Romney and Italy

Commentary By Ron Beasley

Mitt Romney didn't go to Italy on his European adventure and there is good reason for that - he wouldn't have been welcomed.

That's because Bain Capital, under Romney as chief executive officer, made about $1 billion in a leveraged buyout 12 years ago that remains controversial in Italy to this day. Bain was part of a group that bought a telephone-directory company from the Italian government and then sold it about two years later, at the peak of the technology bubble, for about 25 times what it paid.

Bain funneled profits through subsidiaries in Luxembourg, a common corporate strategy for avoiding income taxes in other European countries, according to documents reviewed by Bloomberg News. The buyer, Italy's biggest telephone company, now has a total market value less than what it paid Bain and other investors for the directory business.

In Italy, the deals have spurred at least three books, separate legal and regulatory probes and newspaper columns alleging investors made a fortune at the expense of Italian taxpayers. Boston-based Bain wasn't a subject of the inquiries, which didn't result in any charges.

Romney himself was heavily involved in the deal and probably made about 50 million dollars on the deal. Bain and Romney may have been winners but the Italian government and Italian investors were not.

Property value heterogeneity and taxation

By Dave Anderson:

For every problem, there exists a simple and elegant solution which is absolutely wrong.

One of the big and stupid political food fights locally is the re-assessment of property values in Allegheny County.  These assessments were ordered by the local courts because the Pennsylvania state constitution mandates "uniform" taxation.  The judge ruled that the divergent value change rates between properties in the communities that make up Allegheny County since the last assessment led to de facto non-uniform tax rates.  Communities and home owners whose property values either lost market value or gained market value at a lower rate than county average gain rates are paying a de facto much higher tax rate on their property than individuals whose property has gained value at a faster than average rate.  Frequent reassessment minimizes the differential between de jure tax rates and actual fair market value tax rates. 

The County hired a firm to do the reassessments and the reassessment  has been a political football as it threatens to raise taxes on politically influential constituencies while lowering taxes on poor(er) communities and individuals.  The reassessment has cost the county $11 million dollars to develop the model and to get the baseline data. 

More and more people in the peanut gallery think that they have a simple, elegant and far cheaper solution.  That "solution" would be to have temps look at the recent sales prices of homes in a given community, take the price and divide the price by square footage. Do that for all recent sales, and voila, that is the average price per square foot in a borough.  Apply that number to each housing unit in the town, and all of a sudden, there is no need for a complicated forumala, expensive data collection, complex models or anything else complicated. 

The solution is simple, easy and elegant. It also makes the original injury that led to the lawsuit which has resulted in the court ordered re-assessment look like a minor flesh wound. 

Let's look at a real world situation.  The neighborhood of Garfield is in the city's East End.  It is also one of the poorest and most rapidly depopulating neighborhoods in the state.  The housing stock ranges from mediocre pre-war rowhouses, to should be condemened shells, and then Hope-6 public housing.  One can buy a small rowhouse for $10,000 (no, I am not missing a zero) in Garfield. 

At the same time, staying in the city, and just going a mile south, that same row house in the same condition will cost a buyer $175,000 in Shadyside off Ellsworth Street. The Shadyside purchaser is paying for proximity and neighborhood externalities. 

Taking an average between these two neighborhoods will lead to the Shadyside owner being assessed at slightly more than half fair market value, while the Garfield owner would see his assessment be 9 times his fair market value. 

This is an extreme example, but it shows that communities have high local variability in property values and simple solutions are not good solutions.  Complex and expensive approaches are sometimes the only way to actually make a problem tractable. 

 

Socialize the clean-up, privatize the profits

By BJ Bjornson

Why, oh why does this story sound so familiar?

An old N.W.T. gold mine that was recently cleaned up by the federal government is set to become a mine once again.

Aboriginal Affairs and Northern Development Canada (AANDC) took control of the heavily contaminated Colomac Mine site in 1999 after its owner, Royal Oak Mines, went bankrupt. Cleanup work was completed this year.

Now, mineral company Merc International Minerals Inc. announced it is acquiring the mineral rights to the property.

. . .

Tlicho elder Joseph Judas said he doesn't understand why the federal government would let another company mine at Colomac after it took them nearly 10 years and millions of dollars to clean it up.

Well Joseph, near as I can tell, the reason is likely that this federal government is made up of �business friendly� Conservatives, which means that they are happy to help out their business friends by spending taxpayer dollars to clean up the mess one of those friendly businesses left behind once the mine stopped being profitable enough, and then once the costly mess has been dealt with, they are more than happy to let another one of those friendly businesses move in to make even more money off of the property without all that nasty toxic clean-up to worry about anymore.

Being �business friendly� also likely means that the Conservatives will not be pushing too hard for the mining company to put up a bond against the eventual clean-up costs for this new project. After all, it wouldn�t be �friendly� to note that mining companies have a notorious history for spinning off failing mines that then declare bankruptcy and stick the clean-up bill to the taxpayers.

After all, friendship is all about trust, and if you can�t trust a mining company to clean up after itself, who can you trust really?

