Handy Thing This Internet

The internet is great isn't it? I thoroughly enjoy all the fact-checking that's going on these days. One makes a claim and here come all the evidence that proves the assertion wrong. This is the case with a recent Charles Krauthammer column -- he uses several of the tired Repub talking points that have been refuted -- even by Republicans!

Here's the Krauthammer column:

http://www.washingtonpost.com/opinions/return-of-the-real-obama/2011/09/22/gIQAf7dsoK_story.html

He claims that Obama will raise taxes on 50% of small businesses -- well not exactly! Media Matters references a WaPo column from 2010 wherein Bush economist Alan Vaird refutes the claim as follows:

Alan Viard, an economist in the Bush White House who is now at the American Enterprise Institute, agreed that many firms represented in the top tax brackets are hardly small. Economically, that doesn't matter, he said: Obama would still be raising taxes on a significant source of jobs and economic activity.

Politically, however, it's a very different matter to raise taxes on a Wall Street hedge fund than it is to tax your neighborhood dry cleaner. Which is why Republicans continually define pass-through entities of all sizes as small businesses, a position Viard called a "fallacy."

"How can it be that 3 percent of owners are accounting for 50 percent of small business income? Those firms they're owning can't be all that small," Viard said. "And that's true. They're very large." [The Washington Post, 9/17/10]

Then the false claim -- again an old chestnut -- that cutting taxes increases revenue. Again, it's refuted by Greg Mankiw, former member of Bush Council of Economic Advisers:

I used the phrase "charlatans and cranks" in the first edition of my principles textbook to describe some of the economic advisers to Ronald Reagan, who told him that broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue. I did not find such a claim credible, based on the available evidence. I never have, and I still don't.

Math or Class Warfare?

Timely column from Alice Rivkin / Brookings Institute:

http://www.brookings.edu/opinions/2011/0922_class_warfare_rivlin.aspx

"In defending his proposal to ensure that millionaires not pay taxes at lower rates than ordinary wage earners—the Buffett rule—the president said, “It is not class warfare. It is math.” I was reminded of the experience I have had many times when I have talked about the fact that the distribution of income in the United States has become dramatically less equal in recent years, especially at the very top. Average incomes have stagnated while incomes of the very well-healed have sky rocketed. Often someone in the group shouts, “class warfare” or “populism,” meaning “don’t go there.” The shouter thinks invoking images of angry peasants with pitchforks and torches advancing on the castle ought to end any conversation about the distribution of income or wealth."

Why Voters Tune Out Democrats

I believe that most American's political viewpoints align more with the progressive rather than the conservative agenda. But, surprisingly, people continue to vote against their best interests. Pollster Stanley Greenberg analyzes this phenomena and points to some effective strategies for Democrats.

http://www.nytimes.com/2011/07/31/opinion/sunday/tuning-out-the-democrats.html?_r=1&pagewanted=all

Quote from the article:

"In analyzing these polls in the United States, I see clearly that voters feel ever more estranged from government — and that they associate Democrats with government. If Democrats are going to be encumbered by that link, they need to change voters’ feelings about government. They can recite their good plans as a mantra and raise their voices as if they had not been heard, but voters will not listen to them if government is disreputable.

Oddly, many voters prefer the policies of Democrats to the policies of Republicans. They just don’t trust the Democrats to carry out those promises."

This Cartoon Speaks for Itself

From Bill Day, cartoonist for the Memphis Commercial Appeal:

http://www.commercialappeal.com/photos/2009/mar/12/106259/

Lower Taxes on Rich Don't Lead to Job Growth

Ezra Klein presented this graph on the Ed Schulz show this week:

http://www.americanprogress.org/issues/2011/09/tax_fairness.html

From the site:

"Conservatives have no good explanation for why the economy grew so rapidly in the 1990s despite what they describe as growth-crushing tax rates. The top rates were raised from 28 percent to 31 percent in 1990, and then again to 39.6 percent in 1993—a much steeper rate hike than simply allowing the current 35 percent top rate to revert to 39.6 percent, as President Obama has proposed.

