserve may have made a huge mistake "Markets sure seem to think that the Federal Reserve has made a big mistake. It hasn't just been stocks selling off 10 percent to start the year. It has also been bonds saying that they don't think the Fed will come close to hitting its target of 2 percent annual inflation anytime in the next 10 years. Markets, in other words, have done everything short of holding a boom box outside of Fed Chair Janet Yellen's window to beg her not to raise interest rates any more after the Fed hiked them in December for the first time in nearly a decade. And it just might work."
Krugman of course agrees, Fed Fumble.
Ben Thompson on A Politics For Technology talks about surge pricing and market efficiencies.
The end result is a system that ensures that those who need a ride are guaranteed to get one; those who really could do without self-select out of the system, at least until more drivers are compelled to increase the supply. It is much better than the alternative, where someone who could just as easily walk a couple of blocks might by pure chance grab the taxi needed by, say, a woman in labor. That’s an extreme example, but I use it to make the point: pricing ensures those who truly need a good can get it, and, on a holiday defined by champagne, we should all be grateful.
In the context of the price mechanism, money serves the role of a medium of exchange. The problem, though, is that money serves other functions as well: specifically, money is a unit of account and a store of value. It is the latter that is the rub when it comes to Uber and the idea of allocating rides based on price. To return to the extreme example above, what if the woman in labor is poor, and the person who only needs to travel a few blocks is rich? It very well may be that the latter’s ability-to-pay will trump the former’s willingness-to-pay; this is, to my mind anyways, the most valid reason to oppose surge pricing.
Later on: "Take taxis, to stick with the Uber theme: the justification for most taxi regulations were important ones like safety, dependability, and consumer protection. Given the fact that taxis would be out on the street unsupervised it made sense to tightly control entrance to the market. However, were it possible to address all those same concerns far more effectively, through, say, precise tracking and full histories of both drivers and passengers, as well as knowledge about pick-up and intended drop-off points, would not the regulations look significantly different?"
He peters out in the end, with this, "It would be far better — and a far better match for the reality of today’s labor market — to disentangle once-and-for-all employment from the social safety net." but it was still a good read.
Neil Irwin writes in The NY Times, Why Negative Interest Rates Are Becoming the New Normal "The flaw in the old concept of the ‘zero lower bound’ seems to have been this: There are a lot of benefits to keeping money in a bank besides the interest you earn. If you keep $10,000 in savings in a bank, and the bank gets robbed, you’re unaffected; the bank is on the hook for the losses. If you keep it in your freezer, theft is your problem. The peace of mind of having your $10,000 in a federally insured bank account and the ability to write a check to make a purchase or wire money to a family member are valuable. More valuable, it seems likely, than the $30 in annual costs that would apply if the Fed put in place the E.C.B.’s new negative 0.3 percent rate."
The real reason Japan's economy keeps stumbling into recession:
Japan is back in recession. The country's GDP shrank 0.8 percent in the third quarter of 2015 after shrinking in the second quarter, so it meets the technical definition. On its surface, this looks like a damning indictment of "Abenomics" — a program of aggressive money printing that Prime Minister Shinzo Abe ordered upon taking office a few years back in order to jolt the Japanese economy out of its doldrums. But look closer and you'll see that the opposite is the case.
Business Insider reports The disappearing middle class is threatening major retailers “‘While overall consumer confidence is trending up, lower income consumers continue to be fragile as income and wage growth has been minimal,’ he said. ‘Higher income and more confident consumers are driving premium growth, while cost-conscious consumers are driving the value segment.’”
This is what happens when the middle class is destroyed. Hershey is having difficulties because the 1% buy better stuff and the increasing poor 99% are buying cheaper stuff (and it’s not like Hershey’s is particularly expensive). It’s true, it’s not a zero-sum game, but when all the gains go the top 1% over the last 40 years, it means the economy suffers because consumers can buy less.
The Guardian reports Exxon’s climate lie: ‘No corporation has ever done anything this big or bad’ “In the last three weeks, two separate teams of journalists — the Pulitzer-prize winning reporters at the website Inside Climate News and another crew composed of Los Angeles Times veterans and up-and-comers at the Columbia Journalism School — have begun publishing the results of a pair of independent investigations into ExxonMobil. Though they draw on completely different archives, leaked documents, and interviews with ex-employees, they reach the same damning conclusion: Exxon knew all that there was to know about climate change decades ago, and instead of alerting the rest of us denied the science and obstructed the politics of global warming.”
Instead, knowingly, they helped organise the most consequential lie in human history, and kept that lie going past the point where we can protect the poles, prevent the acidification of the oceans, or slow sea level rise enough to save the most vulnerable regions and cultures. Businesses misbehave all the time, but VW is the flea to Exxon’s elephant. No corporation has ever done anything this big and this bad.
ThinkProgress reports, Exxon’s Climate Cover-Up Should Be Investigated By DOJ. “Sharon Eubanks [A former U.S. Department of Justice attorney who prosecuted and won the massive racketeering case against Big Tobacco], who now works for the firm Bordas & Bordas, told ThinkProgress that ExxonMobil and other members of the fossil fuel industry could be held liable for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) if it’s discovered that the companies worked together to suppress knowledge about the reality of human-caused climate change. She said that, considering recent revelations regarding ExxonMobil, the DOJ should consider launching an investigation into big fossil fuel companies.”
Meanwhile some economists looked at Climate Change and Economic Production by Country
When you look at it this way, ExxonMobil’s lie could be the most consequential one in history.
Update: At least, Poll Finds Fewer Americans Than Ever Doubt Climate Change Is Happening.
Vox wrote 2 economists imagined a financial crisis without stimulus or bailouts. It’s … ugly.
"So Blinder and Zandi used the Moody's model to simulate how the economy would've looked if no special measures had been taken in the wake of the financial crisis and recession. They assume that the government's 'automatic stabilizers' — programs like food stamps and progressive taxes that help people more when the economy's suffering — took effect, and that the Federal Reserve took interest rates down to zero. They then compared the economy in that counterfactual to the actual history.
They did better than that, though. They also modeled the contribution of each individual policy:
Wonkblog says Donald Trump is more than right: Most Americans don’t work. (But …).
"Whatever chart that was, Trump was reading it wrong. And he’s been called on his error repeatedly. My colleague Glenn Kessler wrote a thorough takedown at the time, pointing out that Trump was lumping together retirees, students, stay-at-home moms, and all kinds of people who aren’t figured into the unemployment rate because they aren’t available to work. It doesn’t seem that Trump was paying attention, so we’re going to try again — with charts."