The Rich need the Middle Class too

By BJ Bjornson

Via Kevin Drum, more proof that economics of the very rich don�t mesh all that well with Republican ideology. Not only does Nick Hanauer call for higher taxes on the rich, but he gets to real nub of just who are the �job creators� in society.

I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

That�s why I can say with confidence that rich people don�t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.

. . .

One reason this policy is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don�t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, I go out to eat with friends and family only occasionally.

. . .

I can�t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can�t buy any new clothes or enjoy any meals out. Or to make up for the decreasing consumption of the tens of millions of middle-class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.

If the average American family still got the same share of income they earned in 1980, they would have an astounding $13,000 more in their pockets a year. It�s worth pausing to consider what our economy would be like today if middle-class consumers had that additional income to spend.

The whole column is well worth the read, and it�s always nice to see someone with wealth acknowledge that a policy of sticking it to the middle class and increasing income inequality is actually cutting their own throats as well.

The only unfortunate part being that there are still far too many vultures out there content to feed on the rotting carcasses their policies are creating. When one of the leading GOP candidates can talk seriously about using the labour of poor children to replace unionized janitorial staff because otherwise they'll be criminal riffraff and thereby increase his inner-party standing, you know things are unlikely to change fpr the better anytime soon.

Paying for services

By Dave Anderson:

A shocking event happened in Pittsburgh last night. Its citizens decided that they actually wanted to pay for public services. A special tax levy of $25 per $100,000 of taxable property was passed in order to partially fund the library system.

The Post Gazette has details:

By a margin of more than two to one, Pittsburgh voters Tuesday approved a binding referendum to add 0.25 mills to the tax on all real estate in the city, and steer the proceeds to the fiscally challenged Carnegie Library of Pittsburgh. The levy could bring more than $3 million a year to the library system for operations and maintenance.

In 2009, the Carnegie Library administration decided that branches...should be closed,... merged... and moved. Administrators said declining population, cuts in public funding, inflation.... Stopgap funding from the city and state forestalled the moves. The referendum drive sprang from that crisis.

That is almost un-American, being willing to pay for public services that are available to everyone including people like me, non-residents who are fairly heavy library users.

The unthinkable is the way to go

By BJ Bjornson

Following up on Dave�s post about the financial world�s shocked reaction to a country stooping to democratic means to determine its fate, it appears that the conversation is turning in the direction of bowing to the inevitable, defaulting on their debt and leaving the Euro to return to their former currency, the drachma.

Such a move is still officially anathema in Athens. But a growing body of economists argues that it would be the best course, whatever the near-term financial and economic implications. And now, with a referendum on the European-led bailout facing Greek voters, a vocal minority that has long called for a return to the drachma might find itself with a growing group of listeners.

A return to the drachma is unlikely to offer a quick cure for Greece�s ills. Default on the nation�s $500 billion in public debt would become a certainty, depositors would take their money out of local banks and, with a sharp devaluation of as much as 50 percent, inflation would loom. A return to the international credit markets would take years.

But drachma defenders contend that these worst fears are overdone. Yes, there would be disruption and panic initially. But, they say, pointing to Argentina�s case when it broke its peg with the dollar in 2002, the export boom ignited by a cheaper currency and the ability to control the drachma would eventually work in Greece�s favor.

All of which pretty much matches what I�ve been hearing for quite some time. There is of course more than a little fear that returning to the drachma will be painful, and that fear is not unfounded. But the harsh truth is that getting Greece�s books in order is going to be painful whatever way they go, and at least returning to the drachma and regaining control of their currency, offers a far more plausible way out of the mess than remaining with a currency they don�t control and whose value is based on far healthier economies than its own.

Of course, Greece has other problems that won�t be solved by simply returning to the drachma, such as the reason that they found themselves needing to borrow so heavily beyond their capacity to repay in the first place. Thanks to a link John provided in the comments to Dave�s post, we can safely say that the issue isn�t actually the favourite bugbear of conservatives everywhere, namely over-generous spending on benefits for poor people, but an all-too-common failure to look at the revenue side of the equation, particularly for a certain class in a way that looks all too familiar to the debates on this side of the Atlantic.

Historically, Greeks have been very good at constructing myths. The rest of the world? Not so great, if the current burst of commentary on the country is anything to go by. Reading the press, one gets the impression of a bunch of lazy Mediterranean scroungers, enjoying one of the highest standards of living in Europe while making the frugal Germans pick up the tab. This is a nonsensical propaganda. As if Greece is the only country ever to cook its books in the European Union! Rather, the heart of the problem is in the antiquated revenue system that supports that state, which results in a budget shortfall consistently about 10% of GDP. The top 20% of the income distribution in Greece pay virtually no taxes at all, the product of a corrupt bargain reached during the days of the junta between the military and Greece�s wealthiest plutocrats. No wonder there is a fiscal crisis!

So it�s not a problem of Greek profligates, or an overly generous welfare state, both of which suggest that the standard IMF style remedies being proposed here are bound to fail, as they are doing right now. In fact, given the non-stop austerity being imposed on Athens (which simply has the effect of deflating the economy further and thereby reducing the ability of the Greeks to hit the fiscal targets imposed on them), the Greeks really are getting close to the point where they may well default and shift the problem back to those imposing the austerity. This surely can�t be much worse than the slow execution they are facing today.

