Mercury Rising 鳯女

Politics, life, and other things that matter

Archive for July, 2011

Shaving Washington with Occam’s Razor

Posted by Charles II on July 31, 2011

The general reaction that I hear about our current politics is that they’re all corrupt. In the colloquial sense, that’s probably true, although enough of those guys are lawyers that they’re careful to stay on the north side of the statutory line, Tom DeLay and his pals being the exception that proves the rule. But having met, dealt with, and especially watched a fair number of politicians over the years, I think there’s a better explanation.

What I notice is that politicians are, at least in person, charming people, but also narcissistic and shallow. They’re opportunists, constantly sniffing for a way to get ahead, and constantly seeking to ingratiate themselves. When they don’t have handlers around, they come out with stunning examples of ignorance. On Thom Hartmann, Bernie Sanders actually said that he doesn’t know what ALEC is. How can anyone in Democratic politics not have heard of ALEC? And Bernie Sanders is relatively engaged in the reality-based world. As we see, Michele Bachmann doesn’t even know where “the shot heard ’round the world” was fired. Is it really a surprise that so many politicians believe that lowering tax rates increases revenues, particularly when the Wall Street Journal and other respected publications tells them it’s so?

Predicting the consequences of the debt ceiling deal is not particularly complicated. In a normal year, the American economy grows by about 3%. Since our GDP is about $14T, that’s about $420B per year. At the moment, it’s more in the 1-2% range, or $140-$280B/year. So a debt deal that promises to cut $2.6T over ten years is promising to remove about $260B per year from the economy. Without any complicated calculations, this is enough to trigger a recession with almost certainty. Even in good times, this would cut the growth rate at a first approximation to about 1%. This is growth barely sufficient to keep up with normal population growth. So the debt ceiling deal is a bill essentially guaranteed to make the next ten years the worst American decade ever–with average growth worse even than 1930-39! And this is after perhaps the second worst decade ever. Growth from 2000-9 averaged 1.7%.

Now, it’s not quite that simple. Suppose this were a municipal budget. Cuts to police and fire are very likely not going to save money. Buildings that burn down do not produce tax revenue. Communities that have rising crime lose businesses. Other cuts may produce genuine savings. For example, police like to run up overtime as a means of improving their salaries. It’s fundamentally a corrupt practice, and stopping it could produce genuine savings.

So a lot matters about the details. In particular, politicians like to backload cuts because that puts it after the next election. They often have the goal of making sure that the total budget never declines, even if there are real cuts to programs favored by the opposition party. It’s very unlikely the Tea Party will fall for this.

But in this case, these considerations are probably less important than the long-term expectations that austerity creates. If you are a business dependent on consumers, are you more or likely to invest in the US? If you are a bondholder concerned about possible default of states and municipalities, do cuts in the federal budget increase or decrease your confidence? If you are a promising student, do you take the extra years to go to a four year college and grad school in hopes of getting a high-paying job? If you are a consumer, are you more or less willing to spend? So, the likelihood is that cuts of $260B/year will damage the economy by (SWAG) up to $400B.

Genuine austerity, in which programs are constantly reviewed to see if they are being run efficiently to deliver what the public wants is a good thing. One of FDR’s best points was his insistence on efficiency, since it created public trust that taxpayer dollars were being spent well. But fake austerity, where budget cuts are made for political reasons without regard to the long-term consequences? This is the kind of thing poorly-informed, narcissistic opportunists do.

It’s very difficult for me to get upset at Washington. These people will be reviled as the worst generation of politicians in our nation’s history: shallow, vain, grasping men (and some women) who– in a few short years– destroyed the strongest economy of the 20th century. Considering the verdict that history will deliver, any condemnation that I could add would seem gratuitous.


Posted in 'starving the beast', budget, wrong way to go about it, WTF? | Comments Off on Shaving Washington with Occam’s Razor

Debt Ceiling: Obama Wants To Cave, Tea Partiers Won’t Let Him

Posted by Phoenix Woman on July 31, 2011

This has got to be driving John Boehner mad.

