By John Ballard
In light of likely global shocks resulting from the Arab Awakening and a union-busting plank in GOP party platforms across the country, this week's basket of economics reading goodies from Roubini is especially good.
If the much-discussed government shutdown comes to pass next week or soon after a bit of homework with the dismal science is definitely in order. So get busy...
?Democrats Should Not Rise to the Bait of �Fiscal Conservatives� by Jeffrey Frankel
The zeal to cut funding for such tiny programs as the National Endowment for the Humanities and Planned Parenthood is accepted as evidence of the sincerity of the fiscal conservatives. I wish the Democrats would not fall for that bait. Their anguish over such cuts, while understandable, plays into the old narrative of big versus small government. The same with the bigger, but still small, categories of domestic spending such as food stamps. The Right reacts to such liberal anguish with glee, while the Center infers - less vindictively, but no more accurately - that such cuts are part of a painful but necessary fiscal adjustment. Losing the center is no way to put together a political majority.
?Conventional Meaninglessness by James Kwak
How much do you �contribute� to your benefits? Let�s say you work in the public sector and have a $60,000 base salary. You also have a health care plan that is worth $12,000, of which you contribute $3,000, so you end up with a post-benefit salary of $57,000 and a health care plan worth $12,000 for a total value of $69,000. Compare that to your sister in the private sector who has an $80,000 base salary but has to pay half the cost of her equivalent health plan. So she has a post-benefit salary of $74,000 plus a $12,000 health care plan for a total value of $86,000. You �contribute less to your benefits,� but your sister is much better off.
?The Coming Shutdowns and Showdowns: What�s Really at Stake by Robert Reich
America is the richest nation in the world, and �we�ve� never been richer. There�s no reason for us to turn on our teachers, our unionized workers, our poor and needy, and our elderly. The notion that �we� can no longer afford it is claptrap.
?Wisconsin�s Walker Joins Government Asset Giveaway Club (and Is Rahm Soon to Follow?) by Yves Smith
By now even sturdy readers may be feeling queezy from too much econospeak. Don't give up. This stuff is important. It will affect how your children and grandchildren will live. This piece is especially importnat at a time when the most toxic ingredient in the koolade is "government can't do anything right -- privatization is the only way out." A dangerous and nutty precept.
...these deals put important public resources paid for by taxes (or even worse, financed by bonds and thus potentially not even yet fully paid for) in the hands of private investors. They then earn their returns by charging user fees of various sorts. The public must rely on the new owners for reinvestment and maintenance, and depending on how the deal is negotiated, may have ceded control as far as fee increases are concerned. This is tantamount to selling the family china only to have to rent it back in order to eat dinner.
?More Invisible Signs of Looming U.S. Inflation! by Fabius Maximus
Long on charts and graphs. Plenty of supporting data. Read this to calm your nerves and resist the panic brokers on TV urging you to rush out and buy gold. (Or better yet, cash in your scrap jewelry at once before inflation... oh, wait... if you already have precious metals, maybe not... er, forget it. See how that panic shit works?)
Summary: The inflationista�s are (again) hysterically sounding alarms about looming US inflation. Or even hyperinflation. Let�s review the data. Can we see serious inflation? No. These fears are to a large extent fanned for political purposes. Left and Right both see that Americans are most easily headed by fear, like sheep. The more graphic, even outlandish, the greater the effect.
?How Chronic Budget Optimism Helped Dig the Hole We�re In by Edwin G. Dolan
The keystone of this essay can be found in the fourth paragraph:
That tendency toward chronic budget optimism is well documented in the OMB's own data base, which lets us compare the assumptions on which past budgets were based with the actual performance of the economy.
We know that old saying that "assume" makes an ass out of U and me.
No one could expect the OMB's budget forecasts to be accurate every year. Economic forecasting is an inexact art. What we could hope for, though, would be unbiased forecasts that would miss on one side as often as the other, unlike those of the OMB. The chronic bias toward optimism in the budget assumptions for the years covered in the charts clearly contributed to the budget mess the United States finds itself in today. If more cautious economic assumptions had been used, the tax cuts and unfunded spending increases in those budgets would have been harder to justify, and the national debt might well now be considerably lower.