Emphasis mine. I�m beginning to see a certain inevitability to this solution. And as to the fears that doing so will cause the rest of the financial world to shun the country and cause its total collapse, the same was said of Iceland when they refused to socialize the gambling losses of their banks. The decision did hurt them, but they are recovering nonetheless.

Greece�s sovereign debt is a different matter, but as the quote above notes, whatever short-term pain a default may cause, suffering through a slow execution under the current regime is likely to be worse. Get it over with already.

When incentives go wrong

By BJ Bjornson

While John�s covered the effect income inequality has on health and healthcare, there was another point in the Tyee article that caught my eye.

The problem is not the poor robbing the rich through taxes, but the rich robbing the poor through tax cuts that wreck the infrastructure. And the rich have to the chutzpah to tell us that this robbery is the way to prosperity for all

.
That of course reminded me of the excellent Elizabeth Warren statement that went viral on YouTube.

 

There is nobody in this country who got rich on his own. Nobody. You built a factory out there - good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea - God Bless! Keep a Big Hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Much like the failure to invest in better healthcare for the whole population leads to poorer results for everyone, the failure to provide the government sufficient revenue to maintain high standards in education, fully-staffed police and firefighting forces, and decent infrastructure, both in transportation and increasingly in communications, makes everyone poorer, even if the gap between the haves and have-nots expands as a result of the low taxes on the wealthiest.

Nothing particularly new there of course, and the decade starting from Bush getting the presidency was an almost textbook example of robbing the public bank for the benefit of a very few, with the Republican party and some nearly extinct Blue Dog Democrats ensuring that legislation like the stimulus package was too heavily biased towards tax cuts rather than real stimulus spending or actual investment in the future that infrastructure spending represents, and have now resorted to outright sabotage of any measure that may help the economy to increase their own chances of being returned to power.

I�m reminded if a quote, the source of which I now forget, where a prominent Republican, waxing on about a permanent Republican majority, was asked if he truly thought that there would never be another Democratic President elected, to which he replied in essence, �We will make it so that they cannot govern as a Democrat.� Sadly, he appears to have been right.

There has been a rather dangerous change in American politics in that there is now considerable incentive for the Republican Party to deliberately make things worse economically. Steve Benen has a good post up where he quotes an individual from an AP article who agrees with Obama, but would likely vote against him because Obama can�t get anything done.

That is heartbreaking, but it�s important � Republicans have an incentive, not only to hold the country back on purpose, but also to block every good idea, even the ones they agree with, because they assume voters will end up blaming the president in the end. And here�s a quote from a guy who makes it seem as if the GOP�s assumptions are correct.

It�s hard to say just how common this sentiment is, but it doesn�t seem uncommon. The public likes to think of the President of the United States, no matter who�s in office, as having vast powers. He or she is �leader of the free world.� He or she holds the most powerful office on the planet. If the president � any president � wants a jobs bill, it must be within his or her power to simply get one to the Oval Office to be signed into law.

And when the political system breaks down, and congressional Republicans kill ideas that are worthwhile and popular, there�s an assumption that the president is somehow to blame, even if that doesn�t make any sense at all. Indeed, here we have a quote from a voter who is inclined to reward Republicans, giving them more power, even though the voter agrees with Obama � whose ideas (and presidency) Republicans are actively trying to destroy.

This is part of what James Fallows and others have been on about for some time regarding the media�s treatment of this obstructionism, and why the rare accurate coverage bears notice. Without the media making it clear that there is a deliberate campaign by Republicans to obstruct any and all positive progress, most people who aren�t closely and rabidly following politics, which I would say is the vast majority, are simply going to blame the guy at the top for the failure to improve things and reward the folks who are opposed to the progress they want.

No matter how you look at it, no system can last when the incentives for destruction outweigh those of creation. This either changes, or you end up with one hell of an ugly collapse.

There are some glimmers of hope, such as the recent headlines linked above. And though it may be more about early campaign rhetoric than anything else, the fact that the Democrats looked poised to force further votes on popular job-creating bills to make the Republicans finally face some heat for their obstruction is definitely the right track to take.

I don�t know how much Occupy Wall Street can take the credit for possibly stiffening some Democratic spines in this continuing battle, or in helping put the focus on jobs rather than the deficit, but I do agree with John Cole�s point some time back that this is the way the Overton Window gets moved. Properly focused, it may just get the incentives of elected officials back into line.

What Way From Here?

By BJ Bjornson

I�ve been watching the Occupy Wall Street protests with a mixture of hope and pessimism. The hope is buoyed by the fact that the protests have sustained themselves and even built momentum over the past month, finally forcing the powers that be to start paying some attention to the anger that underlies the movement.

The pessimism is of course related to the clear unwillingness of a large segment of those powers to actually change a system that�s working quite well for them unless forced to, and it remains very uncertain whether or not simple protests will be sufficient to force more than merely cosmetic changes to the system.

Before I get to the reasons for that, it is a good idea to remember just why the protests exist to begin with. John Robb has been doing a pretty good job in following these things as well, and in a recent post, included this chart as a pictorial representation of just what these protests are about.