What followed the early 1990s rate increases was an unprecedented economic expansion and a balanced budget. With higher tax rates on both ordinary income and capital gains in effect, business investment was stronger in the 1990s than in the period since the 2001-03 tax cuts. Millions of jobs were created and real incomes grew across the income spectrum. About 18.2 million private-sector jobs were created in the six years after the top tax rate was raised to 39.6 percent in 1993, compared to only 4.7 million private-sector jobs created in the corresponding period after the 2001 Bush tax cuts."

Google Chairman: Economy Needs Stimulus, Not 'Ludicrous' Spending Cuts

Google CEO gets it right on ABC's This Week:

http://abcnews.go.com/Politics/google-chairman-government-strategy-spending-cuts-ludicrous/story?id=14548966

"Google chairman Eric Schmidt today said the current economic strategy of cutting spending during a slow economy is "ludicrous," and pushed for greater government stimulus to generate demand.

The political wrangling between Republicans and Democrats have left business leaders with no certainty on economic policy, and said what is needed to encourage companies to hire more workers are "predictable, long-term plans."

"The economy is, today, stuck behind the power curve. It needs a lot of encouragement," Schmidt told "This Week" anchor Christiane Amanpour. "It needs not just something like the jobs bill, but also significant government stimulation in terms of buying power and investment. Otherwise, we're set up for years of extraordinarily low growth in the economy and no real solution to the jobless problem."

When asked if he saw "any possibility of a climate for more stimulus," Schmidt responded, "that's a political question. But the current strategy is ludicrous."

"You have a situation where the private sector sees essentially no growth in demand," Schmidt said. "The classic solution is to have the government step in and, with short-term initiatives, help stimulate that demand. If they do it right, they'll invest in income and growth-producing things, like highways and bridges and schools, new opportunities for the private sector to go then build businesses."

Fact checking the CNN and Tea Party Express debate in Tampa

"The Republican presidential debate in Tampa, Fla., co-hosted by CNN and the Tea Party Express, was feisty and provocative, with many of the candidates relying once again on bogus “facts” that we have previously identified as faulty or misleading. "

http://www.washingtonpost.com/blogs/fact-checker/post/fact-checking-the-cnn-and-tea-party-express-debate-in-tampa/2011/09/12/gIQAPCkXOK_blog.html?hpid=z2

Total Health Care as a Percentage of GDP

The Second Death of John Maynard Keynes

From Nation columnist Eric Alterman:

http://www.thenation.com/article/163065/second-death-john-maynard-keynes

"Data-wise, the proof has been in the pudding. While austerity is all the rage among politicians on both sides of the Atlantic, the International Monetary Fund has found that deficit cuts of 
1 percent of gross domestic product tend to raise unemployment by 0.3 percentage points. Markets have also tended to react accordingly. The Dow fell by fully 265 points, or 2.2 percent, on the day Obama signed the Boehner deal and twice that amount again—512 points; 4.3 percent—just two days later. Since the showdown began earlier this year, according to economist Simon Johnson, the stock market has lost about 20 percent of its value (roughly $10 trillion). Thus, the consequence of Tea Party anti-Keynesianism has been, in Johnson’s words, “to reduce publicly funded social benefits—including pensions and Medicare—even as its methods dramatically reduce the value of private wealth now and in the future.”

None of this matters to almost anyone associated with the Republican Party these days. As David Brooks reports in the New York Times, “It used to be that there were many themes in the Republican hymnal. Now there is only one: Government is too big, and it needs to be brought under control.” Its biggest beneficiary is Texas Governor Rick Perry, the new Republican frontrunner, who, Brooks notes, “does very well with the alternative-reality right—those who don’t believe in global warming, evolution or that Obama was born in the U.S.”

