The Aeration Zone: A liberal breath of fresh air

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Walldon in New Jersey ---- Marketingace in Pennsylvania ---- Simoneyezd in Ontario
ChiTom in Illinois -- KISSweb in Illinois -- HoundDog in Kansas City -- The Binger in Ohio

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Wednesday, June 29, 2011

States That Cut The Most Funding Lost The Most Jobs

Republican governors have touted spending cuts as both fiscally responsible, and economically prudent. But a new analysis casts doubt on that narrative.

In recent months, Gov. Scott Walker (R-Wis.) and Gov. John Kasich (R-Ohio) both claimed their budgets, heavy on the spending cuts, would pave the way for job growth in their states, as Think Progress notes.

Yet according to research performed by Think Progress, it seems states that cut the most funding lost the most jobs. And according to the site, in fact, the country is split pretty evenly between the 24 states that cut spending between 2007 and 2010, and the 25 that expanded government outlays.

On average, states that increased spending performed significantly better than cost-cutting states, with their unemployment rates actually dropping by 0.2 percent (as opposed to 1 percent increase in cost-cutting states), private-sector employment increasing by 1.4 percent (as opposed to a 2.1 percent loss) and 0.5 percent "real economic growth" since the start of the recession (as compared to a 2.9 percent economic contraction relative to the national economic trend).

Says Think Progress:

This graph shows that state spending is not just about jobs for public service workers, but also has far reaching consequences for private businesses and their workers... States that cut spending are seeing significantly more job losses in the private sector than states maintaining or increasing spending levels. For every 10 percent cut in state spending, state economies lost 1.6 percent of their private-sector jobs.

The analysis comes as Congressional Republicans have demanded trillion dollar budget cuts as the price for their votes to raise the debt ceiling. Republicans have also balked at the notion of raising taxes as part of any debt ceiling agreement.

Wednesday, June 22, 2011

America the Unequal

The rich are getting richer while the middle class gets poorer. As Michael Tomasky points out, the growing economic inequality is bankrupting Social Security.

by Michael Tomasky June 20, 2011 11:39 AM EDT

If you didn’t read Peter Whoriskey’s report on inequality in Sunday’s Washington Post, please do so now. It’s a very important piece of work that should shift the nature of the inequality debate in the capital (although I’m not holding my breath on that, alas). And it reminds me, in this open season on entitlements, of the important but very infrequently discussed link between inequality and Social Security—why more of the former helps bankrupt the latter. Whoriskey based his piece on a new and massive body of research by three economists who studied tax returns to find out exactly who the richest .1 percent of Americans are. They number about 140,000; they make at least $1.7 million a year; their share of the wealth has grown from 2.5 percent in the mid-1970s to more than 10 percent. But who are they? No one has known, until now.

The reason this research is groundbreaking and important: people who want to pooh-pooh the effects of inequality could say until now, “Oh, you’re talking about a few Wall Street types and a lot of athletes and movie stars.” As this sounds intuitively reasonable to most people, and as the majority of us don’t begrudge Tiger Woods and Tom Hanks their money, sentiments like this one tended to keep people from getting too worked up.God forbid a Democrat—the president, let’s say—made the argument that our current level of economic inequality is indefensible.

But athletes and “media figures” make up just 3 percent of the total, the researchers found. The overwhelming majority? Well, 41 percent are managers and executives at non-financial companies, and 18 percent are finance executives. Whoriskey opens his article by highlighting the history of Dean Foods, a dairy producer whose brands include Land O’Lakes. In the 1970s, the CEO of Dean’s predecessor corporation paid himself $1 million in today’s dollars, mostly in salary. The current head of the company has usually made around $10 million a year, enjoys four country club memberships, and the use of a private jet. Dean’s workers, meanwhile? They’ve fared the same as workers in most places during this period of excess in our history. Adjusted wages are stagnant and even down from the ’70s.

