Mystery Economic Theater 2010

[garo]

If you don't have a valid argument you resort to name calling. Calling it Keynesian claptrap is an intellectually lazy way not to engage with the issues.

I can provide reams of data showing PSU employees are grossly overcompensated

And I can provide reams of data that shows that private sector employees are grossly overcompensated. 500 million for Dick Fuld anyone? 8 figure salaries for money-losing fund managers anyone. Come off it. There are fat cats in both the public and the private sector. You are drawing the battle-lines wrong. it is the top 1% vs. the rest and not public vs. private.

Are you claiming that PSUs are in some way beneficial to the countries where they are strongest, or that in the U.S. (and e.g. Greece, Italy and France in Europe) they have done something other in the past several decades than turn themselves into bloosucking, budget-busting economic parasites whose average pay and benefits (relative to their working hours and educational/professional qualifications) grossly exceed those offered by the private sector for comparable positions?

Bovine scatterology. Provide some evidence for the same. The problem is not that unions have caused too high wages and benefits in the public sector. The problem is that the private sector wages and benefits have gone too low in the past 30 years whereas the public sector unions have ensured that their constituents have not suffered the same dramatic decline. And I see nothing wrong with that.

BTW, you still didn't answer my claim that anti-union attitudes in the US have contributed greatly to the demise of the middle class. France and Germany have unions but they have sizeable middle-classes, better quality of life than in the US, more vacations, better health-care, higher life-expectancy and the knowledge that a medical crisis will not impoverish them for the rest of their lives. And you know what, those countries are more socially mobile than the US.

PS: They haven't off-shored as many jobs as the US either.

[ewmayer]

Bloomberg Op-Ed whose author "gets it":

U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff - Bloomberg Opinion

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: "Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP."

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: "The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates." It adds that "closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP."

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

My Comment: Of course that kind of gargantuan tax increase would nuke currently-already-anemic consumer spending and thus not in fact yield the simple-match-anticipated revenue. Slashing government spending is also required, but even though in the long run that is a good thing, in the short run it also hammers GDP (which must of course contract, since as the above notes, over 10% of GDP is borrowed ... that`s why the "P" in GDP is a misnomer, since it stands not for Production but rather Consumption).

But Mr. Kotlikoff is just getting warmed up:

Is the IMF bonkers?

No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.

The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

My Comment: And he takes a swipe at the "free lunch" neo-Keynesians led (at least in terms of the U.S. mainstream media) by Paul Krugman:

Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run.

This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance.

Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue.

My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”

My Comment: Meanwhile, chief "the Ponzi must continue, in even bigger fashion" advocate Krugman is too busy obsessing on the "current low teaser rates" on U.S. bonds - no doubt influenced by the Federal Reserve gobbling them up both overtly and covertly in a desperate attempt to keep rates low forever - to realize that "past performance is no predictor of future results", and once the Bond-yield genie is out of the bottle there will be no putting him back in until the deleveraging (can you say "deflationary depression?") has finally been allowed to run its course:

The Meaning Of 2.71

What we actually see is exactly the story those of us who knew their Hicks told from the beginning: short rates hard up against zero as long as the economy remains deeply depressed, long rates fluctuating based on changing beliefs about how long it would take for the economy to recover sufficiently for the Fed to begin tightening.

And anyone who believed the stuff about invisible bond vigilantes, and acted on it, has lost a lot of money.

My Comment: Note the ad hominem "hicks" ... PK seems to be resorting to such more frequently in his blog of late, as his credibility keeps dropping. Dude, it`s not the "invisible bond vigilantes" you should be worried about ... it`s the "invisible debt shell-gamers" at the Fed who are borrowing literally $trillions from the future (without so much as a by-your-leave) in an attempt to keep the Ponzi going until some hoped-for-miraculous get-out-of-jail-free economic turnaround occurs. When this last-resort scam blows up, it`s going to be spectacularly ugly.

[ewmayer]

Originally Posted by garo

If you don't have a valid argument you resort to name calling. Calling it Keynesian claptrap is an intellectually lazy way not to engage with the issues.

I call it that because simple arithmetic - the mathematics of compound interest - reveal it to be so. LOL, with all the detailed references and analysis I do in the this thread, you have the temerity to call me intellectually lazy.

