Monday, December 26, 2011

Sen. Harry Reid's Unicorns: Fact Checking A Whopper

Tax policy should be serious business carried out by serious politicians using real facts and figures. This is why we have the Library of Congress and the Congressional Budget Office, among other expert institutions.
How can we take Congress seriously when the Senate Majority Leader, Harry Reid, makes patently inaccurate, outrageous and bizarre claims on an important tax-policy issue without any heads being turned? I guess this is what we have come to expect of Congress. No wonder citizens with favorable opinions of Congress are as rare as unicorns, to borrow a phrase.

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Thursday, December 22, 2011

I Can’t Believe It: A Great Editorial in USA Today on the Payroll Tax

In its editorial Payroll tax gridlock could actually be a plus USA Today puts important perspective on the payroll tax debate.

The editorial argues that Congressional gridlock could be a good thing in this case. Social-security funding is already rocky, and the social security trust fund is running a deficit this year, thanks in part to the payroll tax cut. Tax cuts (which USA Today appears not to like very much) have a way of becoming permanent – Who can vote to raise someone’s taxes after they have been “temporarily” lowered?

Taking a Keynesian position, the editorial argues that the extension of the payroll tax cut might create some short term stimulus, but the costs of the extension are much too large in terms of threatening  social security revenues.

I can’t believe it. A major news outlet, other than the Wall Street Journal, taking a reasonable position on a major economic and political issue.

Tuesday, December 20, 2011

The Payroll Tax-Cut Consensus: Another Keynesian Sand Castle

Democrats are pushing hard for an extension of the payroll tax cut, without which, they claim, the economic recovery will falter. They salivate over the hard-hitting campaign ads to come: “Republicans favor tax cuts, but only for millionaires. Republicans sabotage the economy and the middle class to beat Obama.”

The Democrats and their media enablers use their standard refrain to make the case: All reasonable economists believe in the “Keynesian consensus” that tax cuts increase consumer spending and promote economic recovery. How can anyone argue against such “settled science”? We do not have a Ronald Reagan around to remind us: “There they go again.”

Intimidated Republicans do not engage in rebuttal. I guess they fear that voters cannot understand why extending the payroll tax cut is both bad economics and bad politics.

to read the rest

Monday, December 19, 2011

Kim Jong Il: The Passing Of A Tyrant And The Ensuing Power Struggle

Kim Jong Il, who died Saturday at the age of 69, was the last leader of a Stalinist state held together by a Stalin-like cult of personality, brutal repression and disposition of rents to supporters. Like Stalin, Kim Jong Il rid the North Korean leadership of any possible independent-thinking rivals. There are no Gorbachevs or Dengs in the wings. But the grooming of his chosen successor, third son Kim Jong Un, remains incomplete, and this throws something of a monkey wrench in succession plans.

Kim Jong Il leaves behind a failed economy and a starving people. He built a regime that could survive the grossest of economic failures by means of a blustering and threatening foreign policy, an oversized military that sucked up huge resources, strategic payments to key supporters in the party and military from arms and drug sales, and absolute repression of his people.

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Sunday, December 18, 2011

A Note on U.S. Taxpayers Who Earn a Million Dollars or More

I just completed a blog on a statement by Harry Reid that million-dollar-earners are primarily hedge fund managers and wealthy lawyers. Businesses owned by millionaires that create jobs are as rare as unicorns.

I decided to fact check this bizarre statement (which National Public radio appeared to support) myself. My results will be posted on my Forbes Econworld blog shortly. I use this note to list my data sources:

Data on tax filers earning one million dollars or more is from IRS’s Table 1.4 “Sources of income, adjustments, and tax size of adjusted gross income, 2009.” Table 4 gives the total number of million-dollar tax filers, their sources of income. Income from businesses is over $220 billion. The number of millionaire tax filers is 237,000, and they pay an average tax rate of 30 percent.

Data on employment in investment banking is from the Bureau of Labor Statistics study of investment banking in 2006.

Data on the number of investment bankers earning million-dollar-plus bonuses is from Morgan Stanley. I apply their ratio of employees making million dollar plus bonuses to investment bank employment in general to approximate the total.

Data on the number of general corporate counsels earning a million dollars or more (77) is from Law.Com.

Data on the number of equity partners in law firms earning total compensation of a million or more is from American I deliberately overestimate the number of million-dollar lawyers (14,000) by counting all equity partners in firms averaging million dollar compensation as earning a million or more.

