Wednesday, August 4, 2010

Geithner gets it right for once

Via:  AP

Geithner: Extending tax cuts for wealthy a mistake

Geithner says extending tax cuts for the wealthiest Americans would be a $700 billion mistake

Martin Crutsinger, AP Economics Writer, On Wednesday August 4, 2010, 7:29 pm EDT

WASHINGTON (AP) -- Treasury Secretary Timothy Geithner said Wednesday that extending the Bush-era tax cuts for the wealthy would be a $700 billion mistake. He also rejected a compromise proposal that would extend the cuts for one or two years.

Geithner said cuts for families making more than $250,000 annually should be allowed to expire on schedule at the end of the year. But the administration believes tax cuts for the 95 percent of taxpayers making less than $250,000 should be extended, he said.

Geithner's comments came during a speech at the Center for American Progress and focused on what is likely to be a key economic battle leading up to the November midterm elections. Unless Congress acts, all of the tax cuts approved in 2001 and 2003 will expire at the end of December.

Republicans have argued that all of the tax cuts should be extended. They contend that raising taxes on any group at the current moment would be harmful to the economy.

Geithner said extending the tax cuts for the top 2 percent of taxpayers would cost $700 billion over a decade and $30 billion for a single year. He said wealthy families are more likely to save the money, which doesn't help the economy in the short run.

Geithner said allowing the tax cuts on the wealthy to expire would also help get the soaring deficits under control.

"Borrowing to finance tax cuts for the top 2 percent would be a $700 billion fiscal mistake," Geithner said. "It's not the prescription that the economy needs right now and the country can't afford it."

As I showed in this post, there are lots of tax cuts for the middle class in the Bush tax cuts that should not be repealed.

This a great wedge issue for the Democrats.  They can once again accuse the Republicans of standing for little more than keeping taxes low on rich people and make the accusation stick. 

This good PR move hardly exonerates Geithner, Summers, Bernanke et al. for effecting the most massive wealth redistribution from working taxpayers to the wealthy in the history of the world, as Barry Ritholtz terms the bailouts of the past couple of years.

The tax increases on the rich the Geithner advocates are mild in the context of American postwar history.  This chart due to Paul Krugman shows the top marginal tax rate (red) and median family income (blue): 

If the take-home pay of the CEOs and corporate board members and senior executives and Wall Street traders were brought down to Earth by a marginal tax rate in the 75-90 percent range, I think it would do much to sober those people up, who have been looting the treasure of American corporations by manipulation of their governance and related capital markets for too long.

It is heartening to see that forty billionaires have heeded Bill Gates call to give away half of their fortunes to charity.  Such moves as these might be the seeds of a new social contract.

Let’s see if they actually do it.  One of the oldest tricks in the book in Hollywood is for a star or starlet to hold a press conference announcing that their giving X million dollars to charity, and then to never do it. 

The political class vs. the mainstream: who will win?

Via:  Rassmussen Reports

I no longer live on the East Coast, but do visit occasionally, and have contact with friends who are part of the Establishment, the Ruling Class, slurping at the trough of Stimulus Money, or if on Wall Street, turning up their noses at the ignorance the masses display of the value they’re creating, enabling the Soaring of the Human Spirit through Financial Transactions.  You get the picture.  They’ve got their heads in a place where the sun doesn’t shine, the arrogance dripping from their curling upper lips….

67% of Political Class Say U.S. Heading in Right Direction, 84% of Mainstream Disagrees

Tuesday, August 03, 2010

Recent polling has shown huge gaps between the Political Class and Mainstream Americans on issues ranging from immigration to health care to the virtues of free markets. 

The gap is just as big when it comes to the traditional right direction/wrong track polling question.

A Rasmussen Reports national telephone survey shows that 67% of Political Class voters believe the United States is generally heading in the right direction. However, things look a lot different to Mainstream Americans. Among these voters, 84% say the country has gotten off on the wrong track.