And I can provide reams of data that shows that private sector employees are grossly overcompensated. 500 million for Dick Fuld anyone? 8 figure salaries for money-losing fund managers anyone. Come off it. There are fat cats in both the public and the private sector. You are drawing the battle-lines wrong. it is the top 1% vs. the rest and not public vs. private.

The gross-overcompensation of American corporate CEOs is well-known, and I have railed against it myself on numerous occasions. (See my recent post which describes the explosion of CEO pay versus average employee pay over the past decade).

But, as I'm sure you're well aware, there are far, far fewer CEOs than there are rank-and-file public and private employees - for every Dick Fuld there are hundreds of thousands of rank-and-filers. But instead of comparing something like average pay, your "reams of data" gets condensed to "Dick Fuld Bad!" Now *that* is intellectual laziness. Allow me to (lazily) supply some average-compensation data to help inform the debate:

Salary impact on state budgets

State and local governments employ some 20 million people nationwide. Employee compensation costs represent the largest set of expenditures in every state budget. Analyzing the fiscal dynamics of the civil service system reveals some of the most significant constraints and opportunities legislators confront in balancing state budgets.

Total state expenditures exceeded $2.2 trillion last year, of which wages and benefits amounted to $1.1 trillion.[3] Consequently, budgeting decisions related to at least 50 percent of all state budgets are driven by the wage provisions of civil service contracts and funding obligations for state workers’ health care and pension plans.

Labor costs also constitute a sizable proportion of private-sector business costs. But the average wages and benefits provided to public sector employees far exceed the rates paid by private employers. For example, the average hourly wage of public employees last year—$39.66—was 45 percent more than the average hourly wage of $27.42 paid in the private sector.[3]

Here is the summary data table from the above review:

State and local government employees make more than employees in the private sector[7]

Compensation                    A. State and Local      B. Private Sector
Total Compensation              $39.66                  $27.42
Wages and salaries               26.01                   19.39
Benefits                         13.65                    8.02
Paid leave                        3.27                    1.85
Supplemental pay                  0.34                    0.83
Health insurance                  4.34                    1.99
Defined-benefit pension           2.85                    0.41
Defined-contribution pension      0.31                    0.53
Other benefits                    2.53                    2.40

Provide some evidence for the same. The problem is not that unions have caused too high wages and benefits in the public sector. The problem is that the private sector wages and benefits have gone too low in the past 30 years whereas the public sector unions have ensured that their constituents have not suffered the same dramatic decline. And I see nothing wrong with that.

Above is some evidence - and I note that only one of us is actually backing up his arguments with numbers.

BTW, you still didn't answer my claim that anti-union attitudes in the US have contributed greatly to the demise of the middle class. France and Germany have unions but they have sizeable middle-classes, better quality of life than in the US, more vacations, better health-care, higher life-expectancy and the knowledge that a medical crisis will not impoverish them for the rest of their lives. And you know what, those countries are more socially mobile than the US.

You're the one making the broad claim here ... why don`t you back it up? I merely pointed out in effect that coincidence (steady offshoring of U.S. manufacturing jobs for the past 30-40 years, accompanied by a steady decline in U.S. union membership) need not imply causality. One could just as easily argue from the trend that excessive expenses associated with union labor caused U.S. corporations to suffer competitively and either shrink (e.g.the U.S. steel and auto industries) or to steadily move their manufacturing operations overseas. I strongly disagree with the idea of providing additional tax incentives (as the U.S.effectively does) that further encourage them to do so, but massive subsidies to keep high-wage domestic jobs without accompanying increases in the value-add are no long-term solution either. (The value-add component there is the key reason why the Germans have pulled it off, whereas other Eurozone countries which simply threw money at the issue only ended up blowing big holes in their finances).

Regarding your "France and Germany" claim - Germany actually engaged in some very serious social-safety-net cutting in the wake of the reunification with the former Eastern Germany and got its fiscal house largely in order. Note also that Germany - due to the huge military presence of the U.S. - bore only a tiny fraction of the cold-war military expenses it would have done on its own. Good for them. But as far as most of Europe is concerned, Germany is the exception rather than the rule. Your other shining example France is - like the PIIGS - on a deeply unsustainable fiscal course and will soon face harsh austerity as they are doing in the UK

Also.how do you define "socially mobile"? Yet another empty phrase there, in the absence of a meaningful definition and supportive data.