Perry sticks to the script as if it were Scripture. “The fact is, government doesn’t create jobs,” he said. “Government can only create the environment that allows the private sector to create jobs.” Thing is, reality has Keynesian bias even in Perry’s Texas. During Perry’s decade-plus tenure as governor, public sector jobs have increased at twice the pace of those in the private sector. For the past three years, jobs in Texas’ private sector have actually fallen by 0.6 percent, while in the public sector they have increased by 6.4 percent. The further anti-Keynesian demand is that budget-balancing be done exclusively with spending cuts. All the Republican presidential candidates rejected a hypothetical deal in which ten dollars of service cuts would be matched by a single dollar of new revenues. Perry, like most of them, signed Grover Norquist’s anti-tax pledge (to “oppose and veto any and all efforts to increase taxes”), and his campaign website promises to “take his proven budget-cutting record to Washington.”"

The Price of 9/11

From Columbia University professor Joseph Stiglitz:

"The September 11, 2001, terror attacks by Al Qaeda were meant to harm the United States, and they did, but in ways that Osama bin Laden probably never imagined. President George W. Bush’s response to the attacks compromised America’s basic principles, undermined its economy, and weakened its security."

http://www.project-syndicate.org/commentary/stiglitz142/English

Is Manufacturing Falling Off the Radar?

http://www.nytimes.com/2011/09/11/business/is-manufacturing-falling-off-the-us-radar-screen.html

"As President Obama urges Congress to enact a package of tax cuts and new government spending intended to revive growth and create jobs, one crucial corner of the American economy — manufacturing — has largely fallen off Washington’s radar screen. "

How Banks Got Too Big to Fail

From Mother Jones -- great graphic below:

http://motherjones.com/politics/2010/01/bank-merger-history

"The nation's 10 largest financial institutions hold 54 percent of our total financial assets; in 1990, they held 20 percent. In the meantime, the number of banks has dropped from more than 12,500 to about 8,000. Some major mergers and acquisitions over the past 20 years:"

Romney’s Jobs Plan: Punts Short, Goes Long on Supply-Side Tax Cuts and Fiscal Austerity

Jared Bernstein has an excellent analysis of the Romney jobs plan -- it's generally more of the same ideas that were proven wrong in the 2000-2008 Bush administration. Supply-side economics benefit the wealthy more than the middle class -- how many times are we going to go down this road expecting a different answer!?

"I pored through Mitt Romeny’s jobs plan last night—it’s a comprehensive piece of work, worth a look. Unfortunately, Mr. Romney offers no solutions for our most pressing short-term problem: high unemployment and the weak job growth. And his long term strategy is based on supply-side measures that have long been associated more with budget deficits and upward wealth redistribution than with job creation."

http://jaredbernsteinblog.com/romney%E2%80%99s-jobs-plan-punts-short-goes-long-on-supply-side-tax-cuts-and-fiscal-austerity/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+JaredBernstein+%28Jared+Bernstein%29

Subprime Mortgage Bonds Getting AAA Rating S&P Denies to U.S. Treasuries

Let's not take the S&P downgrade too seriously -- below link is from Bloomberg News:

"Standard & Poor’s is giving a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it assigns the U.S. government."

http://www.bloomberg.com/news/2011-08-31/subprime-mortgage-bonds-getting-aaa-rating-s-p-denies-to-u-s-treasuries.html

Ye Olde Ponzi Scheme

From the Incidental Economist -- the post does a good job of illustrating the vacuousness of the recent Rick Perry remarks -- just a slogan designed to catch the ear of anti-government right-wingers :

"It’s become popular these days to blog on how Social Security is or is not like a Ponzi scheme. I hope readers understand what’s going on though. This is all about perception and framing. There’s not a lot of meaning to the use “Ponzi scheme” in this context. You can’t actually convey anything useful about Social Security by labeling it thus."

http://theincidentaleconomist.com/wordpress/ye-olde-ponzi-scheme/

The American Jobs Act

Great job by President Obama tonight -- see link to speech transcript and video here:

http://www.whitehouse.gov/blog/2011/09/08/american-jobs-act

Goodbye to All That: Reflections of a GOP Operative Who Left the Cult

http://www.truth-out.org/goodbye-all-reflections-gop-operative-who-left-cult/1314907779

Public Opinion Snapshot: Public Shows No Love for Tea Party, Bush

http://www.americanprogress.org/issues/2011/08/snapshot082911.html

"It’s no secret that President Barack Obama has taken some serious hits to his popularity that are chiefly due to the poor economic situation. But that doesn’t mean that the public has changed its mind about his predecessor or embraced the ideas of his opponents. Consider this recent evidence.