The same point has been made elsewhere, but basically boils down to the fact that since the late-70�s, early 80�s, gains in worker productivity have not been matched by gains in worker compensation. Instead, the cream�s been skimmed off the top by those at the top, and it�s mostly the latent anger at this which is driving the OWS protests.

The skimmers now find themselves in a very bad situation that makes compromise difficult, partly of their own making. That part being that while workers� pay hasn�t matched their increased productivity, the cost of living has, and now far too many of the 99% can�t afford the products they�ve been getting paid less and less to make. This is also why OWS is a worldwide phenomenon. The trans-nationals have been competing by looking for cheaper and cheaper labour forces to make their products, but we�re now getting past the point where there is any benefit from doing so. And with so many formerly well-paying jobs disappeared off-shore into sweatshops or transformed into low-paying service jobs, the potential customer base for those products has started to shrink as well.

Without customers, there is no demand, and with no demand, there are no profits to be made, short of the casino trading in financial products that Wall Street has become.

The second critical point is the one Ron has referred to often, and which Kevin Drum has a post on today: Peak Oil

It�s not the only resource which is facing constraints; though it is one of the biggest where the economic effects are already being felt. This is bad news for everyone, but for the folks at the top of the ladder, it means that simply moving back to a post-WWII economy where strong unions and government oversight allowed for a successful middle class and growing incomes across the board, including those at the top, just isn�t possible anymore. The overall economy is going to struggle to maintain any kind of real growth without smacking up against resource constraints that stop it in its tracks.

That means things might actually be a lot closer to the zero-sum game some of the more reactionary pundits make the �class war� out to be, which means the �haves� are going to be ever more reluctant to give in to the �have-nots�.

On the other hand, there is still a fair bit of room for that increased productivity to be put to truly productive uses at a local level that will allow for greater prosperity for most people even as resource constraints constrict trans-national supply chains and businesses that depend upon them. That change is coming upon us whether we like it or not, and it remains to be seen just how hard the entrenched interests fight against it.

Another John Robb post looked at the possibility of a Capitalist Reformation, modeled after what happened to the European Church, which may wind up being the model this transition takes. And while a reformation might not mean a complete rejection of the current system, but only a rejection of the current implementation/hierarchy/rules due to corruption, failure, and injustice (his words), I don�t recall the historical Reformation being at all peaceful, and it took a good long time to shake itself out.

Thus, my pessimism regarding the OWS movement. I wish them every success, because the alternative means things will ultimately get a whole lot uglier, as they have at other points in history.

All the shouts about "class war" bring to mind images of rabid Jacobin mobs in 1793 hauling brave nobles and gentlemen to the guillotine. But if Rupert & co. really want us pondering that image, we owe it to ourselves to leaf back just a few pages to 1789, when the revolution began as a much more moderate thing, inspired by events across the ocean, in America.

France was broke. Louis XVI and his ministers were incompetents who deliberately squelched commerce with internal tariffs and policies that crushed innovation. The church owned much of the productive land, tax-free. So did the feudal aristocracy. Top merchants and corporations managed to wrangle exemptions too. After years of quagmire wars, poor tax revenue, bank collapses and mismanagement, Louis needed more money to stave off bankruptcy and save the country. So he summoned the Estates General.

That was the rough French equivalent of the British Parliament, but with much less authority. In fact, it had last met in 1614. But Louis was desperate. What he needed was for the first and second "estates" -- the clergy and nobles -- to vote themselves a temporary levy and join the third estate (the people) in paying their fair share.

That's how it all started. The country's leader asking oligarchs and aristocrats to pay the same rates as common folk, for a while, especially since they already owned damn near everything. The answer given by the dukes and bishops and marquiseseses? Heck no! We're the ones keeping it all together. The managers and investors and owners and job-makers. The government can damn well keep its mitts out of our pockets. It's our money, not the state's.

We�re not there in North America quite yet, and if the OWS movement results in some real change rather than a simple re-entrenchment of wealthy interests, we can hopefully still avoid it altogether.

Because Taxing the Wealthy is Evil

By BJ Bjornson

We�ll just have to forgo a couple of not-too-important services, like, you know, locking up wife-beaters.

Domestic abuse advocates in Topeka are outraged after the Shawnee County District Attorney's Office said that they will no longer be prosecuting domestic violence cases, and now the city of Topeka is talking about repealing its anti-domestic violence law.

Shawnee County prosecutors, dealing with a 10 percent budget cut, told city officials that they will no longer prosecute misdemeanor cases, including domestic violence. The move has left domestic violence victim's advocate Claudine Dombrowski furious, saying that the move leaves victim caught in the middle.

"It's appalling, it's disgusting," said Dombrowski. "A week after this started there were over 30 cases that had been dismissed because the county dropped it on the city, and the city says we can't do it."

This all part of that �shared sacrifice�, I�m sure. And don�t worry, I�m sure there will continue to be more than enough law-enforcement personnel to continue harassing, arresting, and prosecuting people who are deluded enough to think that this whole �shared sacrifice� should include the wealthy paying a bit more in taxes, and that the criminals amongst the financial elite shouldn�t be any more able to avoid the consequences of their crimes than Topeka�s wife-beaters will soon be able to.