?The Tea Party Protestors Really Mean Whiskey, Not Tea by Jeffrey Frankel
The famous slogan motivating the patriots in Boston Harbor in 1773 was �No Taxation Without Representation.� But democratic representation was achieved with the American Revolution. The Whisky Rebellion of 1794 is a much closer parallel for today�s protestors. Or the earlier Shays� Rebellion of 1787, the episode of anarchy to which many Americans reacted by seeking a federal constitution. The pitchfork-carriers in these rebellions were protesting against taxation with representation. They did not want to pay the taxes necessary to fund the government services they enjoyed � which at that time meant servicing the debt from the Revolutionary War. (Sound familiar?)
?Four Questions for Ben Bernanke on His Global Saving Glut Hypothesis by David Beckworth
?Goods vs Services: A Tale of Two Inflations by Barry Ritholtz
The discussionn here centers on how low wages counter rising commodity prices in a way that keeps overall inflation in check. When I read "low wages" the specter of high unemployment is part of the picture. All this talk aboout jobs, jobs, jobs is great, but when jobs become more plentiful rising wages will be the inevitable result. Hence the reference to "two inflations."
(Question: What's gonna happen when millions of newly energized young people now celebrating the Arab Awakening realize they must compete with one another for jobs? Community services like cleaning up the streets, directing traffic and forming neighborhood watch groups is great, but those activities don't put food on the table or pay the rent. Just asking...)
?The Republican Strategy by Robert Reich
(Have something handy to throw up in as you read this.)
These three aspects of the Republican strategy � a federal budget battle to shrink government, focused on programs the vast middle class depends on; state efforts to undermine public employees, whom the middle class depends on; and a Supreme Court dedicated to bending the Constitution to enlarge and entrench the political power of the wealthy � fit perfectly together.
They pit average working Americans against one another, distract attention from the almost unprecedented concentration of wealth and power at the top, and conceal Republican plans to further enlarge and entrench that wealth and power.
?Wisconsin Union Battle: A Convenient Distraction From the Real Culprit in State Budget Woes by Yves Smith
Similar points to those made by James Kwak above. Same chart.
?Analogy Watch: �Cairo Has Come to Wisconsin�? by Menzie Chinn
This is my least favorite of the readings in this collection, not because of the content but this insensitive headline. The arguments are similar to the rest, but comparing the historic courage of a generation of young people in the Maghreb facing life-threatening circumstances with even the most passionate of labor disputes in the richest country in the world is way out of line.
?Wisconsin Governor Uses Police State Tactics (Literally) on Democratic Senators (Updated) by Yves Smith
It�s bad enough that the �make the workers suffer� push is misguided (any budgetary pain should be shared, not dumped on a single target group). According to David Cay Johnson of Tax.com, [see previous Newshoggers link.] the average Wisconsin pension is $24,500 a year, which is hardly lavish. But what is stunning is that 15% of the money contributed to the fund each year is going to Wall Street in fees. Thus the blame for any shortfall should go in very large measure to probable kickbacks rank incompetence in the state�s dealing with the financial services industry and the impact of the financial crisis on state revenues. A recent paper by Dean Baker concludes:
Most of the pension shortfall using the current methodology is attributable to the plunge in the stock market in the years 2007-2009. If pension funds had earned returns just equal to the interest rate on 30-year Treasury bonds in the three years since 2007, their assets would be more than $850 billion greater than they are today. This is by far the major cause of pension funding shortfalls. [Let the notion of privatizing Social Security play in your head as you read this...] While there are certainly cases of pensions that had been under-funded even before the market plunge, prior years of under-funding is not the main reason that pensions face difficulties now. Another $80 billion of the shortfall is the result of the fact that states have cutback their contributions as a result of the downturn.
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