PS: They haven't off-shored as many jobs as the US either.

And I'm sure a few years ago you would have trotted out your home country of Ireland as an example of a generous-and-sustainable-social-welfare state. Oops.

Here are some more startling statistics for you - this snip describes U.S. public-employee top-salary trends during the current recession:

According to an analysis by USAToday, "The number of federal workers earning six-figure salaries has exploded during the recession, according to an analysis of federal salary data." For example, the number of federal employees making $100,000 or more has increased by 120,595, from 262,163 employees in December 2007 to 382,758 in June 2009, for a 46% increase. The number of federal workers making $150,000 or more has more than doubled since the recession started, from about 30,000 to more than 66,000

[ewmayer]

p.s.: And even in Germany, there is serious talk of raising the retirement age to 70 ... oh, and look here: The fraction of young jobseekers in Germany who manage to find full-time work just sank to a historical low of 1 in 4. Truly a Utopian social-welfare paradise there. How do you think things will look there in the coming decades, especially given their demographics? Here's a hint: "Brutal austerity".

[Fusion_power]

Six phases of a project - which I have no doubt you can adapt to the current economy.
1. Enthusiaism
2. Dissillusionment
3. Panic
4. Search for the guilty
5. Punishment of the innocent
6. Praise and honours for the non-participants

The efforts to spend away the recession with ever increasing chunks of money tossed into the depression hole got us a breather that lasted about 2 years. Now we are at the point where the stimulus dollars have pretty much been spent and the tarp dollars are mostly deployed. One problem. The banks still are not lending. Why? Because nobody wants to borrow for one thing and those who want to borrow can not qualify. Not to mention that the banks can make better returns with very low risk(?) via govt funds.

The under-your-breath phrase that is increasingly in the news is "double dip" meaning another downturn which would arguably be worse than the 2007/2008 crash. The problem with second dips is that there is no way to predict just how far down the economy can go.

I'm leaning rather heavily toward either stagnation or else an outright second downturn that will gather steam over the next few months. The Fed/Treasury is scared enough to seek desperate measures to counter the possibility. My suggestion is to carefully watch what they do because there will be money to make based on their overt moves in the market.

DarJones

[ewmayer]

Today's market-related curio:

"...every NYSE crash since 1985 has been preceded by a Hindenburg Omen."

Looking at the data, a lot of it appears explain-away-able as an example of backfitting...but there are far too many "coincidences" to dismiss out of hand. More importantly, the fundamentals behind the measure, i.e. attempting to quantify stress in the markets by way of bizarre price-swing statistics, appear quite sound.

Speaking of coincidences: The Hindenburg burned on May 6th, 1937 ... May 6th, 2010 was the day of what is now known as the Flash Crash.
[Cue Twilight Zone theme music.]

[Fusion_power]

Raising taxes - and why it is so politically unpopular.

The U.S. is a fiscal pickle. Tax revenue is moribund, new taxes would severely dampen any small motes of hope for a recovery, and the debt is growing at an accelerating rate. This puts politicians in a bind because the overall cost of government has been growing by leaps and bounds for ..... well, for as long as there have been governments. Factor in that 36% of Americans do not pay any federal tax at all and you have a recipe for dynamite.

The primary tax we will see short term is the removal of the bush tax breaks, especially so for those who make over $250,000 per year. That one is pretty much a 'gonna happen' thing. What is not so obvious is that a wealth of new small taxes are going to be added. Why all the new taxes? Because the exponential growth in 'public' debt is on the verge of crippling the economy and because financially strapped states are exploring all alternatives to increase revenue.

Can these new taxes come within striking distance of balancing the budget? No! Not even close. None of the tax proposals currently on the table nor any combination thereof can possibly make a dent in the debt burden we have let our government saddle us with. What about spending reductions? Like it or not, spending reductions will be politically unpopular too. Who wants to see the government stop spending for things like social security, roads and bridges, and medical care? What about defense, can't we chop that? Unfortunately, the political stink from spending reductions will limit their viability.

Now comes the real bugaboo. Value Added tax aka VAT is arguably the only tax that would be capable of passing public scrutiny and that could make a sizable dent in the overall debt. Canadians already pay VAT. Most of Europe already pays VAT. In fact, most developed nations pay some form of VAT. But the U.S. does not. What makes VAT so popular? Well, VAT is applied across a broad range of products and affects everyone equally. This means rich or poor, all would pay the same amount of VAT... except those who manage to wrangle exceptions.