In the latest AP/Roper/GfK poll, 51 percent still say George W. Bush deserves almost all or a lot of the blame for the country’s current economic problems. That’s followed by 44 percent who blame Republicans in Congress, 36 percent who blame the Democrats in Congress, and just 31 percent who blame President Obama."

State of Working America

The Economic Policy Institute's "State of Working America" web site:

http://www.stateofworkingamerica.org/

The Limping Middle Class

From former Labor Secretary Robert Reich writing in the NYT:

http://www.nytimes.com/2011/09/04/opinion/sunday/jobs-will-follow-a-strengthening-of-the-middle-class.html?_r=2&pagewanted=1

The graphic says it all -- and I do mean all!

http://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html?ref=sunday

Excellent Link from Jared Bernstein's Recent Blog Post

Jared linked to this from Citizens for Tax Justice web site -- you should download the PDF from the CTJ site:

Recent data show that the U.S. is taxed far less than almost all other OECD countries. An increase in revenue is the obvious answer to America's budget deficit.

http://www.ctj.org/ctjreports/2011/06/us_one_of_the_least_taxed_developed_countries.php

CBO: Up to 2.9 Million People Owe Their Jobs to the Recovery Act

http://www.offthechartsblog.org/cbo-up-to-2-9-million-people-owe-their-jobs-to-the-recovery-act/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OffTheChartsBlog+%28Off+the+Charts+Blog+|+Center+on+Budget+and+Policy+Priorities%29

Jon Stewart Daily Show August 18 2011 Episode

Great Jon Stewart segment on income inequality -- watch the first 5 minutes:

http://www.thedailyshow.com/full-episodes/thu-august-18-2011-anne-hathaway

Here is a link to the data from the CIA factbook -- note that this is sorted 'worst to best' whereas the Jon Stewart table sorts from 'best to worst.'

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html

More about Who Pays Taxes

Fiscal Times weighs in on the fashionable Republican rant about tax rates for the poor:

http://www.thefiscaltimes.com/Articles/2011/08/31/Who-Pays-No-Taxes-and-Why-Theyre-No-Pot-of-Gold.aspx#page1

“It’s wrong to rail on the 46 percent of people who don't pay income tax,” said Paul Caron, a tax professor at the University of Cincinnati College of Law. “A fairer analysis takes into account all taxes paid—and by this measure, everyone has tax skin in the game,” he said.

It will be hard to change or eliminate the social policy-related tax provisions that knock millions of Americans off the federal income tax rolls, said Roberton Williams, a senior fellow at the Tax Policy Center. Not only would it risk alienating key voting blocs, such as senior citizens, but it could have a serious economic impact, he said. “It’s going to hurt the economy more if you raise taxes on the poor than the rich, because the poor spend every penny they’ve got,” Williams said. “If you take a dollar away from them in tax credits, that’s a dollar they don’t spend.”

Not everyone considers these tax breaks untouchable, however. “This proliferation of credits and benefits at the bottom has really gone too far,” said Chris Edwards, a senior fellow at the libertarian Cato Institute. “There are all kinds of pro-market policies the government can do to offset any harm caused to these people if it’s going to withdraw benefits,” he said. Repealing tariffs on goods from China and other countries would lower the cost of clothing and food for low-income Americans to balance the absence of tax credits, he said.