The Dean Foods story, Whoriskey writes, is pretty typical. The company grew, mergers happened, running it became more complex, and zoom: the board kept voting higher and higher compensation (and more complicated compensation) to the CEO. Why did this happen across various industries? This is still unexplored by social science, but it’s not clear to me that it’s a question social science can answer. The answer is that the ethos changed. By and large CEOs stopped thinking, as Dean’s 1970s CEO Kenneth Douglas did, that a human being only needed so much and after a certain point enough was enough. If industry X was doing it, then industry Y wanted to do it, too. Greed spread. Now, what does all this have to do with Social Security? This: over the years, Social Security was structured so that the payroll taxes that fund it (13.4 percent of wages, half from the employee and half from the employer up to about $107,000 in salary, a figure that rises a bit each year) would be applied to 90 percent of total U.S. compensation. The actuaries calculated that hitting that 90 percent should keep the trust fund in pretty good shape.

Today, though, Social Security payroll taxes are collected on only about
82 to 84 percent of total compensation. The difference is immense. And why does the difference exist? Rampant inequality, and compensation arrangements at the top that give executives their pay in the form of capital gains and stock options and other income forms to which payroll taxes don’t apply. And, if middle-class incomes had grown respectably since they instead stagnated in the 1970s, we’d have millions more Americans making $60,000 instead $50,000 and $100,000 instead of $80,000, and the Social Security trust fund would have that much more money.

The short-term move would be to raise the Social Security payroll tax cap up to $180,000 (a hypothetical figure used by many economists), but even that wouldn’t completely solve the problem, especially as more boomers retire. But the long-term solution? Do something about inequality in this country. It’s a disgrace. Here we are, seemingly headed toward a future in which seniors of modest incomes are going to have to pay a lot more for their health care, and in which powerful forces seek to open up a discussion about Social Security that will inevitably lead to reduced benefits. God forbid that a Democrat—the president, let’s say—make this argument and draw these connections for the American people. Those people say regularly in polls that our current inequality is indefensible. Unfortunately, it is defended, daily and with gusto, by the people and interests who like things the way they are. And almost no one in a position of power is forcefully defending the other view. Mr. President, Democrats: it would seem that now is the time.

If you read the book The Spirit Level by Wilkinson & Pickett you will see how this inequality damages America across the board from physical health problems to mental health problems to the level of violence to the number of Americans in our prisons. It is the common cause of a world of social problems, and It damages everyone, the rich and the poor. If we don't change our ways it will ruin us.

Sunday, June 19, 2011

Balanced Trade Key to Restoring U.S. Full Employment

From the DC underground:

None of these proposals from the right or left clearly address the problem we have with creating good jobs here and the associated deficit. All the good jobs mainly in manufacturing and associated R&D are gone and, perhaps for good, thanks to a bipartisan effort on globalization and free trade over the last 10-15 years. No one, right or left, has even identified this as the problem or proposed solutions to the mess that has been created by our large corporations and Wall St Banks as they off-shored jobs to China and elsewhere.

Yes, we should have trade as we have with Germany and Europe that buys and sells with the USA. But not the one- way trade we have with China that only buys farm and raw materials from the USA like the old colony days as China seeks to become number one globally. American companies like GM are under the delusion that they have to get their foot in the door in China with joint venture partnerships with Chinese companies where the U.S. company hold only a small 33 percent minority partnership that is used to gain access to American technology and manufacturing before kicking out the American partner. How much of those GM cars are made with U.S content? In these days of automation what would it cost to U.S. consumers to buy American? Not much I suspect.

Instead we have the Heritage Foundation and Paul Ryan proposing the usual, long held voodoo economics solutions of lower taxes (now even the flat tax) for the wealthy and large corporations, deregulation, free trade, all of this to reduce the deficit on the backs of the middle class. Almost all of this voodoo economics, as Reagan’s chief economist called it, has been tried and doesn’t work. The flat tax and Medicare and Social Security privatization are just new wrinkles in their efforts to restore a new gilded age for America’s oligarchs.

Monday, June 13, 2011

The Question For Tonight's GOP Presidential Debaters: Why Didn't The Bush Tax Cuts Create Jobs?