Trends and Auto Fleet sizes

By Dave Anderson:

Karl Smith at Modeled Behavior argues that the short term destruction of American vehicle capital stock is an aberration and is a primer for a boom in the intermediate future:

Well, because as of the last few years the auto fleet in the United States has begun to shrink. That is, we are scrapping cars at a faster rate than we are producing them. Unless something changes in the next 18 months, our scrappage rate will begin to exceed new cars sales by the millions of units per year. In a country that is still growing in population and still adding drivers every year its hard to explain why the optimal path is suddenly for the vehicle fleet to shrink.

This analysis assumes long term trends are still the relevant comparison. That usually is a good bet.

However the other option is to assume that we are in an error of austerity. The Reagan and post-Reagan era economic paradigm has assumed that the non-elites have had it too easy, and that whenever there is any inflationary pressure of any sort in any sector, the key is to exclude more non-elites from consumption. 

American teenagers are delaying their first driving licenses and more Americans do not own cars. A car is an expensive capital investment and an even more expensive ongoing expense. In a few areas in this country, it is quite plausible for an adult to fully function as a citizen, an employee and an adult without one car per adult. However most areas of the country are not dense enough nor interconnected enough for carlessness to not be a major ongoing expense.

This interpretation would say that more Americans are being forced out of the fully involved middle class because they can no longer access cars. Without a car, non-urban core employment opportunities are severely restricted, consumption opportunities are restricted, and energy consumption, which is the limit on American economic growth, is minimized. 

It is from this interpretation that the 99ers demands that the American Dream that we have been sold on, and we have been indebted to either be made to work for most of us, or the debts forgiven as we had been sold a bill of counterfeit goods. 

Those Damned French

By BJ Bjornson

Do you all remember about a week or so ago, when Warren Buffet called for a special tax on the super-rich? And that Fox News quickly denounced this multi-billionaire financier as being a socialist? Well, we now have proof that Fox News was right. Some of those snooty French rich folks just made the same offer to their government to help deal with the deficit, and even worse, it appears that that pinko-commie Sarkozy is planning on taking them up on it! And to think he has the balls to call himself a conservative!

The French government is to impose an extra tax of 3% on annual income above 500,000 euros (�440,000; $721,000).

It is part of a package of measures to try to cut the country's deficit by 12bn euros over two years.

. . .

Sixteen executives, including Europe's richest woman, the L'Oreal heiress Liliane Bettencourt, had offered in an open letter to pay a "special contribution" in a spirit of "solidarity".

. . .

They said: "We, the presidents and leaders of industry, businessmen and women, bankers and wealthy citizens would like the richest people to have to pay a 'special contribution'."

They said they had benefited from the French system and that: "When the public finances deficit and the prospects of a worsening state debt threaten the future of France and Europe and when the government is asking everybody for solidarity, it seems necessary for us to contribute."

Can you imagine? It�s a wonder any of those French people managed to make so much money with their quaint ideas about how �shared sacrifice� actually applies to the super-rich as well as the poor. No fear however, the Republican Party will make sure such insanity never takes root in the U.S. The rich�s riches must be protected at all costs, after all.

Boring but persistant fantasies

By Dave Anderson:

Kevin Drum has the quote of the week:

It's [budget deal and the super duper Congressional committee's cuts] a shit sandwich no matter how you look at it. And it's a shit sandwich in at least two very specific ways: (1) It means we'll continue to live in a fantasyland that says we don't need any tax increases even though our population is aging and we're plainly going to need higher revenues to support this demographic reality; and (2) we'll continue to live in a fantasyland that says our problems are primarily caused by discretionary spending. This is, of course, exactly the opposite of reality, which means we're going to screw the poor and do nothing serious about the long-term deficit. Nice work, adults.

Ignoring reality is a dangerous game as reality will overwhelm the best PR spin over the intermediate to long term. 

Better instead of bigger

By Dave Anderson:



Expansionary Austerity is a bad joke.



Kash at Street Light passes along the "success" of the British experiment in Expansionary Austerity:

Gross Domestic Product (GDP) grew by 0.2% in the second quarter, according to the Office for National Statistics, down from 0.5% in the previous quarter.


The think tank the Institute for Public Policy Research (IPPR) was also critical of the level of growth. "Last June, the OBR [Office for Budget Responsibility] predicted GDP would grow by 2.6% in 2011, but even if the economy gets back on track in quarters three and four this year, it will barely reach 1.2%," said IPPR director Nick Pearce.

It's not mysterious: when you raise taxes and cut government spending, growth slows. And when you do that during a very fragile and weak recovery, you can push your economy back into recession, or at best, choke off growth almonst completely. That's exactly why, as has been extensively written about both here and elsewhere, austerity during a time of economic weakness is not a good way to beat a budget deficit, and will be largely self-defeating.