Can you believe the argument advanced by the Koch er, Cato Institute senior fellow? (sarcasm filter on) Yes, let's go out of our way to withdraw benefits from the lower income 50% of American citizens who control a whopping 2.5% of US wealth!! (sarcasm filter off)

Executive Excess 2011: The Massive CEO Rewards for Tax Dodging

http://www.ips-dc.org/reports/executive_excess_2011_the_massive_ceo_rewards_for_tax_dodging/

Rick Perry By the Book

From WaPo columnist Ruth Marcus:

http://www.washingtonpost.com/opinions/rick-perry-by-the-book/2011/08/30/gIQAJJsbqJ_story.html?hpid=z2

"Perry’s 2010 Tea Party-steeped manifesto, “Fed Up!,” makes George Bush look like George McGovern. Perry has said he wasn’t planning to run for president when he wrote the book, and it shows."

The ratio of corporate profits to wages is now higher than at any time since just before the Great Depression

http://www.politifact.com/truth-o-meter/statements/2011/sep/01/robert-reich/robert-reich-says-ratio-corporate-profits-wages-hi/

From the site:

In an Aug. 29, 2011, column, Robert Reich, the former Labor Secretary under President Bill Clinton and a frequent liberal commentator, offered a number of statistics to back up his call for worker protests rather than parades on Labor Day.

"Labor Day is traditionally a time for picnics and parades," Reich’s column began. "But this year is no picnic for American workers, and a protest march would be more appropriate than a parade."

One of the statistics Reich offered was this: "The ratio of corporate profits to wages is now higher than at any time since just before the Great Depression."

A reader asked us to check this out, so we did.

We turned to statistics compiled by the Bureau of Economic Analysis, the federal office that calculates official statistics about the economy. We found numbers for corporate profits as well as for two measures of worker income -- wage and salary disbursements, and total employee compensation received. We then divided corporate profits by both of the income measurements, all the way back to 1929. (Here are the full statistics from 1929 to 2011 as we calculated them.)

For wages, we found that Reich was essentially correct. The ratio in 2010 -- the last full year in the statistics -- was .281, which was higher than any year back to at least 1929, the earliest year in the BEA database. The next highest ratio was in 2006, at .265. (We didn’t find pre-1929 data, so the one part of Reich’s statement that we can’t prove is that the ratio was higher "just before the Great Depression.")

We also looked at total compensation, since the portion of worker compensation delivered outside of wages has grown significantly since 1929. The numbers were slightly different, but the general pattern still held. The ratio in 2010 was .226, which was matched or exceeded in only four years -- 1941, 1942, 1943 and 1950.

To capture the most up-to-date trends, we also looked at the ratios for the last six quarters. For both wages and compensation, the ratio has risen steadily over that year-and-a-half period. For wages, the ratio has climbed from .274 in the first quarter of 2010 to .290 in the second quarter of 2011. For compensation, the ratio has risen from .220 in the first quarter of 2010 to .234 in the second quarter of 2011.

So numerically, there’s little question that Reich is essentially right. (Or, at least for now he is. Economists note that statistics about corporate profits and wages are often revised after the fact.) A more interesting question is what this trendline actually means.

First, we’ll note that the ratio has been remarkably steady over the time we studied. In 2010, corporate income was 168 times what it was in 1929, and wages were 124 times what they were in 1929. But despite the dramatic increases for both measures individually, these two numbers have grown pretty much in tandem. While corporate profits have grown faster, they haven’t grown dramatically faster. Over the eight-decade period, the ratio between corporate profits and wages -- at least prior to 2010 -- almost always hovered between .150 and .235, a pretty narrow range, all things considered.

Within this range, the ratio has regularly zigzagged up and down. The ratio has peaked during World War II, the early 1950s, the mid1960s, the mid1990s and the middle of the first decade of the 21st century.

The 2010 high broke with this history, making the statistic Reich is talking about all the more striking. And as the quarterly data shows, the spike from 2010 has continued into 2011.

This spike has its roots in basic mathematics. The ratio can rise for either of two reasons -- because corporate profits rise, or because wages stagnate. To a greater degree than in past recessions, both of these developments have happened simultaneously in 2010 and 2011. That’s the immediate reason for the ratio’s sudden increase. The ratio was well within historical norms as recently as 2009, the second year of the recession.

