Angry Bear

Supreme Court faces pressure to reconsider Citizens United

2012-05-24T09:44:00.000-04:00

Lifted from an e-mail by Beverly Mann in response to an inquiry of mine on a Washington Post article:

Hi Dan. The key paragraphs in a Washington Post article earlier this week, called Supreme Court faces pressure to reconsider Citizens United ruling say:

The Supreme Court has already blocked the Montana decision, and the justices may simply set their counterparts in Helena straight by summarily reversing the finding. But pressure is being applied — by members of Congress and nearly half the states, not to mention Justices Ruth Bader Ginsburg and Stephen G. Breyer — to at least let Montana make its argument.

The Montana Supreme Court acknowledged a conflict when it voted 5 to 2 to uphold the state law, created by voters in 1912 to combat the power of the so-called Copper Kings who controlled state politics. It said the state’s characteristics, including a dependence on agriculture and mining and low campaign costs, made it “especially vulnerable” to corporate control.

Those urging the court to grant a full hearing of the Montana case take aim at the most important finding of Citizens United. That was the declaration in Justice Anthony M. Kennedy’s majority opinion that “we now conclude that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.”

“That cannot be so,” the new bipartisan team of Sens. John McCain (R-Ariz.) and Sheldon Whitehouse (D-R.I.) told the court. “Whether independent expenditures pose dangers of corruption or apparent corruption depends on the actual workings of the electoral system; it is a factual question, not a legal syllogism.”

The court under Chief Justice John G. Roberts Jr. has incrementally undermined McCain’s landmark campaign finance act by saying it doesn’t meet First Amendment requirements. McCain has in turn been dismissive of a court — without a single member who has ever run for public office — that he says is hopelessly naive about how campaign finance affects the political process.

The most stunning part of the Citizens United opinion was that declaration of fact was made out-of-the-blue and that most people recognize is plainly false. I wrote about this a couple of times on AB, including last January, shortly after the Montana Supreme Court issued its opinion.

I think that, although the rightwing majority would love to just summarily reverse the Montana Supreme Court on the basis of that declaration of purported fact in Citizens United, they’re under enough pressure now to not do that; the dissents from any such opinion would be devastatingly scathing and would get a lot of attention. I think they’ll agree to hear the case, and will schedule the oral argument for after the election. I think that, when they do decide the case, the wingnut majority probably will say that, whether or not “independent expenditures pose dangers of corruption or apparent corruption depends on the actual workings of the electoral system,” the First Amendment interest in “free speech” outweighs it.

But, who knows? Another possibility is that they’ll say that their opinion in Citizens United stated that it was based on the presumption of transparency about who is actually funding these Super PACs, and on the basis that, supposedly, these Super PACs do operate independently of the candidates’ campaigns, and that unless both of these presumptions actually are true, laws like Montana’s are constitutional.
Beverly

And Beverly added later:

In my opinion, the only newsworthy part is the amicus brief from McCain and Whitehouse, because of MCain's participation and because these two senators are saying that as a matter of fact the Citizens United opinion's declaration of fact is erroneous, and that they, not the justices, have the actual facts. That's the argument made by Montana's attorney general, but having two senators say outright that in their experience, the Supreme Court's statement of fact is flatly wrong is a big deal. But I don't have any more insight into what will happen than what I wrote in the email and what's in the Washington Post article.

All in one day of reporting...

2012-05-23T12:25:00.001-04:00

This is just one days reporting from various sources. I thought I would pass them along. On the face of it perhaps the story line is clearer to even regular folk:

JPMorgan Said to Hire Ex-SEC Enforcement Chief McLucas for Loss Probe
By Joshua Gallu and Dawn Kopecki

JPMorgan Chase & Co., the biggest U.S. bank, has hired former U.S. Securities and Exchange Commission enforcement chief William McLucas to help respond to regulatory probes of the firm’s $2 billion trading loss, according to two people with knowledge of the assignment.

The lender’s May 10 announcement of the “self-inflicted” loss spurred reviews by the SEC, Commodity Futures Trading Commission, Office of the Comptroller of the Currency and Federal Bureau of Investigation. JPMorgan has said the losses may increase. Kristin Lemkau , a company spokeswoman, didn’t have an immediate comment on the hiring. The people requested anonymity because the appointment hasn’t been made public.

Via the Real News comes this headline J.P. Morgan Funds Senate Finance Chair, Even Bigger Problem in the Wings

ome and testify and explain how they lost $2 billion. There's a problem here. Who is Senator Tim Johnson's largest campaign contributor? Well, that's people associated with JPMorgan. So file this under the category as you can't make this stuff up, as Tom Ferguson said to me...

Bloomberg reports a change in the way the SEC and businesses relate:

+ The U.S. Securities and Exchange Commission, long known for settling enforcement actions without having to prove its case in court, is struggling to cope with a surge in the number of executives and companies willing to go to trial to defend themselves.

+The SEC’s office in Washington is actively litigating about 90 cases, up more than 50 percent in the past year, Matthew Martens, the SEC’s chief litigation counsel, said in an interview. At the same time, Martens’ trial unit staff has stayed relatively flat at about 36. He recently added three more lawyers to his group and is looking to hire more.

+The wave of litigation has two main sources: more complex cases stemming from the 2008 financial crisis and a related increase in lawsuits filed against individual executives.

+Martens said it's critical that his unit present a credible threat. “At the end of the day, if we can’t win cases, then people don’t settle. That’s the reality,” he said.

Letting the Fox Guard the Henhouse...not a metaphor!

2012-05-23T12:16:00.000-04:00

Cost savings? I don't know much about this industry except for the press, but I am thinking switching to vegan style, except Monsanto comes to mind. (Turn on being flip switch). Instead of an answer. I would ask two beginning questions: Is this a trend? Should I be increasingly concerned about our supply chain?

From OMB Watch alert Letting the Fox Guard the Hen house:

The U.S. Department of Agriculture's (USDA) Food Safety and Inspection Service (FSIS) made the front page of The New York Times this week for its proposal to change the way chickens and other poultry are inspected in processing plants before they are sent to supermarkets and butcher shops all across the country. In January, the agency published a controversial new proposal that would shift responsibility for inspections away from agency inspectors and allow employees of the slaughtering plants to judge their own handiwork. We’re not the only ones who think asking chicken producers to police themselves might be a bad idea.

The Crux of the Problem in the Financial Industry

2012-05-23T11:57:00.000-04:00

by Mike Kimel

The Crux of the Problem in the Financial Industry

A great set of lines from William Black posted at Barry Ritholtz's Big Picture:

The Jamie Dimons of the world know that if they win the gambles they will be made immensely wealthy and that when they lose the gambles massively the federal government will bail them out. Every gamble a federally insured bank (or an implicitly guaranteed SDI) takes is a gamble with government money. Bank leverage is always extreme in the modern era; it vastly exceeds the reported (and often inflated) capital. The government is the true creditor through its explicit and implicit guarantees of the bank’s creditors.