Dave Kurtz at Talking Points Memo raises the relevant point of the entire kabuki kamikaze debt ceiling debabcle:

Harry Reid's plan as advertised: $2.7 trillion
CBO projection: $2.2 trillion



John Boehner's plan as advertised: $1 trillion
CBO projection: $710 billion



Reid still wins, by a large margin. You can see why many Republicans aren't smitten with Boehner's plan.



But forget those figures for a moment. Here are the two numbers I'd really like to see: forecasted GDP under each plan and projected unemployment under each plan. That's a much sounder basis on which to evaluate these plans -- and the whole austerity craze -- than just ... whose is bigger.

Incentives and the probability of at least one day of default

By Dave Anderson:

Just a comment I left at another blog that I think should get aired here:

For almost every member in Congress their optimal political situation as they read it is the following:

a) A Majority votes �YES� for a relatively clean debt ceiling increase.
b) The individual member in question votes NO and screams against the tyranny of debt for the next fifteen months.

For a Republican from a safe seat (say R+8 or better) a YES vote means they get teabagged in the primary. Even if they win the primary, that is a pain in the ass. And given the % of GOP Reps who voted for TARP and have since left office (around 50%,) voting YES on the debt ceiling is a career breaker.

A Rep in a marginal seat (R+8 or less) might get primaried, although the Establishment of the GOP will try to head that off, but won�t have any door knockers in the general election if they vote YES.

A Dem in a marginal seat (R+anything to D+5 or so) will see a YES vote as guaranteeing a million dollar ad campaign from the Club for Growth, Americans for Prosperity or Crossroads GPS plus whatever official money is spent in that district with the punch line of �Congressman X voted to sell us out to the Chinese or the Saudis�

The D+5 to D+10 Dem Congresscritters are the �gettable� votes if they get credible committments from the GOP to not fund strong challengers against them (not gonna happen)

The only Congresscritters who don�t have to worry about losing their seats due to a Yes vote is a Dem in a safe to super-safe seat (D+10 or more). A clean debt ceiling vote is not a primary challenge inciter, and the seat is Democratic enough to hold the ramparts in the general election. Now if there is a grand bargain that fucks over the lower half of the income distribution, then a YES vote is a primary inciter.

Furthermore, look at the dynamic you propose � Republicans get to be massively irresponsible, force the Dems to take the political heat in order to allow Republicans to be even more irresponsible. Bad incentive structure there

Teabagger Stupidity

Commentary By Ron Beasley

This is the Sellwood Bridge which crosses the Willamette River in Portland Oregon.  It is nearly 90 years old and has a safety rating of 2 on a scale of 100.  It is administered by by Multnomah County but 70 percent of the traffic across the bridge are commuters from Clackamas County.  A new bridge will cost about 290 million dollars.  Clackmas County was asked to contribute 22 million dollars - less than 10 percent of the cost -  and the county  agreed.  They decided to asses a temporary five dollar a year surcharge on motor vehicles registration until the 22 million dollars was recovered. 

An anti everything Teabagger group was successful in getting this proposition refered to the voters.

OREGON CITY -- Clackamas County voters on Tuesday resoundingly rejected contributing to the cost of replacing the Sellwood Bridge, a decision that sends Multnomah County commissioners scrambling to secure funding.

Partial returns indicated voters rejected the fee 63 percent to 37 percent.

The measure called for Clackamas County residents to pay a $5 annual vehicle registration to help raise the county's $22 million contribution for the $290 million replacement bridge.

Voter turnout in Clackamas County was about 41 percent.

It's now unclear if construction on the bridge will begin in a year as originally scheduled, Mike Pullen, a spokesman for Multnomah County, said Tuesday night. "It could delay the project," he said. "It could mean the whole project takes much longer."

The bridge will simply have to be closed down in two to eight years.  It will be Clackamas County that suffers.  They may actually be forced to take the light rail which they also fought but lost.  In this case the just say no to everything Teabaggers said no to something that they need and would have cost them a penny and a half a day.  Perhaps the US population has truly become to stupid for Democracy.

Corporation tax - Blood In The Water

By Steve Hynd

There's blood in the water - and the feeding frenzy may be aimed at corporate sharks who are dodging their fair share of taxes. Yesterday, Treasury Secretary Timothy Geithner said that the administration is crafting legislation to tighten up on corporation tax loopholes and use that to lower the corporation tax rate.

�I�m actually quite optimistic that we�re going to be able to start that process with a very strong pro-investment, pro-growth, pro-competitiveness proposal,� Geithner said, adding that the plan would be revenue-neutral.

Geithner�s statements come amid a flurry of action on the tax-reform front, which prominent policymakers on both sides have said should be examined.

The House GOP budget plan � crafted by Rep. Paul Ryan (R-Wis.), the chairman of the House Budget Committee � proposes reducing both the top corporate and individual tax rates to 25 percent. Rep. Dave Camp (R-Mich.), the chairman of the House Ways and Means Committee, also floated those figures in mid-March.

On Monday, Sens. Ron Wyden (D-Ore.) and Dan Coats (R-Ind.) introduced bipartisan legislation to comprehensively revamp the tax code. 

Geithner, testifying before a Senate Appropriations subcommittee, suggested Tuesday that he thought the corporate tax code could be revamped before the individual one, a different approach from House Republicans and the Wyden-Coats bill. 

