Political Economy category archive

On the other side of the Big Pond, some persons are starting to see the light: tax people who can afford it so as to benefit the polity as a whole. Polly Toynbee discusses what over here we would call “deficit hawks”:

What we face here, which Labour has yet to find words to express, is a war between those who control the money sucked up into their own pockets, against the great majority who are the losers. This is the tidal pull of inequality that Labour tried and failed to swim against. This budget is the time to tip the balance on reward and tax towards the people. The reason the Robin Hood campaign is galloping forward so fast is that everyone but the rich wants that tide reversed. This is a totemic tax: many others are needed too.

Just as in the United States etc.

Except that, somehow, a large percentage of US citizens have been convinced that closing schools and denying health care to the sick is somehow both moral and sane, as compared to raising the marginal tax rate a few points for the persons who gave us credit default swaps.

A recipe for use by self-policing markets:

1. Bring water to boil.

2. Add books.

3. Boil until books thoroughly cooked.

Serves: One crash.

People within the bank knew this was a sleight of hand. In one exchange of emails, a senior Lehman executive wrote: “It’s basically window-dressing.” A colleague replied: “I see…so it’s legally do-able but doesn’t look good when we actually do it? Does the rest of the street do it?” One of Fuld’s top lieutenants, chief operating officer Bart McDade, referred to Repo 105 as “another drug we’re on”. A US law firm didn’t like the look of the practice, so Lehman turned to Britain’s very own Linklaters, which duly signed it off as lawful. London-based auditor Ernst & Young concurred, taking “virtually no action” when a Lehman whistle-blower, Matthew Lee, raised a red flag.

More here.

It’s helicopter unemployment: It’s just hoverin’ in the high 400Ks.

In the week ended March 6, initial claims fell to a seasonally adjusted 462,000 from a revised 468,000 in the prior week, the Labor Department said Thursday. Economists surveyed by MarketWatch were expecting claims to dip to 460,000. See our complete economic calendar.

The four-week average of initial claims – a better gauge of employment trends than the volatile weekly number – rose by 5,000 to 475,500. That’s the highest rate since late November.

But almost anything would be better than what we’ve got.

Bloomberg:

The political consensus may be that President Barack Obama’s handling of the economy has been weak. The judgment of money in all its forms has been overwhelmingly positive, and that may be the more lasting appraisal.

One year after U.S stocks hit their post-financial-crisis low on March 9, 2009, the benchmark Standard & Poor’s 500 Index has risen more than 68 percent, and it’s up more than 41 percent since Obama took office. Credit spreads have narrowed. Commodity prices have surged. Housing prices have stabilized.

Sadly, it still doesn’t seem to be reaching those who need it most. Maybe it’s the lagging indicator thingee.

Commence Operation Scapegoat (emphasis added):

Newly released documents show Blackwater workers and their supervisors in Afghanistan running amok – drinking heavily, using weapons without permission and ignoring Army protocol, all adding to an environment that may have contributed to the killings of unarmed civilians.

After two workers, including a Virginia Beach man, shot and killed two Afghan civilians last year, the Moyock, N.C.-based Blackwater was thrown off its $25 million subcontract, but not without a fight, the documents reveal.

The supervisor of the two men was specifically identified in e-mails and letters as fostering such an environment. And even after the killings last May, Blackwater – which now calls itself Xe Services – tried to keep him on the job and distance itself from the shootings.

The functions in question should have been performed by United States employees beholden and subject to the United States, not by mercenaries.

The outsourcing of military functions is bogus. It makes the official military budget look a little smaller (or more accurately not as big), while funneling money into private hands not beholden to the United States except on payday to perform the same functions with less efficiency, less effectiveness, undoubtedly less discipline, but at much greater expense.

It’s the hand-in-the-pocket thingee again.

Because all politics is economics. Anything else is a red herring.

The magician prattles on about magic powers and beautiful assistants so you don’t watch his hands in his pockets.

The Republicans prattle on about family values for the same reason. The difference is that their hands are in the country’s pockets.

