Indian Loans Economic Development

The Indian Loans Economic Development is probably the federal government loans containing specific targets associated with offering assistance to the person American Indians, Native American organizations and the federally identified Indian Tribal Governments in enabling financial assistance from your a variety of non-public businesses to help advertise small business owners as well as improve the overall economy. They're fundamentally insured business loans which can be directed for that lone reason for while using the assist in varied gardening, industrial, financial and even industrial routines.

There are a few membership requirements that ought to be fulfilled of those business loans to get granted. The applicant has to be identified by the actual Indian Tribal Governments or Native American Companies or in certain instances somebody American Indian. Further information concerning this Indian Loans Economic Development come in 25CFR, portion 103. These types of business loans possess the lone purpose of financially helping out the various American Indian businesses compare unique car features for the overall design. Even so, as with every govt financial products you need appropriate records along with follow established processes to apply for these business loans.

Should you be enthusiastic about this particular loan category, you'll have to distribute certificates or documentation closed with the Institution Firm Superintendent or perhaps just about any standard Tribal rep who's the registered associate registration number having a regarded Indian Tribal Government. You must publish the completed program on the Tribal Loan Administration Workplace in order to the neighborhood Bureau associated with Indian Extramarital affairs Agency. There are no particular output deadlines in order to distribute the approval since these Authorities Lending options are highly processed year round.

The loan are only refined when you have sent in a total as well as precise application. The complete process might take many methods from two weeks with a thirty day period when you post the finished form. If the loan is actually dropped for some reason, then you can certainly fix up the unofficial visit while using with regards to policeman this will let you speak or even place around a good charm. Before you apply to the mortgage loan, ensure that you have 20% collateral in the business you are interested in financing. With regard to other particulars on the Indian Loans Economic Development application process, it is possible to contact the neighborhood workplace and they can offer you the essential information these kinds of government loans.

Economic Development in Asia

Economic Development in Asia exhibits high-impact of economic development of this kind of individual place. Audience as well as readers must take be aware that the economy of Asia is an essential part of the earth's overall economy.

This kind of region have adopted one of the pursuing financial techniques such as capitalism, communism, socialism, and fascism.

Asia may be the greatest place regarding region along with human population. It's also the region with all the greatest rate of growth.

Listed below are Parts of Asia that contributes their economic development to your culture.

Of all of the Asian Countries, Japan is the just Asian region incorporated one of the industrialized nations around the world.

Taiwan, Hongkong, as well as Singapore these are known as "Little Japan" which viewed as Fresh Developing international locations.

India nowadays adds company procedure outsourced workers advancement for your information technology sector which results with a great influence in economic development of South Asia.

Philippines is now improving because they contribute unusual remittance that they can mail money on their close ones which in turn came from Offshore Filipino Employees that will improves their own country.

In China, history and culture is magic formula to improve their economy regardless of whether it's ruled along with operated by simply express.

Brunei Darrusalam adds gas export which is how they stored and rich in all-natural practical information on their particular country.

North Korea displays sort and throw like a token for their communistic opinions of the economic system throughout Far East Asia. Whilst South Korea displays modern technology that's influence from Western nations which ends a vast improvement of technology of their designated nations.

Indonesia may be the biggest human population regarding Muslim country within the entire Parts of asia that's colonized simply by Netherlands. It really is depending on his or her bank along with finance in the Islamic Way of living. This is actually the exact same scenario within Malaysia which is a British colony.

"How not to go about understanding peasant societies..." (or any society for that matter)

In his study of anthropology journal citations, "Anthropology Journals: What They Cite and What Cites Them," published in Current Anthropology in 1984, Eugene Garfield of the Institute for Scientific Information ranked George Foster's "Peasant Society and the Image of Limited Good" (1965) as the second most cited article -- with 207 citations between 1966 and 1982 (see "Table 6"). As Garfield explained, "this paper discusses the cognitive orientation of peasants. It explains how their social premises and assumptions may prevent rapid economic development in peasant societies." The period from 1966 to 1982 was no doubt the paper's heyday but the latest Social Sciences Citation Index count for it is 370 citations, albeit presumably not all in anthropology core journals.

In one of the several commentaries following Garfield's analysis, Peter Hinton pointed out that Garfield's admirable restraint in interpreting the data "leaves open -- as it must -- the question of the meaning of citation patterns and sounds a timely warning that frequent citation does not necessarily indicate 'dominance' or influence. Foster's paper, one of the most cited pieces in Garfield's analysis, is a case in point. It is ironic that this paper, in which Foster develops the idea of 'limited good' to account for alleged peasant reluctance to accept new ideas, is frequently cited as an example of how not to go about understanding peasant societies." Here is how Foster explained his model:

By "Image of Limited Good" I mean that broad areas of peasant behavior are patterned in such fashion as to suggest that peasants view their social, economic, and natural universes -- their total environment -- as one in which all of the desired things in life such as land, wealth, health, friendship and love, manliness and honor, respect and status, power and influence, security and safety, exist in finite quantity and are always in short supply, as far as the peasant is concerned. Not only do these and all other "good things" exist in finite and limited quantities, but in addition there is no way directly within peasant power to increase the available quantities. It is as if the obvious fact of land shortage in a densely populated area applied to all other desired things: not enough to go around. "Good," like land, is seen as inherent in nature, there to be divided and redivided, if necessary, but not to be augmented.

In short, Foster's paper adopts the lump-of-labor fallacy claim and extends it to non-economic spheres of life. Actually, I would rate Foster's explanation of his image of limited good as more scholarly than any explanation of the lump-of-labor fallacy I have encountered. It is more conscientiously qualified and observational data are presented as supporting evidence. Nevertheless, as Hinton's commentary suggested, the model has been controversial, to say the least. In a 1975 article offering an alternative explanation for Foster's field observations, James R. Gregory summarized the critical reaction to Foster's article to that date. I have previously posted Gregory's summary in "Trickster Makes This Lump". As I mentioned there, I can find absolutely no evidence of disciplinary 'cross-pollination' where economists recognize the image as their own fallacy claim or anthropologists note the fallacy claim as the image's progenitor.

Two solitudes. What does this total silence say about the compartmentalization of thought in academia over the last 47 years? What does the lively controversy in anthropology suggest about the teeth-gritting conformism and groupthink in economics? What does it say about the 'cognitive orientation' of economists? And who the fuck cares other than the unemployed 'peasants' that the economist-lords dismiss with a pseudo-mathematical shrug?

i-Side Multipliers for the Job Creators

Andy Kessler shows his ignorance of Keynesian economics and puts forth perhaps a new low in supply-side stupidity:

This myth—that you can just give money to the middle class and good things happen—is widely shared and is at the basis of a lot of government policy. And it is why the recovery is stuck between lack and luster. Let's go back. Henry Ford is popularly credited with inventing the middle class by doubling his workers' salaries to $5 per day in 1914. A multiplier for the economy, right? Wrong. The year before, Ford revolutionized manufacturing with the moving assembly line, slashing automobile build times to just 90 minutes from 14 hours. That's productivity. It allowed Ford to reduce the price over time of his Model T to $290 from $950. Demand took off because it was far cheaper than the cars made by his 88 competitors.

While I’ll grant that the Model T is not be an example of the Keynesian multiplier that most macroeconomist talk about. As far as explaining to Mr. Kessler how this economy is indeed suffering from a lack of demand - Martin Sullivan does the heavy lifting. So let me present Kessler’s other two examples of the i-Side multiplier:

Investor Peter Thiel put $500,000 into Facebook in August 2004, a company now worth $50 billion based on its prospects for transforming the media industry. What multiplier would you put on his investment? This month, after investing billions over the years on R&D, Apple released the iPhone 5. The company is worth $666 billion based on prospects that hundreds of millions of users will lower their cost of doing business with the latest iPhone and iPad mini and whatever else is coming. What is that multiplier?

Kessler is a hedge fund manager. Does he really think every R&D project has incredibly high returns? There are no losers? I would think a hedge fund manager would understate the need to present the expected return to R&D which most research in financial economics shows barely covers the additional systematic risk that investors undertake. If Mr. Kessler does not understand this – I have a suggestion for how you can get rich. Figure out which stocks Kessler is buying and then sell them short.

Presidential Candidate Who Refuses To Release Tax Returns Disses Those Not Paying Fed Income Tax

So, now we have it.  The secret tape of Romney speaking to a bunch of wealthy donors in which he says that those supporting Obama include a base of the 47% of "deadbeats" who pay on federal income tax, while he continues to refuse to release all but his most recent tax returns.  Needless to say, he forgot to mention that most of those people are paying fica, state sales taxes, and a lot of other taxes as well.  Indeed, when one looks at the total tax system of local, state, and federal, it is only barely progressive, and goes regressive at the very top end due to there being no increase in the amount of fica someone pays beyond a wage income a bit above $100,000, while even the poorest wage earner pays at the same rate.  Fica remains the largest tax paid by a strong majority of the population, but somehow Romney thinks those paying fica but not federal income tax are "deadbeats."

