Russia, and the Putin Rules: A Pessimistic Assessment

Russia’s “Moscow Winter” is eating away at Vladimir Putin’s KGB state, but it will survive. Putin will be reelected easily on March 4 for a six year term, but he will have lost the halo of popular support. His political base will shrink to those who depend on him for patronage.

He will compensate for lesser popularity with more repression. He will eliminate the last vestiges of opposition and press freedom, but he cannot tame the internet, no matter how hard he tries. He will work to prevent the emergence of a true opposition figure around whom his opponents can rally. Putin cannot produce a strong economy in a regime rooted in corruption. He will embark on an aggressive anti-Western foreign policy to divert attention from his domestic weakness.

Realize that Putin is the CEO of Kremlin, Inc., a state-capitalist network of state companies, political directorships, and offshore companies, which runs the “national champions” of industry, finance, commerce, media, and even state religion. As CEO of Kremlin, Inc., Putin’s remit is to enrich himself and fellow board members, promote state interests as defined by Kremlin, Inc., and insure political survival by all means no matter how unsavory. If the CEO falls, he threatens to pull down Kremlin Inc. with him. The powers that be cannot allow political competition. Only Kremlin Inc. can replace Putin, but with a clone. Regime opponents, basking in the afterglow of their huge demonstrations, must grasp this reality.

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Advice for Romney: I Have Seen State Health Care Up Close and It Does Not Work

If Mitt Romney wishes to become President of the United States, he must cease any and all defense of  Massachusetts-Care. Rick Santorum told him that in so many words in Thursday's debate, and Santorum is right.

There is no one, however, as qualified as Romney to pass judgement on Obama Care. "We tried it in Massachusetts. It was a noble experiment. I was for it. It did not work, despite Massachusett's favorable conditions. This is why we have a federal system. We can experiment at the state level with all kinds of things, and this experiment warns against trying to do the same thing for the nation as a whole."

Case closed.

Warren Buffett's Secretary Likely Makes Between $200,000 And $500,000/Year

Warren Buffet’s secretary, Debbie Bosanek, served as a stage prop for President Obama’s State of the Union speech. She was the President’s chief display of the alleged unfairness of our tax system – a little person paying a higher tax rate than her billionaire boss.

Bosanek’s prominent role in Obama’s “fairness” campaign piqued my curiosity, and I imagine the curiosity of others. How much does her boss pay this downtrodden woman? So far, no one has volunteered this information.

We can get an approximate answer by consulting IRS data on tax rates by adjusted gross income, which would approximate her salary, assuming she does not have significant dividend, interest or capital-gains income (like her boss). I assume Buffet keeps her too busy for her to hold a second job. I also do not know if she is married and filing jointly. If so, it is deceptive for Obama to use her as an example. The higher rate may be due to her husband’s income.  So I assume the tax rate Obama refers to is from her own earnings.

Insofar as Buffet (like Mitt Romney) earns income primarily from capital gains, which are taxed at 15 percent (and according to Obama need to be raised for reasons of fairness), we need to determine how much income a taxpayer like Bosanek must earn in order to pay an average tax rate above fifteen percent. This is easy to do.

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My Award Goes to, Gulp, New York Times and NPR for Explaining Wall Street

Adam Davidson of NPR’s “Planet Money” gets my award for a clear, fair, and balanced explanation of how Wall Street and financial intermediation contribute to economic prosperity and growth in his  What Does Wall Street Do for You? published in the New York Times Sunday Magazine.

Davidson’s piece is a rare exception to the shrill cacophony of accusations and vitriol leveled against Wall Street, big banks, and big finance, some of which, as Davidson notes, is deserved.

I recommend that Republican candidates read this piece so that they can explain how the financial community contributes to economic well being.

Here is my abridged version that quotes directly from Davidson:

Perhaps the best way to really appreciate what Wall Street does is to imagine life without it.

THE POOR WOULD STAY POOR

Most people in the world don’t have access to a modern financial system, and there is almost no way, other than through greedy loan sharks, for the surplus cash of the very rich to get in the hands of the poor.