That is, an unwholesome fixation on one thing, like ladies’ shoes.

Joseph Stiglitz on “deficit cut fetishism”:

Most economists also agree that it is a mistake to look at only one side of a balance sheet (whether for the public or private sector). One has to look not only at what a country or firm owes, but also at its assets. This should help answer those financial sector hawks who are raising alarms about government spending. After all, even deficit hawks acknowledge that we should be focusing not on today’s deficit, but on the long-term national debt. Spending, especially on investments in education, technology, and infrastructure, can actually lead to lower long-term deficits. Banks’ short-sightedness helped create the crisis; we cannot let government short-sightedness – prodded by the financial sector – prolong it.

Read the whole thing, particularly the paragraph towards the end in which he points out

America’s financial industry polluted the world with toxic mortgages, and, in line with the well established “polluter pays” principle, taxes should be imposed on it.

America’s financial industry has shown that it subtracts, rather than adding value and that incompetence is not its own reward; rather, incompetence deserves ginormous bonuses. And country club memberships.

Its advice should be discounted.

Via TPM.

A little better:

Initial claims for state unemployment benefits dropped 29,000 to a seasonally adjusted 469,000 in the week ended February 27, down from an upwardly revised 498,000 the prior week, the Labor Department said. * Analysts polled by Reuters had expected claims to drop to 470,000 from a previously reported 496,000 the prior week. * Initial claims data in recent weeks has been distorted by bad weather, making it difficult to gauge the labor market trend. * The four-week moving average of new claims, which irons out week-to-week volatility, fell 3,500 to 470,750, the Labor Department said. * The number of people still receiving benefits after an initial week of aid dropped 134,000 to 4.5 million in the week ended February 20, the lowest since early January 2009. * The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, slipped to 3.5 percent in the week ended February 20 from 3.6 percent.

Analysis and commentary at the link.

Medical tort reform:

The health-care debate has been marred by the distortions, demagoguery, and outright lies that are typical of modern American political discourse. For example, lacking any substantive ideas of their own, reform opponents have seized on tort reform – taking away the rights of injured patients – as their solution to America’s health-care problems, despite ample evidence that it’s no solution at all.

Let’s call this tort-reform fixation what it is: a sign that many Republicans are bereft of ideas and obsessed with an issue that will do nothing to lower care costs or cover the uninsured. Medical malpractice is a political crutch that opponents of the health-care bills lean on time and time again to justify their efforts to derail reform.

The author of the column is a trial lawyer. Nevertheless, that does not keep him from being right. There may need to be some reform medical malpractice law in the interest of justice and good medical practice, but the effects of malpractice insurance, suits, and settlements on costs are minimal:

“It’s really just a distraction,” said Tom Baker, a professor at the University of Pennsylvania Law School and author of “The Medical Malpractice Myth.” “If you were to eliminate medical malpractice liability, even forgetting the negative consequences that would have for safety, accountability, and responsiveness, maybe we’d be talking about 1.5 percent of health care costs. So we’re not talking about real money. It’s small relative to the out-of-control cost of health care.”

It’s all about the executives’ country club memberships:

Warren Buffet, via Reuters:

“It’s (health care cost-ed.) like a tapeworm eating at our economic body,” Buffett said on CNBC television.

“If it was a choice today between Plan A, which is what we’ve got, or Plan B, which is the Senate bill, I would vote for the Senate bill,” he said. “But I would much rather see a Plan C that really attacks costs, and I think that’s what the American public wants to see.”

David Bochover on the banksters bonuses for showing up to work policies demolishes the “we have to pay for talent” sophistry:

Bankers are not paid what they are because they have an irreplaceable skill, but because they operate in an industry that inevitably produces huge revenue in certain economic conditions. Well-positioned employees then grab the lion’s share of the available rewards before they get to the shareholders, who in the modern world, are mostly ordinary people through their pension holdings and savings (and, in the case of state-owned RBS, through their taxes). This brazen plunder is then retrospectively justified using the “talent” argument.