Here he is, having got the cut-happy Obama to bludgeon Harry and Nancy into agreeing to yet another round of austerity for the masses and tax breaks for the upper classes, to go with the one agreed upon back in April, and those darned Tea Partiers keep getting in the way:

I’m hearing that there is significant opposition from the tea partiers in the House who (1) don’t like some (taxes and military spending) of what’s in the current deal and (2) think that they can hold out for more concessions from the White House by waiting until Tuesday or Wednesday.  As of now, there’s no indication at all that House Speaker John Boehner (R-OH) has the political gravitas with his caucus to simply demand that it vote for any deal.  The same dynamic that forced Boehner to change his plan earlier this week to please the tea partiers is still in place.

There’s also the chance that a non-trivial number of Democrats will still resist the whippings of the Obama-whipped Harry and Nancy, but I wouldn’t count on that

Of course, there are six currently identified options that Obama could take if he really wanted to avoid chaos and tanking the economy, but they would also allow him to avoid the cuts to Social Security he’s apparently been set on making since before he entered office.

Posted in Uncategorized | Tagged: , , , , | 1 Comment »

America and the Right, the love affair

Posted by Charles II on July 31, 2011

Or the Democratic Party and Obama. Take your pick.

Posted in Uncategorized | Comments Off on America and the Right, the love affair

Growth Dance Religion

Posted by Charles II on July 31, 2011

Near the depths of Plains Indians defeats in the American conquest, the Paiute shaman Wovoka had a vision of the Second Coming of Christ in which the resurrected Jesus promised to save the Indians from the white man. The new religion was widely adopted. (The religion figured in the massacre at Wounded Knee Creek, since the Indian Agency had become convinced that the Lakota were blessing shirts to be invulnerable to bullets). In fact, the religion would have facilitated the acculturation (genocide) of the Plains Indians by accommodating demands that children be sent away for schooling, among other points:

According to the prophecy, the recent times of suffering for Indians had been brought about by their sins, but now they had withstood enough under the whites. With the earth destroyed, white people would be obliterated, buried under the new soil of the spring that would cover the land and restore the prairie. The buffalo and antelope would return, and deceased ancestors would rise to once again roam the earth, now free of violence, starvation, and disease. The natural world would be restored, and the land once again would be free and open to the Indian peoples, without the borders and boundaries of the white man.

Needless to say, the vision remains unfulfilled.

The fables we hear about the debt are far more pernicious than the Ghost Dance. For all I know, Wovoka’s vision was true. The same cannot be said of Catherine Rampell’s column in the New York Times, which promises us that we can painlessly grow out of our debt. (Atrios, in his appealingly simplistic way, described this as “the other way to cure the deficit is, you know, awesome”):

But there is, in theory, a happy solution to our debt troubles. It’s called economic growth. No need to raise taxes or cut programs. Just get the economy growing the way it used to.

We wouldn’t need any of that [taxes, cut spending, have inflation, or default] if we could restore economic growth. If that happened, Americans would become richer and pay more taxes. Et voilà! — we’d pay down the debt painlessly.

Crazy as that might sound, particularly given Friday’s figures, the possibility isn’t some economic equivalent of that nice big farm where your childhood dog Skip was sent to run free. There are precedents.

Well, actually, it is on par with telling kids that you’re sending the family dog to the farm when you’re prepping him for euthanasia. Rampell cites as a precedent Ireland, which did indeed enjoy some good decades of growth: partly because it was starting from a very low base, partly because it was able to exploit the American trend of capital flight to low-wage countries, and partly because a large part of the growth was illusory, based on massive overvaluation of real estate… all of these much like the Japanese “miracle” which crashed two decades ago and has never been revived.

