Obama ranks number one in urban legends online...

So i've asked people (and I'm asking you as well) to forward me any emails or articles attacking him or Democrats at large so that I can keep up and help local democrats respond to the policy not the trash.

Just got one in my email box and one point was on the estate tax... found two things I wanted to post up... here is that assertion...

INHERITANCE TAX


McCCAIN - 0% (No change, this tax has been repealed.)

OBAMA - keep the inheritance tax.

How does this affect you? Many families have lost
businesses, farms and ranches, and homes that have been in
their families for generations because they could
not afford the inheritance tax.

The number of farms is next to nhil from what everyone is saying... But lets check with one of the most successful businessmen in the world...

November 15, 2007
Buffett Says No Estate Tax Would Be a Gift to the Rich
By BLOOMBERG NEWS

Warren E. Buffett urged Congress yesterday to maintain the estate tax, saying that plans to repeal the tax would benefit a handful of the richest American families and widen income disparity in the United States.

Mr. Buffett, the billionaire chairman of Berkshire Hathaway, told the Senate Finance Committee that advocates of repeal were “dead wrong” to call the tax a “death tax.”

It would be more appropriate to call it a “death present,” Mr. Buffett, 77, said. “A meaningful estate tax is needed to prevent our democracy from becoming a dynastic plutocracy.”

Congressional Democrats are likely to seize on Mr. Buffett’s comments to bolster their argument that repeal of the estate tax amounts to a windfall for a few wealthy families. Republicans have pushed to eliminate the tax permanently or reduce the rate and exempt more estates by raising the value at which the tax takes effect.

Mr. Buffett said that in the last 20 years, tax laws have allowed the “superrich” to become richer.

“Tax law changes have benefited this group, including me, in a huge way,” he said. “During that time the average American went exactly nowhere on the economic scale: he’s been on a treadmill while the superrich have been on a spaceship.”

Lawmakers are under pressure to reach some agreement on the future of the tax because a law enacted by Congress in 2001 gradually phases it out through 2010, when it will be fully repealed for one year. The tax is scheduled to return in 2011 with a top rate of 55 percent on estates worth more than $1 million. For this year, individual estates valued at more than $2 million are taxed at a top rate of 45 percent.

The chairman of the finance committee, Max Baucus, a Montana Democrat, said yesterday that fewer than 1 percent of United States households currently pay the tax. He said repeal lacked support in the Senate and the purpose of the hearing was to solicit ideas for replacing the shifting rules and uncertainty of the current system.

Senator Charles E. Grassley of Iowa, the ranking Republican on the panel, said the estate tax should be repealed because “death should not be a taxable event.”

“As long as a person has accumulated an estate in accordance with the law, the government should not be able to profit from that person’s death,” he said.

He said, however, that he might be willing to accept a compromise short of repeal, as long as lawmakers “are looking out for small-business owners and family farmers.”

nonpartisan Tax Policy Center:

The Estate Tax (pg. 19)

Senator McCain’s proposal to reduce the estate tax rate to 15 percent and increase the exemption to $5 million would reduce estate and income tax revenues by approximately $580 billion over 10 years. It would cut estate tax revenues by 90 percent and reduce the extent to which the estate tax backstops the income tax (that is, taxing assets that might have escaped income tax as they accumulated because of careful tax planning or loopholes, including the exemption of capital gains on assets transferred at death). Under the proposal, only about 4,000 estates would be subject to the tax in 2011 (less than 0.2 percent of the 2.5 million adult decedents).

The estate tax has ambiguous effects on working and saving. The tax may discourage some wealthy people who care about their heirs from saving or working by reducing the size of after-tax bequests. Others, however, may have a target amount of wealth they want to transfer, in which case they would need to save more to offset the expected tax liability. Further, the tax may encourage some potential heirs to work and save more because they are less able to live well off the proceeds of inherited wealth (for discussion, see Burman, Gale, and Rohaly 2005). On balance, the proposal is likely to have very small effects on work effort, saving, or overall economic performance. It would, however, reduce the progressivity of the tax system because only the richest estates now pay estate tax. Compared with leaving the 2009 rates and exemptions in place, near repeal of the tax as Senator McCain has proposed would disproportionately benefit a very small group of extremely wealthy individuals.

rich kids need to work just like the rest of us. No free rides, no free rides...
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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

response on taxes and economy...

Anonymous said...
Jim

You say look at what made our economy the greatest in the world. If you don't believe in the FairTax fine. Now look at what is ruining our economy in relation to the tax laws of other nations. We are becoming more and more uncompetitive.

Exactly! This is the consequence of our move away from Keynesian economics towards the back of a napkin supply side economics. The Laffer curve is laughable! But the impacts of cutting taxes at the expense of our infrastructure and making the middle class.. and future generations pay for it has hurt us dramatically.

