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Friday, November 26, 2010

Q: How Wisely Do ‘Wealth-Friendly’ Policies Employ Capital? A: Not So Wisely

To say that reaction to my latest post has been ‘mixed’ would be generous.  While grasping the way the Bush-era handouts to the richest 2% reinforce wealth redistribution, it seems that folks may not yet see just how they're like a ‘Death Cult’.  At least in the opaque allegorical form I set out in part one of the newly planned 3-part series.  For most readers, the point still seems a little abstract.   So here I lay down some more explicit exposition.  Today I will demonstrate the difference between ‘Wealth’ and ‘Productivity’.

The Right Wing may be many things, but subtle is not one of them.  Their financial platform is quite clear:  Profit is the ultimate yardstick of economic progress, tax cuts and deregulation of markets allow perpetual increases in the level of profit; ergo continual reductions in tax and regulation guarantee the wisest allocation of resources.  But is this true?

Answer:  Not Unless You Think The Lottery Is A Sound Investment
Far from it.  We’ve already disposed on multiple occasions with the Laffer Curve myth1.  We’ve already demonstrated the relationship between tax cuts for the richest 2% and deterioration of the income for the median tax filer2.  And we’ve even provided an analysis from uncontested data from the Bureau of Economic Analysis and the Federal Reserve showing that the federal government is typically 4,700% times more productive than the financial sector.3  But now take a gander at the chart above. 

Note the difference in the % of the total money supply our ‘wealth-friendly’ policies allocate to each sector and their relative productivity in terms of GDP.  We literally piss away over 34% of our money on a sector (i.e., Corporate Finance) that provides only 0.8% of our productive capacity3.  Not too shrewd now, is it?  That’s more or less like a man in 2008 making the average annual salary of $43,000 spending $14,710 of it on lottery tickets4.  Is that what voters of Wisconsin elected Paul Ryan to do?  Spend over 34% of our national productive capacity on Powerball tickets?

Wasted Money and Wasted Jobs
“But wait,” you say.  “Aren’t there other ways of measuring the inefficiency of this resource allocation?”

Indeed there are.  While it’s not possible within this short space to exhaust all the possibilities or perform  superfine, CBO-quality calculations, it’s still worth performing a rough, back-of-the-envelope calculation to determine the relative magnitude of the inefficiency.  Here are my guesses as to the maximum potential figures for Wasted Money and Wasted Jobs:

  • Wasted Money:  Holding all price levels equal to those of 2008, the last year for which fully comparable data was available for all variables, we typically throw away $1.9 TRILLION or $1 out of every $12 in circulation.  Smooth move, X-Lax. 
Now keep in mind that represents the net negative impact Gross Domestic Product or "GDP" of our current, un-optimized resource allocation.  Basically this means to say that by spending $X's in less productive areas of the economy instead of spending that same dollar in the more productive segments of the economy, we lose $1.9 trillion of GDP.
Of course the reality is more complex than this because there is the possibility that radical changes in the allocation of resources to a sector can alter its aggregate productivity (e.g., per unit step fixed costs may not vary directly with the scale of operations, and the introduction of too much liquidity in a given market all at once may result in a certain amount of inflation).  But it is still an interesting, thought-provoking exercise to estimate the maximum potential cost of inefficient allocation, even if the assumptions used are pretty basic.
If you care to see details of my calculation, look at cell V118 on the tab ‘Velocity of Money by Sector’ within the workbook here.  I can answer more detailed questions upon request.

  • Wasted Jobs:  68.7 million jobs sound like a big number to you?  Well, it should—that’s 47.5% of our total employment base of 144.5 million jobs per the October release by the Bureau of Labor Statistics.  “Fuckin’ ape-shit crazy!” you say.  “How the hell can that be right?”

Well, take a look for yourself.  See cell BB118 on the tab ‘Velocity of Money by Sector’ within the workbook here for more details.  That’s the best shorthand calculation available based on data from the Bureau of Labor Statistics and Bureau of Economic Analysis regarding wages and total compensation by sector and their typical percentages of GDP through 2008 and current employment base as of October 2010.

“But WTF could that possibly mean that we have a supply of capital that could fund employment at a level 136.1% of our actual workforce?”  Well, among other things it means that the current “magic-of-the-markets” system of allocating wages ain’t so fair.  But you already knew that based on our analysis of income inequalities from the Bush-era tax regime2, right?
“Goddamn, that’s disgusting!” you may be thinking to yourself.  And so it is.  There is no freakin’ way we should tolerate simpletons like congressman Paul Ryan (R-WI), senator elect Ron Johnson (R-WI) and Right Wing pundit David Frum5 to be pushing yet MORE tax cuts for the wealthiest 2% and stonewalling every effort to regulate the pitifully unproductive financial industry.  Get on the horn or send an email straight away to your  representatives and senators telling them:

  • “NO WAY” to renewal of the Bush-era handouts to the richest 2%.
  • “Get working NOW on further financial regulatory reform”
  • “Stop messin’ around with baloney cuts to high value-add programs like Medicare and Social Security—they actually provide economic benefit, instead of hamstringing the economy like tax cuts do.”6
As a nation we just can’t afford to go on like this.