Jack Kemp used to tell us that he was running on “hope, growth, and opportunity.” It was a great slogan. But on the growth part, let’s be realistically. The American economy has never sustained 5% growth in the modern era. Even if we regarded the bottom end of our economy as the Third World that it is rapidly becoming, by properly investing in it, we might be able to get 7-10% growth of 10-20% of our economy… in other words, we might add about a percent to our historic growth to get near 4%. For that matter, since we need to reduce resource consumption, we might have to achieve higher standards of living without raising GDP as much as we are accustomed to… which has implications for debt service.

Ultimately, we do need higher taxes, less wars, and a much more efficient medical insurance system. The latter will cost, not create jobs, and winding down our overspending on the military will cause great pain to some areas. There is no solution to our problems that is pain free. But let the pain be inflicted on those who have enjoyed decades of overstuffing themselves, not on the poor, the sick, the elderly, and those struggling just to stay in a home.

(written in partial answer to Atrios, and Chicago Dyke in comments)

Posted in budget, capitalism as cancer, deficit | Comments Off on Growth Dance Religion

Default now appears inevitable

Posted by Charles II on July 30, 2011

43 Republican Senators Sign Letter Opposing Reid Debt Plan

Of course, three Republicans could decline to join a filibuster. Looking at who signed the letter, even the so-called “responsible Republicans” (Lugar, McCain) are on board with blowing things up. I guess that the Democrats could cave and do what the Republicans want. But that would probably be worse than default.

Or a meteor could land on Washington. That would certainly would gratify a large swathe of the American public and lead to better economic policies than are presently under consideration.
Update: So, we get worse than default. Ten years of a contracting economy and joblessness levels to rival the Great Depression. This agreement will definitely put the US back into recession. And by caving, Barack Obama has left the only healthy part of the American polity leaderless, adrift, and tearing at one another.

Posted in budget, deficit, Republicans acting badly, Republicans as cancer, stupid | 2 Comments »

Nouriel lays his marker

Posted by Charles II on July 29, 2011

No link.

* Need to narrow deficit by 5.4% of GDP ($800B)
* Should raise taxes by 2.4%, cut expenditures by 3%
* Spending cuts must include military and entitlements
* Should backload austerity
* Plans on the table are exactly opposite of optimal
* If there is no course change, there will be a double dip recession no later than the end of 2013

I will tell you: the market is behaving very weirdly. While VIX (a measure of volatility) is spiking, VIXY (a fund designed to mirror the VIX) is falling. The following chart (which doesn’t show the full extent of the recent spike in VIX or today’s decline in VIXY) shows the three month trend. This could mean that the fund is simply poorly designed. But a look at on-balance volume looks to me as if people are selling VIXY, i.e., betting on market stabilization and a rise in the market and have been doing so all year, and doing so at such a considerable rate that the fund is unable to compensate for it.

Furthermore, we are going into weekend with no resolution of the crisis and on a day when GDP growth was worse than expected. Also, the European bank crisis is far from settled. One expects a last-hour selloff. It did not happen.

And then there’s the yen, which suddenly strengthened by a full percent. That means dollars (not euros, which also strengthened) are being sold for yen.

Something strange is happening.

Posted in economy | 4 Comments »

Friday Cat Blogging

Posted by MEC on July 29, 2011

Alexander sleeps very cute.

Posted in Alexander the Great, Friday Cat Blogging, Uncategorized | 6 Comments »

Dripdripdrip: the water torture of Rupert Murdoch

Posted by Charles II on July 28, 2011

Just when you think the Murdoch phone hacking scandal can’t get uglier, it does.

Nick Davies and Amelia Hill, The Guardian:

Sara Payne, whose eight-year-old daughter Sarah was abducted and murdered in July 2000, has been told by Scotland Yard that they have found evidence to suggest she was targeted by the News of the World’s investigator Glenn Mulcaire, who specialised in hacking voicemail.

