Thursday, January 31, 2013

JOHN McCAIN'S CLUELESS ABOUT "THE SURGE" (and why Chuck Hagel should be Secretary of Defense)


Today Senator John McCain grilled former Senator Chuck Hagel, who is President Obama's nominee to replace Leon Panetta as the Secretary of Defense. One of the primary issues Senator McCain pursued was then Senator Chuck Hagel's opposition to The Surge, which sent more troops into Iraq in 2007 to quell what was turning into a national security nightmare.



The Surge was a last ditch effort by the Bush administration to gain control of a chaotic situation in Iraq, and is often credited - wrongly in my view - with reducing violence in Iraq. Senator McCain tried to get Chuck Hagel to admit that he was wrong to oppose The Surge. Worse, Senator McCain wasn't very nice about it.

What Senator McCain doesn't understand - as I wrote about in 2008 - is that The Surge was not responsible for the decline in violence in Iraq. As I posted back in March 2008 the decline in violence in Iraq was a product of four intertwined developments.

1. Moqtada al-Sadr's August 2007 cease-fire.

2. The Anbar Awakening, Sept. 2006 (when Sunni's said no to Al Qaeda).

3. The physical separation of Shi'a and Sunnis right before The Surge, in 2007.

4. The Low-Hanging Fruit of Death are gone (Shi'a and Sunnis moved out of previously "integrated" neighborhoods by August 2007).

It was these four developments - and not The Surge - that helped bring stability to Iraq. To be sure, The Surge helped solidify the gains produced by these developments. But let's be clear. This makes The Surge a supporting rather than determining factor for Iraq's decline in violence.

I could be wrong, but this is what Chuck Hagel was trying to explain to Senator McCain as he pressed Hagel on his opposition to The Surge at the time. Hagel simply didn't believe we needed to put U.S. troops in front of a cease-fire reconciliation parade that was already on the road.

At the end of the day Senator John McCain was trying to make the case that supporting The Surge is a sign of good judgment. Demonstrating a penchant for independent judgement, Hagel opposed The Surge. His opposition, according to Senator McCain, means Chuck Hagel's judgement is suspect. Ergo, Hagel doesn't deserve to be Secretary of Defense.


Speaking of judgment perhaps Senator McCain might want to remind everyone of his support for going into Iraq in the first place. Or maybe he could tell us about his judgement when it came to selecting his vice-presidential running mate. Or, related to The Surge, perhaps Senator McCain can tell us why he claimed that The Surge made the Anbar Awakening possible, which demonstrated that he doesn't know how to read a Gregorian calendar.

So let's be clear here. Supporting The Surge does not make you a military genius. Nor is it an indication that you were right. And it certainly doesn't make you presidential (as McCain learned). It only means that you were trying to cover your tracks at the time.

We need better than that from our government. Which is why Hagel is a great choice for Secretary of Defense.

- Mark

THE BEST LOOKING DOWNTURN WE'LL EVER SEE?

The economy shrank by 0.1% in the last quarter of 2012. Is this bad news? A sign of bad things to come? An indication of Washington's fire drill approach to the fiscal cliff? Not really.

While the Gross Domestic Product (GDP) - the broadest measurement we have of what's produced and consumed in our nation - is down by 0.1% there's actually a silver lining. What forced the downturn were reductions in defense spending (winding down Iraq has benefits), a contraction in corporate inventories (it was the Christmas season), and continued reductions in government spending (Keynes still lives). Here, check it out.



There's another potential silver lining here. First reads on GDP are usually revised as more information pours in. Put another way, the small downturn could turn into a period of growth (or drop more).

All of this helps explain why research firm Capital Economics commented that this may be "the best looking contraction in U.S. GDP you'll ever see."

- Mark 

Wednesday, January 30, 2013

RANDOM COMMENTS ON AMERICA'S GUN DEBATE

I don't normally do this, but this FB thread had some good lively discussion. It is an excellent example of how our gun debate has evolved in the public arena. Some of it is insightful, some of it not so much. Below is Seven Bates' thoughtful response to the gun thread on his FB site after he posted this cartoon ....




The comments below are from Seven. I encourage you to click on the links.


Wow, I posted a funny picture the other day and the resulting thread had some fun.