The really sad thing is that sooner or later we will have VAT but it will not reduce the deficit for the simple reason that as government gains more income, government spends it.

DarJones

[cheesehead]

Originally Posted by Fusion_power

Raising taxes - and why

< snip >

DarJones

Folks,

As you peruse DarJones's argument, keep in mind that this is someone who accused me of "deliberate misattribution" even though:

(1) DarJones never pointed to a single instance where I had deliberately misstated or misattributed a single word. (He can't do so, of course, because even if I had made some erroneous statement, it was accidental, not intentional or deliberate.)

(2) DarJones refuses to retract his accusation of deliberateness on my part, even though I've repeatedly demonstrated its falseness.

(3) DarJones himself later posted the same thing I did: that the only budget surpluses (according to the accounting method used in Table 1.1 of the Office of Management and Budget publication "Historical Tables - Budget of the U.S. Government - Fiscal Year 2011") during the past 30 years were submitted to Congress by the Clinton administration. See his post #405 where he admits that there were budget surpluses during the Clinton administration. And he knows very well that the budgets for those fiscal years were submitted to Congress by the Clinton administration, just as I do!

Yet DarJones refuses to retract or apologize for his accusation that I made a misattribution by saying the same thing he later said.

- - -

Keep all that in mind when evaluating DarJones's arguments.

He has shown that he will accuse someone of "misattribution" even though that person is saying what DarJones himself also cites as historical fact.

When someone won't admit to having made a plain factual mistake even after it's repeatedly pointed out to him, then one cannot trust any factual claim that person makes until one has verified it from an independent source.

[cheesehead]

Originally Posted by Fusion_power

Raising taxes - and why it is so politically unpopular.

Why? Because conservatives have worked tirelessly for more than three decades to disconnect "taxes" from "fiscal responsibility", and to reduce the phrase "spending favored by liberals but not conservatives" to the simple word "spending", in the public discourse.

and the debt is growing at an accelerating rate.

It was Republicans who started the acceleration of debt 30 years ago.

Reagan tripled the national debt he inherited, from $1 trillion to $3 trillion. Bush the Elder added another $1 trillion. Bush the Younger added another $4 trillion.

Republicans were responsible for $7 trillion of the $9 trillion added between 1980 and 2008. But does anyone hear them admit that?

This puts politicians in a bind because the overall cost of government has been growing by leaps and bounds for ..... well, for as long as there have been governments.

... including during Republican administrations, but you didn't see conservatives complaining so much about that growth during those administrations, did you?

The primary tax we will see short term is the removal of the bush tax breaks, especially so for those who make over $250,000 per year.

Note the dishonest framing of it as a "removal", even though it's really just an expiration requiring no action on the part of the current Congress and administration.

That "removal" framing, with its misleading implication of a result of deliberate^* action by the current Congress and administration, allows conservatives to pretend that the current administration is raising the income tax in that regard, even though it was a Republican-controlled Congress that passed, and Republican president who signed, the law providing that those tax breaks would expire at this time.

I really, really wish conservatives would return to their pre-Carter fiscal honesty ... at least, more honest than their current rhetoric. I think that would help restore conservatism as the natural counterweight to liberals in the fiscal arena. As it is, their record over the past 30 years undercuts any integrity they claim in fiscal matters.

None of the tax proposals currently on the table nor any combination thereof can possibly make a dent in the debt burden we have let our government saddle us with

... saddled mostly during Republican administrations since 1980, though you never hear them admit their responsibility, do you?

- - -

^* Again, DarJones misleads about intentionality.

[Fusion_power]

cheesehead, head in sand.

That you have your own view of politics is your choice. That you are a staunch democrat is your choice. That you believe our government has actually had a surplus in the last 30 years is sheer lunacy. You have had pointed out to you repeatedly that the 'public debt' has increased every single year during that time regardless of the party affiliation of the president or congress. If you want to argue this, then go back to the clinton years and see just how much he relied on the so called social security surplus to balance his budget. That money was not free and it resulted in an overall increase in debt even in the years you claim were budget surplus.