Tonight is the first Republican presidential debate with all the top contenders planning to attend. And there is only one question I want to see asked: Why didn't the Bush tax cuts create any jobs? Every candidate on tonight's debate stage not only continues to support the Bush tax cuts, but also proposes additional tax cuts for corporations and individual millionaires. Yet none of them have been directly asked to explain why they support an extension and expansion of, according to the Wall Street Journal, a tax policy that produced "the worst record on record" on job creation? Shouldn't they at least be expected to offer a reason why the Bush tax cuts didn't work? How can we take them seriously if they can't learn a single lesson from recent history?

from the Campaign for America's future

The Gang of Six and Other Rogues .... It's a bipartisan attack on your wallet ala Alice Rivlin et al If we can just get Congressman Anthony Weiner off the front pages, the Democrats should be enjoying a nice political windfall thanks to the Republicans' blunder on Medicare. Republican Rep. Paul Ryan's proposal to end Medicare as a public program is monumentally unpopular. Budget Committee Chairman Ryan's plan also has the added benefit of dividing Republicans, and usefully contributed to Newt Gingrich's self-immolation. But watch for the bipartisan Gang of Six, and their conservative allies at Tim Geithner's Treasury Department, to snatch defeat out of the jaws of victory. In the most likely budget compromise that saves the country from defaulting on the national debt, the differences between the parties will collapse in a largely conservative direction. If the current script is followed, Republicans will be the big winners. They will win on gutting social spending, aborting a fragile recovery, humbling the president, and undercutting his re-election chances. Heckuva job, Gang of Six.

By the way, the great Alice is on these so called bipartisan commissions to deal with the deficit. So get ready to see 1. Any company or government paid portion of your health insurance taxed at regular income tax rates and 2. Elimination of the mortgage deduction on your 1040.

Of course, there's no talk about raising capital gains or dividend rates which were 28% under the great Reagan and got lowered by W to today's 15% in the 2001-3 tax cuts. So is it any surprise the top 400 oligarchs of old money pay taxes at 16.6% that is much lower than your rate. The richest American Warren Buffet pays taxes at 13%! It's only fair since under voodoo economics all the money these folks don't pay in taxes trickles down onto the pee-ons, right?

Monday, June 06, 2011

The Recession of 1937-8 and the Potential Recession of 2012

Here we go again with the same dumb policies (austerity) from the same dumb congresspersons (Republicans).

There is a similarity between the current situation and that of 1936. There was a mistaken impression then that the vigorous 10.58% annual compound growth rate of the 1933-36 recovery meant that the economy was no longer fragile, and was self sustaining. There have been two periods when banks excess reserves have been abnormally high: in the recovery stages of the Great Depression 1933-41, and 2008-11. Before the recession of 1937-8 the excess reserve ratio, excess reserves divided by time and demand deposits hit a peak of .08555 in January 1936. After the 1937-8 recession it hit .13946 in October 1940. These peaks took years to be reached. In the Panic of 2008-9 the excess reserve ratio went from .00027 in August 2008 to .11104 in May 2009 during what is now known as QE-1. In April 2011 the ratio was .18159 and still rising, far above the Great Depression record.

The recoveries from the Great Depression (beginning in 1933) and the Panic of 2008 have some similarities. All three started from severe downturns, the accumulation of abnormally high excess reserves by the banks, high unemployment, and fiscal and monetary stimulus. In 1937, it was thought that there was no need for additional fiscal and monetary stimulus. The same thinking rooted in the austerity myth exists today. Perhaps in 1937 that might have been true had fiscal and monetary had gone from simulative to neutral, but the actual changes were from simulative to strongly negative. The economy was given three punches in 1936-7.

1. Lower government spending. National Income and Product Account tables show government spending as a percent of GDP for 1930-42 along with some other years. Roosevelt campaigned on a balanced budget plank in 1932 and, sensitive to complaints about deficits (sounds like Obama), lowered government spending on goods and services from 21.74% of GDP in 1936 to 19.81% in 1937, even lower than Hoover in 1931 and 1932.

2. Higher taxes in 1937. Personal tax collections and personal income before taxes (PI). Dividing gives the realized average tax rate. The personal rate rose from 1.90% to 2.56%. Regarding corporate income tax rate, calculating the tax rate by using actual collections includes the effect of loopholes which is why the realized rate does not equal the statutory rate (loopholes are a huge problem currently but we do not seem to have the political will to get rid of them). The realized corporate rate did not increase in 1937 but an important element is missing, social security taxes. Collections for social security began in 1937, 1% of wages from the worker and 1% from the firm.