Twenty-four percent (24%) of Mainstream voters consider fiscal policy issues such as taxes and government spending to be the most important issue facing the nation today. Just two percent (2%) of Political Class voters agree.

With a gap that wide, it’s not surprising that 68% of voters believe the Political Class doesn’t care what most Americans think.  Fifty-nine percent (59%) are embarrassed by the behavior of the Political Class. 

Just 23% believe the federal government today has the consent of the governed.

Most voters believe that cutting government spending and reducing deficits is good for the economy. The only group that disagrees is America’s Political Class. In addition to the policy implications, this highlights an interesting dilemma when it comes to interpreting polling data based upon questions that make sense only to the Political Class. After all, if someone believes spending cuts are good for the economy, how can they answer a question giving them a choice between spending cuts and helping the economy?

Mainstream Americans tend to trust the wisdom of the crowd more than their political leaders and are skeptical of both big government and big business.

Fifty-eight percent (58%) of voters currently hold Mainstream views. In January, 65% of voters held Mainstream views. In March 2009, just 55% held such views.

Only six percent (6%) now support the Political Class. These voters tend to trust political leaders more than the public at large and are far less skeptical about government.

When leaners are included, 76% are in the Mainstream category, and 14% support the Political Class.

“The American people don’t want to be governed from the left, the right or the center. The American people want to govern themselves," says Scott Rasmussen, president of Rasmussen Reports. “The American attachment to self-governance runs deep. It is one of our nation’s cherished core values and an important part of our cultural DNA.”

Tuesday, August 3, 2010

The Sun is waking up; society to follow?

NASA:  Coronal Mass Ejection Headed for Earth

On August 1st, almost the entire Earth-facing side of the sun erupted in a tumult of activity. There was a C3-class solar flare, a solar tsunami, multiple filaments of magnetism lifting off the stellar surface, large-scale shaking of the solar corona, radio bursts, a coronal mass ejection and more. […]

See also:  NASA: 'Sun is waking up from a deep slumber'; Warns solar storms may wreak havoc on power grids, GPS, air travel, radio communications...

Watch the video

June 4, 2010: Earth and space are about to come into contact in a way that's new to human history. To make preparations, authorities in Washington DC are holding a meeting: The Space Weather Enterprise Forum at the National Press Club on June 8th.

Many technologies of the 21st century are vulnerable to solar storms. [more]

Richard Fisher, head of NASA's Heliophysics Division, explains what it's all about:

"The sun is waking up from a deep slumber, and in the next few years we expect to see much higher levels of solar activity. At the same time, our technological society has developed an unprecedented sensitivity to solar storms. The intersection of these two issues is what we're getting together to discuss." […]

Upswings of solar activity, the next predicted for 2013, have shown to be correlated with social unrest and social change. 

Monday, August 2, 2010

The Great Accommodator strikes again

Alan Greenspan’s face says it all:  “I am a servant of the ruling class, I will accommodate the ruling class, whether as a Fed chief or as an ex-Fed chief.”  BTW, I find a certain similarity between the faces of Greenspan and the President.  These are not strong men.

Greenspan correctly diagnoses the split between the economy of the ruling class and that of everyone else.  Here is Barry Ritholtz at The Big Picture:

“Our problem, basically, is that we have a very distorted economy in the sense that there has been a significant recovery in a limited area of the economy amongst high-income individuals who have just had $800 billion added to their 401(k)s and are spending it and are carrying what consumption there is. Large banks, who are doing much better, and large corporations, whom you point out and the–and everyone’s pointing out, are in excellent shape.

The rest of the economy, small business, small banks, and a very significant amount of the labor force, which is in tragic unemployment, long-term unemployment, that is pulling the economy apart. The average of those two is what we are looking at, but they are fundamentally two separate types of economy.”