Thanks to everyone who was level headed and factual here. The misinformation and bias in this topic is thick and I think we should talk about that. We have 300+ million guns in America. The vast majority of the firearms however are handguns and non hunting/sport weapons. That means they're self defense weapons. Having said that, the reasons people keep them are irrelevant; they're just guns. We have something called "gun culture" in America. It's not unique to our country, but our particular brand of it is rather defined. I'm a firearms enthusiast. I like all kinds of guns, and even the type that really have no other purpose than blowing human beings (or zombies) to pieces. I grew up in a gun culture, much like many of our friends who grew up with guns. Always had them around, and was taught how to use them. All the same experiences that people keep referencing, I experienced as well; the guns were safe because we kept them locked up, or we knew how dangerous they were, so they were respected.

In the end, none of this matters to anyone killed or injured by gun violence.

It doesn't matter that a law abiding, careful and respectful person takes the time and effort to obey the law and teach their families to respect guns. Their diligence is an enriching aspect of our American gun culture, but their avoidance of accidents has little to do with how people use guns when they're committing crimes. Why? Because there are two types of gun crimes: passionate and premeditated.

Crimes of passion with a gun typically involve situations where someone decides that shooting another person is a natural escalation to an altercation. Sure, the line between a crime of passion and self defense exists, and it's well defined within our legal system, but make no mistake; a lot of people die because someone used a gun in a heated situation and they had alternatives. Think of all the robberies where someone got shot by a criminal who just wanted to steal something. This is common. Premeditated gun crimes are where someone just decides they're going to kill. It doesn't matter how many they kill - they just plan it out, and they kill.

The argument people go back and forth on, is whether a gun is just a tool that can be used for violence like many other items or if the gun creates more lethal scenarios because of its availability. Are gun bans the answer? I don't want them to be. I'd like it if our entire society handled conflict differently, because our violent nature seems like a pretty serious problem. We kill a lot of people.

Unlike Steve Nuckles though (see: above thread), I actually back up my stats gladly. Here:

  • America currently averages 14,500 murders a year. Of those, 9,000-11,000 are gun deaths. We have over 300 million guns for a population of over 300 million. That's about 70% of the murders being performed with a gun. 
  1. http://www.gunpolicy.org/firearms/region/united-states


  • The UK averages 800 murders a year, with about 50 a year from guns. They have a population of 60 million. Handguns are banned in the UK, and rifle or shotgun ownership requires a lot of registration and paperwork. There are about 3.4 million guns in the UK. That's about 7% of the murders being performed with a gun with an average of 4 murders performed with a handgun per year.
  1. http://www.citizensreportuk.org/news/2011/07/14/murders-2011-british-murders-homicides-and-fatal-violence-mapped/
  1. http://www.smallarmssurvey.org/fileadmin/docs/A-Yearbook/2007/en/Small-Arms-Survey-2007-Chapter-02-annexe-4-EN.pdf

  • Japan has about 650 murders a year. They average 37 gun homicides a year. Japan's population is about 125 million. Handguns are completely banned in Japan, and shotguns or rifles are strongly regulated. There are about 700k guns in Japan, most of which are shotguns. That's about 6% of the murders being performed with a gun. Handguns averaging between 0 and 1 deaths per year as the tool used. 
  1. http://www.gunpolicy.org/firearms/region/japan
  1. http://www.smallarmssurvey.org/fileadmin/docs/A-Yearbook/2007/en/Small-Arms-Survey-2007-Chapter-02-annexe-4-EN.pdf


Look at all those numbers!! Am I appealing to statistics? No, because I'm going to simplify this for you instead of trying to hide behind large and confusing numbers.

Now obviously, the UK and Japan have:
  1. A lot of guns in their country. 
  1. People who choose to purchase guns for home protection and self defense.
  1. Hunting/sporting firearms enthusiasts. 
  1. Criminals.

So if we follow the logic of the argument: "Guns don't kill people; people kill people", then the UK and Japan should have an equal percentage of murder, by guns, if their gun bans were lifted and their citizens owned as many guns per citizen as we do. That would mean their numbers would inflate to about:
  • 560 gun deaths a year in the UK.
  • 450 gun deaths a year in Japan. 

If they had as large a population as ours, their numbers would inflate to about:
  • 2,800 gun deaths per year in the UK because 60 million = 20% US population. 
  • 1,080 gun deaths per year in Japan. because 125 Million = 41% of US population. 