Today, "indicators favorable to workers are either absolutely dreadful, like the percentage of the adult population that is employed, or else improving at a not-very-robust rate, like real compensation per hour, while indicators favorable to business owners, such as record profit levels measured in billions of current dollars, are very delightful indeed," said Gary Burtless, an economist at the centrist-to-liberal Brookings Institution.

There are any number of explanations for why businesses are so reluctant to invest their profits today. For instance, Dan Mitchell, an economist at the libertarian Cato Institute, said the pattern of low corporate investment that we’re seeing today has to do with "a climate of economic uncertainty, largely thanks to the threat of more taxes and regulations."

But the explanation that seems to mesh best with our numbers has to do with economic cycles. While the ratio Reich points to is exaggerated today due to an unusually deep recession and an especially sluggish recovery, the general pattern follows that of other recent recessions, said J.D. Foster, an economist with the conservative Heritage Foundation.

Typically, businesses initially lose ground during a recession, while workers suffer somewhat less, in part due to "sticky wages" -- the tendency for worker pay to increase or stagnate rather than fall, even in hard times. This pattern tends to decrease the ratio of corporate profits to wages.

However, when the recovery begins, the reverse becomes true -- businesses tend to gain ground faster than workers do, since soft labor markets prevent workers from reaping the rewards of improved productivity. This pushes the ratio of profits to wages higher. Since the current recovery is particularly weak, the increase in the ratio has been even stronger than normal.

The hopeful news for workers, Foster says, is that once a recovery gathers steam and new capital-labor equilibrium is reached, workers tend to accelerate their gains.

"Once a strong recovery is under way and labor markets return to normal, total labor compensation tends to catch up, as employers bid for employees out of the extra profit margin they accumulated during the recovery," Foster said. "So once we start heading toward full employment, we can expect total labor compensation to rise very rapidly relative to total income."

So where does this leave us? On the numbers, Reich’s claim is essentially correct. And in his analysis, Reich doesn’t over-promise on what the data indicate. Amid evidence that these numbers could turn out to be a temporary spike, he resists the temptation to label it the culmination of a long-term trend. We find Reich’s formulation both factually supportable and appropriately cautious in its interpretation. We give it a rating of True.

25 CEOs Paid More Than Companies Paid in Taxes

http://www.thefiscaltimes.com/Articles/2011/08/31/CEOs-Whose-Pay-Is-Higher-Than-Their-Companys-Taxes.aspx#page1

"One-fourth of the 100 highest-paid CEOs in America took home more in pay than their companies paid in taxes to the federal government, a new report says."

GOP Targets Regulatory Burdens

What about that tired cliche from the GOP about regulatory burdens being lifted to "empower the private sector"....it's a dubious claim...as the WSJ survey says, the "lack of jobs is due mainly to a lack of sales"...here's info on that:

http://www.northcountrypublicradio.org/news/npr/140115604/in-jobs-debate-gop-targets-regulatory-burdens

Yet in a survey last month of 250 economists by the National Association for Business Economics, 4 out of 5 agreed that the current regulatory environment for American businesses was, in fact, good. In a July survey done by the Wall Street Journal in July, two-thirds of economists said the lack of jobs is due mainly to a lack of sales.

Paul Ashworth, the chief U.S. economist for Capital Economics in Toronto, was one of those surveyed.

"The weakness of the recovery, not just in consumption but across the whole economy — across whole areas of spending — is a big problem," he says. "And that's probably the key reason why firms are reluctant to be more aggressive in hiring workers."

Ashworth, who's considered one of the best forecasters of the U.S. economy, says he doubts rolling back regulations would lead to any dramatic turnaround in hiring. But that does not mean House Republicans won't try.

All Americans Pay Taxes

Link to above graph: http://www.ctj.org/pdf/taxday2010.pdf

Also see data here: http://www.responsibletaxes.org/resources/all-americans-pay-taxes/

Are We Nearing Peak Corporate Profits

http://www.ritholtz.com/blog/2011/09/corporate-profits/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

Peak corporate profits should lead, under normal circumstances, to more hiring and Capex spending. However, we are not seeing enough of either.

Will the corporate version of the Paradox of Thrift become a self-fulfilling prophesy?