1    See the inaugural blogpost here decisively discrediting the baloney notion that tax cuts invariably boost the economy.
2    See this blogpost detailing how the Bush-era tax cuts for the richest 2% ended up increasing the average income of the wealthiest Americans by at least 20% while DECREASING average income for Joe Average by 17%.
3    Read here how $1 dollar in the federal government sector typically increases GDP by 9.4 times whereas $1 in the financial sector DECREASES it by 80 cents.
4    Yeah, for real.  See data on average wages on cell F12 on tab ‘Profile of Typ. Ee-2009’ and the % of total money supply within the financial sector within cell AK115 on the ‘Velocity of Money by Sector’ tab all within this workbook.
5    That’s the former speech writer for Bush II.  I’m referring especially to a recent radio commentary on “Marketplace” where he again puked forth another plea to give away more tax cuts to the wealthiest 2%.  Contact them and let them know how much bullshit you think that is.

      But one further thing I’d like to call to your attention:  David Frum maintains dual citizenship with both the U.S. and Canada.  Now does it seem right to you that a guy who doesn’t see fit to commit 100% to a country should have a whole lot of influence on policy?  I’ve got nothing against Canadians—I have lots of friends in Montreal myself.  But they seem to know that if you’re gonna flood the airwaves asking a country to go to war, you’d better be fully committed to said country yourself; they’re all single-country citizens of Canada.
6    And don’t just take my word for it.  Mark Zandi, chief economist at Moody's testified before the Senate in September about the positive fiscal multiplier effects of these programs.  Forward this to  representatives and senators  if they just don’t seem to get it.

[Editorial Note December 2, 2010:  See item #1 regarding revision to calculation of M3 here.]

Tuesday, November 23, 2010

Is Wisconsin the Epicenter of an American Death Cult?* Part I

Did Jack Torrance stumble upon a truth much deeper and more primal than he knew when he wrote, “All work and no play makes Jack a dull boy”?   My girlfriend seemed to say as much a couple of weeks back and subsequent events in Winnebago County, Wisconsin lead me to believe that she just may have a point.

