Serious problems found in study that supported austerity

Well that’s embarrassing:

This error is needed to get the results they published, and it would go a long way to explaining why it has been impossible for others to replicate these results. If this error turns out to be an actual mistake Reinhart-Rogoff made, well, all I can hope is that future historians note that one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel.

Long story short, the original study vastly overstated the correlation between high debt and low growth.

The Case for American Socialism

Capitalism in America has failed. With the Dow Jones Industrial Average reaching a record high recently, many would argue that the United States has rebounded from the economic recession and is now well along the path to full recovery, and that the previous assertion is far from truth. Failed economic policies and pandering to corporate-supported lobbyists over the past several decades resulted in a housing bubble and subsequent burst that catalyzed a recession larger than any since the Great Depression in the early 20th century. Though the country is indeed on the upswing again, the abhorrent mismanagement of our economy, our society, and our political structure will unfortunately continue as long as policymakers with poor understandings of the mechanisms that drive them continue to be elected and supported.

Every election cycle in America brings with it a host of tired, poorly-reasoned methodologies. Politicians continue to implement failed fiscal ideologies like trickle-down economics and lower taxes for higher earners, ever tighter government control over our civil liberties with the odious Defense of Marriage and Patriot Acts, and political grandstanding with repeated filibusters against every piece of legislation to circulate through the House of Representatives and the Senate. Despite every indication to the contrary, a significant portion of the American government pushes poorly-reasoned positions, promising a better America but ultimately only causing damage to the financial underpinnings of the entire planet, reduced freedoms through laws of dubious legality, and unreasonable inefficiency of Congressional proceedings. Were the people able to more directly shape policy in this nation, many of these issues would be resolved, at least in part.

In “Stumbling on Happiness,” Daniel Gilbert explores the concept of “super-replicators” – anything capable of multiplying or being transmitted more effectively or much faster than would normally be expected – through the lens of genetic replication and idea transfer, to explain the misguided belief that having children makes people happier, and its persistence through time across our entire society. More-so than any other argument presented in Gilbert’s essay, this one struck a deep chord. What is it about bad ideas that causes their superior comparative uptake with respect to good ideas? More generally, how do we decide what bad ideas are? Why do ideas that we know are bad continue to resurface even after being cast aside or fading away? Specifically in the context of social and economic politics, how do ideas we already know are bad continue to exist?

The actions of the United States government have resulted in the gradual stripping of American freedoms and the imperilment of the American Dream. Most recently, this has been done through obscene systematic judicial overreach via the broken plea bargain system, levying extreme sentences against political dissidents ending in the death of a young man with a bright, promising future. Also symptomatic of the decline of the nation is the absurd, disproportionate violence by militarized police forces throughout the country; the current system arms officers well beyond what is necessary to carry out their duties, to the detriment of the people as a whole. Similarly, on a global scale, America has caused the deaths of hundreds of thousands of civilians in two unfunded and poorly overseen wars that this and the previous administration were lax in pushing to take care of. Aggression by the United States against other sovereign nations, both friend and foe, is not confined wholly to paramilitary activities, however; the capitalist perpetual greed machine has endangered the entire planet’s future through willful violations of financial procedures and laws by the banking system, it has directly contributed to the wholesale destruction of the ecosystem through lax environmental regulations, and stripped funding and thereby efficacy from the educational system, reducing our chances of maintaining, protecting, and improving the planet we call home.

Yet through it all, the American people have continued to vote along party lines and vehemently resist any real meaningful change. The commonly held belief in this country is that the hard-capitalism and pseudo-representative democracy economic and political systems in place here are the best in the world, but this is an unfounded belief, and in many ways quite wrong. The United States consistently ranks well behind the social-democracies in northern Europe in happiness, education, and life expectancy, to name a few metrics. Despite this, many Americans have remained resistant to the socialist label; the Republican Party went as far as passing a resolution derisively referring to the Democratic Party as the Democratic Socialist Party. Truly, the anti-socialist sentiment is a super-replicator: this behavior in the United States originated with the First Red Scare following the 1917 Bolshevik Revolution in Russia. Things settled down until the Second Red Scare, pushed primarily by Senator Joseph McCarthy, after the Second World War. McCarthyism never fully left the country after the Second Red Scare, and has most recently been popping up in political rhetoric, targeted at President Barack Obama and the modern Democratic Party. But would a Democratic Socialist Party really be a bad thing?

In the face of evidence showing the superiority of the modern socialist democracies, the anti-socialist diatribe has not ceased. Following the passage of the Affordable Care Act spearheaded by President Obama, many pundits and political commentators around the country decried the new “socialist” policies, though they were actually corporatist in nature. The Republican Party bills itself as the party of smaller government, claiming that larger governments with more employees are inefficient and to be avoided. That position seems strange: the Organization for Economic Co-Operation and Development has compiled a database of statistics regarding the economies of the world, and this database shows quite plainly that twelve countries are ahead of the United States in total employment as of the third fiscal quarter of 2012, and the Nordic countries specifically employ roughly 30% of their population in the public sector. The 2009 bailout of the financial and automotive industries was widely regarded in America as a very socialist move, despite the fact that, following the bailout, the United States government still owned only about one twentieth of one percent of American companies. This last opinion makes even less sense when juxtaposed with the reality of the social democracies of the Nordic sphere: Sweden allowed Saab to go bankrupt and Volvo is now owned entirely by Geely, a Chinese company. When it was discovered that the major banks in Iceland held assets worth nine times the country’s economy, the financial structure was destabilized and every other bank folded up and collapsed. In response, Iceland eased consumer debt by amending loan repayment laws, raised taxes, and seized control of the largest lending firms in the nation, even eschewing America’s tradition of ignoring financial executives’ responsibility for the economic disaster and jailing at least two for fraud. Most of the northern European countries are strongly in favor of free trade too, and to a greater extent than has been seen in America in over a century. Democratic socialist countries in Europe are living the American dream while America itself is not.