SOMEWHAT INTENTIONALLY RHETORICAL QUESTIONS: 

  1. Why do they only kill between 10-30% of the people Americans do each year? If they have the same "tools" as we do, and the same population, shouldn't their numbers match up? 
  1. Do Americans just get angrier than the Japanese and the British? Are we just a bunch of hotheads who kill people more readily than folks in these other countries, regardless of what tool we use to kill them with? 
  1. Do British and Japanese criminals not understand their populace is unarmed and they could get away with everything if they just had guns? Are their criminals just stupid or do they also have less access to guns? Do their criminals think a gun makes crime more dangerous and avoid using them? 
  1. Why the hell are we looking at assault weapon bans and gunshow loopholes if handguns are 90% of the tools used in gun crimes, and most federal inmates jailed for gun crimes got their guns from family, friends, theft, or drug dealers?  

• http://oag.ca.gov/sites/all/files/pdfs/publications/Firearms_Report_10.pdf• http://en.wikipedia.org/wiki/Gun_violence_in_the_United_States 

Let me end by saying that any student who has a paper to do and starts with Seven's commentary here (and the links) is off to a good start. He raises some good points, and presents us with some thoughtful questons.

- Mark

Monday, January 28, 2013

EAT SHIT AND DIE? (if you support high speed rail)

So I'm driving to visit family in Corcoran. The town bills itself as the farming capital of California, and lies in the heart of the politically conservative San Joaquin Valley. At least one farmer in Corcoran isn't too keen on the idea of supporting a state-wide plan to build a high speed rail system, if this sign is any indication ...


To be sure, the farmer here could be telling people to "Go Eat Shoe and Die" but I wouldn't bet the farm on that one.

In any event, there promises to be spirited debate in California over building the high speed rail project, which I support. This is especially the case for small towns like Corcoran, where initial plans have the high speed rail project presenting a little too much change for this Corcoran farmer to handle.


For those of you unfamiliar with California, Corcoran lies in the ultra-conservative Kings county, and is located between the cities of Fresno and Bakersfield.



In the FYI category, apart from building two state prisons, getting a McDonald's, and the closing of the movie theater more than 30 years ago, not much has changed in Corcoran.

Today Corcoran is probably most famous for being the place where J.G. Boswell built the Boswell corporation into a global agriculture giant (earning J.G. Boswell the title "The King of California"), and for being the town that Charles Manson now calls home (in the prison, of course).


In all cases, the debate over the high speed rail project - again, which I support - should be interesting to watch.

- Mark 

Friday, January 25, 2013

CALIFORNIA FOR DUMMIES

This is too funny.

I've lived and visited all over California so, yeah, this about sums it up ...


- Mark 

Wednesday, January 23, 2013

WHY PRESIDENT OBAMA PRESENTED HIS "LIBERAL AGENDA" DURING THE INAUGURATION

After watching President Obama's inaugural speech on Monday many of his political opponents were surprised, and even irritated. He didn't spend any time on the economy, or the fiscal cliff negotiations. Instead he outlined a vision of America that put equity, opportunity and science at the top of his administrations priority list.

From embracing the cause of gay and lesbian Americans, to acknowledging the importance of immigrants to our national cause, to speaking forcefully about the need to pursue climate change and infrastructure projects as policy priorities, President Obama made one thing clear. The GOP will not set the narrative over the next four years.

There is no doubt that the GOP wants to drag President Obama into a political hall of mirrors, where debt ceiling extensions and sequestration time tables dominate his day. The Republican leadership also want to try and push the paranoia and fear narrative that Fox, and many, many commentators from Fox News, are committed to establishing about President Obama.


The GOP needs to do all of this if they want to paint President Obama as a crisis president. But President Obama understands the trap.

If nothing else, Monday's inauguration speech made it clear that President Obama is going to use the bully pulpit to force the Republican Party and others to quit obsessing about the GOP-ginned up debt ceiling and sequestration drama.

And, yes, the debt and sequestration issues are unnecessary. They are little more than political props for the GOP, to try and paint President Obama as an irresponsible spender. Don't believe me? Consider this.

Senate Republicans had absolutely no problem increasing the debt ceiling when President Bush was in office. They voted over 200 times to raise the debt limit from 2002 through 2008 (actual congressional votes here).


Now, all of a sudden (actually since 2009), they've found Fiscal Jesus under President Obama, and want to impose restrictions. Is this coincidental? Hardly. And President Obama understands this.

On Monday President Obama made it clear that he's not going to work around this debt drenched narrative any longer. He's going to embrace his inner Teddy Roosevelt, and use the bully pulpit to push another story line. To be sure, he will have address the issues surrounding the debt and sequestration drama the GOP wants to push.