I'll quote myself...

The impacts of the Bush tax cuts have been huge. And it has hurt our business competitiveness around the globe. That is reason--as the book, "the politics of Bad Ideas" points out--that the World Economic Forum the deterioration of the US public finances has begun to damage US competitiveness. This is a business research institute in Switzerland. The US experienced the most dramatic drop in rankings of ALL nations.

Also there is a myth that American businesses are being strangled by taxation at the expense of competitiveness. I'll outsource to Economist Mark Thoma at U. Oregon "The Greek Menace" who brings together some stuff around the web... I'll quote the larger point--aside from conservatives once again manipulating with hyperbole rather than data...

Economist Dean Baker:

Washington Post Misleads Readers to Push for Lower Corporate Tax Rates

Today, the preferred policy is further reductions in corporate income taxes. To advance this agenda the Post tells readers that, "U.S. companies operating abroad already labor under a bigger tax burden than most foreign competitors."

That's not what the OECD says. Data from the OECD show that in the average member country corporate taxes are equal to about 3.5 percent of GDP. In the United States, corporate taxes have generally been between and 1.5 percent and 2.5 percent of GDP over the last two decades, according to the Congressional Budget Office (Table F-4).

But more broadly this decline comes from the conservative revolution. The Regan myth--keep in mind he raised taxes twice to try to correct the harm done from his tax cut at the beginning of his term--of taxes cuts creating economic growth was considered flawed by many economist in theory... and now we have the data to back it up. But the propaganda has remained useful. Our society has become less equitable with the reductions in the top economic bracket. Disparities of wealth over the long term have a huge impact in undermining the market system. We haven't seen such disparities of wealth since the 20's. And we have Regan and the pathology of tax cuts.


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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

still not doing homework!! I swear I'm leaving now!

Scale in the Housing Market

The NYT discusses efforts by local governments to use public money to purchase and renovate foreclosed properties to help revitalize hard-hit areas. At one point the article presents a comment from an economist at the CATO Institute complaining the program that supports this effort will distort the housing market and that it would be best to leave this process to the private sector.

It would have been helpful to put the size of the program in context. The program involves $4 billion in federal money. This is equal to approximately 0.02 percent of the value of the $20 trillion housing stock. It is equal to approximately 0.3 percent of annual housing sales. Spending of this magnitude is not likely to lead to large distortions in the housing market.

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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

more henry dems blog posting... I have to go to homework now!!!

Green jobs, health care, government

I want to respond the Henry Libertarian starting with the purpose of government since this is a fundamental difference between the conservative every man for themselves mentality and a more realistic economics and social governing of Democrats who want to protect citizens and empower our economy.

Henry Libertarian commented:

The Government is NOT here to take care of us.

The government is here to protect and empower. Come on now you are a Libertarian. Look back to your intellectual forefathers such as the Liberal John Locke.

Civil Government is a social contract to protect individuals and their basic liberties from the group. The group. The government is their to protect and empower them as individuals. Its also their to protect and empower the economy. Free-market advocates since Adam Smith have noted that markets require basic structures infrastructure--legal, regulatory, military. Individuals need some entity to protect them from market failures and violence. So your government isn't thier to take care of us is opposed by your own Libertarian ancestory... as well as any accurate conception of how markets work.

Barack Obama promises to "create five million new green jobs." The entire civilian workforce in the US is a little over 145 million people. So if Barack Obama’s adds five million new green jobs then one in every 33 jobs in the United States would be a new "green" job.

The basic response is... I'm not sure where the issue is. I'll outsource this to economist Dean Baker (from email)...

this includes all the derivative jobs that are associated with "green jobs." So if we have 500,000 construction workers employed retrofitting buildings, we might have another 500,000 employed transporting materials, producing the inputs in factories, or even producing raw materials. The same would be the case with fuel efficient cars or hybrids.

The 5 million figure is probably high even by this standard, but it is not ridiculous on its face, especially by political standards.

So Obama may be playing up the numbers... I dunno. Economist fight amoungst themselves on the derivative impacts of policies--since an economy is a collective effort with broad repurcussion outside the direct impacts of the targeted goal.

Henry Libertarian:

Why do "earmarks" always come up? They take up the money that could be spent on things like education and Healthcare.

I'm just going to quote myself on this one...

The Economist magazine pointed out that all earmarks add up to less than $20 billion a year. That for fiscal year 2008 is $64.56. Since that is a very small chunk of my tax dollars and its part of the push and pull of a federal system. I have faith in our processes of checks and balances... and faith that corruption can be founded and dealt with... the sky isn’t falling

This can’t possibly be top priority is it? If it is... we’ll jsut disagree. I put getting Bin Ladin, protecting our national security, protecting our troops, stegthening our economy, ending the health care crise, ending the transportation crisis, ending the education crisis–the Regan revolution sure has created a lot of crisises!