Now, that isn't necessarily a prescription for failure. Expectations of behavior, and public shame, make a big difference when it comes to determining whether people whose instinct are to act in their own best interests no matter how much harm it will cause to others will act on those instincts.

In general, the Jamie Dimons of the world (to use Black's phrase), if they somehow found themselves and a small child the only survivors of an accident, would protect the child until help arrived, though it might profit them to loot the child's belongings and jettison the child as dead weight. But it isn't merely personalizing a potential victim that keeps them from, well, making them into a victim. In general, the Jamie Dimons of the world, if told to charge a hill during a war, will charge said hill, even if the opportunities to profit are greater by staying behind.

So what makes finance different? Or is that the wrong question, and if so, what is the right question?

David Cay Johnson and taxed by the boss

2012-05-22T08:22:00.001-04:00

Reuters brings us a post from David Cay Johnson on a less well known funding mechanism from state coffers to private businesses. Granted there are a lot of others as well. See this post by Kenneth Thomas (link repaired) on how competition between government is different than between private businesses:

Across the United States more than 2,700 companies are collecting state income taxes from hundreds of thousands of workers – and are keeping the money with the states’ approval, says an eye-opening report published on Thursday.

The report from Good Jobs First, a nonprofit taxpayer watchdog organization funded by Ford, Surdna and other major foundations, identifies 16 states that let companies divert some or all of the state income taxes deducted from workers’ paychecks. None of the states requires notifying the workers, whose withholdings are treated as taxes they paid.

General Electric, Goldman Sachs, Procter & Gamble, Chrysler, Ford, General Motors and AMC Theatres enjoy deals to keep state taxes deducted from their workers’ paychecks, the report shows. Foreign companies also enjoy such arrangements, including Electrolux, Nissan, Toyota and a host of Canadian, Japanese and European banks, Good Jobs First says.

Why do state governments do this? Public records show that large companies often pay little or no state income tax in states where they have large operations, as this column has documented. Some companies get discounts on property, sales and other taxes. So how to provide even more subsidies without writing a check? Simple. Let corporations keep the state income taxes deducted from their workers’ paychecks for up to 25 years.

The snappier You tube version is here.

Bain Capital vs. Berkshire Hathaway**

2012-05-21T14:09:00.000-04:00

Matthew Yglesias channels … me!

Yep, that's right. And now that, as Yglesias discusses, Newark Mayor Cory Booker has given the Obama campaign permission to explain the differences between the various types of venture capital “models” (as Yglesias calls them), conceding that, yes, that may really be more relevant to the key issues in the campaign than Obama’s earlier relationship with Jeremiah Wright, I strongly urge the Obama campaign to do that—in detail, with as much specificity as is necessary to illustrate it.

In my earlier post, I mentioned the distinction between, say, the funding-of-Silicon-Valley-startups venture capital model and the leveraged-buyout-to-extract-value-and-then-close-the-company model that Bain engaged in (apparently) regularly when Romney headed it. Yglesias doesn’t mention the former but contrasts the latter with the genuine-turnaround model, which is the model that Bain and Romney claim was (and Bain claims, is)** theirs.

Yglesias is right to point out that the genuine-turnaround model is distinct from the extract-value-and-then-close-the-company one. But I think there’s also a distinction between the leveraged-buyout-to-extract-value-and-then-close-the-company model that Bain engaged (and, I assume, still engages) in, in which the intent is to “flip” the company as soon as possible, and the (to my knowledge) Berkshire Hathaway model, in which the venture capital firm, fund or holding company invests in companies, long-term, including buying some companies outright with the intent to actually own them for the foreseeable future. (From Wikipedia: “Berkshire Hathaway Inc. … is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary companies.”)

Surely there are differences between the decisions a Bain-like company makes vis-à-vis the businesses it acquires in order to flip quickly for large profits and a Berkshire Hathaway-like firm whose interest in the acquired business is long-term, because the very purpose of the investment is different. Those differences matter. A lot, I would think.

As for Booker, his short-term interest seems analogous to the Bain venture-capital model. Yglesias says he's receiving quite a bit of campaign funding from finance types. Including, presumably, those of the Bain model. (Or maybe Booker just doesn't recognize the distinction.)*

----
*This parenthetical was added after the original posting.

**This parenthetical was corrected for clarity.

Starting the Whole World Living?

2012-05-20T23:18:00.004-04:00

Sadly, probably not. But it's the voice those of us Of A Certain Age remember better than the Stigwood Era:

RIP, Robin Gibb.

Did Samuelson and Solow claim that the Phillips Curve was a structural relationship ?

2012-05-20T16:31:00.002-04:00

Did they claim that it showed a permanent tradeoff between inflation and unemployment.

James Forder says no.

Is the intellectual history and self image of modern macro based entirely on the critique of the legend to a figure which can be read out of context deliberately ?

Serious people don't put it that way, but I do.

Update: in a comment at economistsview.typepad.com Kevin Donoghue provided a link to a free version of the paper which I have (finally) read. Samuelson and Solow repeatedly stress the importance of expectations and the difficulty of identifying causal relationships. The conventional view of the paper is closer to being the opposite of what they wrote than to being fair. They give equal weight to the conjecture that high inflation will be persistent due to changes in expected inflation and that high unemployment will be persistent as the long term unemployed are effectively excluded from the labor market. The data are equally kind to each conjecture, yet the first is held to be a known fact which proves the author's who conjectured it to have been fundamentally wrong in a very important way, while the second is discussed only when the data make it unavoidable and is excluded from the models used for forecasting and policy analysis. Also Solow stressed the endogeneity of technological progress. Finally, they are very puzzled by the data from the depression and don't discuss the possibility that employees of the WPA might have been counted as unemployed as they were.
http://web.econ.unito.it/bagliano/macro3/samsol_aer60.pdf

Paul Krugman, John Quiggin and others (including me) have argued that the one success of the critics of old Keynesian economics is the prediction that high inflation would become persistent and lead to stagflation. The old Keynesian error was to assume that the reduced form Phillips curve was a structural equation -- an economic law not a coincidence.

Quiggin and many others including me have noted that Keynes did not make this old Keynesian error and instead explicitly argued that the relationship between inflation, employment and output was not stable and no equation asserting that it was should be introduced into macroeconmic models.

The old Keynesian error, if it occured, was made later. I have claimed (in a lecture to surprised students) that it was made by Samuelson and Solow. Was it ?

This is an important question in the history of economic thought, because the alleged error serves as a demonstration of the necessity of basing macroeconomics on microeconomic foundations. For a decade or two (roughly 1980 through roughly 1990 something) it was widely accepted that, to avoid such errors, macroeconomists had to assume that agents have rational expectations even though we don't.