But President Obama understands that equity, opportunity, and science matter to America's future. He also understands that the last election made it clear that the GOP is on shaky ground with a our increasingly diversified electorate on these issues. If he wants these issues to be part of his legacy - and he does - he knows that he can't try and play nice and negotiate with the GOP on their political terms any longer.

This explains why he brought up gay rights, immigration, and climate change during his inauguration. Recent polling shows that America is more than happy to talk about these issues too.

At the end of the day, President Obama is preparing to establish his legacy. After four frustrating years he knows the GOP doesn't want to talk about making America better. It's not part of their game plan. They only want to make sure President Obama fails, which means keeping him surrounded with a ginned up crisis.

President Obama saw the GOPs Kabuki-like theater during his first four years, and is watching them stumble through the same script today.

Think about it. Political games prevented the GOP in the 112th Congress from voting on aid for the victims of Hurricane Sandy. Speaker John Boehner then proved to be particularly inept when it came time to getting his own party to vote on the GOPs fiscal cliff averting Plan "B" in December. This bumbling helps explain why House Republican leaders were essentially ignored by Senate Republicans immediately after New Year's as they discussed other options with President Obama.

Now the GOP wants President Obama to sign off on raising the debt ceiling for three months (with pay gimmicks), so we can do this all again in April?

President Obama sees the games in all of this, which is why he focused on his "liberal agenda" during the inauguration. Apart from speaking to America's future, it also beats the hell out of being drawn into the GOPs Kabuki-like political theater.

- Mark 

Tuesday, January 22, 2013

PRESIDENT OBAMA'S EMBRACE OF HISTORY

From the LA Times's, David Horsey.

For those wondering about the two bibles President Obama used during Monday's inauguration ceremony - one from President Lincoln and another from Martin Luther King, Jr. - this should help ...



And, yes, while President Obama did not lay out his political battle plan he was spelling out his vision of America.

- Mark 

Sunday, January 20, 2013

HAPPY DAYS AREN'T HERE AGAIN (and why they're not)

It was about this time last year that the Federal Reserve announced that it would continue to hold down interest rates. The idea behind the low rates is Economics 101 stuff. If Federal Reserve interest rates are low our nation's banks - who borrow from the Federal Reserve - will lend more money to consumers at lower rates. Consumers (you and me) will borrow and spend money.

And, just like that, demand is increased and people are put back to work. Economic recovery here we come. Happy days are here again.


But, wait. A funny thing happened on the way to the market recovery (as it were).

According Tyler Durden over at Zero Hedge, the entire U.S. financial system is now sitting on $2 trillion more than they have in loans. As an example, Wells Fargo has far more money on hand ($176.5 billion more) than it has loans outstanding.

Without getting into the difference between deposits and reserves, these dynamics helps us understand why - according to the Federal Reserve - U.S. banks have over $1.45 trillion in "excess reserves" today (1-20-13).

FRED Graph

In real simple terms what this means is that banks aren't lending money like all of our economic models tell us they should. Don't believe me? Think about all the time and hoops you or your friends have had to jump through to apply for a loan, just to get denied.

So, just what are banks doing with the money? They're buying U.S. Treasury bonds and profitting from the interest you and I pay them (through our taxes). They now hold over $1.86 trillion in U.S. bonds today (represented by several categories in the middle row below; 2012 data here, updates here).


The key point here is that banks are using the money they get from the Federal Reserve to "earn" billions in interest payments. Interest payments on $1.86 trillion should generate between $3-4 billion, and are used to underwrite earnings, backstop trillion dollar derivative bets, and allows executives to pay out big bonuses ... because banks are, you know, "doing just fine" now.

In a few words, traditional bank earnings based on deposits and loans - which are supposed to grease our economic wheels - have taken a back seat to banks making a living by sucking off of the Federal Reserve's cheap money loan programs. It is a bailout in perpetuity, by other means.

As I've pointed out many times before this should really come as no surprise to anyone. Our free market system is a farce, and has been for some time now. Dependence on cheap money dumps (via loans) from the Federal Reserve is how the U.S. financial system has worked since 2008 (for a detailed read on the topic check this out).

The worst part of this is that while the banks are using their cheap Federal Reserve money to create the appearance of financial health and to backstop their derivative gambles - which venture capitalist Bill Frezza does a good job explaining here - the rest of America is forced to foot the bill.