Aviva kicked me out.  Said I was “no fucking fun anymore” since I started crusading against the Brylcreem Brigade1 and their weird rhetorical war on the middle class and just plain common sense.  “Goddamn it, Liam, it was funny at first, but it’s getting old.  Now you’re starting to sound more like my econ professor than the writer I thought I was living with.”
I guess I could see where she was coming from.  When we’d met at a mutual friend’s holiday party last December I was riding high on the crest of a fresh wave of creativity.  I couldn’t stop blabbing about this novel I’d planned to write.  It was a Kabbalistic parody of contemporary American religious culture centering on a cabal of ambitious up-and-coming angels who set up to hit God’s target numbers of human souls by dealing in volume rather than quality.  They’d try to do it by exploding the human population, stretching the available supply of human souls by patching them with bits from the souls of animals like foxes, sharks and sheep, who at any rate would be dying off due to the environmental  damage caused by the extra human population.  It seemed like a great crack at the time, with no end to its scope to satirize religion, finance and industry.
Aviva ate it all up with a spoon.  She’s a pretty sharp girl who appreciated the seamless elegance with which it seemed to comprehend all the sickest contours of 21st century American culture.  And she had more than a little to add to the mix herself; she was in the middle of a rebellion against what she saw as the stupid complacency of her conventional, limousine-liberal Reform Jewish parents.  With a business career closed to her not only by the economic downturn, but by an undisguised personal disgust for the stupid banality of Rotary Club wankers, she’d settled for draining her college fund pursuing a degree in comparative religion—with an emphasis in Kabbalah, the loopy esoteric tradition of her Polish great-grandparents.  The same great-grandparents her father couldn’t stand living with as a ‘progressive’ secular kid during the Boomer era.  Using the Kabbalah’s legends about angelic hierarchies and the architecture of the soul to collaborate on a big literary ‘fuck you’ to her parents’ generation was just the sort of gig she was looking for.  And if she could top it all off by sleeping with some big, nasty Mick, it’d be all the sweeter.
I admit it was pretty heady, those first few months.  Within a couple of days of that first meeting we began regular pow-wows at the local café to discuss the project’s outline.  From there we ambled over to her place, and the sessions never seemed long enough to cram in all the ideas that were exploding out of our pores.  One thing led to another, and within three months I’d unceremoniously ditched my roommate and moved in with Aviva full time.
Which rather limited my exit strategy options when shit hit the fan.  If I’d been more pragmatic I’d probably have seen this thing coming a mile away, at least as far back as July and planned accordingly.  With the unemployment rate hanging steady near 10%, and a lot of folks who otherwise would have been good customers for the type of carpentry/renovations work that I do hanging on to every last red cent in a deathgrip of fear, I’d been spending more than the usual amount of time at home—coinciding with her own off-semester break.  Other than the novel and the sex, we didn’t really have a lot else in common.  Sure, we coasted for a couple weeks on the fumes of her parents’ initial disappointment upon being introduced to her new ‘roommate’—a stinky, crude joiner from a working class background and who was, after all, not all that much younger than her own parents.  But that couldn’t last forever, and my near obsessive involvement in the Russ Feingold campaign and blogging about the gory aftermath were like the final insults to the type of aloof artistic remove that she’d carefully constructed between herself and her parents’ passé notions of political engagement; her old man is actually a big fan of Russ’.
Still, as Plan C’s go, crashing with my uncle Éamonn was not half bad.  Éamo’s the black sheep of his generation of the family, as I am of my own, and we have always shared a strong bond of mutual understanding and sympathy.  No one really knows exactly how he made his money and no one’s ever been rude enough to press.  But then again he’s never been stingy about sharing the wealth or the entertaining stories of his early days in Chicago.  He claims to have walked hand-in-hand with Ted Kennedy during the civil rights marches in the mid- ‘60s, been a frontline eyewitness to the Right Wing cabal’s bloody crackdown during the ’68 Democratic convention following RFK’s assassination, and pleaded passionately with Eldridge Cleaver to drop the codpiece-themed fashion line in favor of launching a private barbecue sauce label—an idea that Éamo claims Bobby Seale later stole and adapted into a goldmine of a cookbook franchise.  “The sheer grief of it all!  No wonder Eldridge lost his mind!  If only I’d been able to convince him!”
Yeah, more than likely Éamo’s just full of shit.  But before his shaggy dog stories could begin to get old a familiar face returned and the whole scene over flipped over on its head yet again:  Siobhán.
 Siobhán’s a beautiful girl, lithe and auburn-haired with a smooth, porcelain complexion, about my age, and from the Old Country.  I don’t know exactly what she does for a living, how she met Éamonn or what their precise relationship is or was, but like a bad penny she keeps turning up—thanks be to God!  Since the summer of ’92 I spent staying at Éamo’s place in Oak Park she’s been an on-again / off-again fixture in my life, punctuating its low, dull troughs of with exciting pivot points and vaulting me on to the next great adventure.  And this one would be no exception.
Éamonn hands me the phone one afternoon; it was Siobhán.  “Liam?  How’s it hanging, you rat bastard?”  I laughed and launched into the Webster’s Abridged Version of the Aviva story.
“Hmmm, well then, it appears my timing is excellent.  Seems that our biorhythmic waves have just crashed into one another once again.  Just so happens that I’m in a bit of a transition period myself, and I could have a bit of a job for you.  If you think you’re up to it.”  And she recounted a typically labyrinthine tales, replete with overtones of Byzantine romantic complexity.  Apparently her regular gig as ‘au pair’ for some rich Chicago doctor had come to an abrupt end and she suddenly found herself instead the caretaker of his summer home on a lake up in Winnebago County, Wisconsin.
“It’s a grand old place to be sure; a three-story Victorian job on a tree-lined country road and all.  But to tell the truth it’s gotten the worst out of the last few winters and I’m not sure it’s quite ready for this coming one.  I’ve persuaded the ol’ fellah to put up a reasonable budget for repairs and whatnot.  Could take you a few weeks to finish, but the west wing’s dry and comfy and I could use the company anyhows."
Clearly Siobhán had lost none of her native talent for understatement.  I knew that neck of the woods very well—too well.  Yes, technically it was part of the Oshkosh-Neenah metro area, but that house’d be a good half hour drive to the next human soul, and frankly you’d be taking your chances even then.  Oshkosh is the hometown of Charles Murray-loving, half-witted local-boy-married-good, senator elect Ron Johnson, the very man who’d taken the election from Russ. 
Actually, the area’s history of nutty, Right Wing politics goes wayyyyy back beyond Johnson.  Nearby Appleton is the home of the loony John Birch Society, the 1960’s precursor to the Tea Bag movement that urged parents to check beneath their kids’ beds for any errant Soviet surveillance equipment before beddy-byes.  Batshit demogague Joe McCarthy was born in Grand Chute, and he made a good run of it, too, until he had the nuts to accuse WWII veterans baptized under fire in their nation’s defense of being corrupt fellow travelers.  When he died of the drink in ’57 they buried him at St. Mary’s in Appleton.
Ripon in adjacent Fond du Lac County even claims to be the 1854 birthplace of the Republican Party—although that was clearly a very different creature from the atavistic beast we’ve come to know today.  My God, Old Abe Lincoln would have vomited all over himself if the national committee tried to foist a babbling idiot like Sarah Palin on him as vice presidential running mate.
And the true origins of Right Wing, fear-based politics in America probably stretch back to the dawn of human memory, even further back than that.  In 1835 the proto-archaeologist N.F. Hyer claimed to have located in Jefferson County, Wisconsin Aztatlan, the legendary original home of the fierce Aztec people, whose gory rites of human sacrifice on the steps of Mexico City still send shivers up the spine today.  Some people say the Aztecs were simply enacting in a more openly public, literal form the cannibalistic esoteric motifs woven through Roman Catholicism’s Doctrine of Transubstantiation, and others say that it was just a crudely brutal method of policing political dissent, scaring the shit out of anyone who might otherwise dare to oppose the will of the Emperor.
But all that shit may as well have been a thousand miles away and a million years ago for all I cared now.  I needed to get on with it.  And it’d be horribly ungrateful to decline what promised to be a blank check.  Certainly there’d be no need to fear boredom, either, not with Siobhán’s company at hand.
*The following is allegory, okay?  By nature it is a symbolic, fictional narrative illustrating in a subjective way factual realities whose tangible real-world importance could get lost in a dry technical account.  I’ll furnish links and footnotes pointing out the relevant facts where necessary, but I recommend reading this thing first from beginning to end without stopping to hunt down the citations along the way.  Don’t ruin the flow at the first crack.  You can always revisit those later.
1Ever notice the sad aping of Ronald Reagan’s hairstyle by the current crop of Gen-X’er Right Wing wannabes?  Paul Ryan, Sean Hannity, etc., etc.  Its helmet-like plasticine inflexibility is like a contemptuous challenge to sixty years of cultural development and nature itself, kind of a legionary standard to rally the forces of Entropy in their struggle to wipe out the last remaining pockets of dynamism in North American culture.