Yes schools are overcrowded. Why? We cannot build schools before the kids are there. Schools get built in responce to the need for them. What good does it do to create 10 new schools if the area does not have enough children to support that? The Federal Government DOES NOT have ANYTHING to do with how the Counties run the school system.

Yeah... part of the problem... Local government is more easily manipulated by feel good economic policies...

Schools are underfunded? Which school systems do not have books?

Couldn’t name them but from what I hear my nephew has had classes where he couldn’t take the book home for homework since there weren’t enough of them. I heard many of the same stories across the board. One of my goals as chairman is to get more substantial data on that one so it’s a fair challenge and I’m certain I can answer it with more than hear-say data–though I trust what these people are telling me, you can’t necessarily take it at face value...

Which school systems cannot provide learning materials for the children?

Teachers pay for large amounts of supplies out of their own pockets... is that really at question here?

Could we possibly give them more money? Sure, but maybe we should look at how the money that the County is being given is being spent first.

The chairmans race here in Henry was focused on economic challenges like bringing in new businesses, fixing the trasnportation issue, development and smart growth... I don’t think penny pinching is a serious solution... but feel free to peruse the henry county budget I’d be intrigued to what you find...

I can tell you this, my child has books at his school and an appropriate amount of educational resources and he attends public school. Teacher pay too low, as compared to what?

Ask his teacher how much out of pocket she has provided... also ask about grants from private sector–families, businesses

Current teacher pay levels do attract talented people to the profession. NEA estimated that the average classroom teacher salary for 2004-05 was $47,674.

Average... If Bill Gates walks into a bar the average jumps sky high... doesn't mean every school gets comparable pay rates... the inner city... and at risk enivronments have trouble with teacher retention. At large teacher retention is a problem because people get fed up with the problems and go back to private sector.


Once again I will repeat myself. Healthcare rises due to lawyers and insurance costs. Also, stop trying to cover illegal aliens. They do not have "rights" to our social benefit systems. In Texas, where the state comptroller estimates illegal immigrants cost hospitals $1.3 billion in 2006. Undocumented immigrants are driving up the number of people without health insurance.

We have an immigration problem... but the idea that this is the reason health care is so expensive is absurd. You got to look at the macro environment as a whole...

Here are the major contributing factors.... NCHC:

Why is the number of uninsured people increasing?

Millions of workers don’t have the opportunity to get health coverage. A third of firms in the U.S. did not offer coverage in 2006.4
Nearly two-fifths (38 percent) of all workers are employed in smaller businesses, where less than two-thirds of firms now offer health benefits to their employees.7 It is estimated that 266,000 companies dropped their health coverage between 2000-2005 and 90 percent of those firms have less than 25 employees.
Rapidly rising health insurance premiums are the main reason cited by all small firms for not offering coverage. Health insurance premiums are rising at extraordinary rates. The average annual increase in inflation has been 2.5 percent while health insurance premiums for small firms have escalated an average of 12 percent annually.4
Even if employees are offered coverage on the job, they can’t always afford their portion of the premium. Employee spending for health insurance coverage (employee’s share of family coverage) has increased 143 percent between 2000 and 2006.8
Losing a job, or quitting voluntarily, can mean losing affordable coverage - not only for the worker but also for their entire family. Only seven (7) percent of the unemployed can afford to pay for COBRA health insurance - the continuation of group coverage offered by their former employers. Premiums for this coverage average almost $700 a month for family coverage and $250 for individual coverage, a very high price given the average $1,100 monthly unemployment check.9
Coverage is unstable during life’s transitions. A person’s link to employer-sponsored coverage can also be cut by a change from full-time to part-time work, or self-employment, retirement or divorce.10

The Pew Hispanic Center estimates that 59% of the nation's illegal immigrants are uninsured, compared with 25% of legal immigrants and 14% of U.S. citizens.

Immigration reform--how ever it would end up looking like would help this issue... plus why else do they sneak over the boarder... the third world has an impact on our country... increase prosperity in Mexico and you won't see as many people coming here to pay for their own families health care, food, and well-being. Why do you think McCain (he was for it before he was against it) and Bush supported immigration reform. Its a huge problem that needs to be solved in a way that doesn't hurt our economy. Kick them all out mentality of conservatives would cost us economically...

Illegal immigrants represent about 15% of the nation's 47 million uninsured people.

Sorry.. that would be 47 million Americans. Your numbers are just wrong...