To keep things in perspective, the rich whiners who keep talking about only the federal income tax cite the large proportion of federal income tax the top 20% of earners pay, when one takes all taxes into account, they barely pay more than the share of income they earn, 61% to 59%.

Kudlow – QE is the Achilles Heel of the US Economy

Larry Kudlow explains why he thinks QE3 will hurt the economy by noting QE2 devalued the dollar. You see – inflation soared! OK – those of you who understand reality will ask – what inflation? And maybe we should remind Larry that dollar devaluation tends to increase net exports, which of course, tends to raise aggregate demand. I pity those who watch CNBC thinking they are gaining wisdom. Of course, Kudlow's graph left off earlier periods including the Bush years which were dominated by dollar devaluation. I don't recall him complaining about Bush's inflation. Then again, the dollar appreciated towards the end of Bush's second term. I trust Larry knows that was the beginning of the Great Recession.

Reform

Chicago teachers are on strike, and the issue is school reform.  What does “reform” mean in education?  It means the end of tenure for teachers, so that they are always at risk of losing their jobs.  Teachers should be evaluated by productivity (output) metrics, like student test scores, rather than effort or skill-upgrading (inputs).  Schools themselves should lose “tenure”: if the test scores or graduation rates of their students don’t improve, they should be downsized or go out of business completely.  In any case, tax money should shift away from the protected realm of traditional public schools to the competitive, entrepreneurial world of charter schools.  Chicago teachers don’t like these things, so they’ve gone on strike.  What Paul Ryan and Rahm Emanuel can both agree on is that teacher unions should not be allowed to stand in the way of reform.

As an economist, I feel a certain resonance in this word “reform”.  There is a program of economic reform too, and the word is used by a broad spectrum of economists to refer to a set of institutional and policy changes that all countries should adopt—and would adopt if it were not for the obstructionism of special interests.  Here are some of the key items:

Entitlement reform: Reduce public pensions by cutting benefits and raising the retirement age.  Public health insurance should require substantial co-payments for all but the most essential services.

Monetary reform: Insulate the central bank from political pressure, above all the pressure to loosen monetary policy when politicians want to increase the fiscal deficit.

Labor market reform: Reduce impediments to firing or laying off workers; cut unemployment insurance benefits; eliminate rules that restrict entry into certain occupations by requiring apprenticeship or training; reduce the ability of unions to standardize wages across employers or industries.

Legal reform: Strengthen property rights by reducing the ability of courts or other institutions to impose restrictions, obligations or encumbrances on property owners and their transactions.

Public sector reform: Privatize public enterprises to the maximum possible extent; reduce regulation; eliminate subsidies.  Get rid of anything that looks like industrial policy.

There was a time, back in the 1980s and ‘90s, when these items would be put forward explicitly and arguments made on their behalf.  For the most part, those days have vanished.  Today, it is enough to just say “reform”.  Deficit countries in the Eurozone will be supported, but they have to agree to reforms.  Will the slowdown in China convince its leaders that they finally have to undertake reforms?  Populism in Latin America is putting at risk the reforms accomplished over the past 25 years.  Does sub-Saharan Africa need more foreign aid, or is the main problem the lack of reform?

Reform is a word that is difficult to resist.  It carries not only a connotation of progress (reforming something makes it better), but also a certain virtue for the reformer.  Reforms are resisted by entrenched interests, who can be dislodged only through idealism, perseverance and moral courage.  It is good to be a reformer and bad to stand in the way of reforms.

What underlies all these conceptions of reform, from central bank independence to education’s “Race to the Top”?  I would say it comes down to a single, all-encompassing notion of how the world works and a corresponding approach to policy.  The notion is that people are motivated primarily by material self-interest, so that effective institutions depend on engineering appropriate material incentives.  The policy implication is sink or swim: each individual must prosper or face hardship based on the outcome of their choices.  This will be hard for some, but in the long run it is the only way to ensure that the best choices are made and society progresses.

To put it negatively, reform is against insurance, group guarantees of security and other means to insulate from or patch up losses.  If you don’t earn enough money during your working life and save enough of it for retirement, tough luck when you’re old.  If an enterprise can’t earn a profit without government support, it should shut down.  If governments can’t or won’t balance their books, they should be disciplined by financial markets.  If teachers can’t figure out a way to improve their students’ test scores, cut their pay or fire them.

Intellectual historians will recognize this philosophy as a return to the “system of natural rewards and punishments” that was promulgated in England during the eighteenth and nineteenth centuries.  In practical terms, it signifies that institutional developments, especially in the harnessing of political parties, have reversed the effect of extending the franchise, which was responsible for moderating competitive individualism in England and elsewhere.  (Note: it is a commonplace of international political economy that the gold standard, which depended on deflation to achieve adjustment, was rendered obsolete by the emergence of modern democracy.  The imposition of deflation as an adjustment mechanism for the euro suggests that this democratic obstreperousness has abated.)  In fact, it is not clear that majority opinion has shifted on these topics in any country, only that majority opinion is less consequential.

And as for elite opinion, there is much to be said.  A thorough analysis would have to examine the arguments in favor of putting material incentives at the center of policy, and this is a topic for another day.  Here I would just like to take note of the psychological attractiveness of sink-or-swim to those who are already successful: it explains why they are where they are.  Just as those facing poverty and bankruptcy are the victims of their own failures, those who have high incomes and wide social influence are reaping the fruits of their own skill and ambition.  It’s difficult to think of a less threatening narrative than “If you’ve got a problem, try being more like me.”

So When Will Jeb Hensarling Support Fiscal Stimulus?

The headline news is that the Federal Reserve has finally adopted QE3. But let’s focus in on what one prominent Republican member of the House of Representatives said:

Republicans were swift to criticize the development, and characterize it as a consequence of Obama’s poor stewardship of the economy. “There is no clearer indication than today’s Fed action that after 3 ½ years, the president’s economic policies continue to fail,” said Rep. Jeb Hensarling (R-TX), chair of the House GOP conference, in an official statement. “At a time of negative real interest rates and trillions in excess reserves, there is little which monetary policy can achieve today to promote economic growth and much the Fed risks by today’s announcement…. There are limits to what monetary policy can achieve, and it’s clear the Fed has reached them.”

Maybe there are indeed limits to what the Federal Reserve can achieve when an economy is so depressed that we have nominal interest rates near zero. Of course, this means that we desperately need fiscal stimulus. President Obama understands this and has proposed stimulus measures. Alas these same Republicans have yet to pass such needed measures.

Ethnic Stereotyping and Class: Two Ways to Look at the Eurozone Crisis

Hats off to Darian Meacham who says what needs to be said: it is absurd to speak of countries as if they were single individuals (much less “representative agents”) and explain the problems of peripheral Europe on the failings of entire peoples or cultures.  In every instance, and not only Greece, the focus of Meacham’s post, the “national” crises of corruption and barriers to initiative can be traced to an elite class that benefits from them.  Taxes are automatically deducted from workers’ paychecks, while the rich pay nothing.  A tangle of red tape insulates business owners from competition and provides opportunities for insiders to harvest a never-ending flow of bribes.

Meacham could have gone on to point out that, if any interest group is blamed in the media, it is labor.  The key to progress, we are told, is liberalizing labor markets—removing certifications, restrictions on firing, centralized wage bargaining and so on.  What this argument conveniently overlooks as that the most regulated labor markets can be found in the social democratic countries of the north, which nevertheless regularly enjoy trade surpluses.  It is not labor that has failed in the deficit countries, but capital.

Meacham’s attack on euro-neoliberalism might seem strident to you, but consider the demands imposed by the Troika on countries like Greece and Spain—demands that will have even more force as prerequisites for ECB bond purchases.  They are blind to asset-stripping and capital flight.  They call for higher taxes on those who already pay and give only lip service to fighting tax avoidance.  (Indeed, if the EU were serious about getting the rich to pay their taxes they would take aggressive action against tax havens, which of course they don’t.)  Budget cuts are concentrated on education, health care and social protection.  (Greece was allowed, even forced, to continue wasteful military purchases during the first years of the oversight program.)  Privatization of public enterprises is demanded irrespective of whether they perform well or not, and without consideration for the depressed prices they will command in a fire sale.  (Or perhaps that’s the point.)