Saturday, November 20, 2010

Should Republicans Consider Hedging Their Bets on Paul ‘Speedy’ Ryan? Fail Files, Vol. II

Disinformation’s readers come through yet again.  Responses to my last blogpost were extremely varied and thought provoking, with some well-reasoned and others less so.  The persistence of themes played out in the latter so impressed me that it well pleases me to once again examine the big ol’ “Fail” written all over Paul Ryan’s (R-WI) endorsement of the Laffer Curve, especially its implications for ‘The Velocity of Money’.

Remember ‘The Velocity of Money’That’s the basic economic concept introduced in our post about the hypothetical castration of Goldman Sachs.  It’s a thumbnail measure of how efficiently an economy employs its capital—the more often a single dollar is spent during a given year, the higher the rate of employment.  Any number of other theoretical implications can be drawn from that;  the higher the rate of employment, the greater economic, social and political equality, the higher the rate of technological innovation, etc., etc. 

Paul Ryan’s bizarre fixation with tax cut giveaways for his bankster buddies*** and slashing Social Security benefits relates to ‘The Velocity of Money’ in this way:  He is trying to sell you on the notion that corporate spending has a faster velocity than federal spending.  Is this true?  Let’s take a look at the evidence ourselves.

Data and Analysis
Before we begin, you should know that there are many standard ways of comparing the relative productivity of government vs. corporate spending.  But they are typically too narrow (e.g., don’t even consider the usefulness of non-profit driven infrastructures like courts, roads, bridges, water and electricity lines, etc.) or require use of numerous complicated and opaque actuarial assumptions (e.g., the relative propensity to spend for pensioners vs. new college graduates just entering the work force, etc.).

But we can go another route.  We can use that very simple concept, ‘The Velocity of Money’.  Remember, that’s a quick thumbnail stat that shows how often a dollar gets spent in a given year, and the higher the better.  It has a high, positive correlation (i.e., >75%) to employment.  So the higher the velocity the better.

The math is simple, too.  It may not even require an inflation-indexing of the data, because what we’re trying to measure is how many times a dollar cycles through the economy during a single year, not a static comparison of income levels between different years.  All we have to do then is divide each sector’s contribution to Gross Domestic Product (“GDP”) by its money supply, per the standard formula we learned about here.

The non-partisan career professionals at the Bureau of Economic Analysis regularly publish breakdowns of GDP by sector here.  One minor new term for you to learn is Gross Value Added (“GVA”).  Basically this just means the contribution by a given sector; the sum of GVA’s for all non-government sectors plus that of the government sector equals the total GDP.  See the reconciliation of this sector detail to the total in rows 19 through 21 of the workbook ‘Velocity of Money by Sector.xls’ here.

Probably the only novel component of this calculation is allocating a portion of the money supply to individual sectors; after all money is the ultimate in fungible assets, and a key concept underlying ‘The Velocity of Money’ is the relational dynamic of the various sectors interacting with one another to maximize GDP.  But that may not be as challenging as you’d think: the Federal Reserve Bank regularly publishes reports summarizing the total flows and balances of money and other financial instruments throughout the U.S. economy.  This is called the ‘Release Z.1’, and we can use it to calculate the average money held by each sector during a given year.  We’ll focus especially on the levels tables L.204, L.205, L.206, L.207 and L.208.  They tell us the total aggregate balances of currency and cash, time and savings deposits, money market funds, federal funds repurchase agreements and open market paper components of the money supply.

Unfortunately, after February 2006, the Fed stopped tracking M3 components separately, meaning that we’ll have to both estimate M3-only components subsequent to that date, and come up with some reasonable way to allocate it to the various sectors.  However, we’re not totally out of luck.  We already estimated subsequent M3 based on its strong correlation to the Dow Jones here.  And it turns out that two M3-only components are broken out separately in workbooks L.207 and L.208—and that gives us a rationale to allocate the rest of the estimated M3 balance.  Unsurprisingly, on average over 60% of M3-only components are held by the corporate financial sector.

So far so good.  Pretty simple: divide gross value added by the average money supply for the sector during the year.  But I would give you three reminders when you look at this data:

  1.  The Fed has only made complete data for the years 2001 through 2009 available in Excel format.  While I could spend the next five decades manually transcribing the PDF file information for other years, I’m not sure that’s so value added for our purposes.  Especially since the remaining data doesn’t go back much farther than 2000.
  2. Data for 2008 and 2009 was very skewed by certain measures taken to address the liquidity crisis that started in Q3 2008.  The Fed initiated two programs under Section 13[c] of the Federal Reserve Act that were funded by sales of government securities, bumping up federal cash quite a bit--$259.3 billion for the Commerical Paper Financing Facility ("CPFF") and $49.8 billion for the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility ("AMFL") in 2008 alone.  Of course, since Paul Ryan not only begged for passage of the TARP  the House floor, but was also a big beneficiary of some of the rescued firms (i.e., AIG and JP Morgan Chase)***, I think he will agree that these extra-ordinary funding events should be removed from the analysis in order to preserve comparability.  See further details about these transactions at note BJ in cell AA100 on the ‘Velocity of Money by Sector’ tab within the workbook here.
  3. Be aware of some important sector classifications.  I’ve followed the Fed’s own classification system for the most part. (Well, I have to, don’t I?  I don’t have access to the full underlying dataset.)  That puts the Fed and Fannie Mae and Freddie Mac as well as all federal and state pension plans within the ‘Financial Sector’.  Being in a generous mood, and wishing to head off potential controversy regarding the role of those institutions in the home mortgage debacle that most say lead to the whole fiasco in Q3 2008, I've cut the corporate finance guys a little slack:  while I give them full credit for the GDP of the entire financial sector (including the Fed, Fannie and Freddie), I've taken the Fed's cash OUT of the equation. I have them listed in the workbook as 'Monetary Authority'.  So the private financial sector gets a little boost by not having to cary the Fed's cash in this calc.
Okay!  Got all that.  Feel free to take your time and read it over again if need be.  Here’s a short glossary of terms if you need help.  And here’s a link to the analysis workbook:  Velocity of Money by Sector.xls’.  Continue on to the conclusion whenever you feel you get the gist of what we’ve done here.

But I myself can hardly wait.  Paul Ryan’s laid big money (via TARP bailouts and tax cuts for the uber-rich  ) on the financial corps(e) coming out wayyyy ahead of slow-poke federal government.  Let’s see how well that works for him.


Huh.  Who’d have funk it?  Turns out, compared to Ryan's corporate bankster buddies, dat' damn gubmint' is a job creatin' machine!  The federal government has a jobs-producing median velocity of 9.4, versus ZERO-POINT-TWO (0.2) for financial corporations!  That suggests that, at least as it's currently structured, the Big Banks are actually a drain on the national economy rather than a boon.  Wonder if that ever comes up during Ryan's fundraising dinners with JP Morgan Chase and AIG execs?***

Non financial corporations fare somewhat better at 5.5, but that’s just baaaaarely over half the rate that federal spending increases GDP.  Look here in the workbook 'Velocity of Money by Sector.xls' for details.

Or was it a mistake??  Maybe Paul actually knew that his plan would likely ruin the economy and cost thousands their homes and destroy the United States; maybe he just didn’t give a flying fuck.  Maybe he thought we weren’t gonna catch onto him.  Though I don’t know how; his hypocritical ragging on the 2010 financial regulation law after he’d begged for the TARP handouts is legendary.  He’d have to know we’re on to him by now.

Call and your representatives and senators immediately and often telling them that you know what a horrible idea Paul Ryan's "Roadmap to America's Ruin" is.  And let them know that you know what you’re talking about.  Send them a copy of this chart.  Send them a link to the workbookVelocity of Money by Sector.xls’so they can see for themselves.  Send them a link to this blog post.  Send them a link to the Senate testimony of Mark Zandi, Chief Economist at Moody's, to the effect that tax increases for the rich are tantamount to robbery of the middle class and that continued support of government programs like Social Security and Medicare is vital.  Send them a link to the Congressional Budget Office's report that renewal of the Bush era tax cuts would add bring the national debt up to 100% of GDP by 2020.  Email this stuff to your friends, family and acquaintances.  Whatever you do, don't keep this information to yourself.

*Excludes effects of about $309.1 billion and $37.9 billion in 2008 and 2009, respectively,  to fund a bailout of Ryan’s buddies at AIG, JP Morgan Chase and Goldman Sachs.  See further discussion in point #2 in the Data and Analysis section.
**Includes, in accordance with the Fed’s own classification system, GDP activity of the Fed itself as well as Fannie Mae and Freddie Mac.  However, as further explained at point #3 in the Data and Analysis section above, I felt generous and gave the corporate financial sector a break by splitting out the Fed's cash balance separately.  Don't say I never gave them a hand!
*** During this last election cycle, Paulie boy was a big favorite of the banksters.  His clients included not only Goldman, but CITI, Bank of America, JP Morgan and a host of other F.I.R.E.  (i.e., "Finance, Insurance and Real Estate sector) companies and trade groups.  In fact, he got about $246,000 or 25% of his total PAC money from these guys.  See details here.  Who knows how much else he got INdirectly through Orwellian-ly named PACs or individual contributions?

[Editorial Note December 2, 2010:  See note regarding the revision of M3 calculation at item #1 here.]

Wednesday, November 17, 2010

Do Tax Cuts for the Richest 2% Help or Hurt You? Read the Surprising Answer Here.

[Editorial Note December 2, 2010:  See revisions to supporting calculations of M3 and average AGI for elite individuals at items #1 and #2 here]

Kudos once again to the fine team and readership over at disinformation.  Their comments continue to be extremely thought provoking.  This article, chart and supporting calculation in the attached workbook are in resonse to their many insightful questions about inept Republican tax and economic policies..

I get pissed when some dipwad tries to pull a fast one on me, as should we all.  The responsible conduct of business requires a level of trust that is decisively undermined when we’re lied to.  And while there is a time and place for everything, the place for bullshit is the weekend pintfest at a local pub, not in debates about income tax policy.  That’s why the fundamental dishonesty of Republican’t talking points has me so fired up.