The secretary also reiterated that the administration would be unwilling to examine a policy allowing multinationals to bring offshore profits into the United States at a reduced tax rate outside of broader corporate reform. Some lawmakers and a coalition of businesses have called for such a tax holiday in advance of tax reform. 

�What we want to do is improve incentives for people investing more of those resources here in the United States,� Geithner said. 

Obviously, a "revenue neutral" plan is far from ideal when most of America's biggest, most profitable companies have been dodging tax to the point where they pay nothing at all.

Enjoying record profits and taxpayer-funded bailouts as the economy slowly recovers from a financial crisis, nearly two-thirds of US corporations don't pay any income taxes, instead opting to abuse tax loopholes and offshore tax havens. According to this study from the non-partisan Government Accountability Office, 83 of the top 100 publicly traded corporations that operate in the US exploit corporate tax havens. Since 2009, America�s most profitable companies such as ExxonMobil, General Electric, Bank of America and Citigroup all paid a grand total of $0 in federal income taxes to Uncle Sam. Tax havens alone account for up to $1 trillion in tax revenue lost every decade, money that could be invested in K-12 education, colleges, public health, job creation and hundreds of other worthy public programs.

However, at least such a revenue-neutral plan would shift some of the onus from smaller companies to the big 100, who would finally be paying some of their share. That's got to be good for American economic growth and competitiveness. And closing those offshore loopholes would also mean that the big 100 would be forced to invest more of their billions in profits inside America, further fuelling domestic growth.

However, with the folks in DC leading the way, some State legislators are looking at making giant tax-doging corporations pay more of their share of state taxes too. In Alabama, of all places:

The House Democratic Caucus will introduce a package of a dozen bills to put a stop to corporate freeloading, ensuring that corporations pay Alabama income taxes on income they earn in Alabama.  If this corporate responsibility package passes the Republican dominated Legislature, it will bring in an additional $200 million next year for the Education Trust Fund which has a $165 million shortfall this year.

"Democratic lawmakers have made a choice,� said Democratic House Minority Leader Craig Ford (D - Gadsden). �Our �handshake� is with the teachers, students, and working families of the state, not with the big businesses that are abusing our tax code for the sake of profit.�

�In 2008, 1700 companies doing business in Alabama reported $413 billion in income to the IRS but paid absolutely no Alabama state income tax,� said Representative Richard Lindsey (D - Centre). �There were 16 companies in Alabama that reported $1 billion in federal income each. Yet they paid zero Alabama income taxes.�

Alabama Democratic Party Chairman Judge Mark Kennedy applauded the move, saying, �Alabama Republicans blame our budget on our public servants while big corporations avoid paying millions in state taxes. Closing these loopholes will ensure these big business pay their fare share, instead of forcing small business owners and hard-working Alabamians to shoulder the burden alone.�

I'm sure Dems in other states will follow Alabama's lead. With Paul Ryan's proposed GOP budget only looking to reduce the corporation tax rate without closing loopholes - a massive corporate welfare giveaway at the expense of common people - the optics and framing have never been better. Democrats should thank folks like US Uncut for that.

How Many Afghan Lives To A Western One?

By Steve Hynd

In the Guardian today, Peter Singer breaks down the price of a life in Afghanistan.

Most just say that an Afghan life is worth the same as a British life, because all human lives are of equal value. Isn't that what we all believe?

The Ministry of Defence has been paying compensation to Afghans for accidentally killing their children, their brothers and sisters, or their parents, during the fighting in Afghanistan... in no case was more than $8,000 (about �5,000), paid for the loss of a single life.

Now let's take a look at the value of a British life. The National Institute for Health and Clinical Excellence (Nice)... recommends that the NHS pay up to four times as much to extend the life of a British citizen by just one year, as the MoD is prepared to pay in compensation for killing a child or young person. That young person could � even allowing for Afghanistan's dismal life expectancy � expect to live another 40 reasonably good-quality years. That suggests an answer to the question with which I started: it takes about 4 x 40, or 160 Afghan lives, to be worth the same as one British life.

But that would not be the right answer, because �5,000 will buy much more in Afghanistan than it would buy in Britain � according to international price comparisons, perhaps four or five times as much. Let's say five times. Even with that adjustment, it is going to take 32 Afghan lives to be worth the same as one British life.

There is nothing unique about Britain in this respect. The Guardian has reported that the US generally pays no more than $2,500 in compensation for the loss of an Afghan life. In contrast, after the terrorist attacks of 11 September 2001, the US government set up a Victim Compensation Fund. The average payment it made to families of victims was $1.8m. Adjusting for purchasing power at a 5:1 ratio suggest that the US regards the life of an American as equivalent to the lives of 144 Afghans.

That is all kinds of fucked up. But its even more fucked up to consider that in America at present the government continues Bush's penchant for giving money to the super rich, with the top 0.13% of the population making as much from those tax breaks as the bottom 90%. That means that one rich American is worth about 693 poor Americans - or 9972 Afghans.