Returning to Greece, the implicit logic of the Troika program is that the Greek state is too large and provides too many public services, despite the fact that the aggregate numbers for Greece are hardly out of line by European standards.  This is what Meacham means by neoliberalism.  In fact, the real problem is endemic clientelism, the use of the public sector as a well of resources that can be granted or withheld by political grandees in return for votes and other expressions of loyalty.  Yet the Troika has never identified the problem by its real name, and the measures they call for would, in many cases, make it worse—for instance by removing civil service protections and giving politicians more discretion, down to the individual level, over who gets to keep their job.  If this were about actually helping the Greek people to move to a higher level of productivity, not to mention democracy and human dignity, you could call it an error, but the matter is never discussed in the first place.

What is tragic is that, not only are nightmares being visited upon low and middle income people in countries like Greece, Italy and Spain, but the entire discourse surrounding the “problem” and its supposed causes has been poisoned by the ugliest form of ethnic stereotyping.  In some ways the crisis has served as a vehicle to bring Europe closer together: this is true of economic institutions, although the pace is maddeningly slow and the content crudely neoliberal.  On the level of popular politics, however—the rhetoric of political parties, political coverage in the media and conversations in pubs and cafes—the crisis is tearing Europe apart, undoing decades of patient consciousness-building.  In the end, it really is about nationalism versus class: if you ignore one, the other metastasizes into a monster.

One final point, not mentioned by Meacham but logically connected: when the time comes to cut the budget, a promise is made that every attempt will be made to cut the fat, not the bone.  The reason this promise is broken is that the fat holds the knife.

Faux News Must Be Really Confused About the Unemployment Rate

Credit goes to Media Matters as they watch Faux News so we don’t have to:

Fox used a dishonest comparison of two different measures of unemployment to suggest the unemployment rate has nearly doubled since President Obama took office. During a segment criticizing the Obama administration for its messaging on the economy, a Fox & Friends graphic claimed that the "real unemployment rate" had increased from 7.8% in 2009 to 14.7% now ... But in order to make the claim that unemployment had increased from 7.8% to 14.7% during Obama's time in office, Fox had to conflate two different statistics and completely distort Obama's jobs record.

Media Matters displayed how the U-6 measure jumped after December 2007 but has been coming down since it peaked during late 2009. Our graph simply shows the U-3 measure as well, which also jumped after December 2007 but has been coming down since it peaked during late 2009.

Things More Worthy Of Remembrance Than 9/11

Yes, what happened 11 years ago today was awful and tragic, and there is much that can be said about and it is worthy of remembrance.  However, it seems to me that it is being way overdone.  Osama bin Laden is dead, but we are allowing both political parties to continue to use this event to justfiy an everincreasing national security and surveillance state that is taking away our liberties.  Numerous other nations have had more die than we did from terrorism on 9/11, but managed to keep some perspective and treat the matter as one of policing rather than national hysteria, which was already manipulated once to get us into the utterly stupid war in Iraq.  Even though the Bush admin officially admitted that Saddam had nothing to do with 9/11, Cheney kept on claiming that he did, and 64% of those voting for Bush 8 years ago believed that he did.

Here are some things more worthy of remembrance than 9/11, but which will not get even remotely as much attention:

1)  Monday, Sept. 17 will be the 225th anniversary of the adoption of the US constitution.
2) That same day will also be the 150th anniversary of the Battle of Antietam, the bloodiest day in US history, with over 23,000 dead on its battlefield, which inspired President Lincoln to issue the Emancipation Proclamation, which freed (most of) US slaves.  Needless to say, that is a lot more dead than on 9/11 and with a much more worthy and important outcome.

Then in terms of sheer numbers of pointless dead, with us arguably being possibly able to do something about them, if not all that likely:

3) Between 2000 and 2009, 298,000 Americans died of gunshot wounds.  Many of those were suicides, others were homicides, others were family accidents.  We have half the world's guns and are far ahead of any other country on this matter (with some competition from a few with war happening on their soil).
4)  During the same period, 417,000 Americans died in automobile accidents.

So, let us remember 9/11, but let us keep it in perspective compared to more important things, and let us not allow it to be used for evil purposes.

Cheney’s Questioning of Obama’s Handling of Terrorist Threats

Wonkette rightfully rips Dick Cheney for this:

Former Vice President Dick Cheney took a shot at President Barack Obama late Monday night after it was reported that the president has attended fewer than half of his daily intelligence briefings. “If President Obama were participating in his intelligence briefings on a regular basis then perhaps he would understand why people are so offended at his efforts to take sole credit for the killing of Osama bin Laden,” Cheney told The Daily Caller in an email through a spokeswoman.

Oh good grief – the wounds from 9/11 still haven’t healed here in New York City so let’s just talk in general about Presidential management style, which is the approach that National Security Council spokesman Tommy Vietor took. Legend has it that Jimmy Carter was a micromanager whereas Ronald Reagan was more of a delegator. Is Dick Cheney suggesting that Carter was a better President than Ronald Reagan? When I Googled Carter and micromanager, this discussion of President Obama’s approach to economic discussions came up:

Many presidents have directed policy from on high, shunning the details of most issues. Mr. Obama has adopted a different style, particularly when it comes to economics, as he and his team wrestle with the worst financial crisis the nation has faced since the Depression. In a White House ritual new with this administration, the president gathers with his advisers every weekday morning for an Oval Office update and debate on the economy. The breadth of topics is wide, from the underemployed to childhood obesity, and Mr. Obama often dives into the minutiae. In the sessions, according to those who attend, the president sometimes chafes at his advisers' limitations, quizzing them on points raised by critics or asking them to do justice to a view other than their own. At times he quotes from letters sent to the White House to counter a stance taken by his team.

And rightwing critics argue that this President hasn’t focused enough on the economy! But the clincher comes from a Republican Senator:

Sen. Judd Gregg, a New Hampshire Republican who briefly flirted with joining the Obama cabinet, says the president's style matters less than the outcome of the deliberations.

Shall we discuss the outcomes of those deliberations during the first few months of the Bush Administration? Does Dick Cheney REALLY want to go there?

My Bid for Immortality: Dorman’s Law

Why do writers get to name laws after themselves, when explorers can’t put their own name to mountains, and field biologists can’t do it for new species?  I don’t know, but I’ll take advantage of the loophole to promulgate my own deep discovery:

The sum of a reliable number and an unreliable number is an unreliable number.

Commentary on the law would emphasize that the extent of joint unreliability depends on how unreliable the second number is and how large relative to the first.

This bit of wisdom, hidden in plain sight for eons, has particular relevance to the practice of economics.  Economists are constantly estimating the size and value of bundles of things, whether direct and indirect employment effects of a program, the benefits and costs of a particular project, or the value of the output of an entire economy.  When they do this they encounter some items that they can put a fairly precise number on and others where even the most sophisticated techniques offer little more than a wild guess.

What my eponymous law says is that, when faced with this situation, an economist should distinguish between reliably and unreliably measured elements in the bundle and, as one output, provide a composite total for just the first set.

Here is an example.  A miracle feed supplement is developed that increases a cow’s production of milk by 25% but leads to a greater incidence of coronary disease in the dairy-consuming population.  As an economist, you are asked to provide an estimate of the total cost of this excess disease.  Some aspects can be measured precisely, like additional costs of hospitalization and medication or the excess work absences that will result from more widespread illness.  Others are unavoidably loosy-goosy, like the subjective disutility of those suffering heart conditions or the disutility induced in their friends and family.

My law doesn’t tell you not to try to put numbers on the ineffable.  What it does say is that, if you do a good job on the first set of outcomes, add them to the second and report the total, you lose the benefit of the precision with which you measured the “hard” items.  The message is, whatever else you do, report the subtotal of reliably measured costs separately.  If you want, you can also throw in the other stuff, total up a composite estimate, and let the reader decide what to do with it.

Being clearer about what we know pretty well and what we don’t is a first step toward winning, and deserving, respect for the way we do economics.

The Rosen-Laffer Curve: The Steady State Does Not Appear Overnight

Brad DeLong is still unhappy with a paper from Harvey Rosen with one of his many legitimate complaints being:

starting with what seems to me to be an overstated supply-side boost (3%) and then considering only even larger effects (5%, 7%) rather than smaller effects

Rosen says he got this 5% from John Diamond who claims that a tax reform that combined base broadening and reductions in marginal tax rates could boost national savings such that output would eventually be over 5 percent higher with eventually being defined as a decade from now. Rosen also references a paper by David Altig et al. that we noted here. Permit me to quote just one paragraph:

The model predicts significant long-run increases in output from replacing the current U.S. federal tax system with a proportional consumption tax. For our base case, output would rise eventually by more than 9 percent. For middle- and upper-income classes alive in the long run, this policy is a big winner. But older transition generations suffer from the imposition of an implicit capital levy, and low-income individuals, even in the long run, suffer a significant loss as growth fails to compensate for the decline in tax progressivity.