The pattern of a gross error by two economists with impressive track records and an important success based on an approach which has had difficultly forecasting or even dealing with real events ever since made me suspect that the actual claims of Samuelson and Solow have been distorted by their critics. To be frank. this guess is also based on a strong sense that the approach of Friedman and Lucas to rhetoric and debate is more brilliant than fair.

I am very lazy, so I have been planning to google some for months. I finally did. I find that I would have to pay for Samuelson's collected papers. That the Wikipedia argues that a large fraction of Riksbank Nobel Memorial prizes in economics have been awarded to critics of the old Phillips curve and that many people assert that Samuelson and Solow presented an un expectations augmented Phillips curve as a structural equation. Then I googled
samuelson solow phillips curve

The third hit is the 2010 paper by Forder which discusses Samuelson and Solow (1960) (which I have never read).

Use the google.

This isn't very hard (one just has to read the paper). Forder quotes p 189

'What is most interesting is the strong suggestion that the relation, such as it is,
has shifted upward slightly but noticeably in the forties and fifties'

So in the paper which allegedly claimed that the Phillips curve is stable, Solow and Samuelson said it had shifted up. Rather sooner than Friedman and Phelps no ?

So how has it become an accepted fact that Samuelson and Solow said the Phillips curve was stable ? This fact is held to be vitally centrally important to the debate about macroeconomic methodology and it is obviously not a fact at all. How can it be that a claim about what was written in one short clear paper is so central to the debate and that no one checks it ?

They did caption a figure with a Phillips curve "a menu of policy choices" but (OK this is a paraphrase not a quote)

After this they emphasized – again – that these 'guesses' related only to the 'next few
years', and suggested that a low-demand policy might either improve the tradeoff by
affecting expectations, or worsen it by generating greater structural unemployment.
Then, considering the even longer run, they suggest that a low-demand policy might
improve the efficiency of allocation and thereby speed growth, or, rather more
graphically, that the result might be that it 'produced class warfare and social conflict
and depress the level of research and technical progress' with the result that the rate of
growth would fall.

So, finally after months of procrastinating, I spent a few minutes (at home without access to JStore) checking the claim that is central to the debate on macroeconomic methodology and found a very convincing argument that it is nonsense.

If that were possible, this experience would lower my opinion of macroeconomists (as always Robert Waldmann explicitly included).

Why Does Y Equal Real GDP?

2012-05-20T15:48:00.000-04:00

I hesitate to post this while Nick Rowe is on vacation, because he’s always so generous with his replies and explanations. Here’s hoping he gets back to this.

But he does get me thinking. I’ve spent several days re-reading and pondering his Identity Economics post and (his) related others, which post begins [my brackets]:

Here are two macroeconomic identities:

1. Y=C+I+G+NX [the National Income Identity]

2. MV=PY [the Identity of Exchange]

Both are true by definition.

Without (for the moment) burdening you with all my thinking, here’s the question that I’m left with:

By convention and practice — “by definition” — Y in these identities equals real GDP. Y means ”real GDP”.

Here’s why that doesn’t make sense to me:

Say that in Year 1, U.S. GDP (IOW, Y) is $14 trillion. That’s the total dollars spent on real-world, newly-produced goods and services. This quantity is necessarily counted in dollars, because that’s how the measurement is done (at least in the expenditure approach) — adding up all the dollar-denominated purchases/sales.

Assume: in Year 2, the economy produces that same quantity of real goods and services, and their aggregate human utility is unchanged. Real output is unchanged.

But in Year 2, the prices are 10% higher (for whatever reasons). Measured, counted GDP (a.k.a. “Y,” total dollar transactions) increases by 10%.

If Y is real GDP, then real GDP just went up by 10%. Even though real output didn’t.

This doesn’t make any sense to me. Shouldn’t Y mean nominal GDP?

Even: mustn’t it? Because it’s always counted in nominal dollars.

This would give us:

MV = Y

And:

Y/P = Real GDP

This seems much more tractable and conceptually coherent to me. The “real” definition keeps running me into (what seem like) conceptual/arithmetic contradictions.

I was going to stop here, hoping to keep this discussion focused, but as I’m about to post I find that Saturos has given me a very nice response to my comment over at Nick’s place. The confusion expressed here fully explains the more profound confusion in that earlier comment; I simply assumed therein, based on the fundamental construction of the National Income Identity (and the methods of national accounting), that Y means nominal GDP.

Saturos sez:

Talk to any Keynesian and you’ll find that they’re far more inclined to interpret Y = C + I + G + NX as referring to real (CPI or GDP deflator adjusted) quantities. Of course P is here assumed to equal 1, because “prices don’t matter in the short run”. But I agree that it makes far more sense, and is far more consistent with the Keynesian approach, to talk about nominal spending flows. (Really, you should use lowercase for real variables, and uppercase for nominal – and the identity is true in either case, as it’s just a listing of the different categories that any spending or output must fall into.) Matt Yglesias (http://www.slate.com/blogs/moneybox/2012/05/13/fun_with_accounting_identities.html) has a new post in which he takes Scott Sumner’s version: MV = C + I + G + NX. That might be the best approach of all – it shows you that all the changes in “income accounting” variables that get reported on the news must all be manifestations of fluctuations in the overall volume of spending, MV. If we’re talking about fiscal policy or “exogenous shocks” to NGDP, then this must be a fluctuation in V (base velocity).

My responses:

1. Are you telling me that economists don’t even agree on what Y means? Not sure if that’s what you’re saying. If so, doesn’t Nick’s “by definition” start this whole discussion (even: the whole discipline of national-accounting-based and monetary economics) on a bed of quicksand?

2. Is it really standard practice to “use lowercase for real variables, and uppercase for nominal”? Seems like a great convention. Do economists adhere to this convention consistently? They don’t seem to. (If Y equals real GDP, shouldn’t it always be lowercase?) Nick uses uppercase throughout in his post, except here in his #3:

If I re-wrote the first identity in nominal terms, as PY=PC+PI+PG+PNX, it might invite the same question. Or if I re-wrote the second identity in real terms, as Y=Vm (where m is the real money stock), I could hide that question.

I presume that m = M/P. So Y = VM/P. This says rather explicitly that Y is real GDP. (So it should be lowercase, no?) So, also: is Nick a Keynesian? Sometimes, sort of…

3. Mediocre philosophical minds obviously think alike. Matthew’s (and Scott’s) MV = C + I + G + NX is exactly where I went in my first stab at this post, which I’ve discarded or at least put aside for the moment.

4. I’ve been coming to the same conclusions about NGDP and velocity. Cf. the subtitle to this post.

I’m going to add one last thought here, to thoroughly muddle the waters: Somebody could presumably argue that price can’t increase by 10% unless the utility derived from produced goods — real output — also increases by 10%. That would resolve the apparent contradiction inherent in the Y = real GDP definition. (At least as that contradiction seems to arise in my example above re: the National Account Identity.) But I can’t really conceive a very convincing empirical and/or theoretical basis for that assertion.

Cross-posted at Asymptosis.