DeNavas-Walt, C.B. Proctor, and J. Smith. Income, Poverty, and Health Insurance Coverage in the United States: 2006. U.S. Census Bureau., August 2007. http://www.census.gov/prod/2007pubs/p60-233.pdf

Even Hillary Clinton's story about the woman who died because she didn't have health insurance turned out to be fake.

I don't know and don't care about that story... it was a narrative... campaigns are full of naratives. But thats why social scientific data is where the debate should be... the my brother know a guy who knows a guy who saw x is not a way to get an accurate representation of the world.

You consistently see Republicans use such tactics... escpecially locally. Moderate Repub's do have something substantial to say on policy data... even when I disagree with their priorities I at least applaud their policy efforts--conservatives on the other hand like magic, voodoo (GHW Bush), and other mythical beasts that fight the evil hobgoblins of the world.

There is no Constitutional Right to health care coverage.

Okay... it'd be absurd to think everything needs to be a constitutional right... that'd just be ineffiecient. As a proponent of markets... I don't want to create more needless gridlock in government... I like and want efficiency. But lets not forget "Life, Liberty, and pursuit of happiness." The markets failures infringe on all 3.

NCHC Facts about Health Care:

Studies estimate that the number of excess deaths among uninsured adults age 25-64 is in the range of 18,000 a year. This mortality figure is more than the number of deaths from diabetes (17,500) within the same age group.10

10Institute of Medicine. Insuring America’s Health - Principles and Recommendations. The National Academies Press, 2004.

back to Henry Libertarian...

Private industry works just fine when you leave it alone and stop all of the Liberal regulating.

How is that working out for us so far? I think turning towards mild regulation and market competion from a non-profit making institution that wants effieciencies since they don't have a profit motive to pay ceo's while denying coverage and making doctors increase their staff--and your doctors bills to pay for that staff--to get people the coverage they need. This can't possibly be a real argument on your part.

Plus John McCain doesn't want to remove protectionisms on Doctors and patents... these would lower the cost of people gonig to the doctor and lower the cost of medication. So thats an empty argument all the way around since he doesn't want to end protectionisms and regulation. Obama vs. McCain we are just debating policy priorities of who we want to protect... people... or share-holder values and CEO pay (at the cost of human lives, American bankruptcies, and harm to small businessnesses

Barack Obama is looking to rely mostly on the heavy hand of the government for regulating healthcare.

Modest smart regulations often make markets work better... not always mind you... but in things like health care its obvious. All you need to do is compare us with other nations--we rank 37th in the world according to the World Health Organization... and pay 2-3 times as much as other industrialized nations to get worse quality of care. You don't have much of a case for that one.

What did Bill Clinton do for healthcare reform? Hillary Care was presented to the Democratic-controlled Congress on November 20, 1993. U.S. Senator Daniel Patrick Moynihan (D) qualified his agreement against the plan saying "there is no health care crisis" ... "there is an insurance crisis" but also indicated "anyone who thinks [the Clinton health care plan] can work in the real world as presently written isn't living in it." In August 1994, Democratic Senate Majority Leader George J. Mitchell (D) introduced a compromise proposal that would have delayed requirements of employers until 2002.

Yes and the reasons health care reform didn't work was--everybody together now--Republicans blocking the efforts.

You can't--well you can, but no one should take you seriously--complain about the impacts of Repubican obstruction. The other issue is the amount of lobbying on behalf of the health care industry... its quite a profitable business if you didn't know. Did I mention we pay 2-3 times as much as other countries... for WORSE care--oh yeah I think I did.

In Great Britain after many decades of shortages, misery and suffering followed until 1989, when some market-based health care competition was reintroduced to the British citizens.

I'm for market competition... the government, with its massive purchasing power, and its lack of a need to pay huge salaries to ceo's (not to mention spending money to keep from getting people care) would be a check on profit motive at the expense of care. I'm not for less market competition I'm for real market competition. No go on that one too...

In Canada, Chaoulli v. Quebec UPDATE (June 9, 2005): In a 4 to 3 decision, the Canadian Supreme Court struck down Quebec's law that prohibits private medical insurance.

Stawman... we're not trying to prohibit private medical insurance. Once again... conservative tactics 101... make up stuff that just isn't true...

The Cuban Government has implemented a two-tiered medical system (e.g. "medical apartheid") that caters to foreign tourists while denying native Cubans access to basic medical necessities (at least it is "free" to them).

If costs keep going up here unchecked by government participation you'll start seeing Americans start going abroad for care... plus once again strawman... you aren't accurately representing the Obama plan. Its market competion with private insurance to bring down the profit motive to a more effieicent and equitable level.