Note that both of the papers cited by Rosen as evidence for significant output effects specify that they are referring to eventual increases in output not immediate increases. Anyone even remotely familiar with standard long-term growth models should recognize that obtaining faster growth rates requires a current sacrifice of consumption – that is an increase in national savings. Output slowly grows over time, which allows the economy to enjoy the eventual fruits of its current sacrifice. As I noted, the paper by Altig et al. envisioned:

the kind of supply-side experiment reasonable conservatives such as Bruce Bartlett advocate, which include not only reductions in marginal tax rates but base broadening changes in the tax code so as to effectively pay for revenue losses from the reductions in those marginal tax rates, that is, a fiscal policy change that is deficit neutral even before we worry about any alleged supply-side benefits.

Team Romney, however, wants us to believe that these supply-side benefits can come immediately and that lower income people do not have make sacrifices in the form of paying higher taxes. These conclusions, however, do not follow from any form of reasonable economic analysis that recognizes that long-term growth occurs only slowly over time. That Greg Mankiw apparently endorsed this incredibly sloppy and misleading application of growth theory should have both Harvard University and Cengage Learning (his publisher) worried. If he does not understand that growth effects take considerable time, then is he really qualified to teach macroeconomics? If he does understand this critical point, then why would he endorse Rosen’s paper with its table entitled “Revenue Consequences of the Romney Tax Reform” that included “Additional tax revenue from rise in incomes due to higher incomes” since that “macro-dynamic behavioral responses” would not fully materialize for several years?

ID Cards Will Soon Be Passé

We have lots of ID cards in this country, but none of them are comprehensive, in the sense of really identifying you, universal and mandatory.  The reason is political opposition.  Every time someone suggests a system of universal identification, such as for voting or enforcing immigration laws, there is an uproar, and the idea is canned.

But now we are told that the FBI is moving to a biometric ID system that will almost certainly extend to all of us.  It can be used for surveillance and police work and also normal administrative functions.  As with every technology that has ever been developed, sooner or later it will do everything it can do.

But no uproar (yet).  Why?

Woodward "Corners" Obama, Only To Crash Into The Debt Ceiling

Top headline in Washington Post today reads, "A President Cornered," an extract from Bob Woodward's book due out Tuesday, _The Price of Politics_, from which leaks of various sorts have already been floating around.  Much as in a story in WaPo earlier this year, the focus seems to be that Obama blew the negotiations with Boehner and Congressional Republicans over last year's raising of the debt ceiling (although according to that report, the crucial blow came from the the "Gang of Six" who held a badly timed press conference, with Obama publicly praising them).  In this account, Woodward quotes Boehner that Obama was "moaning and groaning" at one crucial point, and new "hero" emerges, Harry Reid's Chief of Staff, David Krone,who gets much praise for lecturing Obama to his face about not having a "Plan B" besides his demand that there not be another round of raising the debt ceiling prior to the election, with Krone apparently responsible for the Plan A that did involve such a second round increase before the election.  In the end,Obama got his way on not having such second round, although we do face the idiotic "fiscal cliff" after the election as the price for the ceiling increase, but somehow he is nevertheless depicted as some hapless whining loser who does not know simple things that some Senatorial Chief of Staff knows.

Needless to say, Woodward is not an economist and specializes in these sorts of inside accounts from various players in big negotiations or situations who provide supposedly fascinating or devastating tidbits about presidents in particular, but in this case he seems to really miss several points about this, quite aside from trying to make Obama look stupid for insisting on his point about not wanting to have a second argument over this before the election, something that at this point looks to have been a very wise thing to insist on, given that the GOPsters are blaming him for all those public sector jobs being lost when they blocked his request last year to provide funds to state and local governments that would have largely stopped those layoffs from occurring.  The main point is that Woodward does not seem to understand how ridiculous the whole debate was to begin with.

This gets back to something I have pounded on here repeatedly: the US is the only nation in history to have had a nominal debt ceiling.  It should be abolished. We passed it in 1917 in the wake of the adoption of the income tax, and it has been raised over 70 times since with never anything more than a staged and nominal fuss, with everybody always knowing that it needed to be raised, given that Congress had passed a budget accepted by the president that entailed violating it.  So, there was always a constitutional conundrum that if a debt ceiling was smacked into of either violating the ceiling or violating the authority of Congress and the president to tax and spend as they voted and signed to do.  The thing has always been ridiculous and probably unconstitutional (14th Amendments says government must pay proper bills it owes).  Even conservative observers have noted this since the 80s, such as Bruce Bartlett.

 Woodward never mentions this issue, although there was much public discussion of it during the debate, with even Bill Clinton calling for Obama to simply declare the debt ceiling unconstitutional and proceed forward accepting whatever the judgment of the markets that happened, which quite likely would not have amounted to much.  There might have been a downgrade, but there was anyway due to the Republicans threatening to hold up raising the ceiling and triggering an outright default (with markets blithely ignoring that anyway, some US government securities rates going so low as to become negative in some cases recently).

What is depressing in the story, aside from such stupidities as the reporting of this whiner Krone lecturing Obama about not having a Plan B to back up his hard work on the worthless Plan A, is that there seems to have been no discussion at all by the insiders of this option to declare the ceiling unconstitutonal.  The heavyweight seems to have been Treasury Secretary Geithner, who pressured Obama to sign the Plan A if it passed Congress in order to avoid a default.  Woodward pompously quotes Geithner as saying this was a moral issue as well as just being a political and economic one, but if Geithner thought that, he should have taken seriously the option of declaring (with good reason) the ceiling unconstitutional.  Clearly he did not view that as an option, but why he did not is not reported in this account by Woodward.

So, as this will come up again, I think Obama and whomever he replaces Geithner with, assuming he is reelected, will seriously reconsider the constitutional option.  Obama himself is reported as having provided crucial arguments for doing so, that the political opposition has become so irresponsible that they are willing to play blackmail for their demands by threatening to engineer an actual default.  This irresponsibility must be confronted fully and brought to an end. Only declaring and enforcing the abolition of the debt ceiling on constitutional grounds will achieve this, which almost certainly would involve an eventual trip to SCOTUS.

BTW, I hope the rest of Woodward's book is not as biased and stupid as this selection put into WaPo today, but I suspect it will be.

Are Lower Gasoline Prices Worth More Pollution?

Apparently Paul Ryan thinks so:

She asked him how he was going to "improve the situation" of sky high gas prices. "This is not just something that squeezes family budgets, it squeezes businesses," Ryan answered. "It also gives us a bad foreign policy in that we are so dependent on other countries for our oil imports, it's the biggest part of our trade deficit and so what's frustrating about the Obama administration's policies are they've gone to great lengths to make oil and gas more expensive." ... The House Budget Chairman told the questioner not to "forget" that President Obama "tried to grant, jam through congress, a national energy tax designed to make energy more expensive." "Don't forget the fact that he has tried lots of things to try and prevent drilling for natural gas and oil on public lands," Ryan said. "Lets not forget the fact that the regulations coming out of the EPA are making it harder for us to harness home grown American energy." A national energy tax is another term for cap-and-trade legislation that is usually used by opponents of the measure. Supporters say the legislation forces companies that pollute to pay, but opponents like Ryan say it is simply another tax on businesses and makes energy pricier for the average American. Ryan then moved on to how he would lower gas prices in a Romney/Ryan administration, but stayed away from specifics, instead saying domestic production of energy should be increased, something he mentions on the stump daily.

In other words, Ryan’s only answer to the woman’s question was basically “drill, baby, drill”. This article did not we are domestically producing more oil and importing less – consistent with what President Obama has been saying and contrary to the spin from Paul Ryan. Given that Romney economic advisor Greg Mankiw has often called for a Pigou Club tax on carbon emissions, I’m wondering if he will comment on this Ryan spin?

Robert J. Gordon is STILL a Buffoon!

"By definition, whenever hours per capita decline, then output per capita must grow more slowly than productivity." -- Robert J. Gordon, "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds."

At the Globe and Mail Report on Business, Ian McGugan discusses Gordon's NBER Working Paper in "A heretic's view of the growth dogma." The Sandwichman responds:

Dear Mr. McGugan,

I was very interested to read your column today about Robert Gordon's NBER Working Paper, "Is U.S. Economic Growth Over?" and downloaded Professor Gordon's paper from the NBER site. Although I would agree with Professor Gordon that the expectations -- based on past experience -- of future growth may be questionable, I must note a critical flaw in his analysis. On page 16 of the paper, Gordon states, "By definition, whenever hours per capita decline, then output per capita must grow more slowly than productivity." The problem with this "definition" is that it is a tautology that conceals the distinction between two potential feedback loops in the ratio between hours per capita and productivity.

