Sunday, October 30, 2011

Dropping all pretense

Last week, in an attempt to reclaim some newspaper headlines, Rick Perry finally presented the coutry with an economic plan, the centerpiece of which is a 20% flat tax proposal. This isn't that unusual for a Republican candidate, one will recall that it was also the centerpiece of Steve Forbes economic proposals when he ran for president. What's different about Perry's proposal, however, is a curious twist he's added. In an apparent attempt to assuage fears that a flat tax would constitute a tax increase on poorer Americans, Perry has decided that his flax tax should be optional. If you like it, you pay 20% of your income to the Federal Government and you're done (well... except for your state taxes), but if you remain unconvinced, you can stick with the current system.

This little twist apears to have received little scrutiny among the commentariat. Perhaps this is due to the fact that Perry has largely faded from the scene, his numbers dropping precipitously after a series of dissappointing debate performances. Perhaps it is because it apears too gimmicky to merit serous consideration. Still it is suprising how little attention has been paid to the "optionality" feature, because it implies a significant departure from the standard arguments that have, till now, been employed to promote the flat tax. Students of the various and sundry GOP tax proposals that have been floated over the last few decades are no doubt aware that one of the justifications that Republicans frequently provide for their flat tax proposals is the claim that under current law, the super rich are able to exploit loopholes allowing them to shelter much of their income from taxation. The flat tax, proponets have often argued, would actually increase taxes on those wealthy Americans who rely on an army of tax lawyers to help them escape taxation.

And then here comes Rick Perry with another flat tax proposal, however, unlike previous proposals, wealthy individuals are under no obligation to pay a flat 20% of their income to Uncle Sam. They can continue to employ their army of accountants to pay little or nothing. In the end, Perry's proposal represents a tax increase only on those who don't want to go through the hassle of calculating exemptions and looking up tax tables. One wonders what the point is.

Of course, in the end, skeptics are more than justified distrusting Republican candidates' justifications and projections of the effects of their flat tax proposals. If tax loophole allow the super rich to escape taxation, why not simply close those loopholes? And given that most flat tax proposals tend to exempt capital gains from taxation altogether, the idea that these tax plans would repesent an actual tax increase on wealthy Americans is as fanciful a tale as stories about the lost continent of Atlantis.

What we have in Perry's plan, then is just the latest example of GOP policies that are completely divorced from arithemetic and empricial reality. Currently, the U.S. borrows some 40 cents of every dollar it spends. The idea that you can institute a tax plan that is guaranteed to decerase government revenues and still balance the Federal budget in six years... well that's akin to caliming, not merely that you've discovered the lost continent of Atlantis, but that it was inhabitted by Faeries and unicorns.

Friday, October 21, 2011

Puzzling Cain

I've got to say that I'm somewhat puzzled by Herman Cain. I mean, I can understand how a guy who's shown no interest in foreign policy could fumble a question about the Palestinian "right of return." But for a candidate running as a Republican to not realize that expressing an effectively pro-choice position on abortion is a deal breaker with GOP primary voters... that shows a remarcable lack of insight into the U.S. political process.

In any case, it will be interesting to judge the fallout from Cain's statements, especially in places like South Carolina where he's become an unlikely and unexpected frontrunner.

Monday, October 17, 2011

Occupy Orman

Paul Krugman points his readers to this column by Suze Orman, in which the personal finance guru endorses the Occupy Wall Street protesters, and rails against the unfairness of the events that have transpired over the past few years, with major banks and other financial institutions seeing massive bailouts while ordinary homeowners, their mortgages under-water, have been left out to dry.

One point Orman makes is to note the unfairness of a system in which our youth are graduating from college loaded up with student loan debt, and few if any job prospects to help them repay it. Furthermore, recent legislation makes this debt nearly impossible to discharge in bankruptcy court. It's no wonder the kids have taken to the streets.

By manner of comment, I would like to repeat something I have said in other venues: when future historians look back at the wreckage that is becoming of the American economy, they will note with sadness our skewed priorities. And they will wonder how it is we ever got to a point where a propective homeowner considerng the purchase of his next MacMansion can rest secure in the knowledge that should things go wrong, he can simply turn his key in and walk away from the mortgage suffering no legal ramifications. Whereas, by contrast, a young person looking over a stack of college prospectuses and trying to decide where she wants to pursue her higer eductaion faces the very real risk that the massive loans she takes out to pay for her education will haunt her for the rest of her life.