-former Fed Chair Alan Greenspan, Meet the Press

Fascinating quote from Easy Al on Meet the Press via Bloomberg. It has 3 subtexts that might not be readily apparent — until we break it down:

1) Extend the Bush tax cuts on highest bracket earners: Since its the 401(k) crowd that are carrying the recovery, Greenspan suggests, then we best not crimp the income of these big spenders

2) Two Americas: Greenspan seems to be channeling John Edwards when he discusses two economies. The bailouts reduced competition. They extended the life of badly structured financial firms, and forced smaller firms to scramble.

3) Greenspan’s Legacy: It seems that Easy Al can figure out precisely what he has wrought. The secret to getting such candor out of the former Fed chief is to trick him into discussing the broader economy.  That way, he does not realize that he is discussing the effects of his tenure as FOMC chair.

Of course, Greenspan is still wrong on Housing. Recall that he failed to recognize the impending housing correction (collapse more accurately) and made claims that the worst was behind us — just as housing was accelerating downwards:

“If home prices stay stable, then I think we will skirt the worst of the housing problem.  But right under this current price level, maybe 5, 7 or 8 percent below is a very large block of mortgages which are underwater, so to speak, or could be underwater, and that would induce a major increase in foreclosures.  Foreclosures would feed on the weakness in prices, and it would create a problem.  So that–it’s touch and go.”

One last thing: I have to give Greenspan credit for this touch of tax cut honesty:

“Look, I’m very much in favor of tax cuts, but not with borrowed money.  And the problem that we’ve gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money, and at the end of the day, that proves disastrous.”

For once, I agree with him . . .

Ah, Barry, you are usually so reasonable.  Why don’t we raise marginal tax rates on the ruling class who have manipulated the tax system and the governance of big corporations so much in their favor?  Are CEOs really worth 400 times the average workers salary today when the multiple was a tenth of that thirty years ago?  In other times of fiscal distress marginal tax rates on super-high incomes were higher, almost as if there were a sense that “shared sacrifice” was a good thing.  Are you and Alan the Mess-Meister suggesting that we should leave marginal tax rates on high incomes alone and raise them on the middle class?

Let’s get real.  Here’s the picture that tells the story of how America has moved from “we’re all in this together” to “you first, after me—it’s the free market way!":

Until Americans start to function as a nation again, we descend into deeper banana republicdom.  Is it the end of the nation-state?  Is the only path to survival to join a strong corporation (i.e., “gang”)?  Will corporations that perpetuate stark inequality survive, if there is truly an “optimal” degree of income inequality that American corporations have clearly exceeded?  Will more egalitarian corporations benefit from higher productivity and resiliency, if the nation-state dies, and prove the template for the next major form of social organization?  (Unfortunately, the immediate associations that come to mind are of the perpetually-warring native American tribes prior to European overrun; and the incredibly funny scenes of warring office buildings in Monty Python’s “The Meaning of Life.”…)

Big changes coming.  The old order is falling apart.  Do unto others as you would have them do unto you.

Sunday, August 1, 2010

Saturday, July 24, 2010

The debt bombs are ready to go off…

George Washington has a nice piece on China’s recent insult to the credit quality of American sovereign debt, while Calculated Risk hosts a series on sovereign debt default risk worldwide, estimating the chances of default over the next five years in a really scary scenario.

Let’s hope that when the debt bombs begin to go off that Washington resists the temptation to start setting off the real bombs.  The problem is, many other countries—including Japan—are likely to default before we are.  That’s the bad news—it means that America participation in what I have called the Supernova of Bretton Woods II (fiat money) will not include outright American debt default and forgiveness, implying that an inflation will be necessary to depreciate the value of the debt (and we’ve got lots of consumer and business debt to inflate out, too; we’re near record levels of total debt/GDP). 

In a deflationary environment like we’re in now, history shows that about the only way to get an inflation going is to go to war.

The two links above suggest to me that the risk of unprovoked or false flag “justified” attacks by the American eagle is very high right now.  My research on the sinking of the South Korean submarine leads me to believe that someone other than the North Koreans did it; the North Koreans denied it, and the torpedo used was available on international black markets.  the international commission was a sham.  My guess is that the Israelis did it to get a war going somewhere, so they could pile on with their intensely desired bombing of Iran in a general attack on the “axis of evil.”