Friends of Payne have told the Guardian that she is “absolutely devastated and deeply disappointed” at the disclosure. Her cause had been championed by the News of the World, and in particular by its former editor, Rebekah Brooks. Believing that she had not been a target for hacking, Payne wrote a farewell column for the paper’s final edition on 10 July, referring to its staff as “my good and trusted friends”.

The evidence that police have found in Mulcaire’s notes is believed to relate to a phone given to Payne by Brooks as a gift to help her stay in touch with her supporters.

Click to read more
Read the rest of this entry »

Posted in capitalism as cancer, corruption, rightwing moral cripples, Rupert Murdoch | 9 Comments »

Posted by Charles II on July 27, 2011

Slain author Syed Salaam Shahzad's recently-published book

He published it just before he was murdered, perhaps by Pakistani security forces who feared he was too close to the ISI-Al Qaeda links.

Posted in terrorism | Comments Off on

Coming soon to your community: corporate (or criminal) rule

Posted by Charles II on July 27, 2011

Adrienne (via Brother John) links this on Honduras’ “Charter Cities,” in which Hondurans cede control over their own territory to… whoever! It’s not out of the question to have a “Charter City” for each of the narcotics cartels.

But in many ways, Honduras’ “Charter Cities” is done under better controls than Michigan’s takeovers of localities by “Emergency Managers.” The Michigan law is (in my layman’s opinion) written very vaguely, such that towns could be signed over to…whoever…with even less oversight. A preliminary review can be triggered by an alphabet soup of conditions, including this gem:

The existence of other facts or circumstances that in the state treasurer’s sole discretion for a municipal government are indicative of municipal financial stress, or, that in the superintendent of public instruction’s sole discretion for a school district are indicative of school district financial stress.

Then a fundamentally political process proceeds:

the governor shall appoint a review team for that municipal government consisting of the state treasurer or his or her designee, the director of the department of technology, management, and budget or his or her designee, a nominee of the senate majority leader, and a nominee of the speaker of the house of representatives. The governor may appoint other state officials or other persons with relevant professional experience to serve on a review team to undertake a municipal financial management review.[and a similar process for schools]

And then? An Emergency Manager is appointed and basically, the law ceases to exist in that jurisdiction. Elected representatives no longer have any power, since they serve at the pleasure of the Emergency Manager. Unions? Forget about them! Have a contract with the city? Too bad! All of the civil mechanisms that serve as brakes on bad governance are stripped away, with the sole power to the will of the Governor residing in the courts… which are notoriously conservative and unwilling to engage the other branches of government. Your “Emergency Manager” could even, in theory, be Corporation Corrections of America(*). The law is just that vague!

It’s true that the way the law is written, it can only turn truly foul if all branches of government are in the hands of one party. But that’s where Michigan is, God help ’em. At least Honduras thinks it has to give some measure of deference to international norms, even if it’s only window dressing.

Only comedians can get the situation correct:

The law stipulates that:

(a) The emergency manager shall have a minimum of 5 years’ experience and demonstrable expertise in business, financial, or local or state budgetary matters.

(b) The emergency manager may but need not be a resident of the local government.

(c) The emergency manager shall be an individual.

(d) Except as otherwise provided in this subdivision, the emergency manager shall serve at the pleasure of the governor. An emergency manager is subject to impeachment and conviction by the legislature as if he or she were a civil officer under section 7 of article XI of the state constitution of 1963. A vacancy in the office of emergency manager shall be filled in the same manner as the original appointment.

(e) The emergency manager’s compensation and reimbursement for actual and necessary expenses shall be paid by the local government and shall be set forth in a contract approved by the state treasurer. The contract shall be posted on the department of treasury’s website within 7 days after the contract is approved by the state treasurer.

The provision that the emergency manager shall be “an individual” might seem to exclude corporations. However, (a) a contractor or employee of a corporation would certainly qualify, and (b) US law increasingly recognizes corporations as individuals, possessing for example free speech rights.

Posted in corporatists, corruption, Honduras, Michigan | Comments Off on Coming soon to your community: corporate (or criminal) rule