My fact check shows how bizarre Harry Reid’s numbers are.

Wednesday, December 14, 2011

Inconvenient Facts: If Only the State Ran Banks

A demand of the occupy Wall Street crowd is to nationalize banks and have the state rigidly regulate risk. The reason for the world financial crisis is the greed of bankers and financiers throughout the world. We would be safe if we let the state handle such matters, they say. The state would get rid of “risky schemes”  like the infamous credit-default swaps traded by financial institutions and threatening their solvency.

European bank regulators have published the list of the ten  European banks with the greatest exposure to Portugal, Italy, Ireland, Greece and Spain.

Of these ten, only three are privately owned. Three are owned by German state governments and France and Belgium. Four are owned by cooperatives.

These figures suggest that private banks did better than state and cooperative banks in managing risk. I thought state and cooperative ownership were supposed to eliminate excessive risk taking.

Saturday, December 10, 2011

Putin Is In a Box: What the Demonstrators Should Demand

Fifty thousand demonstrators are shouting “Russia without Putin!” as I write this post. Symbolically, they are milling in Bolotnaya Square, the site where the Don Cossack Pugachev was beheaded in 1775, after fighting a two-year war against Catherine the Great.  

Madeline Albright used to tell us that “Saddam is in a box.” He was not, but Putin is. His siloviki (power men) can handle a demonstration of one thousand but not fifty thousand. He can no longer claim any kind of legitimacy after the party he founded (and now distances himself from) could not win a majority against ancient communists and bumbling nationalists.

Putin’s “box” offers him no convenient way out. In the old days, he could scold his ministers on his obsequious television networks for not paying pensions on time or for failing this assignment or that. After all, he was looking out for the people. This tactic will not work any more. The demonstrators, at last, understand that Putin is the problem.

Putin cannot cede power. He heads a vast corrupt KGB state of “scoundrels and thieves,” who have been robbing Russia blind for over a decade.  There is no peaceful retirement to his secret palace in Sochi. He can only protect himself and his associates by staying in power. Any successor government would banish him or put him behind bars. I can imagine the panic and confusion in oligarch villas, secret police headquarters, and regional governors’ office. Their resistance will be fierce. They have not only their wealth but also their personal freedom to lose.
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Remarkable Photo of Moscow Anti-Putin Demonstration, Saturday, December 10

Wednesday, December 7, 2011

A Blogger Could Start Russia's Arab Spring (Russian Election Update)

The new face of the Russian opposition is a young whistle-blowing, shareholder activist, muckraking blogger by the name of Alexei Navalny. At 2:15 p.m. on Monday, he called his huge internet following to a 7 p.m. demonstration at the Chistye Prudy park to protest “the rotten total fabrication of Moscow election results.”  He wondered why some Moscow districts reported 20 percent while identical districts next door reported 70 percent votes for United Russia.

to read the rest

(PS I find it notable that Gorbachev has called for a new election. Putin cannot deny Gorbachev a bully pulpit.)

Monday, December 5, 2011

A Hayseed Economist Responds To The Times' Bill Keller

Bill Keller, the former editor of the New York Times, has ventured into economic commentary after tutorials from “a few economists respected for the integrity of their science.” Presumably, they all have impeccable Ivy League or Wall Street credentials.
Keller concludes that the state of economics is “rotten” because the “democratization of media has diminished the authority once held — and sometimes abused — by a few big newspapers and broadcasters.”

 I, hayseed that I am,  had not realized that the New York Times and CBS – not the editors of the American Economic Review, the Journal of Political Economy,  or the Quarterly Journal of Economics -- are (or were to Keller’s regret) the true arbiters of what is good or bad economics. 

Russia's Voters Have Spoken: Anybody But Putin

According to exit polls, Vladimir Putin’s United Russia lost its majority in the Russian parliament in Sunday’s voting. United Russia fell from a two third majority to under fifty percent. Prior to the election, Putin muzzled independent election monitors; so the actual vote was much worse for his former majority party.
To understand the magnitude of this electoral drubbing, consider a U.S. election in which Republican candidates are banned, and the Democrats vie against the Green, Libertarian, and the Freedom Socialist Parties, and THEY FAIL TO WIN A MAJORITY. This was the case in Russia on Sunday. The majority of ballots were not for someone but against the Putin regime.