3. Decline of the money stock. The St. Louis Fed FRED database shows that from March to December 1937 M2 dropped 3.25% (and M1 dropped 6.48% from March to November. A once great indicator, M1 has become obsolete with the advent of interest on checking, sweep accounts, etc.). While 3.25% may not seem to be much of a drop it is almost 6 times bigger than any drop since (.44% Jan-May 1948/ .56% Jan-Feb 1970/ .43% Nov-Apr 1992-3/ .54% Aug-Nov 2003).

Because the fiscal and monetary restraints occurred simultaneously it is not clear whether the 1937-8 recession was caused by the monetary restraint, the fiscal restraint, or both. But in a sense it does not matter because in 2011 it appears that the Republican led Congress is going to re-enact 1936-37 restraints with a cut in government spending, an increase in at least some taxes (hopefully closing loopholes in our crazy 55000 page tax code), and ending the QE-2 monetary stimulus program. Again the assumption is being made that the economy is strong enough to be self sustaining and that the bicycle training wheels can be taken off. Note: Peter Schiff says that QE-2 is not a training wheel, it is the only wheel.

There are doubts about sustainability. The current U.S economy is not normal. It has two features in common with 1936-7, zero short term rates, and huge excess reserves at the banks.

Sunday, June 05, 2011

Drones following bin Ladin were diverted by Bush

More recently I read that the drones following bin Ladin were diverted from Afghanistan to the impending war in Iraq and that was why we lost his trail. Bush is the commander in chief and should have been on the ball, shouldn't he have been? He proclaimed Mission Accomplished.
Now We are still trying to get the hell out of Iraq and Afghanistan and it is one of the reasons why we have such large defits. Afterall Carter got blamed for the helicopters crashing in Iran.

Speaking of large deficits, when W took office the annual budget was in the black. When he left office, the total federal deficit stood at $10 trillion; he added $4 trillion to the federal deficit to pay for 1. his tax cuts in which the top bracket got 50% more than the rest of us; 2. two wars like Iraq searching for WMDs which never existed and 3. his giveaway to the drug industry and for-profit health insurers in the creating Medicare Part D with its donut holes. (Repubniks always look out for middlemen so they can get rich. )

W gave us his going away present of the Great Recession which is mainly due to Republican efforts to deregulate banking and allow Wall St Banks into the mortgage markets.

U.S. Concludes Bin Laden Escaped at Tora Bora Fight
Failure to Send Troops in Pursuit Termed Major Error
By Barton Gellman and Thomas E. Ricks
Washington Post Staff Writers
Wednesday, April 17, 2002; Page A01

The Bush administration has concluded that Osama bin Laden was present during the battle for Tora Bora late last year and that failure to commit U.S. ground troops to hunt him was its gravest error in the war against al Qaeda, according to civilian and military officials with first-hand knowledge.
Intelligence officials have assembled what they believe to be decisive evidence, from contemporary and subsequent interrogations and intercepted communications, that bin Laden began the battle of Tora Bora inside the cave complex along Afghanistan's mountainous eastern border. Though there remains a remote chance that he died there, the intelligence community is persuaded that bin Laden slipped away in the first 10 days of December.
After-action reviews, conducted privately inside and outside the military chain of command, describe the episode as a significant defeat for the United States. A common view among those interviewed outside the U.S. Central Command is that Army Gen. Tommy R. Franks, the war's operational commander, misjudged the interests of putative Afghan allies and let pass the best chance to capture or kill al Qaeda's leader. Without professing second thoughts about Tora Bora, Franks has changed his approach fundamentally in subsequent battles, using Americans on the ground as first-line combat units.
In the fight for Tora Bora, corrupt local militias did not live up to promises to seal off the mountain redoubt, and some colluded in the escape of fleeing al Qaeda fighters. Franks did not perceive the setbacks soon enough, some officials said, because he ran the war from Tampa with no commander on the scene above the rank of lieutenant colonel. The first Americans did not arrive until three days into the fighting. "No one had the big picture," one defense official said.
The Bush administration has never acknowledged that bin Laden slipped through the cordon ostensibly placed around Tora Bora as U.S. aircraft began bombing on Nov. 30.