Guest post: Kabuki Theater Probably Won't Shake Up NY Fed

2012-05-19T21:24:00.002-04:00

by Kenneth Thomas

Kabuki Theater Probably Won't Shake Up NY Fed

Via @MarkThoma, Simon Johnson reports that Treasury Secretary Tim Geithner has called (very diplomatically, of course) for JP Morgan Chase CEO to resign from his position with the New York Federal Reserve Bank in the wake of risk control failures that have already led to $3 billion in losses for the bank.. Johnson comments:

Mr. Geithner’s call is a major and perhaps unprecedented development which can go in one of two ways.

If Mr. Dimon resigns, that is a major humiliation and recognition – at the highest levels of government – that even the country’s best connected banker has overstepped his limits. This would be a major victory for democracy and a step towards reopening the debate on financial reform, including introducing more restrictions on what global megabanks can do.

Alternatively, Johnson says, if Dimon manages to stay on to the end of his term December 31, it will mean a defeat for democracy and a victory for the big banks.

Of course, there would be nothing new about this: one of the striking developments since the 2008 financial meltdown is that not a single major bank executive in the United States has gone to jail for their wrecking of the global economy. Moreover, the five largest banks in the country have seen their assets increase from $6.1 trillion in 2008 to $8.5 trillion today. By contrast, in Iceland, 200 bank officials, including the CEOs of the country's three largest banks, are all facing criminal charges for their actions leading up to the crisis. To use Richard Fields' terms, Iceland followed the Swedish model (make the banks take charges against profits immediately: bad for the banks, good for the economy) while the U.S. has followed the Japanese model (good for the banks, bad for the economy).

While I have no special insight into the kabuki theater of high official pronouncements, I tend to agree with Johnson's assessment that Dimon will probably remain on the New York Fed board. I say this for no other reason than the fact that, as the NY Fed's website points out, commercial banks who are members of the Federal Reserve System appoint 2/3 of the Board members. Three are appointed by the banks to represent themselves; Dimon is one of these. Another three are appointed by the banks ostensibly to represent the public. The banks selected the co-founder of a technology investment company, the CEO of HealthNow New York, and the CEO of Macy's to represent "the public." Hmm. The final three members are selected by the Fed's Board of Governors to represent the public, but all are presidents of major institutions: Columbia University, the Metropolitan Museum of Art, and the Partnership for New York City. So, 2/3 of the Board is selected to represent the public, but I feel pretty safe in saying that all nine Board members are in the 1%.

Readers, what do you think? Will Jamie Dimon resign from the New York Fed? Take our poll and let us know.

Nurses Support Financial Transactions Tax

2012-05-19T11:10:00.000-04:00

by Linda Beale

Nurses Support Financial Transactions Tax

Perhaps the JPMorgan Chase debacle has caught enough attention to alter the debate. JPMorgan of course claimed to be entering a type of hedge that would be permitted under the Dodd Frank reforms. ( Apparently there were hedges on overall portfolio positions, and then those hedges were themselves hedged writing credit default swaps.) The authors of the legislation beg to differ, noting that the statute was drafted to permit hedges of specific asset but not portfolio-wide heding practices that become almost indiscernible from speculative "bets" on the direction of markets. Perhaps there will be one good result of the $2 billion plus and growing loss that JPMorgan encountered on its complex trades--regulators may finally quit paying so much attention to the banks' "trust our judgement" lobbies and start making it less possible for banks that get federal support to bet with other people's money in big ways that can cause systemic risk. This seems to be a no-brainer--we need to more tightly regulate the activities of commercial banks and prevent them from gambling with huge bets that can swing the marketplace and place the entire system in jeopardy. That means banks will need to accept more staid profit scenarios--and the compensation for managers and traders should be downsized as well. They made fortunes out of wrecking the economy. They should be content with reasonable compensation when they do good jobs, and salary cuts--or being fired--when they don't.

Another action that might help to calm the too-reckless bankers and their desire for super-high profit margins would be to enact a financial transactions tax. It seems that lots of GOP candidates and economists think sales taxes make sense for ordinary folk--from Herman Cain's 9-9-9 plan (that would eventually convert to a flat national sales tax) to the GOP push to cut income tax rates in states in favor of sales taxes. But when it comes to a financial transactions tax, all of a sudden the same folks seem to change their minds, suggesting that such a tax on financial transactions would discourage investment in the capital markets and be bad for America.

There are some singificant factors in favor of a financial transaction tax that would reap a few pennies from each transaction. First, it would raise much needed money from a group that generally can afford the cost. Second, it could act to discourage flash trading, where computer-run programs arbitrage the markets in a way that only those with the sophisticated programs can take advantage, leaving ordinary folk out in the cold. Third, it could be one factor in returning everyone to more prudent approaches to investment--investing for the long term, rather than profiting from arbitraging tiny differences in multiple trades.
The National Nurses United organization has taken out a full page ad in the New York Times in favor of a financial transactions tax. Here's part of the text:

"I pay a sales tax every time I make a purchase. We all do--but not the financial services industry, the bankers who sunk [sic] our economy. A financial transaction tax would cost banks and investment firms just pennies on the dollar for transactions such as stock trades, like a sales tax. Those pennies would add up to create jobs and fund vital programs and services in this country--education, healthcare and rebuilting our deteriorating infrastructure. The big banks will never miss this money, while the revenue generated will provide a better life for millions of Americans. "

Maybe the nurses are on to something. But don't look for Congress to act on this anytime soon.

crossposted with ataxingmatter

When Competition, Easy Entry, and No Government Produces Lousy Results: A Quick Look at the Anti-Virus and Anti-Malware Market

2012-05-18T21:35:00.000-04:00

by Mike Kimel

When Competition, Easy Entry, and No Government Produces Lousy Results: A Quick Look at the Anti-Virus and Anti-Malware Market

The other day I had to take my computer in to an expert for tune-up. I had all the usual onboard - an antivirus, anti-spyware software, etc. But the machine was running very, very slowly.

The expert I took it to cleaned out a lot of malware, removed my old anti-virus and anti-malware software, and installed new stuff. He swears by this stuff, and so far, my machine is working much better than it was before.

But here's the thing... the previous set of anti-virus and anti-malware had been highly recommended just a few years by PC Magazine and CNET users and other similar sources. I know, because that's why I installed those programs in the first place.

Which leads me to believe that in a couple of years, I should go through the process of investigating anti-virus and anti-malware software again. It seems, in fact, one's choices with computers come to this:

1. Live with a machine that gets slower and slower and slower...
2. Periodically go through the effort of investigating anti-virus and anti-malware software, making sure that the stuff you use continues to be highly rated and effective.
3. Pay someone else to engage in number 2 for you.
4. Pick an operating system that is unpopular enough that it isn't targeted by malicious software and deal with its foibles. Also, switch to another unpopular OS if the one you're using starts becoming popular enough to attract the attention of malicious individuals.