The Douchebag strikes again

By Dave Anderson:

One of the federal government's core competencies is writing checks.  Another federal core competency is being a very large purchaser of almost everything.  That size can allow the federal government to throw its market weight around to get good deals.  That is why Medicare is cheaper on a per unit basis that private insurance; the federal risk pool is much broader and the federal purchasing power is significantly stronger so providers have to cut the federal government a decent deal over their private market rates. 

However, the federal purchasing power is not always used to efficiently spend money to provide needed or desired services.  The most notable example is the failure to include a public option in PPACA.  Additionally, Medicare Part D has been forbidden by Congress to enter 'next best price contracts' where Medicare would get the best price offered to any client for a particular drug, even if that best price was offered to the Veterans Administration. 

However, durable medical equipment is a category of Medicare Part D expenses that Medicare can seek a good deal on by leveraging Medicare's size to the government's advantage.  Currently, Medicare is working on a pilot program where durable medical equipment is supplied by regional low bidders.  This is projected to save $20 billion or more dollars over the next decade. To me, this is a no brainer as services are provided at the same level but at a lower aggregate expenditure which means either more services can be offered for the same budget, or the same services can be offered at a lower budget.  Either way is a net social benefit. 

However, Congressman Altmire (Douchebag Dem-PA) hates capitalism and loves local political capture through the erection of artificial barriers to competition:

Reps. Jason Altmire, D-McCandless, and Glenn Thompson, R-Centre, have long tried to slow or halt the new Medicare program, which began in January in nine metropolitan areas, including Pittsburgh.

The program, in an effort to cut Medicare Part D costs, has companies offer bids to sell devices like oxygen tanks and power wheelchairs. Medicare selects a group of suppliers for eight categories of devices in each market based on which ones submit the lowest bids.

The device industry is fighting the new program, saying the severe price cuts --- in Pittsburgh, prices have dropped by more than a third --- will force small providers out of business

Economies of scale are saving significant sums of money as Medicare Part D is basically buying commodified products but the inefficient providers are getting squeezed hard and are trying to carve out a protected revenue stream as that is the only way that they can survive when they stomp their feet as they threaten to go Galt on us. 

 

It's "US Uncut" Day

By Steve Hynd

 
US Uncut protest outside Bank of America in D.C. (Source)

With events planned in over 50 cities across America today, the grassroots protest movement known as US Uncut should be making a media splash. Sit-ins at branches of Bank of America are designed to highlight the bank's evasion of U.S. taxes through exploitation of legal and accounting loopholes, despite it's making record profits and paying record bonuses. One of the movement's founders explains:

"The $3 in my wallet is more than ExxonMobil, GE and Bank of America paid in taxes last year, combined," said Carl Gibson, founder of US Uncut Mississippi. "There's a direct connection between corporate tax dodging and what's happening to real people�s lives. Because of overseas tax havens and other tax loopholes, US corporations are making profits in America but barely paying taxes here. If we close those loopholes, we wouldn't have to be cutting back on firefighters, library hours and student loans."

Following the precedent set by the UK Uncut movement, none of the protests will be particularly large - but they will disrupt the bank's operations and cost it millions in lost business today. Bank of America and its corporate tax-dodging chums will doubtless sit up and take notice. The question is, will the American mainstream media?

Update: Over 100 protesters managed to convince the Dupont Circle, D.C., branch of Bank of America to close early for the day.

Between a rock and a hard place

Commentary By Ron Beasley�

What do you do when your base wants to cut the budget but really doesn't want to cut anything?  That is the problem faced by the Republicans.  As I have said before if you are serious about balancing the budget you have to either slash defense spending and Medicare or raise taxes.  Now the base won't stand for either and the military industrial complex will fight defense cuts and the medical industrial complex will fight Medicare cuts and everyone will oppose tax increases.  The headline reads:

Tea Party Shows Its Muscle as G.O.P. Seeks More Savings

WASHINGTON � House Republican leaders said on Thursday that they would accede to demands from conservatives and dig deeper into the federal budget for billions of dollars in additional savings this year, exhibiting the power of the Tea Party movement and increasing chances of a major fiscal clash with Democrats.

In response to complaints from rank-and-file Republicans that the party was not fulfilling a campaign promise to roll back domestic spending this year by $100 billion, the chairman of the House Appropriations Committee said his panel would abandon its initial plan and draw up a new one to slice spending more aggressively.

Of course 100 billion dollars is petty cash when it come to the federal budget. It is less than we are spending in Afghanistan every year.

But another poll today shows the real problem the Republicans face is that few actually want to cut anything that really matters.

Fewer Want Spending to Grow, But Most Cuts Remain Unpopular

The public�s views about federal spending are beginning to change. Across a range of federal programs, Americans are no longer calling for increased spending, as they have for many years. For the most part, however, there is not a great deal of support for cutting spending, though in a few cases support for reductions has grown noticeably. The survey also shows that the public is reluctant to cut spending � or raise taxes � to balance state budgets.

Those who want to decrease Medicare is at 12%, an increase from 6% a year ago but still pretty anemic.  We see a larger increase in those in favor of cuts to defense spending, 30% today, 18% a year ago.

Bottom line, the Republicans find themselves in a position where they are damned if they do and damned if they don't - between a rock and a hard place.