Arithmetically, total hours is both the numerator in "hours per capita" and the denominator in "productivity." Output is the numerator in both "productivity" and "output per hour" and thus can be factored out by multiplying both sides of the equation by the reciprocal of output (1/output). So, yes, by definition output per capita MUST grow more slowly than productivity. So what? This is a tautology that obscures more than it explains. By such ultra-Malthusian logic, any increase in productivity, given a stable or growing population, must be a "bad thing" because the increase in output per capita will always be slower!

What Professor Gordon overlooks is that reductions in the hours of work per person can lead to gains in total output when current work-time arrangements are not optimal. Those work-time arrangements can include overwork of some people combined with unemployment and underemployment of others. Such disparities are not well captured in such indicators as "hours per capita", which are averages based on dividing one aggregate by another. Even so, even if large reductions in hours per capita led to massive increases in output per capita, the tautology expressed by Gordon would still be trivially "true". That is, it would be arithmetically correct but irrelevant and misleading for all practical purposes.

A similar confusion between arithmetical results and practical outcomes leads Gordon to prescribe immigration as the panacea to the growth dilemma he purports to uncover. And what could be more logical than a purely arithmetical solution to a purely arithmetical problem? Professor Gordon overlooks the possibility that the number of immigrants that could be productively absorbed by a given economy might be constrained by such other factors as fixed capital investment (including infrastructure), natural resources and social and cultural factors. Treating immigration as "numbers" that can be increased or decreased at will like turning on a water tap is an exercise in academic wool gathering.

Traditionally, economists, including Professor Gordon, have routinely dismissed proposals for work-time reduction as being based on a "lump-of-labor" assumption that allegedly presumes an arithmetical solution to unemployment without considering the practical constraints. They make the perennial claim even where no such fallacious assumption can be demonstrated. It is therefore a delicious irony to see Professor Gordon himself plucking both his "problem" and his "solutions" out of the arid arithmetical void. To be blunt, Professor Gordon here commits precisely the "lump-of-labor fallacy" that he elsewhere glibly (and unjustifiably) accuses others of!

Cheers,

Tom Walker

P.S.: In answer to Gordon's question, would I rather have an Ipad or a flush toilet, I would much rather have a flush toilet with the capability of disposing of the "heretical orthodoxy" of pedantic scribblers like Professor Robert J. Gordon.

Tax Cuts Are Not Revenue Neutral By Assumption – What May Be Missing with Rosen’s Analysis

Greg Mankiw reads Harvey Rosen and emphasizes this:

I analyze the Romney proposal taking into account the additional income that might be generated by economic growth. The main conclusion is that under plausible assumptions, a proposal along the lines suggested by Governor Romney can both be revenue neutral and keep the net tax burden on high-income individuals about the same. That is, an increase in the tax burden on lower and middle income individuals is not required in order to make the overall plan revenue neutral.

Brad DeLong reads the same paper and notes:

If raising the net-of-tax rate for the upper class from 65% to 72%--an increase of 10% in the natural log--raises national income by between 3 and 7 percent, then wouldn't… • Reagan's ERTA raising the net-of-tax rate for the upper class from 30% to 50%--an increase of 51% in the natural log--have raised national income by between 15 and 35%? • Reagan's raising in 1986 of the net-of-tax rate for the upper class from 50% to 72%--an increase of 36% in the natural log--have raised national income by between 11 and 25%? • Clinton's lowering in 1993 of the net-of-tax rate for the upper class from 72% to 60%--a decrease of 18% in the natural log--have lowered national income by between 5 and 12%? • Bush's raising in 2001 of the net-of-tax rate for the upper class from 60% to 65%--an increase of 8% in the natural log--have raised national income by between 2 and 5%? We simply do not see such supply responses in the historical record, do we? To propose that they exist is wholly inconsistent with the fact that American growth 1938-81 was faster than since 1981, right? What am I missing here?

Maybe what is missing is something Harvey wrote that Greg forgot to mention:

Another important issue seems to have gotten short shrift in the debate over the proposal. To assess the effects of moving from tax system X to tax system Y, one needs to know what X and Y are. In this case, X is the status quo, and Y is the Romney proposal. Much of the current controversy has arisen because the Romney proposal is not fully articulated, and therefore analysts can disagree about what kinds of tax preferences would be eliminated.

I submit that Harvey was really modeling something we should call tax system Z – especially if he wants to follow in the tradition of the 2001 AER paper written by David Altig et al. That paper was the kind of supply-side experiment reasonable conservatives such as Bruce Bartlett advocate, which include not only reductions in marginal tax rates but base broadening changes in the tax code so as to effectively pay for revenue losses from the reductions in those marginal tax rates, that is, a fiscal policy change that is deficit neutral even before we worry about any alleged supply-side benefits. The tax system Z clearly differs from the Romney proposal (Y) as Romney has not proposed any offsets either in the form of elimination of tax preferences or spending reductions. In fact, Romney rejects the Medicare savings that used to be discussed by Paul Ryan so as to criticize Barack Obama for wanting to implement Medicare savings. Romney would also spend more on defense that would a President Obama. Greg Mankiw used to get why this mattered:

I used the phrase "charlatans and cranks" in the first edition of my principles textbook to describe some of the economic advisers to Ronald Reagan, who told him that broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue. I did not find such a claim credible, based on the available evidence. I never have, and I still don't.

If you read what Mankiw’s first edition said about the initial Reagan tax cuts, you will see a very traditional description of classical crowding-out. The fiscal stimulus from Reagan’s tax cuts sine any substantive reductions in government spending (domestic cuts yes but offset by increases in defense spending) lowered national savings which increased real interest rates and lowered investment demand. So whatever small favorable supply-side benefits we may have received were overwhelmed by crowding-out effects. Is there any reason fiscal policy will be different under Romney? I don’t see it. One might argue that having Greg Mankiw and Glenn Hubbard as economic advisors would change everything but recall they were also advisors to George W. Bush. How did that work out?

The Worst Misrepresentation

I am reacting to watching Bill O'Reilly's coverage last night of the Dem convention.  He was bloviating loudly in his inimitable way about four supposed reasons why nobody in their right mind should vote for Obama because they indicate how terribly worse off people are than we were four years ago, the question du jour.  The facts in all of these are on their face undeniable, but for most of them there is the simple matter that on Jan. 20, 2009 the trends on them were awful, whereas now they are improving, if not in all cases as fast as we would all like.  The four are unemployment, gasoline prices, per capita income, and national debt.  However, the one that appeared to have the biggest gap between then and now was gasoline prices, and O'Reilly was particularly bloviatory about it.  How could any sane person vote for Obama when gasoline prices have risen from $1.82 per gallon to $3.87 per gallon!?!?!?

Well, that is easy.  Prices were $4.11 per gallon on July 7, 2008, higher than now or at any time since or before then (at least in nominal terms; over a century ago they were as a high as the equivalent of $10 per gallon).  But then a funny thing happened.  Not only was there probably a speculative bubble in oil going on at that time that was peaking out, but we were heading into this massive financial collapse that led to the massive real economic collapse that we were in the middle of when Obama took over.  The price of crude oil peaked about then at $147 per barrel, higher than anytime since, and then crashed hard to nearly $30 per barrel by about the end of the year, with an accompanying decline in prices at the pump. Indeed, ironically, the bottom had passed and those prices were going back up again on January 20.

In any case, nobody should take remotely seriously any commentator getting all huffy and puffy about that particular datum in the tale of supposed woe regarding this four year comparison.

Drill, Baby, Drill as Fiscal Stimulus

Digby quotes the part of Romney’s Thursday speech where he laid out his five point plan to create 12 million new jobs and provides this summary:

So, they are going to create jobs by opening up drilling, privatizing schools, off-shoring business, slashing government, cutting taxes and cutting regulations. In other words, the same exact agenda they always have. Well except for the war-as-stimulus he might have to start.

The traditional fiscal part might be confusing to those who think standard arithmetic applies to the Republican promise to balance the budget as Romney want to cut taxes – and as Paul Krugman notes increase defense spending:

OK, so deficit spending hurts the economy — unless it’s spending on the military (or on the medical-industrial complex), in which case cutting spending destroys jobs. Leave on one side the fact that those possible defense cuts are the result of a Republican ultimatum, not Obama policy. And where exactly is deficit reduction supposed to come from? The GOP wants massive tax cuts; but spending on defense must rise, as must health care spending.