That's a lot of time and attention one has to go through simply to use a piece of equipment that is now required to do business in much of the world, and even after going through the time and effort, there is no way to know whether the product you are purchasing (or not) is the best one available for the price. Put another way - the outcome of this market is not one most of us would consider efficient.

And yet, the market seems to be characterized by most of the factors that a libertarian or conservative economist look for to produce an optimal outcome. It is relatively easy and inexpensive to enter and exit the market for anti-bad things software, the market is literally global (you can buy software made anywhere and download it from your desk in minutes), the cost of such products is low (many are given away free), there's a heck of a lot of information out there, and there's virtually no government involvement in the process.

So why are the outcomes of this market so poor?

Open thread May 18, 2012

2012-05-18T21:29:00.000-04:00

Federal judge rules part of new anti-terrorism statute unconstitutional

2012-05-17T17:15:00.002-04:00

NEW YORK (AP) — A judge on Wednesday struck down a portion of a law giving the government wide powers to regulate the detention, interrogation and prosecution of suspected terrorists, saying it left journalists, scholars and political activists facing the prospect of indefinite detention for exercising First Amendment rights.

U.S. District Judge Katherine Forrest in Manhattan said in a written ruling that a single page of the law has a "chilling impact on First Amendment rights." She cited testimony by journalists that they feared their association with certain individuals overseas could result in their arrest because a provision of the law subjects to indefinite detention anyone who "substantially" or "directly" provides "support" to forces such as al-Qaida or the Taliban. She said the wording was too vague and encouraged Congress to change it.

-- Federal judge: Terror law violates 1st Amendment, Larry Neumeister, today

I wrote about this case on AB back in January and said that there's no question but that that part of the law is unconstitutional. I said back then that the only real question in that case is whether the plaintiffs, Truthdig columnist Chris Hedges and a few other journalists, have “standing” at this point to challenge the constitutionality of the law—that is, that they could show that things they themselves want to do are things for which, under the statute, they possibly could be detained. According to today’s AP report, the government’s lawyer effectively acknowledged at the oral argument in the case in March that that’s possible.

That clarified that the statute is as broad and as amorphous as the plaintiffs say it is—that there is no way even to know whether certain activities could result in detention (a violation of due process, which requires that laws be specific about what is proscribed), and also that the statute authorizes detention for activities that are protected by the First Amendment, including activities of the sort that these plaintiffs had engaged in and plan to engage in in the future.

This ruling is almost certain to be affirmed on appeal in the Second Circuit Court of Appeals, based in New York. But ultimately, the Supreme Court will have to hear the case. If, as I expect, the appellate court affirms the trial judge’s ruling striking down the law as unconstitutional, the Supreme Court will hear the case, because the Court always agrees to hear cases in which a lower appellate court has invalidated a federal statute. And in the unlikely event that the appellate court reverses the trial judge’s ruling, the Court will hear this case because the First Amendment and due process issues are just too clear and too important here, and because the law so clearly does violate the First Amendment speech and assembly clauses and (because of its vagueness) Fifth Amendment due process rights. I have no doubt that the Supreme Court will strike it down as unconstitutional.

It should be noted here that the only reason that Obama signed the law last December is that it was a poison pill that the House Republicans inserted into a Defense Department appropriations bill that was passed under deadline and that was necessary in order to avoid an interruption in salary to military personnel, among other things, if I recall correctly. The Republicans’ purpose, of course, was to try to fabricate a Dems-are-soft-on-terrorism issue for the November elections. As I said in my January post, Republican pols think it’s still 2002. Or at least 2004. Or maybe even 1980. Or 1968. It’s not; they don’t realize that that well’s finally run dry, but it has. Obama should have stood his ground, although some congressional Dems voted for the appropriations bill, for fear of political repercussions. When Obama signed it, he said he thought that part of the law may well be stricken down as unconstitutional, and I do think that that’s what he expected. Still ….

Guest post: Another Romney/Bain Firm Got Subsidies (Then Closed a Plant)

2012-05-17T13:48:00.000-04:00

by Kenneth Thomas

Another Romney/Bain Firm Got Subsidies (Then Closed a Plant)

The Tampa Bay Times reports (via Jed Lewison) that another Bain-owned company, Dade Behring, was a recipient of $7.1 million in subsidies from Puerto Rico and the federal government the year before it laid off 300 workers there. A common problem with many subsidized projects, it took the money and ran without any consequences.

As I have pointed out before, another Bain-owned company, Steel Dynamics, received at least $95 million in incentives from state and local governments in Indiana, for two separate investments. In fact, this exceeds the $85 million Bain made in profit from the firm.

Now we have a third example of Bain-owned companies getting government subsidies. For a candidate who claims to be about private enterprise, Romney clearly doesn't walk the walk. As Jed Lewison has noted before, it's clear that when Romney talks about crony capitalism, he's talking about himself.

How many other government subsidies are in Bain's past? Inquiring minds want to know.

crossposted with Middle class political economist

Inflation, Credibility, and Expectations: Again Some More

2012-05-17T12:31:00.000-04:00

Paul Krugman rightly attacked the confidence fairy again yesterday — claiming that the unemployment of the 80s following Volcker’s tightening proves that Fed credibility doesn’t help — but I think he misfires this time. Here’s what I sed over there, with some tweaks:

To be fair, Paul, isn’t the point here that in 1980 the Fed was decidedly lacking in inflation-fighting credibility? Volcker changed that — as you say, at great cost — and reluctance to lose the resulting credibility has been grounds for not sufficiently addressing the employment side of the Fed’s mandate ever since.

More to the point, though: I am utterly mystified why the Fed thinks that saying it will allow slightly higher inflation (3 or 4 percent), doing so, then presumably bringing it back down, would hurt its inflation-fighting credibility. Quite the contrary.

Unless: they actually believe that they couldn’t pull it off — that a wage-price spiral would ensue, destroying their credibility. Which is the same as saying “if we let things go a little now, allowing more inflation while spurring employment, we may have to allow a lot of unemployment in the future (a la Volcker) to control runaway inflation.”

Given our (their) inability to predict economic futures, and their at-least-perceived decades-long ability to control inflation without big Volcker-style employment hits, this seems like a ridiculous concern.

The more likely explanation in my view: each extra point of inflation would transfer hundreds of billions of dollars of buying power every year from creditors to debtors. Permanently. This isn’t just Econ 101; it’s simple arithmetic.

And the Fed is run by creditors.

This explanation is completely in keeping with the rightie mantra that (only personal financial) incentives matter.

This raises a question I have, especially for (Market) Monetarists:

Suppose two or three years from now inflation is at 4% and employment is strong. Could the Fed bring inflation down by saying they’re going to be less expansive — setting expectations for lower inflation? Or is expectations-setting asymmetrical?

Can the Fed set higher expectations for growth/inflation largely through Open Mouth Operations, while lowering expectations would require (more) actual monetary operations, Volcker-style?