Thursday, October 13, 2011

Perry/Thompson 2012

I must say that one of the few genuine pleasures of the GOP presidential candidate nomination process has been playing witness to the Rick Perry implosion. It reminds me so much of what happened in 2008 with the candidacy of Fred Thompson. With his genial grandad persona and "plain spoken horse sense" Thompson was the Republican. Dali Lama, a reincarnation of Ronald Reagan who would carry the presidency by channeling the Gipper, carried aloft into the White House by a throng of GOP faithful. Yet when he dropped into the race, instead of walking on air, Thompson fell to earth with a dull thud. Apparently the guy was just too lazy to get up and walk, and the rest of the field just ambled past him.

Perry, likewise, came into the race as gun-wielding, the neo-secessionist, guru and anointed prophet of the Tea Party cult. His initial poll numbers were staggering and he was pronounced the Republican frontrunner before he had even officially announced his bid. But he too, quickly fell to earth once it became amply clear that the quip that Perry was "George W. Bush minus the gravitas and intellectual curiosity" was far from an exaggeration. Indeed, it was so close to reality that even the Tea Party (heretofore enamoured of certifiably insane Christofascist Michelle Bachmann) was able to see him for the pretty-faced imbecile he was.

For me, the last nail in the Perry coffin was finally hammered in last night when, responding to an accusation of Mitt Romney's that Perry has thus far failed to present a viable economic plan, Perry responded by noting "you've been doing this much longer than I have" or words to that effect (I'm quoting from memory). It's always a bad sign when your retort to an accusation could just as easily have been an extension of the accusation itself. Had I been Romney My response would have been "You're right, Rick... I have been thinking about these issues and developing policy proposals much longer than you have. Thanks for making my point for me."

That said, I don't want to give the Tea Party too much credit. After all, their current darling appears to be Herman Cain, a guy who ridicules the notion that he should be expeceted to have a rudimentary grasp of geopolitics (or even, geography) and whose 9-9-9 economic plan reads like it was dreamed up in a Vegas hotel room by a trio of junior hedge fund managers after snorting a few lines of coke off the ass of the sleeping hooker they just shared.

Wednesday, October 12, 2011

Debate reaction

I only watched the first few minutes of last night's GOP debate. Couldn't stand to watch much longer. The extent to which the GOP is living in a world of purely ideological invention is just stunning. In response to questions referencing the "Occupy Wall Street" demonstrations, the GOP candidates all affirmed the conviction that the housing bubble, collapse and subsequent financial crisis were all a result of government regulation. Michelle Bachmann thrust the CRA canard front and center, blaming a 30 year old law that prevents banks from redlining minority neighborhoods for the orgy of speculation and securitization of worthless mortgages that were the cause of the crisis. This talking point has been thoroughly rebutted by those who have looked at the data (I mean, the law's been on the books for 30 years wihtout caysing these problems, and most of the institutions that pushed sub-prime mortages weren't even subject to the Community Reinvestment Act) but if the last 3 years have taught us anything it's that reality and GOP fantasy rarely intersect.

And Michelle Bachmann's nonsense paled next to Newt Gingrich's answer to the question of whether anyone on Wall Street should have been jailed over the massive fraud that led to the economic collapse. No, Gingrich insisted, instead Barney Frank and Chris Dodd should be jailed. Yes, legislators who were in the congressional minority (and thus powerless) over the bubble years, and who only recently have proposed measures to restrain Wall Street from bringing about another financial crisis are the ones who should be jailed. I can't help but think of the events that are currently unflding in the Ukraine, where a rising despot is in the process of jailing the former Prime Minister and a leading opposition figure on trumped up charges related to her government's handling of a gas pipeline with Russia. If htere's any doubt that the GOP is a party with totalitarian tendencies, let Gingrich's comments lay those doubts to rest.

Tuesday, October 11, 2011

A Key Differentiator

There's been a great deal of debate in the media and on the blogosphere lately concerning the nascent "Occupy Wall Street" movement that has recently taken to the streets to protest social inequality and the corruption of our governing institutions by moneyed interests. Much of that commentary has focused on the question of whether these protests represent a left-wing answer to the Tea Party. And yet in all these discussions commentators have missed a key differentiator between Occupy Wall Street and the Tea Party: timing.

The Tea Party allegedly arose as a movement that was concerned about America's mounting Federal debt. And yet, it is a movement that did not exist in any form between 2000 and 2008 when a Republican president and Republican majorities in both houses of congress presided over a doubling of the national debt. Those of us who have been following politics closely for many years were hardly surprised by this, since concern about the Federal debt among Republicans is a purely opprtunistic, tactical move designed to weaken their Democratic opposition by mobilizing public opinion against them. In reality, Republicans have never cared enough about the Federal debt to make a significant debt, even, in the yearly deficit. In this sense, the Tea Party is merely an instrument of GOP policy, a purely Astro Turfed movement (even if its followers, in many cases, do not recognize themselves as such).