THERE WOULD BE NO MIDDLE CLASS

One of the most striking facts of life in countries without a modern financial system is the near total absence of upward mobility. The financial-services industry, however, performs a kind of fiscal time travel by pooling the nation’s collective savings and transforming it into all sorts of loans…. Student loans have largely changed America for the better. Many were able to start businesses because of easier access to credit.

LOTS OF AWESOME THINGS WOULD NEVER HAPPEN

Just about anything that makes you happy …was at one point a risky project. Your money is being pooled with that of millions of other people and institutions to finance risky projects…that would freak you out if you were asked to lend to them. But by pooling so much capital and spreading out the risk, Wall Street creates a safe space for failure, which is an essential part of capitalism.

HOW DOES WALL STREET DO THIS?

Wall Street’s core function is to perform a sort of financial alchemy…. giving a lot of people what they want. Investors with extra cash want constant access to their money with little chance of losing any. Borrowers want to hold on to the loans for a long time and, sometimes, take big risks. Stocks, bonds, savings accounts and money-market funds are all ways of making twitchy, conservative lenders and dreamy, semi-reckless borrowers happy at the same time about the same pile of dough.

IS IT STILL O.K. TO HATE WALL STREET?

Wall Street firms enforce the cold rules of capitalism: hostile takeovers, foreclosures, fee increases, defaults. But those rules clearly do not apply to the largest banks themselves. A variety of economists … (have found) that… a significant part of Wall Street’s business has shifted from serving the financial needs of the nation to profiting from “regulatory arbitrage.” A dollar spent lobbying in Washington can have a return on investment of thousands of dollars. Another reason: Wall Street’s central function is to make our financial system more robust and less susceptible to unexpected risk, but it did precisely the opposite while, maddeningly, avoiding paying the price. (Our financial leaders) were following the hallowed advice that Walter Bagehot… set down in 1873: during a crisis, a country must do everything possible to preserve its banks.

Is President Obama Truly a Socialist?

Pew Research finds that sixty percent of Americans respond negatively to “socialism.” It is clear why President Obama must avoid that label. Words are important. Political candidates who control the language of political discourse win elections.

Most of our elites would certainly not entertain the question: “Is Obama a Socialist?” Only irresponsible fanatics carelessly throw around such epithets, they say. Polite circles ignore such goofiness.

As someone who has professionally studied and written about comparative economics, capitalism, and socialism for almost fifty years, the reticence to probe the core beliefs of a political leader seems odd. The question is perfectly legitimate in both an academic and political context as long as we define terms and place the discussion in proper context.

By “socialist,” I do not mean a Lenin, Castro, or Mao, but whether Obama falls within the mainstream of contemporary socialism as represented, for example, by Germany’s Social Democrats, French Socialists, or Spain’s socialist-workers party?

By this criterion, yes, Obama is a socialist.

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Talk About Unanticipated Consequences: ABC, CNN and Juan Williams May Have Made Gingrich President

Conservatives warn liberals of unanticipated consequences.  Liberals claim to have the best of intentions with their economic and social policies, but often they get the opposite result.

ABC, CNN, and Juan Williams, I doubt, would like to see Newt Gingrich President of the United States. ABC's John Ross planned to sabotage his presidential ambitions with a hostile interview with Gingrich's ex wife released on the eve of a key primary. CNN’s John King planned to embarrass Gingrich with his opening question for the New Hampshire debate. Juan Williams played the race card against Gingrich in the Fox News debate.

All three encountered unanticipated consequences. Thanks to their questions, Gingrich soared in the polls, won in New Hampshire, and became a serious contender for the Republican nomination.

Although their attempts to embarrass Gingrich backfired,  John  Ross, John King, and Juan Williams are considered heroic figures within the media. They remain largely clueless. Juan Williams, for example, expressed surprise when his race card question was met with boos from the audience. It was only then that he realized that he was the "bad guy" in the wrestling match versus Gingrich's "good guy."

Those who wish to see Gingrich as the Republican candidate must hope that the media continues its campaign against him.