To be sure, we have seen some improvements in the economy. Trillion dollar money dumps will produce some positive spin-offs. But reduced confidence, record foreclosures, job insecurity, and a political system that's tethered to an economic model based on myth and the illusion of prosperity should be no cause for celebration.

- Mark

UPDATE: This post from Zero Hedge really drives home the point(s) made above. Specifically, the Federal Reserve has intervened in the market more than 1200 days since November 2008 (the first QE I), a whopping 81% of the time. The only months that the Federal Reserve hasn't intervened are the only months that the market has taken a dive. Incredible.

ANOTHER USEFUL SOURCE ... VISUAL CAPITALIST

Did you know that North America (Canada, Mexico, and the U.S.) possesses at least 34 percent of all the world's accessible gold deposits? This and other tidbits of commodity information can be found at visualcapitalist.com. The site has some of the best visuals on gold, silver, and other commodities, with easy to understand visuals that convey their history, global supply and demand, and where they stand as an investment.

Click on the gold (history) and silver (as an investment) graphics below for a quick review of what Visual Capitalist produces.





- Mark 

Wednesday, January 16, 2013

DEBUNKING THREE BIG BUDGET MYTHS

Only because so many people still don't get it (you know who you are), let's debunk some budget myths with graphs (again).

Myth #1: Since entering office President Obama is the biggest spender in modern American history.

Hmm, our national debt has climbed to more than $16 trillion under President Obama. This is serious stuff. OK, let's take a look ...


While spending trends from the Bush administration continue (he left trillion dollar deficits), new spending under President Obama has not followed the pattern from the previous administration.

More to the point, new spending programs under President Obama doesn't come close to what previous presidents from our generation initiated. Indeed, new federal spending under President Obama is growing at its slowest levels since President Eisenhower.

*****************

Myth #2: We don't have a revenue problem, we have spending problem.

Wow, this sounds serious too. I say we take a look at the evidence ...



Irresponsible tax cuts have an impact. The Bush era tax cuts coupled with the impact of the two recessions dropped our national income by almost one-third. This would be the equivalent of someone earning $61,800 per year seeing their yearly income drop to $43,200 a year (and then going on a spending binge). This would hurt.

So, yeah, irresponsibly cutting taxes didn't do anyone a favor (except for the richest Americans, of course).

*****************

Myth #3: President Bush only added $4 trillion (actually, $4.9 trillion) to our total national debt in 8 years, while President Obama has done far worse in just 4 years.

For the record, I had one seriously clueless person write that President Bush's budgets only added $2 trillion to our national debt. Yikes.

With this kind of confusion, we're going to need two graphs.

First, people forget - or flat out ignore - that the CBO projected $5.6 trillion in budget surpluses by 2011. This means we could have paid off (or paid down) or national debt, perhaps by last year. Guess what happened? The Bush administration happened ...


So, in reality, not only did President Bush squander $5.6 trillion in projected surpluses during his administration, but he added an additional $4.9 trillion to our national debt with his unfunded spending programs. In my math book, that's a $10.5 trillion unfunded spending binge (even more if you play more budget math games).



As most of us know, we're still trying to deal with President Bush's economic mess, which fits nicely into the GOP's larger political playbook.

But let's be clear here. President Bush screwed up our national finances, big time.

*****************

OK, some bonus graphs, courtesy of Barry Ritholtz ...

Below, in the left bar, is what we spent in 2012.

Below, in the right bar, is the national income we derived from taxes and fees during 2012.

So, yeah, we don't have a spending problem. We actually have a spending and revenue problem. And it didn't start with President Obama.




For those who might not understand how to read this stuff ... federal spending (orange line) and national income (grey line) since 1960 are represented by the graph on the right.

Be sure to note when national income and spending begin to split widely (Hint: Early 1980s and early 2000s).

- Mark

OK, two more graphs, and that's it.

Take a look at what's happened to corporate America's tax contribution as a percentage of national GDP since the 1950s ...


... and then take a look at how much individual income taxes as a percentage of GDP have grown (or declined if you're a millionaire) ...



Monday, January 14, 2013

GOP ... LET'S KICK OUR NATION'S SENIORS IN THE GROIN

Guess who's provided the U.S. with the most money to cover our annual budget deficits? It's not China. Not even close. Rather, over the years our nation's seniors - through the social security trust fund - have lent our nation $2.7 trillion to keep our country solvent (updated figures here).