Cross-posted at Asymptosis.

No, Greg, It’s That The Entire Republican Party has Decided to Lie

2012-05-17T01:08:00.001-04:00

The only reasonable conclusion is that Greg Sargent should resign from the Washington Post before it finishes destroying his brain.

Give Sargent credit: he knows Mitt Romney is lying, and he calls him out on it, which—especially for the denizens of “Fox on 15th”—is as close to truth as you get outside of Sarah Kliff’s Wonkblog pieces.* But he always tries to find the bright side, assuming that it’s not deliberating lying so much as hoping there is a “memory hole” in the electorate.

RNC Chair Reince Preibus this evening went out of his way to prove that this is a far too generous. In an email entitled “Stop Obama's Debt and Deficits,” he declares:

Obama's [sic] racked up the three highest deficits in history and is scheduled to rack up the fourth this year.
In less than four years, President Obama has run up more than $5 trillion in debt, which is the most rapid increase in the debt under any U.S. President.

That is elephant shit.**

As I noted a couple of days ago, the “three highest deficits in history” (on an absolutely dollar basis, of course; no Republican currently in the party would admit that the largest percentage increase was under Ronald Wilson Reagan) include the fiscal year ending in September of 2009—the result of the Previous Administration’s final budget (which still holds the record in dollars, let alone inflation-adjusted terms, by at least $113B). That’s not just hoping for a “memory hole,” it’s outright prevarication. Lying, not to put too fine a point on it.

Even if we were stupid enough to believe that Barack Obama was responsible for the Previous Administration’s final budget—what, he did a Vulcan Mind Meld, simultaneously planting the idea that Starburst Palin should be the Veep pick?—the total for those three years of deficit is just over $4T. So where does the RNC get $5T, just under 25% higher?

Well, again, we here in Dataland cannot answer that question. We can accurately state that Willard “My Name is ~~Julie~~ Mitt” Romney has been saying for a while that the jobs lost for the January, 2009, report—the report of data taken the week of the 12th, before the inauguration, but apparently journalists are even stupider than economists, since even Sargent let that blatant falsehood slide recently—are all Obama’s fault.***

So let’s be Amazingly Generous. Let’s accept, just for argument’s sake, that the deficit for the month of January, 2009—a month in which the Previous Administration was in office more than 5/8ths of the time—should all be blamed on the Obama Administration, even though they have no control of the purse strings.

In short, let’s make the scenario as bad as possible for the Obama Administration, while remaining in Dataland. If we were pretending that Reince Preibus was an Andrew Sarris stand-in, my next line would be, “Well, I have the Monthly Treasury Statement right here…”

For the time period from January, 2009 to April, 2012, inclusive, the total deficit is just under $4.4T.**** Yet Reince Preibus emails us that “President Obama has run up more than $5 trillion in debt.”

With the exception of Megan McArdle, no one who isn’t deliberately lying could be that innumerate, not even an English Lit/PoliSci J.D. with a staff and a budget.

If he really is that innumerate, then I have only one thing to say: Reince, buddy, it took me less than five minutes to document that your email was bollocks. You need to hire me (or someone like me). Today.

Otherwise, even Greg Sargent will have to admit that Mitt Romney isn’t just lying; he’s Following Orders to Lie.

*For which, far too often, Ezra Klein will be credited.

**I considered “horse” or “bull,” but the magnitude is at least in the “what, and quit show business” range.

***That the Party that claims that the 2001 recession—which began in March—was not their Administration’s fault has a standard bearer who declares that the layoffs the month before the following Administration took office are also Not Their Fault would win the Chutzpah Award if there were still journalism being practiced by another other than Jon Stewart and Stephen Colbert.

****By the way, Februarys have been especially ugly since 2002. If I any econometrician wants to look for when the Seasonal Adjustment formula went wrong, that might be a good place to start.

Solamere Capital offered to help fund the auto-industry managed bankruptcy … just like Bain Capital!

2012-05-16T13:17:00.000-04:00

Ah. Well, now we know what Romney has in mind when he says that GM and Chrysler didn’t need federal bailout funds in late 2008 and early 2009 in order to undergo bankruptcy reorganization rather than be forced to liquidate, because there was private-equity funding available for that purpose. Solamere Capital and its Rolodex of potential investors were available to provide the funding, but, stupidly, no one from the Obama administration thought to contact them.

Anyway, I can’t wait to hear the statistics on how many jobs Tagg Romney created!

(NOTE: This entire post, including its title, is intended as facetious.)

Elizabeth Warren campaigns in MA

2012-05-16T09:45:00.001-04:00

Elizabeth Warren is running for the US Senate in Mass. and came by Casey's Diner Monday at lunchtime, a stop among many. Eventually the campaign will heat up as a lot of money is being raised, and the summer ends.

Ezra Klein of the Washington Post interviewed Elizabeth Warren this Monday as well. Here is part of the transcript with questions and answers regarding JP Morgan and Jamie Dimon from the wonky economic policy and regulatory angle:

EK: That gets us to the Volcker rule, which is what would keep banks that get that guarantee from gambling with customer money and a federal backstop. But at this point, I don’t think very many people — even people who follow this stuff quite closely — have a very specific sense of what the difference between a good and bad Volcker rule is. So how do you think about that?

EW: I’m going to reframe it slightly: Who profits from the complexity of the Volcker rule? It’s the largest financial institutions. No financial institutions want a simple Volcker rule. They want layers and layers of complexity because it’s in complexity that there are loopholes. That’s where it’s possible to back up regulators who are not quite certain about the ground they stand on. And it’s a larger problem with our regulatory structure: Complexity favors those who can hire armies of lobbyists and lawyers. The big push I made at the Consumer Financial Protection Bureau was simple rules. Simple mortgage documents. Simple credit card agreements. Because complexity creates too many opportunities for an army of lawyers to turn the rules upside down.

EK: I agree that complexity is where lobbyists and lawyers work their dark magic. But when I talk to people in the industry about this, they say that simple rules sound great, but they’re not really possible. It’s hard to distinguish a hedge from a bet, or a speculative trade from a legitimate one. The world is complex, and that’s why regulators and politicians who don’t like Wall Street and don’t like being browbeaten by lobbyists end up allowing complex rules, too.

EW: Here’s another way to look at what you just described: That’s the strongest argument for a modern Glass-Steagall. Glass-Steagall said in effect that hedge funds should be separated from commercial banking. If a big institution wants to go out and play in the market, that’s fine. But it doesn’t get the backup of the federal government. If it’s too complicated to implement the Volcker rule, do you say we give up and let the largest financial institutions do what they want? Or do you say maybe that’s the reason we need a modern Glass-Steagall?

...

EK: What about breaking up the big banks?