Wait – I thought Paul Ryan wanted to slash Federal health care spending but I guess Romney wants to restore the Medicare spending growth that President Obama hs strived to curb. So how to score the Romney plan on the traditional fiscal side strikes me as something on the order of impossible. I’m also confused on whether President Romney would increase our commitment to education or continue the path of less resources for public education. I’m sure all of us wish he’d stop contradicting himself on these various fiscal issues. There have been several claims as to the wonders of the drill, baby, drill aspect of the Romney plan including a White Paper from Mark P. Mills of the Manhattan Institute:

An affirmative policy to expand extraction and export capabilities for all hydrocarbons over the next two decades could yield as much as $7 trillion of value to the North American economy, with $5 trillion of that accruing to the United States, including generating $1–$2 trillion in tax receipts to federal and local governments. Such a policy would also create millions of jobs rippling throughout the economy. While it would require substantial capital investment, essentially all of that would come from the private sector.

While this all sounds wonderful – one has to ask why the private sector has not embarked on a drill, baby, drill strategy. Investing now for the future would normally require the private sector to weigh future benefits against the cost of capital today but that cost of capital is currently near zero. The Republican claim is that environmentally friendly regulation increases the cost of a drill, baby, drill approach, but then it is standard economics that the social marginal cost of exploring for oil likely does exceed the private costs. I guess the Republicans want us to just ignore the possibility of another Gulf oil disaster. But I would suspect the main reason we don’t see drilling in everyone’s backyards right now is the uncertainty of whether that drilling will produce a gusher versus a dry oil. Then again – leave it to Mr. Romney to propose all sorts of subsidies for such drilling, which of course, would have no effect on the deficit per his new fangled arithmetic. Actually, I think Keynes said it best:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing. The analogy between this expedient and the goldmines of the real world is complete. At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline. Thus gold-mines are of the greatest value and importance to civilisation. just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance; and each of these activities has played its part in progress-failing something better. To mention a detail, the tendency in slumps for the price of gold to rise in terms of labour and materials aids eventual recovery, because it increases the depth at which gold-digging pays and lowers the minimum grade of ore which is payable.

Drilling for oil whether it is really there or not has become the replacement for digging for gold. Who knew Mitt Romney was such a Keyensian? Of course, Keynes also noted that building houses and the like (such as new schools and other useful infrastructure) would be more sensible.

The Matrix: The Intersection of War, Economic Theory, and the Economy

Vincent Portillo and I are working on a new book, The Matrix: The Intersection of War, Economic Theory, and the Economy.  So far it is still remains an exploration rather than a finished research project.  We intend to post our progress from time to time, hoping to initiate some comments and conversation.

Thank you in advance.

Here is the link.

http://michaelperelman.files.wordpress.com/2012/08/matrix2.pdf

Romney-Ryan v. Obama Long-term Fiscal Policy – More Mankiw Endorsed Spin

Greg Mankiw plays for Team Romney by sending us to Keith Hennessey:

Here is your tax levels cheat sheet. • Over the past 50 years federal taxes have averaged 18% of GDP. • Governor Romney proposes taxes “between 18 and 19 percent” of GDP. • The House-passed (“Ryan”) budget proposes long-term taxes of 19% of GDP. • President Obama’s budget proposes long-term taxes at 20% of GDP.* • The Bowles-Simpson plan proposes long-term taxes at 21% of GDP. I put an asterisk after the Obama line. The Ryan and Bowles-Simpson plans would stabilize debt/GDP in the long run, while President Obama’s would not. Since President Obama has not proposed a long-term fiscal policy solution, we don’t know whether his long-term fiscal solution, if he had one, would raise taxes above 20% of GDP.

Maybe it is fair to put an asterisk after the Obama line but to claim that Paul Ryan’s “budget” would eventually stabilizes the debt/GDP ratio strikes me as a very ill informed statement. The spending path that Ryan asked CBO to simulate pretended we could reduce everything the Federal government spends outside of Social Security, Medicare, and Medicaid to less than what Mitt Romney wants to spend on defense spending along. And we have all seen lots of discussions on how both Obama and Ryan want to curb the growth of Medicare spending in ways Romney has rejected. In other words, we need magic asterisks to make Ryan’s spending path come to something that can be financed with taxes = 19% of GDP. As far as either Romney or Ryan getting taxes to be anything close to 19% of GDP requires an exercise in high order fuzzy math as they are proposing substantial tax cuts without specifying the tax offset spelled out in Bowles-Simpson. I know Chris Christie said something last night about shared sacrifices and tough choices in terms of “respect”, which to me says that Romney-Ryan is not respecting American voters. But to just flat out lie about Romney-Ryan being fiscally responsibly is the height of disrespect.

Governor Romney’s Employment Record

Team Romney is boosting that as governor of Massachusetts (January 2003 to January 2007), he lowered the state’s unemployment rate to 4.7%. He fails to put this in perspective in several ways. When he became governor, the state unemployment rate was only 5.6% as compared to the national unemployment rate, which was 5.8%. And when he was leaving office, the national unemployment rate had declined to 4.6%. In other words, he presided during a period when the overall economy was finally recovering from the 2001 recession.

Our graph shows another important qualification to Romney’s boost. The state’s labor force (LF) grew by a meager 0.4% during his tenure so employment (EM) only had to rise by 1.5% to lower the unemployment rate. Nationwide, employment growth (per the payroll survey) grew by 5.25%. In other words, there is not much to really brag about as far as employment in Massachusetts during Mitt Romney’s tenure as governor.

Sinnlos

One of the more painful spillovers from the Eurozone crisis is that, from time to time, I have to try to make sense of the writings of Hans-Werner Sinn.  Since he is the creator of a questionnaire that asks managers about their business outlook, he is regarded as an oracle by much of the German press.  Unfortunately, his writing, which is ostensibly about economics, only randomly and sporadically intersects normal economic reasoning.

He has been on a rampage for over a year regarding the Target2 system, under which national central banks in the euro area are credited and debited for transfers between them.  Because of the large surplus run up by the Bundesbank, which corresponds to deficits at the Banks of Greece, Spain and other southern realms, Sinn thinks that hardworking Germans are financing a “stealth bailout” of nearly a trillion euros.  The fact that all euros are claims against the European Central Bank, and not against individual CB’s of eurozone countries, seems lost on him.  Somehow, allowing euro transactions to clear despite capital flight from Madrid and Athens to Frankfurt or Munich constitutes a raid on German wealth (rather than the economies of the countries from which capital is fleeing).

But I digress.  In his latest screed on the topic, Sinn writes

Germany agreed to relinquish the Deutsche Mark on the condition that the new currency area would not lead to direct or indirect socialization of its members’ debt, thus precluding any financial assistance from EU funds for states facing bankruptcy. Indeed, the new currency was conceived as a unit of account for economic exchange that would not have any wealth implications at all.

Take a look at this second sentence, which I’ve bolded for emphasis.  It seems to say that, in some magical way, the euro was designed to facilitate exchange without ever serving as an asset.  A money that is not an asset.  This is coming to you from the most influential “economist” in the German-speaking world.  Am I missing some other way to assign a meaning to this sentence that is remotely compatible with elementary economics?

Glenn Hubbard and Tim Kane’s New Blog – For Team Romney

Greg Mankiw calls this competition. So why do I suspect there is more coordination to put forth the Republican view that we need less taxes? Not only did Greg post this:

Adjustments based upon spending cuts are much less costly in terms of output losses than tax-based ones. Spending-based adjustments have been associated with mild and short-lived recessions, in many cases with no recession at all. Tax-based adjustments have been associated with prolonged and deep recessions.

But Glenn’s new blog starts by touting this argument:

Our view of balanced fiscal policy is more in line with Christina Romer, the first chair of Obama’s Council of Economic Advisers. In 2010, she published a study in the American Economic Review that said, “Tax increases appear to have a very large, sustained, and highly significant negative impact on output.” Romer found that, on average, every tax increase of one percent of GDP is linked to a three percent drop in real GDP over the next 10 quarters. A tax increase is the false mother to prosperity.

Where to begin? Of course, we should note that Glenn is misrepresenting the views of Christina Romer – a foul that Brad DeLong called on Greg Mankiw earlier. Glenn Hubbard and Tim Kane also love to use the term “balance” when they describe their views on fiscal policy. Sort of like Fox News call itself “fair and balanced”. I guess as we watch the Republican convention, we should now enjoy the fact that Team Romney now has two economist blogs.

David Brooks on the Romney-Ryan Medicare Plan

Can David read Mitt Romney’s mind?