The specific steaming pile that currently has me cheesed off is EGTRRA.  No, it’s not some type of horrible fat-free egg substitute; it’s the ironically named Economic Growth and Tax Relief Reconciliation Act of 2001.  The bit that’s currently in play right now is the Republican hijacking of economic recovery effots in order to renew tax cuts for the country’s fattest 2%.  And that just can’t be allowed to happen.  ‘Cause not only will it not result in any improvement in the real economy, it’s been proven to actually steal from the middle class to benefit the uber-rich.

It’s ironic that faux populist, bankster-financed hangnails like Paul Ryan (R-WI) and senator elect Ron Johnson (R-WI) try to saddle Dems with the title of  “Wealth Re-distributors” when the evidence to the contrary is all around.  You don’t have to get into a pissing match over which cable news network talking head has the biggest gnarlies—just look at the data for yourself.  Here’s how.

Data and Analysis

The solid, non-partisan career professionals in the Bureau of Economic AnalysisCensus Bureau et alia have literally reams of data available for you to plow through, but the most readily available stuff is online. It could take you months to decide which bits give you the optimal balance of long-term comparability and sufficient drill-down detail on the relevant economic topics.  So I’ll help you out and get you started:  the IRS’s summary of all individual tax returns for the years 1993 through 2008.  Particularly useful is its inclusion of data regarding sources of income (e.g., wages, long term capital gains, Social Security benefits, receipts from estates and trusts, etc., etc.).  You can find them all here1.

Mind you, though, there are also some challenges to using the data properly.  While the tables do group taxpayers in separate income-stratified categories (cool), they’ve done so by reference to current year dollar values (not cool).  That is, 1993 tax data is segregated by the amount of income reported in 1993 dollars—not 1999 or 2008 dollars, which the Consumer Product Index says are comparatively inflated by 15% and 49%, respectively.  Therefore the data for people reporting at least $40,000 but less than $50,000 in 1993 is not directly comparable to 1999 or 2008.

It’s a fairly simple matter to adjust everything up to 2008 dollars.  And it’s pretty easy to calculate the average reported income for the median tax return, too.  What is impossible to do with any precision is to determine the average reported income for the richest 2%; the data just aren’t broken down in enough detail to allow a good inflation-indexed calculation. 

However, this is less a problem for our analysis than you might think.  Despite the inclusion of numerous additional returns with lower reported income, the aggregate situation is quite clear:  the richest 2% of the population are stealing from the rest of us.  See the chart for yourself1:  EGTRRA sliced $8,000 off of the average income of the medium return filer and added $124,000 to the richest. 


WTF?  We’re EACH expected to give yet ANOTHER $8k of our money to Paul Ryan’s bankster buddies2 at JP Morgan Chase and AIG?   Do he and Mitch McConnell think we’re freakin’ idiots?  They expect us to just take this lying down?


Don’t let them get away with another handout to the plutocrats.  Call and write your representatives and senators immediately and often telling them that you know what a horrible idea it is to extend the Bush era tax cuts.  And let them know that you know what you’re talking about.  Send them a copy of this chart.  Send them a link to our workbook for them to see themselves.  Send them a link to this blog post.  Send them a link to the 2005 Office of Management and Budget Report describing how $0.72 of each dollar in tax cuts is added to the deficit.  Send them a link to the Congressional Budget Office's report that renewal of the Bush era tax cuts would add bring the national debt up to 100% of GDP by 2020.  Email this stuff to your friends, family and acquaintances.  Whatever you do, don't keep this information to yourself.

1  I encourage you to take as deep a look as you like to the supporting calcs and data.  All within this workbook:  EGTRRA – The 2% Delusion.xls. 

Also noted that, due to aggregation of source data by current year dollar amounts (i.e., not indexed for inflation), it was not possible to determine the precise # or $ value of the 2% highest income reporters.  HOWEVER, due to the tendency for the inclusion of a larger # of relatively lower-income individuals to actually UNDERSTATE the disparity portrayed here, the %'s actually included for purposes of this analysis were 4.5% and 5.0% of all returns, Pre- and Post-EGTRRA, respectively.  In fact, the actual disparity is rather worse--though the magnitude of that additional badness isn't precisely clear.

2  During this last election cycle, Paulie boy was a big favorite of the banksters.  His clients included not only Goldman, but CITI, Bank of America, JP Morgan and a host of other F.I.R.E.  (i.e., "Finance, Insurance and Real Estate sector) companies and trade groups.  In fact, he got about $246,000 or 25% of his total PAC money from these guys.  See details here.  Who knows how much else he got INdirectly through Orwellian-ly named PACs or individual contributions?

Tuesday, November 16, 2010

Headless Deer Turning Up in Northeastern Wisconsin

Bizarre and mysterious, with no adequate explanation.  Below appears the entirety of the longest article I could find on the matter, from the webpage of Wausau's local television station, WSAW 7.

"OCONTO, Wis. (AP) -- Conservation wardens say an increasing number of headless bucks have been found in northeastern Wisconsin.
State Department of Natural Resources warden Mike Stahl says investigators don't know why at least a half dozen bucks have been found without their heads since the last week of October.
The DNR say four were found in Oconto County's Little Suamico-Abrams area. One was found in the Town of Spruce and another in Marinette County.
Stahl tells WLUK-TV that because of various stages of decay, it's not known how all bucks were killed, however the DNR has been able to determine at least two were shot."