EW: You’re approaching risk from two different directions. One is the risk of the activity. That’s the Volcker rule. The other direction is to say risk is an assumption of size. Community banks shouldn’t have to deal with complex regulatory oversight, but the largest institutions should be subject to far more aggressive oversight and have to pay more for the protections they receive from the American taxpayer. Then shareholders may decide to invest in institutions that are not so large.

A web of privilege supports this so-called meritocracy

2012-05-16T09:42:00.000-04:00

Brad DeLong points to an article by Gary Younge in The Guardian:

A web of privilege supports this so-called meritocracy: Shortly after Mitt Romney's failed 2008 campaign for the Republican nomination his son Tagg set up a private equity fund with the campaign's top fundraiser. One of the first donors was his mum, Anne. Next came several of his dad's financial backers. Tagg had no experience in the world of finance, but after two years in the middle of a deep recession the company had netted $244m from just 64 investors.

Tagg insists that neither his name nor the fact that his father had made it clear he would run for the presidency again had anything to do with his success. "The reason people invested in us is that they liked our strategies,'' he told the New York Times.

Class privilege, and the power it confers, is often conveniently misunderstood by its beneficiaries as the product of their own genius rather than generations of advantage, stoutly defended and faithfully bequeathed. Evidence of such advantages is not freely available. It is not in the powerful's interest for the rest of us to know how their influence is attained or exercised. But every now and then a dam bursts and the facts come flooding forth...

Jamie Galbraith on inequality and macroeconomics

2012-05-16T06:19:00.000-04:00

Via Naked Capitalism comes this youtube video from Jamie Galbraith on inequality and macroeconomics, a speech delivered at the INET talks in Berlin:

Galbraith has marshaled a great deal of cross country data over time, and shows how changes in equality happened in a very large number of economies in parallel. He explains, persuasively, that the most plausible culprit is changes in the financial regime.

Will America Ever Recover From The Housing Crisis

2012-05-15T14:30:00.000-04:00

This is advertising, but not blatantly so, and is an informative infographic on the current status of our housing crisis. Will America Ever Recover From The Housing Crisis

The Top Two Criteria for Expert Judgment: Curiosity and . . . Curiosity

2012-05-15T11:59:00.000-04:00

First a recap:

Philip Tetlock’s Expert Political Judgment was a groundbreaking look at whether political experts really are expert, as judged by their success at making predictions. His overall conclusion: they aren’t. But (lifted from a previous post):

…among the experts, ”foxes” — those who in Nicholas Kristof’s words are “are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance” — resoundingly beat out the “hedgehogs” — those who “have a focused worldview, an ideological leaning, strong convictions.”

This even while hedgehogs end up getting the biggest megaphones for their incorrect predictions.

But as Bryan Caplan pointed out quite cogently, there were two key flaws in Tetlock’s methodology (my words here, again from my previous post):

1. He only examines questions that are highly controversial among experts. (If 50% believe each way, 50% will inevitably be wrong.) Tetlock explicitly ignores the “dumb” questions that seem to the experts to have obvious answers, but which everyday folks might consider controversial.

2. He doesn’t compare the the experts to the average person on the street. The only such comparison in the book is between experts and Berkeley undergrads — who are darned high on the elite/expert spectrum, in absolute terms. And even in that comparison, the experts win in a landslide. The undergrads aren’t even as good as chimps or dartboards.

Back to the present: Tetlock’s latest initiative, the Good Judgment Project, looks to address those shortcomings. The first-round results are in — reported in an email to Tyler Cowen – and they’re eye-opening. Their predictors:

collectively blew the lid off the performance expectations that IARPA had for the first year. Their original hope was that in Year 1 the best forecasting submissions might be able to outperform the unweighted average forecasts of the control group by 20%. When we created weighted-averaging algorithms that gave more weight to our most insightful and engaged forecasters, these algorithms beat that baseline by roughly 60% (exceeding IARPA’s expectations for Year 4).

And what, you may ask, are the characteristics of their successful expert predictors?

(1) an intense curiosity about the workings of the political-economic world; (2) an intense curiosity about the workings of the human mind; (3) cognitive crunching power (“fluid intelligence” and a capacity for “timely self correction”).

Again: the foxes kick the hedgehogs’ butts.

I always agreed with the commentary about George W and his ilk — that they have no real curiosity about how the world works, they just seek confirmation of their existing (and often simplistic) beliefs — but I never considered it much of a knock-down argument. These results — once we see them explained (the email is pretty thin stuff) — may change my beliefs about that.

Caveat: these “curiosity” criteria are uncannily good at describing Philip Tetlock, Bryan Caplan, Tyler Cowen, and me. I tend to look askance at findings that are self-congratulatory.

Justin Fox reports and ruminates on his experience as a fairly mediocre forecaster in the project (emphasis mine):

So what distinguishes a bad forecaster? In my case, two things: (1) a discomfort with expressing my level of confidence with the size of my bets — this is a real flaw, perhaps traceable to the fact that I had never played a game of poker until two weeks ago; and (2) an almost complete lack of interest in the events being forecast. I think I’m pretty curious about the workings of the political-economic world. I just wasn’t interested in whether the IMF would officially announce before 1 April 2012 that an agreement had been reached to lend Hungary an additional 15+ Billion Euros.

… Hedgehogs who are obsessively focused on a particular theory of how the world works aren’t very good at forecasting. But foxes who don’t care aren’t very good at it either. The best forecasters would appear to be foxes who really really want to win the game of forecasting. To quote Saffo again, the key is to “hold strong opinions weakly.” Don’t be stuck in your views; be willing to revise them quickly when new information comes in. But have bold views, or don’t bother trying to make forecasts.

Cross-posted at Asymptosis.

Steven Rattner Misses the Point (Romney’s and Obama’s) - POSTSCRIPT ADDED 5/16*

2012-05-15T10:22:00.001-04:00

Last February, in the lead-up to the all-important Michigan primary, Romney wrote an op-ed piece in the Detroit News titled “U.S. autos bailout 'was crony capitalism on a grand scale'.” The dual purpose of the piece was to defend the recommendation he made in a November 18, 2008 op-ed article in the New York Times titled “Let Detroit Go Bankrupt” by saying falsely that GM and Chrysler did not need federal funds to proceed successfully through bankruptcy reorganization rather than having to liquidate, and to complain that the terms of the federally-financed bankruptcy outcome included an agreement by which the UAW received shares of stock in GM in exchange for the union’s assuming the company’s healthcare liability.

In a rebuttal op-ed in the New York Times, Steven Rattner, the Obama administration’s auto taskforce chief advisor and himself a venture capitalist, deconstructed Romney’s claims, especially the statement that private capital was available to fund the reorganization process. Rattner wrote:

In late 2008 and early 2009, when G.M. and Chrysler had exhausted their liquidity, every scrap of private capital had fled to the sidelines.

I know this because the administration’s auto task force, for which I was the lead adviser, spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms. If Mr. Romney disagrees, he should come forward with specific names of willing investors in place of empty rhetoric. I predict that he won’t be able to, because there aren’t any.