Further, that you even think the president has so much influence on spending shows you have your head in the sand - including the cheese. In the end, it is congress that passes the budget and the president signs it. Why do you think so many presidents have tried to get line item veto power? This is why I say you deliberately misattributed the so-called balanced budget years. At the time, Congress was overwhelmingly republican. To the best I can tell, you could just as easily say that the balanced budget years were a result of a republican congress. Or more accurately, you could say that the balanced budget was a result of a Greenspan economic bubble.

Clinton repeatedly tried to get huge spending programs through congress. They were not passed. This forced a level of austerity that led to the budgets you are so fond of. You posit a single cause/effect relationship with Clinton and fiscal responsibility. Wake up and use your head for something other than lama brains. Clinton did not balance the budget except by use of smoke and mirrors. That is NOT a balanced budget.

There is no way on earth I would apologize to you. You are totally incapable of seeing beyond the political rhetoric. You still insist on deliberately misattributing the budget surpluses 10 years ago. You still insist that it was somehow through the all-guiding leadership of Clinton that they occurred in the first place. Clinton wielded very little influence at that time because of the Monica Lewinsky scandal during the critical years you reference. Read about her in the news from 1997, 1998, and 1999.

Finally, get a life. Find something important to do. You repeatedly hijack this thread from economics into personal vendetta. I choose not to go that route. I totally disagree with you in this matter.

DarJones

[cheesehead]

Originally Posted by Fusion_power

That you believe our government has actually had a surplus in the last 30 years is sheer lunacy.

Folks,

DarJones himself admitted that (there were surpluses during the Clinton administration) in post #405. Is he now claiming "not guilty by reason of temporary insanity"?

You have had pointed out to you repeatedly that the 'public debt' has increased every single year during that time regardless of the party affiliation of the president or congress.

Folks,

Note how he's using a rhetorical trick to dodge admitting that what I wrote was true.

Whereas I wrote of surpluses under the accounting standards used for common discussion and for Table 1.1 in the publication I cited above, he's substituted the term "'public debt'" -- which he knows very well refers to a different set of accounting standards. He's trying to give you the false impression that by saying something different, he's somehow chastising me for the different, but true, statement I made about surpluses.

If you want to argue this, then go back to the clinton years and see just how much he relied on the so called social security surplus to balance his budget.

Translation of DarJones's statement:

"Instead of fairly and squarely discussing the statement cheesehead actually made, I want the reader to turn his attention away from how I repeatedly slandered cheesehead, and instead concentrate on another issue, about a different set of accounting standards, so I don't have to apologize for what I said about cheesehead."

That money was not free and it resulted in an overall increase in debt even in the years you claim were budget surplus.

Notice how DarJones cleverly slips two different accounting standards into one sentence without admitting it! His "overall increase in debt" refers to a different accounting standard than his "years you claim were budget surplus". His attempt to confuse the two is dishonest rhetoric.

... and it's all so unnecessary. If he had just retracted his original false accusation and apologized, we could now be having a productive discussion about how the different accounting standards should and should not applied to various issues.

Further, that you even think the president has so much influence on spending shows you have your head in the sand

DarJones, let's have an elementary review of federal procedure:

Who is it that submits an administration budget to Congress early each calendar year, for the upcoming fiscal year?

A) Secretary of the Treasury

B) Attorney General

C) President

D) Vice-President

In the end, it is congress that passes the budget and the president signs it.

... each of those occurring after the president has submitting his administration's proposed budget to Congress earlier in the year.

Why do you think so many presidents have tried to get line item veto power? This is why I say you deliberately misattributed the so-called balanced budget years.

... because presidents have tried to get line item veto power?

No, I never said anything about line item veto power.

DarJones, what you're clearly trying to do is to crawl and squirm and struggle around and around and around to avoid admitting that what I said was true. You are now trying to deceive readers as what it was that I said that you claimed was misattributed.

You posit a single cause/effect relationship with Clinton and fiscal responsibility.

That's a direct lie. I did not, and do not, do that.

There is no way on earth I would apologize to you. You are totally incapable of seeing beyond the political rhetoric.

Then, why am I the one distinguishing between various accounting standards, but you refuse to acknowledge that there is more than one?

You still insist on deliberately misattributing the budget surpluses 10 years ago.

No, I don't. I never misattributed them before, and I'm not doing so now. The surpluses are in Table 1.1 for anyone to see them who has eyes to see.