My current theories are:

1.  An alien advance scouting team took the heads for biometric sampling.  Having just read that half-witted senator elect Ron Johnson is supposedly human, the aliens identified the deer as Wisconsin's most intelligent life form by default and have focused their studies accordingly.

2.  The banks just stopped dicking around and are are getting SERIOUS about accelerating foreclosures, à la Vito Corleone “The Godfather”.

3.  These deer beheaded themselves out of grief and shame for having voted for such a thimblewitted flip-flopper as Scott Walker (R).  It must have come as a terrible shock to find that self-proclaimed job-creatin' fiscal-responsibility-machine not only planned to piss away $810 million in federal grants (destroying nearly 5,000 jobs in the process), but also threw away any last semblance of sanity or dignity.  Read about the slobbery hash Walker made of himself begging Spanish train company Talgo to remain in Wisconsin after he himself killed the projected that departing governor Jim Doyle (D) used to attract Talgo here in the first place.

Let's see here, out of the 250,000 jobs that Walker promised he'd create, he's destroyed about 5,000 .  That leaves only 255,000 to go.  But it's still early days.  We haven't seen exactly how his plan* to lay off state worker effect the situation . . .

*No really, you simply must take a look at the actual 68-page plan for yourself, linked at the bottom of the his website.  Not only will you be amazed at the batshit ass-foolery repitition of the Laffer Curve myth that has been long discredited, but you may never get another chance to see what a government policy statement written in 58.5 point font looks like.  It looks like a 10-year old did the graphic design on the thing. 

Might it be worthwhile to do some research to see whether Scotty boy's been siphoning any of his campaign funds through "consulting work" contracted to his kids?  Some have already raised the suggestion that Walker's seemingly incomrpehensible jobicide with regard to this rail project may have arisen from a noteworthy financial arrangement;  Walker's received an unprecedented level of support from the competing road builders' industry.

Saturday, November 13, 2010

Would Henry I Have Castrated Goldman Sachs?

Even primitive medieval economies understood the importance of guaranteeing the integrity of currency;  Henry I of England imposed the penalty on castration on counterfeiters.

Bad money drives out the good” – Gresham’s Law

Gresham’s Law is the formal name economists give the common sense notion that counterfeiting is a bad thing and should not be encouraged.   The upshot is that the phony money undermines your confidence in all the money in circulation, even if the bogus bucks are a relatively small portion of the total ‘dollars’ in circulation. 

You need to KNOW for a fact just how much real, tangible value you can expect to receive in exchange for those ‘dollars’, and that’s entirely independent of any action on your part.  At least in the short term that’s entirely dependent on how your fellow market participants perceive the value of that currency.  Even if you accept some shiny beads as payment in a real estate deal, you shouldn’t really be shocked when you’re evicted for offering the same as a rental payment to your new landlord the following month.

Not exactly a super-complimicated egghead theory fresh out of some high powered thinktank.  This is, and has been since time immemorial, just basic, fundamental stuff. Christ, Gresham could see it and he grew up before the invention of toilet paper.

So why can’t Paul Ryan (R-WI) and the other Republican’ts see it?  Why do they seem so oblivious to the Wall Street counterfeiting operation that's hamstringing the economy?

Two Simple Ideas
To truly understand the Ryan-enabled counterfeiting scheme, you have first to understand a little more economic theory.  Just two simple concepts should make this all clear.  Read these carefully, because they'll help you get a whole lot more out of the rest of this piece.

1.  Money isn't just the green stuff you use to pay for your morning coffee.  It's also the stuff in your checking account, your savings account, and money market accounts.  That's basically what egghead economists call "M2".  And "M3", the broadest definition of money even includes some larger deposit and money market fund balances and other longer-term instruments, the valuation of which depend crucially on the creditworthiness of the instituion at which they're held.  The idea is that, in theory, the value of these items is so un-controversial that they are all expected by be accepted on an equal basis with the old fashioned coinage. 

Before you go on to the rest of this article, be sure that you really understand the potential gap between appearance and reality for these two:  M2 is, if not actually printed by the Treasury Department is at least guaranteed by the FDIC up to $250,000; with M3 you're often taking your chances on the strength of some corporation's balance sheet.  Good luck with option #B, there.

2.  Money doesn't do you any good if you don't use it at some point.  An old workmate of mine used to have a colorful turn of phrase to describe the possession of something that is ostensibly praiseworthy but practically useless:  "That's like tits on a boar hog."  Economists have a more formal way to discuss the extent to which nominal money may or may not in actuality be like "tits on a boar hog":  The Velocity of MoneyThe Velocity of Money is a measure of just how often a particular dollar gets spent during the year, and the more often the better. 

As a radically simplified illustrative example, let's imagine a small, isolated island where the only recognized medium of exchange is the conch shell.  You can't really print them at will, so at least in the short term there are a finite number of conch shells in circulation.  While that's great from the point of view that there's next to zero possibility of counterfeiting them, the downside is that only 1 person can own any specific conch shell at any given point--implying some real severe limitations on our island economy's ability to expand.  You and I can't both have the conch to spend; either you spend it on a new bamboo cross country bicycle or I spend it on a Starbuck's coconut latte.  Can't have both.