According to congressional Republicans the best way to thank our nation's seniors for their generosity and hard work over the years is to cut social security benefits, today. Why? Because "we don't have the money."

To be sure, the GOP thinks there's enough money to pay for tax cuts and corporate subsidies. They're also fine with the more than $16 trillion we guaranteed or turned over to Wall Street after 2008. Paying back the multiple trillions of dollars we owe to everyone else - like the Chinese, the "Caribbean Bank Centers," and our mutual fund industry - is OK with them too.

But we don't have to return the $2.7 trillion we borrowed from our nation's seniors because we can just cut back on their benefits. Nice.


Apart from saying that the U.S. government no longer has a constitutional (Art. VI) or moral responsibility to pay back our nation's seniors, the GOP is effectively kicking our nation's seniors in the groin by suggesting that we don't need to honor the $2.7 trillion they've lent our nation.

It's really that simple.

- Mark 

MONDAY CHUCKLES

This is too funny ...


While this is obviously someone being creative, this also looks like the tin foil hat stuff that Glenn Beck and the people at Fox often put together ;-)

- Mark 

Friday, January 11, 2013

A FEW THOUGHTS ON CALIFORNIA'S BALANCED BUDGET PROJECTIONS

According to Gov. Jerry Brown in 2013 the state of California will spend less money than it takes in, the first time a sitting governor can say this since 2001. A series of spending cuts and deferred expenditures (like the raises that were promised to us in 2008), plus new revenue from Proposition 30, have created the environment for this to happen.



Acknowledging Gov. Brown's work on the budget since his election in 2010 - including going out to aggressively campaign for Proposition 30 - GOP Assemblywoman Connie Conway called Gov. Brown "the adult in the room." 

Coming from a Republican, this is huge.

Indeed, despite what the critics and naysayers from the right said, Proposition 30 has provided Gov. Jerry Brown with the financial resources to project that California will reduce its annual budget deficit to zero by the end of 2013. Gov. Brown estimates that the state's $27.8 billion debt load will be reduced to $4.3 billion within four years.

To be sure, the final authority on the matter, the Legislative Analyst's Office (LAO), has yet to speak on the topic (the LAO saw less income from Proposition 30 than Jerry Brown during the campaign season). But the fact remains that California's budget picture is significantly improved because of the tax hikes imposed on California's richest citizens. Specifically, for the next seven years Proposition 30 imposes

  • A 10.3% tax rate on taxable income between $250,000 and $300,000 (formerly 9.3%).
  • An 11.3% tax rate on taxable income between $300,000 and $500,000 (formerly 9.3%).
  • A 12.3% tax rate on taxable income between $500,000 and $1,000,000 (formerly 9.3%).
  • A 13.3% tax rate on taxable income over $1,000,000 (formerly 10.3%).

The new tax is important because the number of millionaires living in the state of California jumped from 25,000 in 1990 to over 100,000 today. 



This translates into California having the highest proportion of people earning $1 million annually per capita. The new tax means that these new millionaires will have to pitch in more to help maintain the conditions that allow them to get fabulously rich in California. 

As a side note, the new tax means - all things being equal - that we won't have to read as many contemptuous articles and cartoons like this one over the next seven years ...



As for the argument that the higher tax would drive millionaires out? It's an urban legend. Simply put, the data doesn't support the claim (here's a nice synopsis). 

I'm sure we'll hear more on the topic in the coming months, especially from California's Legislative Analyst's Office. But one thing is clear. This certainly drills a hole in the GOP's "no new taxes" mantra at the national level. Big time.

- Mark

UPDATE: Citing Governor Brown, Bloomberg is reporting that we may end fiscal year 2013 with an $851 million surplus.

UPDATE II: Paul Krugman chimes in here

Thursday, January 10, 2013

CORPORATE WELFARE vs. SOCIAL WELFARE SPENDING ... IT'S NOT JUST A $40 BILLION GAP

I have written about corporate welfare many times. I like to discuss this topic because almost every day we hear from conservative pundits and politicians that we need to end our culture of entitlements. The Republican Party has become particularly adept at getting America to believe that "dependence on government" is an economic and cultural sin that needs to be eradicated.


But, as I've pointed out in numerous posts (here, here, and here), government assistance comes in many forms, especially for the private sector.

FAVORABLE LEGISLATION: Market subsidies, market protections, market interventions, regulatory favors, favorable legislation, legal protections, ex-post facto reclassification's, government spending (Keynesian), artificially low interest rates (monetary policy), government takeovers of private sector "assets" (not what you think), and government bailouts (all discussed here and here) are only the tip of the ice berg.