So even though Rattner is a venture capitalist, I was a little surprised to read that he characterized a new Obama ad as unfair for targeting Romney’s work as a venture capitalist for Bain Capital by illustrating what that work actually entailed. The ad, which responds to Romney’s claim to have created 100,000 jobs while at Bain, shows what happened at a Kansas City steel mill that Bain bought not for the purpose of creating jobs but for the purpose of shuttering it after Bain had made some money from it.

Rattner said that the two candidates should not pretend that the purpose of venture capitalism is to create jobs. Romney, he said, should not have claimed that he created 100,000 jobs while at Bain. And Obama should not complain that Bain’s brand of venture capitalism often was to buy ongoing businesses, milk them quickly, and disassemble them in liquidation or for the value of their parts.

“Bain Capital's responsibility was not to create 100,000 jobs or some other number. It was to create profits for its investors,” Rattner is quoted as saying. “This is part of capitalism, this is part of life. I don't think there's anything Bain Capital did that they need to be embarrassed about.”

Well, okay. And the more common types of venture capitalism—of the funding-of-Silicon-Valley-or-biotech-start-up variety, for example—will, if all goes well, create profits for the investors and create jobs. But that’s not the type of venture capitalist Romney was.

Yet the entire premise of Romney’s campaign is that he’ll use his business acumen, demonstrated during his Bain years, to create jobs, not that he’ll use it to create profits for investors. He’s running for president, not for chairman of the board of Goldman Sachs. Which is why he says he created 100,000 jobs as head of Bain Capital. And which is why Obama wants to show that, well, Bain Capital's responsibility was not to create 100,000 jobs or some other number; it was instead to create profits for its investors. And that it created profits for its investors. And exactly how it did that, and what the consequence was for the employees who were the collateral damage. (“Like watching an old friend bleed to death,” one of the former steel mill employees says in the ad.)

Rattner’s right that it is indeed part of capitalism, part of life. And Bain Capital may not have done anything it needs to be embarrassed about. But Bain Capital is not running for president claiming that its purpose is to create jobs and that it knows how to have the economy create hundreds of thousands of jobs each month, when in fact its sole purpose is to make a profit for its investors and all it has demonstrated is that it can do that well and that job creation and job loss are irrelevant to its purpose and to the outcomes. Romney, by contrast, is running for president claiming exactly that. An ad by his opponent pointing out that, contrary to his incessant assertions, Romney’s work at Bain was disconnected from job creation in both purpose and result is not only fair but directly on point.

----

*POSTSCRIPT: In the comments to this post, reader SW wrote:

Isn't this completely obvious to everyone except those who are paid to confuse the issue? Or who are incredibly stupid?

I responded:

I would think so, and for that reason I debated whether to write the post. I decided to write it because I’ve been surprised that there has been almost no public discussion, best as I can tell, about the difference between the type of venture capitalism that helps startups or helps companies expand, and the type of venture capitalism—appropriately nicknamed vulture capitalism—that Romney practiced at Bain Capital. For example, the prominent Silicon Valley venture capitalists do not (to my knowledge) buy companies in order to strip them down or outright liquidate them. The key paragraph in my post is:

I’d love to see mainstream news outlets and the Obama campaign discuss this.

Employment and Deficits: A Tale of Two Administrations

2012-05-15T06:45:00.000-04:00

Stan Collender notes that, for the first time in four years, the U.S. Treasury reported a surplus in the month of April. It isn’t just that there was a surplus in April of 2008, though. If you look back through Aprils (data here), the last time that month showed a deficit is 1983—the April less than six months after the last official “double-dip” of recessions.
Stan offers three reasons that the White House doesn’t want to point out this good news. I consider the first two somewhat silly—the GOP never hesitates to take about the deficit, except to deny its responsibility, and no politically-alert Democrat will see the April surplus as representative of “the wrong fiscal policy” so much as an indication that employment last year was better than it has been.
It’s his third reason that is most interesting:

While that's likely to be $200 billion or more less than what was recorded for 2011, the deficit will still be close to $1 trillion and that would be hard to defend.

I’m assuming the phrase “close to $1 trillion” means that Stan assumes the actual FY2012 deficit will be lower than $1T. The original projection was just under $1.3T. Getting that down to $1T would be 23% better than the original projection, not to mention the psychological gain of being back down below thirteen digits again. Even $1.1T would be just about a 15% improvement over the original projections. If a 15%+ improvement in the deficit over your projections isn’t worth saluting, then what is?
Stan concludes:

This is a little-understood part of the federal budget debate. Even if the 2012 deficit was half of what it was in 2011, and even if that reduction were applauded by Wall Street and the economic community, it would still be a painfully difficult political issue. In fact, long after the deficit has fallen to the point where most economists are comfortable with it, the political advantage will still be with those who criticize it.

Far be it for me to argue, but…just for the sake of argument, I decided to compare President Obama’s record with that of the last sitting President running for re-election on The Two Issues that Abide, The Deficit and Jobs.

First, Deficit:

We don’t, of course, have the data for the deficit at the end of this year yet. (We have data for subsequent years of debt for the Previous Administration, of course, but nothing that would have been public knowledge by the voting in November of 2004.)

The story here is a clear one: the previous incumbent increased the deficit significantly; the current one has reduced it from the baseline he inherited. (If the current year ends up with around a $1T deficit, Year 3 will be around +$400,000.)

So the current Administration has been taking the deficit in the “right direction.” But, of course, that’s only good if you are in a growing economy (for the Democratic knowledgeable; see Stan’s second point) or because the Previous Administration was “priming the pump” for the Great Growth that would follow. (After all, what the 2001 tax regression didn’t solve, certainly the 2003 Hubbard-Mankiw version would.)

So let’s check how well that Growth Thing worked. I’ve already pointed out that the post-recession public-sector employment between the current and the previous Administrations was about 600,000 jobs almost nine months ago. So let’s be as nice as possible and compare Total Employment Gains since their respective Recessions, knowing that we’re spotting the Previous Administration when looking at total Non-Farm Payroll:

The Obama Administration got employment back to the end-of-recession level after sixteen (16) months; it took the previous Administration twenty-eight (28) months. Counting from the end of the recession, the Previous Administration produced just under 1.4MM jobs in the thirty-four (34) months to the next election (Dec 2001-Oct 2004).

The Obama Administration has produced more than twice that (2.825MM) in thirty-three (33) months.
In summary, if we compare the current Administration to the previous one, it has (1) produced twice as many new jobs, (2) produced budgets that reduced the annual Federal deficit instead of making it greater, and (3) reduced our troop presence in wars started by the Previous Administration while finding and eliminating Public Enemy #1.

And the only thing it wants to talk about is the third.

As I said chez Collender, If this Administration is afraid to run on its gains because there is less "political advantage" in highlighting the improvements your Administration has produced than in getting bashed for something for which you will perpetually get bashed, then the country is truly lost.