Resist Stupid Wars that are bankrupting our country and making us weaker as a people.  Let your elected representatives know how you feel.

Thursday, July 22, 2010

Cure poverty with money

The Benign Brodwicz program for the United Snakes of America is and always has been this:

  1. Give the unemployed a livable poverty level dole. 
  2. Provide universal public health care.  (The Bill Gates program for the bottom billion.)

Pay for the dole by raising marginal tax rates on our super-greedy, klepto-plutocracy, aka the American ruling class.

The following article from www.NewScientist.com provides support for my views.  America is as sick from this point of view as any banana republic.  But then, of course, we are one.

Die young, live fast: The evolution of an underclass

Editorial: Why biology should inform social policy

FROM feckless fathers and teenaged mothers to so-called feral kids, the media seems to take a voyeuristic pleasure in documenting the lives of the "underclass". Whether they are inclined to condemn or sympathise, commentators regularly ask how society got to be this way. There is seldom agreement, but one explanation you are unlikely to hear is that this kind of "delinquent" behaviour is a sensible response to the circumstances of a life constrained by poverty. Yet that is exactly what some evolutionary biologists are now proposing.

There is no reason to view the poor as stupid or in any way different from anyone else, says Daniel Nettle of the University of Newcastle in the UK. All of us are simply human beings, making the best of the hand life has dealt us. If we understand this, it won't just change the way we view the lives of the poorest in society, it will also show how misguided many current efforts to tackle society's problems are - and it will suggest better solutions.

Evolutionary theory predicts that if you are a mammal growing up in a harsh, unpredictable environment where you are susceptible to disease and might die young, then you should follow a "fast" reproductive strategy - grow up quickly, and have offspring early and close together so you can ensure leaving some viable progeny before you become ill or die. For a range of animal species there is evidence that this does happen. Now research suggests that humans are no exception.

Certainly the theory holds up in comparisons between people in rich and poor countries. Bobbi Low and her colleagues at the University of Michigan at Ann Arbor compared information from nations across the world to see if the age at which women have children changes according to their life expectancy (Cross-Cultural Research, vol 42, p 201). "We found that the human data fit the general mammalian pattern," says Low. "The shorter life expectancy was, the earlier women had their first child."

But can the same biological principles explain the difference in behaviour between rich and poor within a developed, post-industrialised country? Nettle, for one, believes it can. In a study of over 8000 families, he found that in the most deprived parts of England people can barely expect 50 years of healthy life, nearly two decades less than in affluent areas. And sure enough, women from poor neighbourhoods are likely to have their babies at an early age and in quick succession. They have smaller babies and they breastfeed less, both of which make it easier to get pregnant again sooner (Behavioral Ecology, DOI: 10.1093/beheco/arp202).

In the most deprived parts of England, people can barely expect 50 years of healthy life - two decades less than in affluent areas

"If you've only got two-thirds as much time in your life as someone in a different neighbourhood, then all of your decisions about when to start having babies, when to become a grandparent and so on have to be foreshortened by a third," says Nettle. "So it shouldn't really surprise us that women in the poorest areas are having their babies at around 20 compared to 30 in the richest ones. That's exactly what you would expect."

Consciously or subconsciously, women do seem to take their future prospects into account when deciding when to start having children. At a meeting last year, Sarah Johns at the University of Kent in Canterbury, UK, reported that in her study of young women from a range of socioeconomic backgrounds in Gloucestershire, UK, those who perceived their environment as risky or dangerous, and those that thought they might die at a relatively young age, were more likely to become mothers while they were in their teens. "If your dad died of a heart attack at 45, your 40-year-old mum has got chronic diabetes and you've had one boyfriend who has been stabbed, you know you've got to get on with it," she says.