SUBSIDIZING MARKET EFFICIENCY VIA SOCIAL POLICY: On a general level the state also has to protect freedom and individual rights, which subsidizes markets by helping markets function more efficiently. More specifically, as I've pointed elsewhere (and in my book), the modern state has to work consistently to remove or soften the impact of market enemies like market conspiracies (monopoly, oligopolies, etc.), societal prejudices (racism, sexism, etc.), government-corporate collusion or capture (favorable legislation, slavery, bailouts, regulatory capture, etc.), hereditary privileges (inheritances, wealth transfers, etc.), and outright corruption and theft.

HIDDEN GIFTS: Then we have "hidden" corporate subsidies that come in the form of tariff protections, dirt cheap land leases, royalty gifts to the oil industry, more than a trillion dollars in tax gifts, and increasingly longer copyright protections which are coupled with broader interpretations of what can be patented (especially good for drug and food manufacturers), which the New Yorker's James Surowiecki discusses here.

All of these subsidies, protections, and legislative gifts are backstopped and transferred by the state.


The reason I bring all of this up is because several of my conservative FB friends continue to point to the cost of government spending for housing and other welfare related expenditures. They claim it's busting the national bank. They're wrong.

The problem is that they never provide numbers and, quite frankly, don't know what the hell they're talking about (e.g. they like to conflate social security and Medicare with our budget mess when neither have anything to do with our current budget picture). My concern is that they choose to ignore (or never learn?) what Mike Sinn points out here.

Specifically, the almost $100 billion that we give as direct government subsidies for "corporate welfare" far outpaces the almost $60 billion we spend annually on traditional "social welfare" programs. Specifically, we spend  $17.6 billion on Temporary Assistance for Needy Families, (or TANF) and $41.7 billion on housing programs - where 54 percent of HUD-assisted households goes to the elderly or disabled - which adds up to $40 billion less than what we spend on direct corporate subsidies.



This corporate-social welfare gap explodes far beyond $40 billion if we consider the more than $4 trillion (yes, that's a trillion with a "t") that's been turned over to Wall Street and the financial sector since 2008, and the $16 trillion that we're now on the hook for as we continue to guarantee and subsidize our financial sectors economic recovery.

Here's what we should all understand from what's presented here. The GOP and their media noise machine on the right (Fox News is not alone) only want to cut welfare for the poor. They want you and everyone else to ignore corporate welfare for the private sector ($100 billion in subsidies + over a trillion in tax expenditure gifts + the trillions in post-2008 assistance).


The $40 billion gap between what we spend on direct corporate welfare ($100 billion) and traditional social welfare ($59.3 billion) is actually much larger. Much, much larger. The trillion dollars we give away in tax breaks (tax "expenditures") and the multi-trillion bailout program(s) that we crafted for Wall Street after 2008 should be ample evidence of this.

Unfortunately, many Americans simply don't see it. Sigh ...

- Mark 

Monday, January 7, 2013

AMERICA'S BANKING SYSTEM A MESS ... AND POISED TO COLLAPSE (AGAIN)?

OK, I've been saying this over and over and over and over and over again for the past four years. No one, including sophisticated investors, trust or understand what the largest financial institutions are doing with the assets listed on their books. It's all smoke & mirrors which has created an atmosphere of blissful market ignorance, again.


This should come as no surprise to those who have read my book, The Myth of the Free Market, or follow what I write here.

Specifically at the beginning of Chapter Twelve I explained how supposedly sophisticated financial players have been in the dark about what the biggest banking and investing institutions have created with debt and other derivative "investment" instruments.



For those of you who don't have the money or time to get my book you're in luck. Last February I posted the discussion from my book on to my blog - "In the I Told You So Department" - where it has become one of my most popular posts (currently #3 in this week's "Hot Posts").

Making the same point that I discuss in my book (and on my blog) is The Atlantic's Frank Partnoy and Jesse Eisinger. In a blistering report on what's on the books of our largest banks - "What's Inside America's Banks?" - Partnoy and Eisinger make it clear that banks are securing a good deal of their income from derivative bets that could bring the whole house of cards down, again.


There's so much more to this story (like the money dumps that keep the whole thing going).