Australia's universal health care scheme is relatively new (introduced in 1983, which built on the 1974 Medibank program). As with all socialized health care systems, there is a mixture of public versus private care (approximately 30% of Australians also retain private health insurance). As a result, the private patients receive better care than their medicare counterparts.

Sure if you are willing to pay for better care... I don't have a problem with that!!!! But citizens... HUMANS deserve a basic level of care. To think otherwise leads you to moral quandaries that would make me appalled. But thats a personal decision for everyone to decide.

The impacts of Republican everyman for themselves... vs. creating an economy that protects and empowers citizens is the distinguishing factor in this debate. plus killing people and unnecessarily creating market inefficiencies in the richest nation in the world is a bit absurd and a very sad statement to the impacts of the conservative revolution on American citizens.




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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

China communist?

Neal Boortz seems to think that infrastructure investment is communist?

At a campaign stop in Chester, Virginia Obama said, "everybody's watching what's going on in Beijing right now and the Olympics. Think about the amount of money that China has spent on infrastructure. Their ports, their train systems, their airports are all vastly superior to us now, which means if you're a corporation deciding where to do business, you're starting to think, Beijing looks like a pretty good option."

So not only is Obama praising the Chinese government, but he honestly believes that it takes government in order to make a country great. He honestly thinks that spending your tax dollars will be what makes our country more appealing to corporations ... no mention of the brutally high corporate interest rates in the United States. Maybe that's a reason, Obama, why businesses wouldn't look to the United States as a great place to invest? I guess that's the not the way the "progressive" mind sees it though.

The idea that Adam Smith, John Maynard Keynes, and Joseph Stiglitz are communist is laughable and speaks to Neal's knowledge about economics... but heres the question: does anyone still think China is communist? State-Capitalist yes, but yeah Communist? not so much. Someone smarter than I might be able to explain why Neal Boortz is right on this one....

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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

economics blogging...

If you haven't already read The Conservative Nanny State by Dean Baker you probably should.

In his new book, economist Dean Baker debunks the myth that conservatives favor the market over government intervention. In fact, conservatives rely on a range of “nanny state” policies that ensure the rich get richer while leaving most Americans worse off. It’s time for the rules to change. Sound economic policy should harness the market in ways that produce desirable social outcomes – decent wages, good jobs and affordable health care.

Its creative commons so you can download the whole book for free...

I might try to do a chap. by chap analysis one of these days... I have a long list of one of these days... I doubt I shall get to all of them before i'm dead... sigh...

If Dean asks.. tell him Jim Nichols sent you.

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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

Brad Delong: Draft: To Spend Is to Tax

We economists have a scenario that we call "current policy plus Bush tax cuts." It is made up of (i) the laws currently in force in the United States of America, plus (ii) the assumption that the defense, veterans, and other spending currently appropriated year-by-year by the congress remains the same as a share of GDP, plus (iii) the assumption that the tax breaks like the R&D credit and the regular pruning-back of the Alternative Minimum Tax that are voted for year by year by overwhelming congressional majorities continue to be enacted year-by-year, plus (iv) the assumption that the tax cuts George W. Bush proposed in 2001 and 2003 but made time-limited and set to expire early next decade are renewed. This "current policy plus Bush tax cuts" scenario has the federal government taxing about 20% of GDP over the next seventy-five years. It has the federal government forecast to spend 28% of GDP on average over the next seventy-five years. This is the fiscal gap.

A number of policies could be enacted to eliminate this fiscal gap. Simply doing nothing and letting the Bush tax cuts expire as current law requires them to do would reduce the fiscal gap from 8 percent to 6 percent of GDP. Raising Social Security taxes or cutting back future Social Security benefits by the about 1/7 needed to get the Social Security system back into projected 75-year balance would further reduce the fiscal gap from 6 percent of GDP to 5 percent of GDP. Returning military spending to its late-1990s share of GDP--not fighting wars in Iraq, et cetera--would reduce the fiscal gap from 5% to 3.5% of GDP. And eliminating "excess" cost growth in the government health care programs Medicare and Medicaid--allowing Medicare and Medicaid spending per eligible beneficiary to grow only as fast as the rate of growth of income in the economy as a whole--would bring the federal government into projected balance.