Well, actually, under certain conditions, we CAN have both--just not at precisely the same time.  See, if the material resources and skills of the islanders are broad enough, it's just possible that I am an expert maker of bamboo cross country bicycles and that you are a top notch coconut cafe barrista.  I can accept the conch shell from you in exchange for the bike, and later you can accept the shell back in exchange for the coffee.  We have exchanged this one, single conch shell twice within the day, both doubling the Velocity of Money for our currency and increasing our Gross Domestic Product ("GDP")by one bicycle and one coffee.

Economists have recognized this mutually beneficial relationship between GDP and the Velocity of money that they've come up with a simple equation to describe it:

GDP / Money Supply=The Velocity of Money

So one decent thumbnail statistic you can use to monitor the health of the economy is the Velocity of Money as measured by M2.  The higher the better, because it means that money is going to practical use.  And it correlates fairly well with employmnet--the faster M2 moves, the lower the unemployment level.  For the period that statistics are available, the correlation is about 67% between M2-fueled Velocity and employment, and even greater, 77%, between the change in M2-fueled Velocity and employment.  See details here.

On the other hand, M3 is cearly the bad guy; growth in M3 actually INcreases UNemployment.  See details  here.

And, as if you hadn't already noticed the how the Dow Jones is topping 11,000 once again while unemployment remains flat, here is absolute proof that the Reaganauts' "magic of the markets" actually destroys the economy:  Increases in the Dow strongly correlate with increase in job-icidal M3.  See details here.

Okay, got all that?  We want our money supply to be good; more M2 less M3.  Because the healthier our money supply, the faster it turns, and the lower unemployment is.  Policies that surrender the public's regulatory function over financial markets create more bad M3.  Focus on that, 'cause you're going to need to in order to keep yourself from being fleeced by Paul Ryan's buddies at Goldman Sachs.*

Gresham's Law Redux
Do you see now how Wall Street's loosey-goosey, under-regulated Wild West approach to securities marketing is tantamount to counterfeiting?  By getting the likes of Paul Ryan to stonewall against any and all attempts to regulate financial markets, that leaves walking shitstains like Goldman's Fabrice Tourre to get real hardworking Americans to throw billions and trillions of the good green stuff at him in exchange for bogus "securities" that are supposed to be invested for their retirements.  By preventing the American government from effectively policing its own monetary system, Paul Ryan is enabling Wall Street banksters' efforts to flood the country with bogus M3.

Yeah, maybe the "Fabulous Fab" will get away with a slap on the wrist, a fine to be paid out of some executive malpractice insurance fund.  But even if he does get convicted and does real time**, it'll all be too late.  It couldn't stop him from forging hundreds of millions of dollars in fraudulent M3--and decisively undermining everyone else's confidence in the U.S. monetary system.  Not that Fab's the only one.  Far from it.  Any account of the highlights (or lowlights) of the bankster perp walk, in my opinion, would not be complete without mentioning:

Magnetar:  This Chicago-based financial firm bundled tens of thousands of bad mortgages into M3 securities and fraudulently market them to the public--all the while making a bet with JP Morgan Chase* that the mortgages would default. 

AIG:  Ryan eventually voted (pleaded is more like the word) for the $80+ billion handout to these fumblenuts who bet more on the ponies than they had in the bank in honest, god-fearing M2.

There you have it.  Pretty simple.  Ryan's utter failure to address the real villains in this economic story, the under-regulared Finance and Real Estate sectors, has resulted in a perfect illustration of Gresham's Law.  Counterfeit M3 money is contaminating the economy, leading to a panicked sclerosis and seizing up of the nation's financial arteries, making good M2 money unavailable for down-to-earth productive small businesses and driving up unemployment. 

Far from doing anything to actually help the situation, Ryan's actually trying to shove yet MORE money into the corporate sphere by defunding America's popularly-elected government through big corporate tax breaks.  See my inaugural post on that very topic.

So my guess is that yes, Henry I would have castrated the Wall Street banksters and their Right Wing enablers.

A Call to Action
What can you do?  A lot, as it turns out.  Call and write your representatives and senators immediately and often telling them that Ryan's "Roadmap to Ruin" is a horrible mistake and a distraction from the real issue--punishing counterfeiters on Wall Street and introducing for-real regulation.  Don't take any guff.  You know that you know what you’re talking about.  If you have to, send them a link to this blogpost to clear it up if you don't think they're quite smart enough to get it without drawing a picture. 

*During this last election cycle, Paulie boy was a big favorite of the banksters.  His clients included not only Goldman, but CITI, Bank of America, JP Morgan and a host of other F.I.R.E.  (i.e., "Finance, Insurance and Real Estate sector) companies and trade groups.  In fact, he got about $246,000 or 25% of his total PAC money from these guys.  See details here.  Who knows how much else he got INdirectly through Orwellian-ly named PACs or individual contributions?

**Say, can a stay in a country club prison be considered "real time"?  If the worst punishment the state inflicts on criminals here is to limit furloughs to less than one week, stop prostitutes from trolling the grounds and limiting the amount of money perps can spend in the commissary, how bad can it really be?

[December 2, 2010:  See item #1 in Addenda, Updates, Revisions here regarding the updated calculation of M3]