When you look at Mitt Romney through this prism, you see surprising passion. By picking Paul Ryan as his running mate, Romney has put Medicare at the center of the national debate. Possibly for the first time, he has done something politically perilous. He has made it clear that restructuring Medicare will be a high priority. This is impressive. If you believe entitlement reform is essential for national solvency, then Romney-Ryan is the only train leaving the station. Moreover, when you look at the Medicare reform package Romney and Ryan have proposed, you find yourself a little surprised. You think of them of as free-market purists, but this proposal features heavy government activism, flexibility and rampant pragmatism. The federal government would define a package of mandatory health benefits. Private insurers and an agency akin to the current public Medicare system would submit bids to provide coverage for those benefits. The government would give senior citizens a payment equal to the second lowest bid in each region to buy insurance. This system would provide a basic health safety net. It would also unleash a process of discovery. If the current Medicare structure proves most efficient, then it would dominate the market. If private insurers proved more efficient, they would dominate. Either way, we would find the best way to control Medicare costs. Either way, the burden for paying for basic health care would fall on the government, not on older Americans. (Much of the Democratic criticism on this point is based on an earlier, obsolete version of the proposal.)

Uh David – Romney has made everything Ryan has said on Medicare obsolete. The truth is that Ryan and Obama have the same basic goal of capping the growth of Medicare over the next 10 years but Romney has decided that he doesn’t want any such reductions. Which by the way makes David’s close another lie:

The priority in this election is to get a leader who can get Medicare costs under control. Then we can argue about everything else. Right now, Romney’s more likely to do this. All of which causes you to look over to the Democrats and wonder: Why don’t they have an alternative? Silently, a voice in your head is pleading with them: Put up or shut up. If Democrats can’t come up with an alternative on this most crucial issue, how can they promise to lead a dynamic growing nation?

Again David – Obamacare strives to curb Medicare spending growth over the next 10 years by as much as the Ryan proposal wanted to do AND Romney said no! Now there is a big difference in the out years as Ryan proposes an underfunded voucher system that would lead to rising total health care cost rising for seniors but with less help from the government. So to say “we would find the best way to control Medicare costs. Either way, the burden for paying for basic health care would fall on the government, not on older Americans” makes two lies in just two sentences. David Warsh writes:

Brooks is a prestidigitator, that wonderful word borrowed from the French, descended from the Latin, meaning juggler, deceiver.

Me thinks Mr. Warsh is being way too kind to Mr. Brooks.

Some Frank Talk About Carbon Taxes

Good that Robert Frank wants to put climate change back on the agenda and points to the necessity of pricing carbon.  No matter which way the political winds are blowing, this problem is too important to ignore.

Nevertheless, it doesn’t help that mainstream economists keep getting this issue wrong.  They reinforce assumptions that dealing with carbon will dramatically lower the living standards of ordinary people, and they play into the kinds of political stereotypes that have stymied progress for two decades.

The good news is that we could insulate ourselves from catastrophic risk at relatively modest cost by enacting a steep carbon tax.

Presenting the necessary policy as a carbon tax makes the job nearly impossible right from the start.  Why lead with the promise/threat to tax people?  Pricing carbon is only a means, not an end.  The logical way to begin is to call for a system of carbon permits, just like we have hunting and fishing permits so that elk and trout aren’t harvested to extinction.  Auction off the permits and you put a price on carbon, but the means-end distinction remains transparent.  For one thing, you discuss tightening or loosening a permit system in terms of how many permits you want to issue, not on cost.  Our carbon policy should be calibrated in terms of the atmospheric carbon concentration we are targeting, not on how much revenue should be collected from a carbon tax.

Aside from its political virtues, a permit system has technical advantages that I discussed in a previous post.

A carbon tax would also serve....other goals. First, it would help balance future budgets. Tens of millions of Americans are set to retire in the next decades, and, as a result, many budget experts agree that federal budgets simply can’t be balanced with spending cuts alone. We’ll also need substantial additional revenue, most of which could be generated by a carbon tax.

Using carbon revenues to reduce income taxes is a terrible idea that hammers low and middle income people.  A price on carbon functions like a consumption tax and is regressive.  Using it to offset even mildly progressive income taxes is just one more way to bring about upward redistribution.  We’ve got enough of that already.  If you return the money as an equal rebate to all citizens, you’ve got downward redistribution.  What is most interesting from my point of view is that the issue of distribution doesn’t seem to matter to Frank at all; at least he never brings it up in this op-ed piece.

Incidentally, because a carbon tax is a consumption tax imposed on a very small subset of goods (essentially fossil fuels as consumed directly and indirectly), it is highly volatile compared to revenue from a tax on all the income we receive, regardless of how we spend or don’t spend it.

High unemployment persists in part because businesses, sitting on mountains of cash, aren’t investing it because their current capacity already lets them produce more than people want to buy. News that a carbon tax was coming would create a stampede to develop energy-saving technologies. Hundreds of billions of dollars of private investment might be unleashed without adding a cent to the budget deficit.

Yes, making fossil fuels more expensive will spur new investment in energy-saving technology.  But arguing that a radical change in relative prices is economically stimulative makes as much sense as saying that a natural disaster like Hurricane Katrina is an economic blessing.  Destroy capital and there is demand for new capital, but common sense suggests that there is also a cost involved, perhaps much greater.  In the case of carbon, if large parts of the capital stock become uneconomic, the livelihoods of millions of people will be at stake.  When Bill McKibben points out that 80% of the fossil fuels now known to be recoverable under the ground has to stay there, it is clear that enormous, wrenching price adjustments are required.

Take the case of cars.  Getting to adequate carbon targets will mean not only much more efficient cars, but a lot less driving as well.  It will also mean less replacement of older cars, since as much of the carbon impact comes from production as operation.  This will be bad news for auto workers, auto-dependent communities and economies propped up by the employment and profits of the auto industry.  (Germany take note.)  Everyone knows this.  That is why there is great political resistance to taking the sort of forceful action we would need to limit global temperature increases to 2º C or so.

Pretending the problem doesn’t exist doesn’t help.  The only way to make progress politically is to recognize the issue and link action against climate change to other measures that can make the transition bearable.  Make economic commitments to workers and regions at risk.  Propose infusions of public investment sufficient to absorb those displaced by high fossil fuel prices.  Discuss these issues openly and forge alliances with unions and other organizations that represent those at risk.  Happy talk like Frank’s goes nowhere.

Economists have (or should have) expertise that helps address these issues.  The starting point is knowing that they exist.

The Romney-Ryan Energy Plan and Jed Clampett

Take a listen to this Earl Scruggs tune as we read the Romney-Ryan Energy Plan. They are promising energy independence on a platform that is essentially “drill baby drill” - as they cite some claim from the Institute for Energy Research that we have 1.4 trillion barrels of technically recoverable oil, which they claim would satisfy U.S. energy needs for the next two centuries. The Institute also notes a speech by Thomas Donohue of the Chamber of Commerce:

Our nation is on the cusp of an energy boom that is already creating hundreds of thousands of jobs, revitalizing entire communities, and reinvigorating American manufacturing. Unconventional oil and natural gas development is on pace to create more than 300,000 jobs by 2015 in Ohio, New York, Pennsylvania, and West Virginia alone. Take a look at what’s happening in North Dakota. The state is booming. Unemployment is at 3.4%. Oil production just surpassed that of Ecuador—one of the members of OPEC. Energy is a game changer for the United States. It is, as the saying goes, “the next big thing.” With the right policies, the oil and natural gas industry could create more than 1 million jobs by 2018. Not only can we create jobs, but we can cut our dependence on overseas imports while adding hundreds of billions of dollars to government coffers in the coming years.

Yep – in 8 years, we will all be like Jed Clampett loading up our trucks and moving to Beverly:

Come and listen to a story about a man named Jed / A poor mountaineer, barely kept his family fed / Then one day he was shootin at some food / And up through the ground came a bubblin crude. / Oil that is, black gold, Texas tea.

Oil bubbling up in everyone’s backyard does sound like a stretch and what the Institute is claiming differs sharply from what this Congressional Research Service report notes:

U.S. proved reserves of oil total 19.1 billion barrels, reserves of natural gas total 244.7 trillion cubic feet, and natural gas liquids reserves of 9.3 billion barrels. Undiscovered technically recoverable oil in the United States is 145.5 billion barrels, and undiscovered technically recoverable natural gas is 1,162.7 trillion cubic feet. The demonstrated reserve base for coal is 488 billion short tons, of which 261 billion short tons are considered technically recoverable.