I believe that when we Americans look deep into ourselves and ask us what we want our government--because it is our government: it is our agent to do what we want with our money just as the guy in Florida we hire to keep grandma's one bedroom condo in repair is our agent--to do, we conclude the following:

We want to let the Bush tax cuts expire.
We want to close the 75-year Social Security gap, half by raising the limit on earnings taxed by Social Security so that the upper middle class and the rich pay more for Social Security and half by reducing the rate of growth of benefits at retirement.
We want to stop sending our soldiers--the best-trained and best-equipped high tech armed forces in the world--abroad to be military police in countries riven by sectarian conflict where they do not speak the language--and so return defense spending to its late-1990s share of GDP.
We want to reduce but not eliminate the "excess" cost growth in Medicare and Medicaid: we believe our doctors, nurses, and druggists will learn how to do wonderful things over the next two generations, and we do not want those wonderful things in the way of medicine applied only to the rich but to the poor and old as well.
Whether or not we decide to do (1) through (4) above, we want to raise taxes to cover whatever of the long-run fiscal gap remains, and so bring the federal budget back into balance over the long run.
Note that (5) is not optional. As the late Milton Friedman liked to put it: to spend is to tax. If the government buys things, it must get the money to buy them from somewhere. It can get the money from three places. It can tax. It can borrow--but then the borrowing has to be repaid with interest, and the more is borrowed the higher the interest and the worse the value the taxpayers ultimately get for their money when they are taxed to repay the borrowing. Or it can print the money and so inflate the currency--but that too is a tax, and an especially unfair, painful, and destructive one, as lots and lots of people victimized by inflation find their wealth doesn't buy what it used to and what they expected.

We can argue over whether (1) through (4) is what we want to do--that is what politics is about. But whatever we decide to do with (1) through (4), (5) is not optional--not, that is, if we want to continue to have a rich country in the long run. And the politicians who have told you that (5) is optional from Ronald Reagan to George H.W. Bush to Robert Dole to George W. Bush and now John McCain are not your friends, or America's friends.

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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

Before Stiglitz... before Keynes, before Adam Smith...

You can find an acknowledgement of how an economy works... and how destructive Conservative's economic policy of "every man for themselves" is...

“If the Kingdom is divided against itself that kingdom cannot stand.” Mark 3:24

This speaks to how important it is to address disparities of wealth within the economy. Economists have a pretty strong grasp now of how disparities of wealth harm an economy over the long run... but this shows that it has been understood for ages.

Conservatives don't even blush when one points out disparities of wealth. They don't see it as a problem--since they hold the incoherent view that an economy is not a collective effort but individuals out on their own with boot-straps pulled up to their knees...


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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

New Housing Market Monitor from CEPR

my highlights in bold...

Housing Starts Continue to Trend Down

August 20, 2008

By Dean Baker

"Extraordinary incompetence by top financial executives played a major role in the bubble."

Housing starts fell 11.0 percent in July, wiping out any hope that the market had begun to turn. The June data, driven by a jump in apartment construction in New York, showed an 8.6 percent increase (revised up to 10.4 percent in the July release), leading some analysts to see signs of a bottom.

Starts in July fell to their lowest level in this cycle, with starts of single-family units continuing their long downward trend. Single-family starts were 39.2 percent below year ago levels and down 62.6 percent from the 2005 average. While the West saw a modest gain in single-family starts in July, the region has been hardest hit in the downturn, with starts of single-family homes down by 67.4 percent from 2005 levels.

It is unlikely that there will be a turnaround in starts before inventories start to fall and prices stabilize. Starts will be a lagging indicator of a turnaround, not a leading indicator.

The mortgage applications index continues to trend downward, suggesting that demand is still weakening. This is likely reflecting both the weakening of the labor market and higher interest rates, in addition to the downward dynamics of the housing market itself.

The Mortgage Bankers Association reported that the average interest rate on 30-year mortgages edged down slightly from 6.57 percent the previous week to 6.47 percent last week. By historic standards, this is a low rate (especially with an inflation rate close to 5.0 percent), but it is an unusually large spread measured against a 3.9 percent 10-year Treasury rate. This reflects the ongoing turmoil in the mortgage market.

New York Times columnist Floyd Norris reported on a remarkable memo in his blog yesterday. The memo was prepared by outside consultants at Wachovia, one of the country’s largest banks, who were trying to determine how the bank managed to plunge to the edge of insolvency.

The memo indicated that the bank’s chief financial officer and chief risk officer did not realize that offering interest option ARM mortgages (you pay want you want each month, but face a higher interest rate), would attract less creditworthy borrowers. They also didn’t realize that allowing homeowners to refinance down to new zero-equity levels made them high default risks.

In the same vein, the Washington Post yesterday discussed the difficulties of Fannie Mae. It reported that it was still buying up subprime mortgage backed securities at the beginning of 2007, after the market had already begun to collapse. The article reported that Fannie had performed stress tests in which they saw no serious problems with these securities even if house prices fell by 5 percent for two consecutive years. Of course, house prices have fallen by close to 20 percent over the last two years and by more than 30 percent in many of the markets with high concentrations of subprime mortgages.