It's the same story in the US. The latest figures, from 2005, reveal that teenage motherhood accounts for 34 per cent of first births among African Americans - who are more likely to live in deprived areas - and 19 per cent among whites. Arline Geronimus of the University of Michigan at Ann Arbor, who has studied health inequalities and reproductive patterns, points out that healthy life expectancy is short for African Americans and women depend on extended family networks for support. This means it is in their interests to have children while they still have relatives in good physical shape to help out.

The shockingly rapid deterioration in health experienced by women in poor black neighbourhoods also directly affects mothers. Even women in their 20s have an increased risk of conditions such as hypertension that would reduce the chance of a healthy pregnancy and birth. In research carried out in the late 1990s, Geronimus and her colleagues found that in Harlem, a poor neighbourhood in New York City, the infant mortality rate for babies born to mothers in their 20s was twice that of the babies of teenage mums (Political Science Quarterly, vol 112, p 405). Geronimus thinks the situation may be even worse now, given that the rate of health deterioration in black women has increased in the past decade.

It is not simply a case of teenage girls from deprived backgrounds accidentally becoming pregnant. Evidence from many sources suggests that teen pregnancy rates are similar in poor and affluent communities. However, motherhood is a choice, as both Geronimus and Johns are keen to point out. Teenage girls from affluent backgrounds are more likely to have abortions than their less-privileged peers. In terms of reproduction, the more affluent girls are best off concentrating on their own career and development so that they can invest more in the children they have at a later stage. "It seems that girls are assessing their life chances on a number of fronts and making conscious decisions about reproduction," says Johns.

Another important issue is whether or not a girl's father is around when she is growing up. Developmental psychologist Bruce Ellis, of the University of Arizona in Tucson, has studied extensively the effects of girls' relationships with their fathers. His research shows that the less involved a father is with his daughter from an early age, and the less warm the relationship, the earlier she starts having sex and, potentially, babies (New Scientist, 14 February 2007, p 38).

Fathers in deprived neighbourhoods are more likely to be absent, which could be because they are following "fast" strategies of their own. These include risky activities designed to increase their wealth, prestige and dominance, allowing them to compete more successfully with other men for sexual opportunities. These needn't necessarily be antisocial, but often they are. "I'm thinking about crime here, I'm thinking about gambling," says Nettle, and other risky or violent behaviours that we know are typical of men in rough environments. A fast strategy also means a father is less likely to stick with one woman for the long term, reducing his involvement with his children.

Paternal benefits

That is unfortunate, since a father's involvement not only delays his daughter's reproduction but also has a big impact generally on the life chances of his children. In a study of 17,000 people in the UK born in a single week in March 1958, Nettle found that where father involvement was greater, children had higher IQ scores at age 11 and increased upward social mobility through adulthood (Evolution and Human Behavior, vol 29, p 416).

Lower investment in children, whether it be through the absence of dad, less breastfeeding from mum, or less parental attention generally because there are more children in the family, comes at a high cost to the children themselves. For one thing, Nettle's large-scale study of families in England found that babies born in the poorest areas have slower cognitive development, which compromises their education and prospects later in life.

To all this you might ask the question, aren't poor people bringing their problems on themselves? If only they would wait a while before starting to have babies they might be able to invest more in each one, providing a better diet and healthier lifestyle. It is not so simple. "Children of low income, low education families don't do well regardless of what their parents' age is," says Johns. What's more, youngsters who delay parenthood may actually be worse off. "In a US study looking at pairs of low-income sisters, the ones that became mothers in their teens quite often did better [in terms of employment and earnings] because they had something to focus their energy into and create a better life for."

Nettle agrees: "Overwhelmingly the poverty into which a baby is born is going to be a big influence, whatever the age of the mother. It may be that there's not much pay-off for waiting and doing other, more middle-class behaviours that public health people want to encourage the poor to do."