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Friday, December 2, 2011

ClimateGate 2 Emails: The Real Smoking Gun (DOE Should Answer Before Congress)

The universal  rule of ethical conduct in scientific research is the requirement to share data. Other scientists must be given the opportunity to replicate results and to conduct sensitivity analysis to determine whether alternate data handling and transformations yield different results. Unless this basic ethical requirement is observed, we can have no confidence in scientific results and the scientific method cannot work. (I have discussed climate research and the scientific method in an earlier post).

Consider the National Science Foundation’s requirements on “dissemination and sharing of research results." I quote them in full:

 Investigators are expected to share with other researchers, at no more than incremental cost and within a reasonable time, the primary data, samples, physical collections and other supporting materials created or gathered in the course of work under NSF grants. Grantees are expected to encourage and facilitate such sharing. Privileged or confidential information should be released only in a form that protects the privacy of individuals and subjects involved.   

Now consider the e mail that  Phil Jones of  East Anglia University wrote to colleagues:

I've been told that IPCC is above national FOI [Freedom of Information] Acts. One way to cover yourself and all those working in AR5 would be to delete all emails at the end of the process.  Any work we have done in the past is done on the back of the research grants we get – and has to be well hidden.  I've discussed this with the main funder (U.S. Dept of Energy) in the past and they are happy about not releasing the original station data.

I suggest that Congress call in the Department of Energy administrators responsible for funding Jones’ IPCC work to determine whether they are indeed “happy about not releasing the original station data.” If Jones’ assertion is true, I suggest that they be relieved of their positions.

It is my understanding that the raw station data provide the core long-term temperature readings on which much of the IPCC research findings are based.

P. S.  In support of my comments above, I  wish to direct readers to the complaints of biomedical researchers about the frequency with which they cannot reproduce results published in academic peer reviewed journals, which they attribute to the pressure of getting positive results in order to publish and get more funding.

The WSJ article Scientists’ Elusive Goal: Reproducing Study Results reports: “Most results, including those that appear in top-flight peer-reviewed journals, can't be reproduced. ‘It's a very serious and disturbing issue because it obviously misleads people" who ‘implicitly trust findings published in a respected peer-reviewed journal, says Bruce Alberts, editor of Science. On Friday, the U.S. journal is devoting a large chunk of its Dec. 2 issue to the problem of scientific replication. Reproducibility is the foundation of all modern research, the standard by which scientific claims are evaluated.”


Thursday, December 1, 2011

Someone Must Eventually Say No. Warnings on the Europe Crisis

Yesterday’s Wall Street rally was indicative of a world investment community desperate for a shred of good news. The U.S. employment figures were better than expected and a consortium of central banks, the Fed included, agreed to prop up European banks with temporary funding.

Everyone now knows the meaning of “moral hazard” – a term foreign to the business vocabulary twenty years ago. It first came to the fore with the Asian Crisis of the summer of 1997. Buyers of bonds of the emerging Asian economies, expecting a lender of last resort, sought to profit from high interest Asian bonds and fixed dollar exchange rates. The two most recent episodes of moral hazard are the U.S. mortgage disaster and the toxic debt of  Ireland, Greece, Portugal, and now Italy. In both cases, investments were made assuming a lender of last resort. Things are different from 1997: We have no credible lenders of last resort who can make whole creditors who stand to lose not billions but trillions.

Moral hazard and lenders of last resort are addictions. We realize their costs only after the fact, and then we must agree to yet another bailout. Otherwise the costs are too high.

We now stand at a watershed in Europe. Creditor countries and Eurocrats tell Germany, the European Central Bank, and the IMF that the costs of yet another bailout are small compared to the alternative. Apparently, the world’s central banks yesterday caved in, at least partially. Only the German voter and perhaps the European Central Bank are left standing against the bail-out consensus. It is argued that somehow the European Union needs time to discipline the spendthrift Greeks, Portuguese, and Italians. But the central bank signal to them is “continue as is. Pretend to change your ways. You are too big too fail, so don’t worry.”

Overlooked in all the confusion is that the central bank loans and European emergency funds are tiny compared to the total bailout costs. Sufficient funding can only be had if private lenders participate. But so far, there are no signs of interest on their part. A more likely result is that private speculators will test the resolve of European governments and central banks to back toxic debt.

Once Soros and others enter the ring, my bets are on the private speculators. Taxpayers around the globe will pay dearly, and we will learn again that moral hazard has substantial costs. We will then immediately forget this lesson until the next catastrophe.