It is incredible that Fannie could invest hundreds of billions of dollars based on such an inadequate assessment of risk. There were economists who had noted the unprecedented 70 percent real increase in house prices over the prior decade. Competent management would at least have considered the possibility that much or all of this run-up would be reversed.

It was only due to extremely bad policy and regulatory decisions at all levels of government, first and foremost at the Fed, that the housing bubble was allowed to grow to the enormous proportions. However, it was the private sector that actually drove the bubble. The top executives in major financial institutions took extraordinary risks. These risks may have increased short-term profit, but they eventually led to enormous losses, which is endangering the survival of many of the country’s largest financial institutions.

These recent accounts about behavior at Wachovia and Fannie Mae suggest that the top executives at these institutions had no idea what they were doing. This is astonishing because these are huge institutions. It would be expected that the top management, who are very highly paid, would have some level of competence in their work.


--------------------------------------------------------------------------------
Dean Baker is Co-Director of the Center for Economic and Policy Research, in Washington, D.C. (www.cepr.net). CEPR's Housing Market Monitor is published weekly and provides an incisive breakdown of the latest indicators and developments in the housing sector.

Just cause you get paid a lot... or have made it to the top... doesn't mean you know whats going on.

It reminds me of a scene in weeds where one of the kids is in a debate at school. He steps up to the podium and the topic is: For/Against using the popular vote to elect the U.S. President. He stands up. Walks to podium and says.."George W. Bush." Without saying a word he walks back to his seat.

Argument for reasons why we are in the economic mess we are in:

Jim walks to the mic:

"Highly paid professionals not knowing how to read and respond to economic data. And the lack of accountability in terms of credibility and legitimacy as a voice of "educated opinion" from the rest of us...."

Jim walks away...

Lesson(and it seems blatantly obvious but amazingly enough is not... )

Requirement for a market economy: knowledge about economics...

Will we learn from the lesson? Not likely...
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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

response to Bellum omnium contra omnes comment...

On my political and rhetorical approach...

Stating people possess the scenario between conservative or liberal cognition seems like an "either-or" fallacy. I will need to read the study further to be certain. I too believe in checks and balances in the form of policy. There is no evidence one form of political rhetoric is more harmful to our republic than another, at the least there is no harm when there is balance between the ideologies. The combination of conservative and liberal values (independence versus social welfare) can work together in the government system. Evidence for my claim can be found here.

"The combination of conservative and liberal values (independence versus social welfare) can work together in the government system."

To protect and empower... you can't do any of that with conservative policy goals... so I would disagree. Every man for themselves pull yourself up by your boot-straps... individualist ethics is destructive economically and socially. See Adam Smith... Stiglitz... modern economics as a whole on the importance of infrastructure investment which the private sector never does...

So i'd totally disagree on that one. Oh and I'd love to see the impacts on people from the welfare reform now that the growth of the Clinton era are now gone.

Science can't create either/or fallacies. The world is either flat or its not...

if the empirical data doesn't hold then that would be the legitimate challenge. Not likely though... we're getting better and better at cognitive science and neuroscience... and free will as we conceive of it... and all of that nonsense entailed in it will soon fade (okay not likely... but a boy can dream.)

the age of reason is quite dead...

Thats the biggest problems with philosophy in general... it sticks to theory and all these "ideas" that are reasoned out...

My philosophy professor at UC Davis... a guy name Cummins had a great cartoon it had an armchair with a red cross over it... like no smoking. It was "no arm-chair philosophy".

To see logical knock-out blows to metaphysics as an accurate description of the world and all that is there-entailed see Logic, Truth, and language by A.J. Ayer.

Metaphysics is useful for subjective truth and the way individual brains understanding the paradoxes and complexities of the world, as well as human interaction. But science is the method for accurate descriptions of the world that can be verifiable and therefore the only rational public discourse that one can use in areas such as politics.

Its fine for interpersonal relations and religion and such... but those are subjective at their core... (think of the bond between two friends... or the subjectivity of what one person means by god... as compared to another... see the quote by Dennett at the top of the page)

Bellum omnium contra omnes... kudos to you for using a blog the way its supposed to be used... to debate and create a dialogue... I'm learning a lot from you and improving my ability to explain and understand my own positions. Thanks!

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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

Dean Baker on financial waste and economic productivity....

The Post's Whining for Wall Street Billionaires

The Post ran a lengthy piece in the Sunday Outlook section about the plight of the Wall Street investment banks and the millionaires and billionaires who run them. According to the article, without the sleaze practices of the last decade, they just can't make any money.

It's touching to see that some of the richest people in the country might be worried about their future and the future of their industry, but why would a serious newspaper devote space to such nonsense. Is there a public interest in ensuring that incompetent investment bankers can still make millions, tens of millions or even hundreds of millions a year pushing deals that harm the economy?