A modest proposal:

I offer a legislative proposal that would make everyone wish top executives the best of luck in their quest for untold riches: Limit the compensation of executives of publicly traded companies, companies receiving public aid, and companies doing business with the government to no more than 100 times the salary of each company’s lowest-paid full-time employee.

For example, if the lowest-paid worker at a company earns the federal minimum wage – currently $7.25 an hour, or an annual income of $15,080 at full time – then the total compensation for the top executive (including stock options and yachts) would be limited to about $1.5 million. If a company pays its lowest-paid worker a “living wage” – for a single mother with one child living in New York City, $19.66 an hour, or $40,893 a year – the top executive could take home more than $4 million.

By way of comparison, the current average annual compensation of S&P 500 CEOs is more than $10 million, which is more than 300 times the annual pay of the average worker in those corporations.

Fat chance.

Looking good in meetings, writing nice emails, and testifying before Congress is ever so much more worthwhile than actually producing something of value.

The triumph of Republican Economic Theory.

Ashley Sayeau, an American ex-pat living in London, writes at the Guardian:

But when it costs a family of four $53,629.56 a year to insure their health, there is a problem, particularly when the average salary for someone living in the New York area is $50,820. There is no wonder 23% of uninsured families report that their medical bills require them to skimp on basic necessities like food and heat. Or that healthcare costs are the number one reason Americans file for bankruptcy.

Bloomberg:

More Americans unexpectedly filed first-time claims for unemployment insurance last week, indicating companies lack confidence the economic recovery will be sustained.

Initial jobless applications increased to 480,000 in the week ended Jan. 30, the most in seven weeks, from 472,000 the prior week, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance was little changed and those receiving extended benefits increased.

Colorado Springs is in shut down mode as the Town Fathers discover that living in civilized society has a price tag and that the Laughable Curve just doesn’t work.

More than a third of the streetlights in Colorado Springs will go dark Monday. The police helicopters are for sale on the Internet. The city is dumping firefighting jobs, a vice team, burglary investigators, beat cops — dozens of police and fire positions will go unfilled.

The parks department removed trash cans last week, replacing them with signs urging users to pack out their own litter.

Neighbors are encouraged to bring their own lawn mowers to local green spaces, because parks workers will mow them only once every two weeks. If that.

Water cutbacks mean most parks will be dead, brown turf by July; the flower and fertilizer budget is zero.

Via the Inverse Square blog, where Tom editorializes so I don’t have to.

(Later on in the story, a local plutocrat is quoted as wondering “why the city spends $89,000 per employee, when his enterprise has a similar number of workers and spends only $24,000 on each.” Bet his enterprise offers great health care and retirement.)

Addendum:

Tom Publishes an follow-up, in which he discusses Megan McArdle’s statement that she is not against government “in its place.” A nugget:

So no, I don’t think, nor did I ever say, that McArdle wants to fire every cop in Colorado.

What I do think, and say, is that there are recognizable consequences to arguments consistently made…and Ms.McArdle’s position leads in practice, if not in the theory that lights the spotless sunshine of her mind, to local disaster and, unchecked, the long term erosion of American power and (relative) wealth.

As Tom points out, words have consequences.

Dean Baker, writing at the Guardian, speculates on what might happen if homeowners who are under water on their mortgage’s did the work of Goldman-Sachs’s god:

In Blankfein’s assessment, by aggressively taking advantages of profit-making opportunities given to them by the government and the market, Goldman Sachs is accomplishing great good here on earth. That’s a questionable view, especially given the extent to which Goldman has been able to use its political power to tilt the playing field to its advantage, but walking away from an underwater mortgage is one way in which normal homeowners may be able to both help themselves and the economy.

(snip)

In short, homeowners who are seriously underwater in their mortgages should check the numbers. Walking away from a home may well be the best economic choice, and in such cases, it is also likely to be the best choice from the standpoint of the economy as a whole. This may not be advancing God’s work, but if millions of people walked away it might educate Goldman Sachs and the rest of Wall Street bankers about what happens when everyone plays by their rules.