Unfortunately, most of America - and especially those in our Congress - don't have the tools to understand what's happening in our financial markets (still). It's one of the reasons that I'm having my Introduction to American Politics class read Barry Ritholtz's Bailout Nation. Like the Partnoy and Eisinger piece from The Atlantic, it helps us all understand why another market collapse is inevitable.

For those of you interested in a quick (but hardly complete) review of Partnoy and Eisinger's Atlantic article you can check out this Huffington  Post piece. If you're really interested in what's happening click on the links above, or read Ritholtz' (or my) book.

- Mark

UPDATE: Here's a venture capitalist saying pretty pretty much the same thing about our out of control derivative market(s). 

Friday, January 4, 2013

THESE PEOPLE ARE BATS**T CRAZY



The people in charge of the GOP in Congress are Bats**t Crazy. I could put it another way, but I really can't at this point. Here's why.

Back in July of 2012 the undisputed budget scorekeeper for Congress, the Congressional Budget Office (CBO), was asked by Speaker John Boehner (R-OH) to take a look at what would happen to our financial picture if Congress repealed Obamacare. At the time Republicans in Congress were busy introducing legislation that would eliminate, scale back, or defund Obamacare (33 times in 18 months). So it only made sense to ask an impartial referee how their actions would affect our budget picture, right?

The CBO came back with this letter, which made it clear that repealing Obamacare would cost the American taxpayer over a hundred billion dollars more. Oops.


Specifically, the CBO reported that repealing Obamacare would increase the federal deficit by $109 billion between 2013 and 2022. While there are many reasons why this happens, the CBO makes it clear that Obamacare saves hundreds of billions over the current system (actually, over $700 billion) by reducing the amount paid out to insurers, manufacturers, and hospitals.

John Boehner's response? After being criticized for dismissively saying that the CBO was "entitled to their own opinion" when they issued their preliminary Obamacare repeal assessment in January of 2011, Speaker Boehner took another tactic. He pretty much ignored the July 2012 CBO letter. Nice.

But wait. Boehner's doing it again. Or, more correctly, even though the Supreme Court says Obamacare is constitutional, the GOP is going after Obamacare, again.

Even though the 112th Congress hurridly finished business, and ignored Hurricane Sandy financial relief pleas from New Jersey Gov. Chris Christie, newly elected Speaker Boehner seems to have no problem standing by while the most radical House Republicans in the 113th Congress introduce legislation to repeal Obamacare, again.


So, this is what we have. After failing 33 times to repeal Obamacare ... after failing miserably (or not trying at all) to introduce or make headway on job creation ... after getting called out for pushing a misleading report that accused the CBO of double counting (or omitting) Obamacare numbers ... and in spite of CBO projections telling them that repealing Obamacare would actually increase our national debt ... the GOP is once again prepared to go after Obamacare.

What's that saying about doing something over and over again? Anyways ...

What's so frustrating about all of this is that the GOP is being led by the same group of people who actually:

* Presented a budget with no numbers.
* Tried to redefine rape to fit their position(s) on abortion.
* Had the Majority Leader of the House claim - against all constitutional logic and history - that if the Senate didn't pass their legislation that their bill (H.R.1) would "be the law of the land."
* Consistently ignored or voted to block job creating programs in the 112th Congress because the jobs programs might help make President Obama look good.

You get the point. We're back to business as usual.

With sequestration (automatic spending cuts) and the debt ceiling coming up over the next two months you would think that the GOP might find the time to work on other things besides playing games with Obamacare. Think again.

Seriously, what the hell is wrong with these people? Wait a minute, I think I know.

Being regular crazy isn't good enough. These people are Bats**t Crazy.



How else do you explain it?

Sigh ...

- Mark 

Thursday, January 3, 2013

AGAIN, WE DON'T NEED TO TOUCH SOCIAL SECURITY TO DEAL WITH OUR DEFICIT PROBLEM



Again, we don't have to touch social security to deal with our annual deficits.

The primary reason why is that our annual budget deficits are being driven - and have been driven - by policies and developments that do NOT have anything to do with social security. Here, check it out ...



And, yeah, our annual budget deficits would be close to "0" if we could erase/amend the policy responses we developed between 2001 and 2009 (think about it as a "Fiscal Ghosts from Administrations Past" storyline).

In case you want to see the what I'm saying another way check out this graph, which explains how we got our budget deficits from Glenn Hubbard, dean of the Columbia Business School.


I've said before and I'll say it again. Going after social security for today's deficit mess would be akin to FDR attacking Mexico after Pearl Harbor. It makes no sense.

- Mark