While the author tries to argue the case, anyone who has taken an intro econ course or has enough intelligence to tie their own shoes can recognize the argument as nonsense.

Let's take the author's worst case scenario. Suppose Goldman Sachs, Merrill Lynch, Lehman Brothers and the rest go out business. Does that mean that no one is doing underwriting of stock and bond issues?

Absolutely not. The whole premise of the piece is that the profits have been driven down so much by competition that there is no money in this line of business any more. The demise of these Wall Street giants would simply mean that a large number of overpaid bankers would have to look for jobs elsewhere in the economy. The elimination of this huge layer of waste in the industry would mean an enormous increase in the productivity of the investment banking sector and for the economy as a whole. Perhaps we should have government retraining programs for unemployed investment bankers, but there certainly is no reason to stand in the way of economic progress.

The real outrage is that the Post allows this sort of shallow special interest pleading for investment bankers, while it would never publish a comparable piece on behalf of autoworkers or textile workers. Even worse, the Outlook section would never consider a piece that would correct some of the inaccurate impressions given by this article.

As every economist knows, the public should be applauding the elimination of waste in the investment banking sector (i.e. the loss of tens of thousands of investment banking jobs and big pay cuts for those remaining). It is unfortunate that the Post will not allow an economist to make this point in its newspaper.

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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

yeah! an active comments page...

I love seeing an active comments page on my blog. Thats what its there for... and getting the ideas flowing is why I do this! But to interject on Yardman's criticism of being on "the dole"

I read it as being a negative, or pejorative in some way. I couldn't disagree more...

I don't want to get the thread off track because its interesting and could be very fruitful for myself as well as others but... i'm not opposed to "the dole," government subsidies, incentives, and other infrastructure programs.

These are investments in our economy, our government, our communities, and our people. One of my core beliefs is that no one gets left behind. High up on my list of things that are good is the market system. A market economy is an amazing thing, its existence in the world--a priori, I would even say--is an amazing thing. As nobel prize winning economist Joseph Stiglitz has pointed out... a rising tide does not necessarily lift all boats. Growth for growths sake won't solve anything which has been my fundamental contention with conservatives of both parties.

Those kinds of policies have devistated economies all across the globe including our own--since 1980--aside from some of clintons economic moves, and Bush 1 rasing taxes-- we've been in self-destruct mode when it comes to economic policy. Economic inequality has reached a level we haven't seen since the 1920's. The wealthy are now reaping all of the rewards of the American economy

The dole and other ways of protecting the market are the things that enhance the market and protect it by focusing on sustainability over short-term perks. Over the long run these kinds of plans, programs, and efforts help raise the quality of life for all. Now don't get me wrong, the corruption, red-tape, and inefficiencies need to be addressed, avoided when possible, and always kept close to the publics magnifying glass. But you don't throw the baby out with the bath water.

If government tax dollars are good enough to keep the rich on a sustainable path... I don't think its too much to ask for the poor, working class, and middle class in this country to enjoy some of the fruits of our collective effort.

digression concluded... keep the thread going though...

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Jim Nichols
A Speculative Fiction
www.JimNichols4.com

Infrastructure...

THE POLITICAL ECONOMY OF INFRASTRUCTURE.

Via Matt, Rob Goodspeed has an interesting post on the political problems of infrastructure investment: Namely, that the payoff comes 50 years into the future, and so politicians worried about the next election systematically shortchange it. Goodspeed points to some clever potential fixes. One idea is to create an independent public commission to plan national transportation and make funding recommendations to Congress, which would be subject to a 2/3rd veto. Another option is to take infrastructure "off budget," or at least evaluate its impacts over a longer time horizon. A third idea, which Obama has expressed interest in, is to create a national infrastructure bank, modeled off the Federal Deposit Insurance Corporation.

But it's not totally clear why infrastructure gets shortchanged. Some of infrastructure's benefits don't manifest for decades, but the construction does create jobs, and if a politician is able to brag about bringing a new highway or train systems, that's generally good enough. Infrastructure, after all, often takes the form of pork, and tends to pass easily. And certain types of infrastructure have few problems in the political system. Highways are well-funded. Transit systems less so. In other words, the problem doesn't seem to be in the amount we spend but the way we plan. That suggests that taking it off budget might be helpful, but more for smaller fixes without political constituencies (bridge repair) then big new projects aimed at changing transportation patterns. An independent commission might do more, but if you could get that commission and staff it with good people, you'd probably already have the political will to pass your infrastructure priorities through the normal process. Which brings us back to the original problem: Convincing existing political leaders, and the next president, to make smarter infrastructure development a priority. The problem with all these plans is that they can only really happen after you fulfill that base condition. But that base condition is what we currently don't have.