People in deprived areas face two kinds of hazard, Nettle says. First, there are constraints on what they are able to do to mitigate their situation. Diet is a prime example: "It's much more expensive to get 2000 calories a day from fresh fruit and vegetables compared with eating junk food," Nettle says. Then the environment is often physically more dangerous and unhealthy. "People are doing more dangerous jobs. There is probably more air pollution, more car accidents, a higher crime rate, poorer housing - things you cannot really do much about, which trigger a downward spiral of faster living and less attention to health."

Once you are in a situation where the expected healthy lifetime is short whatever you do, then there is less incentive to look after yourself. Investing a lot in your health in a bad environment is like spending a fortune on maintaining a car in a place where most cars get stolen anyway, says Nettle. It makes more sense to live in the moment and put your energies into reproduction now.

Evolutionary theory can explain these behavioural responses to poverty, but it doesn't make them desirable. So what is the answer? What can be done to help people escape from the slippery slope of poor health, poor education and deprivation?

Governments are very good at being concerned about rates of teenage pregnancy and violence among young men, but Nettle argues that no amount of money poured into sex education and parenting classes will change the situation if young people don't see a decent future for themselves. To change behaviour we have to change the environment, which means that actually reducing poverty in the most deprived areas is likely to do a much better job than education schemes or handing out morning-after pills.

No amount of money poured into sex education and parenting classes will change the situation if young people don't see a decent future for themselves

Perhaps the most compelling evidence for this comes from real-life situations. In the mid-1990s, the residents of one poor, mainly Native American district in North Carolina each received a windfall in the form of royalties from a casino that had been built on their land. After the windfall, the researchers recorded a significant reduction in conduct disorder - the psychologist's term for antisocial behaviour - among the poorest children (The Journal of the American Medical Association, vol 290, p 2023).

On a larger scale, during the 1990s there was a dramatic decline in teenage birth rates in the US, especially among African Americans. In 1993, 6.4 per cent of black girls aged between 15 and 17 became first-time mothers but by 2000 this had dropped to 4.5 per cent (Social Science and Medicine, vol 63, p 1531). Geronimus puts this down in part to the strong economic expansion and increase in employment rates during this time, which offered young black women job opportunities they were unlikely to have had before. Teen births among African Americans are now rising again, predictably, given the recent economic nosedive.

It's all relative

Still, reducing poverty alone probably isn't the answer. In their book The Spirit Level (Allen Lane, 2009), epidemiologists Richard Wilkinson and Kate Pickett, of the universities of Nottingham and York, UK, respectively, emphasise the degree of income inequality in a society rather than poverty per se as being a major factor in issues such as death and disease rates, teenage motherhood and levels of violence. They show that nations such as the US and UK, which have the greatest inequality in income levels of all developed nations, also have the lowest life expectancy among those nations, the highest levels of teenage motherhood (see diagrams) and a range of social problems.

The effects are felt right across society, not just among poor people. "Inequality seems to change the quality of social relations in society," says Wilkinson, "and people become more influenced by status competition." Anxiety about status leads to high levels of stress, which in turn leads to health problems, he says. In unequal societies trust drops away, community life weakens and society becomes more punitive because of fear up and down the social hierarchy.

"Really dealing with economic inequalities is difficult because it involves unpopular things like raising tax," says Nettle. "So rather than fighting the fire, people have been trying to disperse the smoke." Politically it is much easier to pump money into education programmes even if the evidence suggests that these are, on the whole, pretty ineffective at reducing the effects of poverty.

There are two quite different ways that societies can be made more equal, Wilkinson says. Some countries, like Sweden, do it by redistribution, with high taxes and welfare benefits. In others, earnings are less unequal in the first place. Japan is one such country, and it has one of the highest average life expectancies and lowest levels of social problems among developed nations. Other important factors, says Wilkinson, are strong unions and economic democracy.

The bottom line, if young people are to avoid being channelled into a fast reproductive strategy with the disadvantages that this entails, is that they should have the chance to develop a longer view - through better availability of jobs and health support. They need reasons to believe they have a stake in the future.

Mairi Macleod is a journalist based in Edinburgh, UK