But what does “undiscovered technically recoverable” even mean. This document puts this in perspective:

Excluding the United States, the world holds an estimated 565 billion barrels (bbo) of undiscovered, technically recoverable conventional oil; 5,606 trillion cubic feet (tcf) of undiscovered, technically recoverable conventional natural gas; and 167 billion barrels of undiscovered, technically recoverable natural gas liquids (NGL), according to a new assessment by the U.S. Geological Survey (USGS) released today ... All of these numbers represent technically recoverable oil and gas resources, which are those quantities of oil and gas producible using currently available technology and industry practices, regardless of economic or accessibility considerations. This assessment does not include reserves – accumulations of oil or gas that have been discovered, are well-defined, and are considered economically viable.

So we have 20 percent of the undiscovered, technically recoverable conventional oil reserves in the world that may not be economically viable. I’m not sure that Romney-Ryan quite grasp the figures that they are touting. The private sector would certainly have to consider the private marginal cost of discovering and extracting any such oil, which likely would seriously understate the social marginal cost of producing oil. I wonder if Romney-Ryan has forgotten about the BP Gulf Oil Spill?

Consolidation in the Health Insurance Market

Dealbook notes the acquisition of Coventry Health Care by Aetna as a trend in this sector:

Aetna’s acquisition of Coventry is the latest deal in an industry that has been spurred to consolidation in part because of the Obama administration’s sweeping expansion of health care coverage in the country. Last month, WellPoint agreed to buy Amerigroup for about $4.9 billion.

Before Mitt Romney decided that Medicare cost containment was something to dishonestly campaign against, Paul Ryan and President Obama were both proposing that cost containment was a good idea. The difference perhaps was that the President’s idea for doing so involved price controls while the Republicans wanted to rely on more competition. Consolidation, however, is often a euphemism for the larger players to increase their market share on the hope of reducing competition. If these Republicans are serious about relying on competition – shouldn’t they be condemning this consolidation? Update: A hat tip to a devoted reader of Mark Thoma’s blog named Anne for providing us with a link to James C. Robinson who discusses the consolidation in the hospital sector.

George Will Makes Fool Of Self While Beating Dead Apocalypse Horse

In this Sunday's Washington Post, George Will excoriates the 1972 book, Limits to Growth (LtG) for making failed forecasts that we would run out of various nonrenewable natural resources by now, bringing up Paul Ehrlich's losing bet with the late Julian Simon about metals prices in the 1980s.  He then argues that we can therefore pay no attention to anything anybody was worried about at the recent Rio Earth Summit, and, btw, that Obama's current science adviser, John Holdren, was once an adviser of Paul Ehrlich's, eeeeek!

First we should recognize that LtG was seriously flawed, and from Day One its problems were noted by such figures as Robert Solow and Joseph Stiglitz.  The main flaw they pointed out, also argued by Simon, was the over-aggregation in the model: five variables at the global level, population, food, natural resources, industrial production, and pollution.  Indeed, the model simply ignored the sorts of microeconomic adjustments that can occur for individual resources, such as mercury (demand for which has fallen 98% since 1972). 

Second, they made their forecasts of running out of specific resources by simply looking at "measured reserves" and seeing how long those would last at then current usage rates.  The problem with this, which they really should have known, is that those reserves are not at all estimates of how much of any resource there really is.  They are what are known with high certainty to be there and also can be extracted profitably at current prices with existing technology.  In fact, for most of these resources, measured reserves have risen over time.

But, this does not get Will off the hook, as this is all old news, and he has not caught up.  Sure, Paul Ehrlich lost his bet with Simon in the 1980s, but he would have won the same bet if it had been made in 2000.  Furthermore, at Rio and elsewhere it is now understood that the real problems are not that we are going to run of tin and mercury, but that we may deplete our fisheries and destroy our forests and croplands through such things as climate change.  This latter was not discussed at all in LtG, and Will conveniently ignores it in his column.  Amusingly, he cites Bjorn Lomborg in dumping on LtG about all those metals, but fails to mention that Lomborg has changed his position about climate change from it not being that big of a problem to that it is a serious problem.

Yes, the Limits to Growth presented a deeply flawed model that in retrospect looks pretty silly.  But beating it over the head as a dead horse is seriously irrelevant to the current problems that we face.  Unfortunately, this sort of approach to arguing is all too typical of Will.

The Baker-Mankiw Solution to the Impending Doctor Shortage

Uwe Reinhardt lays out what seems to be a central theme in the conservative critique of ObamaCare as he cites this NYTimes discussion:

The Association of American Medical Colleges estimates that in 2015 the country will have 62,900 fewer doctors than needed. And that number will more than double by 2025, as the expansion of insurance coverage and the aging of baby boomers drive up demand for care. Even without the health care law, the shortfall of doctors in 2025 would still exceed 100,000. Health experts, including many who support the law, say there is little that the government or the medical profession will be able to do to close the gap by 2014, when the law begins extending coverage to about 30 million Americans. It typically takes a decade to train a doctor ... The Obama administration has sought to ease the shortage. The health care law increases Medicaid’s primary care payment rates in 2013 and 2014. It also includes money to train new primary care doctors, reward them for working in underserved communities and strengthen community health centers.

Textbook economics suggests that the market addresses shortages by increases in prices – which in this case is the compensation for doctors. Uwe notes this National Review critique of ObamaCare:

Physicians say they simply won’t practice under Obamacare rules that strip away much of their autonomy, drown them in bureaucracy, and leave them even more exposed to lawsuits. Health care already is one of the most highly-regulated industries in the country, and doctors and nurses are forced to devote a significant amount of their day to detailed paperwork, adding to their frustration and taking away from time with patients. Reporting requirements will increase significantly under the health overhaul law, and the penalties for those who run afoul of the avalanche of new rules also will increase. The supply of doctors will dwindle as demand for services reaches an all-time high. Fewer of those in private practice are taking patients on Medicare, and even fewer can afford to see the millions of new patients likely to be enrolled in Medicaid. By increasing demand for care without a comparable increase in the supply of doctors to treat the additional infusion of patients, the law will exacerbate the current physician shortage

Whether government policy is trying to alleviate this predicted shortage or is exacerbating it, the tone of these criticisms is that we cannot increase the supply of doctors quickly. As far as the critiques being pitched in terms of some concern for the poor, I love this snark from Uwe:

the strange theory that having no insurance coverage and ability to pay for care is better than having insurance coverage but having to wait for a doctor’s appointment to get non-emergency care.

These critiques are missing something important, which we noted here. Simply put, doctors in the U.S. are already receiving much higher compensation than highly trained doctors in other nations for reasons noted by both Dean Baker and Greg Mankiw. As Dean notes:

We could have designed trade policy to make it as easy as possible for smart kids from China, India and elsewhere to study to U.S. standards and then practice medicine, law, and economics in the United States. This would put the same downward pressure on the wages of these professions as we have seen for manufacturing workers and non-college educated workers in general.

Allowing highly qualified doctors to immigrate to the U.S. would alleviate this shortage and perhaps allow the market place to lower the monetary cost of hiring a doctor.

On Those Ryan Spending “Cuts”

Paul Krugman mocks the idea that Paul Ryan is a fiscal hawk by evaluating what his policy proposals mean for the next decade:

So if we look at the actual policy proposals, they look like this: Spending cuts: $1.7 trillion Tax cuts: $4.3 trillion This is, then, a plan that would increase the deficit by around $2.6 trillion.

But would Romney-Ryan really reduce the size of government at all. Paul?

approximately $800 billion comes from converting Medicaid into a block grant that grows only with population and overall inflation – a big cut compared with projections that take into account rising health-care costs and an aging population (since the elderly and disabled account for most Medicaid expenses). Another $130 billion comes from doing something similar to food stamps. Then there are odds and ends – Pell grants, job training. Be generous and call all of this $1 trillion in specified cuts. On top of this we should add the $700 billion in Medicare cuts that Ryan denounces in Obamacare but nonetheless incorporates into his own plan.

Romney is now saying that these Obama-Ryan proposed reductions in Medicare will not happen if he is President. OK! Barkley had this to say about the Medicaid proposal:

the part of the Ryan plans that is most potentially destructive both fiscally and economically, which I do not see repudiated by the Romney version, even if it is less clearly stated, is neither of the above, is what it/they do to Medicaid. This is to fix the amount sent to the states and then send it to the states as a block grant.

As I noted:

The numerical importance of this is right there in the document Ryan instructed CBO to produce. CBO predicts by 2050 under the current system that Federal spending for Medicaid and CHIP will be 4.25% of GDP. Ryan's budget would reduce this to 1% of GDP. Will the states pick up the 3.25% of GDP difference? If so, it would have to be with increases in what are traditionally regressive taxes.

Romney-Ryan are not proposing to reduce the long-term tax burden at all. They are just deferring it either to state governments or the future.