What differentiates the Occupy Wall Street movement, then, is that it has risen in the midst of a Democratic presidential administration, and until recently, was viewed with great skepticism by the Democratic party leadership. It is a truly organic, grass rootsmovement, not a instrument of the political opposition. I expect that we'll see more of this movement, well into the next few years, regardless of who wins the presidency.

I'll have more thoughts on this tomorrow (work becons!)

Monday, October 3, 2011

Economic Reality vs. fantasy

Haven't got much time this morning. Gotta be at work in a few minutes. Nonetheless, there are some thoughts I'd like to lay down before events have me moving on to other subjects and other considerations.

A fair amount of recent debate in the economics blogs (Brad deLong, Paul Krugman & others) centers around the effect that "regulatory uncertainty" is having on job creation. I don't have time to cite sources of offer links, however, the long and the short of it is that right-wing economists and trade associations have spent the last few years arguing against the notion that current economic woes are caused by a lack of consumer demand. For these guys, economic troubles are always the result of pressures on supply. Now, this is a ridiculous argument to make in these economic times, when we're living a terrible recession caused by the sudden disinflation of the mortagage bubble and the concommitant loss of trillions of dollars of consumer wealth that it occasioned. As Krugman and deLong (and other "Keynesian" oriented economists) point out, consumers who once spent profligately thanks to growing principle balances in their homes, suddenly found themselves "under water" on their mortgages, owing more on their properties than the properties themselves were worth. As a result they cut back on their spending and focused their economic efforts on paying down their debts (to the extent they were able). Suddenly businesses that depended on the American consumer for their profits saw sales dry up and profits vanish. Panicked, they cut back on production and fired workers.

The right-wing economist, however, tells a wholly different story. For him the problem isn't a lack of demand. For him the underlying problem is "regulatory uncertainty." Businesses would love to hire new workers and get the economy rolling, it's just that with a radical-Marxist in the whitehouse threatening massive burdensome regulation of private industry, they dare not hire workers who might come to cost them too much in the future.

Of course, this story is nonsense, but "regulatory uncertainty" has the benefit of being an ineffable quantity that one can summon when all other arguments fail to pan out. It basically equates to saying "because there's a Democrat in the White House." It is an argument that takes its own assumptions as conclusions.

Perhaps the quickest way to show this is to look at the evidence. While I don't have time to show it, at the moment, a look at the data clearly shows the economy falling off a cliff in the run up to the American Recovery and Reinvestment Act, then stabilizing afterwards. Hiring, which was plunging, picked up, though not at levels that would make a significant dent in our much higher unemployment figures, Nonetheless, a graph of the trajectory of hiring clearly shows a reversal in what was a terryfying trend (recall that from late 2008 to early 2009 businesses were cutting jobs by hundreds of thousands of workers a month. Comapred to those figures, a lackluster 30,000 new private sector jobs in a month looks like a veritable hiring boom.)

That the stimulus didn't return the economy to the place it was before the crash is indisputable, and the fact that conservatives use arguments along those lines to show that the stimulus "failed" shows the poverty of their reasoning. The stimulus did not acheive massive economic growth and reemployment, in part because it was too small, and because of politicl realities. Nearly one third of the package was made up of tax cuts, which are a poor way of providing stimulus to the economy. Roughly one third consisted of aid to the states, which merely replaced money they were cutting from their own budgets (and thus, added no net new money to the economy). And the last third (roughly $250 billion) was spent over a period of two years. SO, in essence, the money the U.S. spent over two years stimulating its own economy roughly equalled the sum we spent in one year supporting the occupation of Iraq at the height of that conflict's development.

So what about the uncertainty argument? Well, this argument has the virtue of being somewhat testable. If businesses were leery of hiring workers when Obama was the leader of a party that held hte congress and had a fillibuster proof majority in the Senate, then surely the loss of the Congress and the loss of the 60 vote majority in the Senate would have restored business confidence. After all, the actions of the GOP majoriyt in Congress and the minority in the Senate have made it clear that Obama will notbe able to pass major regulatory lesgislation. Regulatory uncertainty is a thing of the past.

So business is booming now, right? Well... not quite. In fact, we're about as close to falling back into recession as we have ever been, in no part due to the fact that the last of the Obama stimulus funds are being spent, and there is little prospect of a meaningful second round. In other words: orders have dried up. Demand is falling off a cliff again, and the economy is once again teetering on the edge.

(This analysis, of course, leaves off the looming european catastrophe, but that's. a story for another day)