Sweden learned over a decade ago how to cope with an economic recession and the effects of bad government, and they emerged a much stronger social democracy because of it. Iceland recovered from a then-terrifying financial crisis a short while ago where their foreign debts were over eleven times larger than the entire Icelandic gross domestic product, and their economy is fantastically strong after strict regulation and oversights helped get them back on track. Other countries in the region have dealt with and resolved economic issues of their own, and all have proven consistently to be the most socially progressive nations on the planet. The major differentiating factor between those populations and any of the regional populations of the United States is the adoption of socialism in some form or another, and America would be quite foolish indeed to continue ignoring that fact. Free market, laissez-faire capitalism in the United States has failed the American people, and tried-and-true socialist ideas can provide the answer we so desperately need. Daniel Gilbert was spot-on when he described the spread of certain ideas as super-replicators: poor ideas do spread and persist, specifically in politics and economics, though this does not have to remain the case; with the proper education and public relations efforts, the ideals held by the successful socialist democracies throughout the rest of the planet could become super-replicators in this country as well.

Medicare might not be so expensive in the long run after all

medicare cost projections

Sarah Kliff:

The reason for that yawning difference: Health-care costs growth has seen a steep decline over the past few years. Instead of outpacing the rest of the economy, it has grown at the exact same rate.

If that cost growth persists, it could make all the difference for Medicare: The entitlement program would, by 2085, make up 4 percent of the economy instead of the previously projected 7 percent.

Let’s still dismantle the welfare state. You know, just to be safe.

 

The United States will never turn into Greece

No, the United States Will Never, Ever Turn Into Greece:

To translate from stats-speak: our equation for non-euro countries tells us increasing debt by 1 percentage point of GDP only increases borrowing costs by 1.3 basis points. And that result isn’t even statistically significant. In other words, there is no evidence of a debt tipping point for countries that borrow in money they can print.

Yay for statistical evidence!

No one supports closing the tax loopholes the GOP is after

boehner budget

The White House wants to include tax reform in the entitlement discussion, but the Republicans will only talk if that means closing loopholes and lowering rates:

Privately, House Republican leaders think they’ve checked two of the three boxes of a grand bargain: first, the Jan. 1 tax increases; second, the spending cuts via the sequester. Now, in their view, all that’s left is entitlement reform. Top Republicans are also skeptical Obama would agree to the kind of tax reform that House Republicans have drawn a firm line on: The revenue to be generated by closing loopholes would go to lowering rates.

Too bad this strategy is unpopular with just about everybody:

But any tax expenditures, or loopholes, worth undoing already enjoy huge support from the electorate.

Will anyone really eliminate the 401(k) exemption, which allows us to park tax-free dollars in a retirement fund? Or how about that mortgage-interest tax deduction, which allows us to deduct interest from our taxes, or the capital gains exclusion, which allows us to keep any profit we make on our homes? What about the deduction for state and local taxes? How about charitable deductions?

The one easy step to fix Social Security

fix social security

Tom Edsall, for The New York Times:

The Congressional Budget Office estimates that the amount of new revenue required to bring the Social Security trust fund into balance over the next 75 years would amount to 0.6 percent of G.D.P.

The same C.B.O. document presents a series of alternative ways to achieve such a goal, including the elimination of the current $113,700 cap on income subject to the Social Security payroll tax. If the cap or ceiling were lifted, the amount of money raised would be 0.6 percent of G.D.P., the exact amount of income needed to get Social Security out of the red — a striking coincidence.

Simply taxing the top 5.2 percent of workers at the same rate as everyone else would ensure the livelihoods of millions of seniors and eliminate a significant chunk of our projected deficits.

I’d like to clarify that when I say “ensure the livelihoods,” I mean that it keeps millions of seniors out of poverty:

These facts include the following: Two-thirds of Americans who are over the age of 65 depend on an average annual Social Security benefit of $15,168.36 for at least half of their income.

Paul Ryan to cut social services to protect the military’s budget

Congress Ready to Start Work on Budget – NYTimes.com:

Mr. Ryan is also likely to propose cuts to many programs unaffected by the automatic reductions, like food stamps, Medicaid, social service block grants and farm subsidies. He would use those savings to reduce some of the automatic cuts, including in the military.

Farm subsidies I get. But are F-35s really worth cutting off food and health care from the poor? 

Also, if you think the sequester cuts are bad, wait until you see the cuts Ryan would need to pull off to balance the budget in 10 years:

To bring the budget to balance, Mr. Ryan will need at least $4.6 trillion in new savings over the next decade, on top of nearly $3.6 trillion in deficit reduction enacted over the last two years. By excluding defense and shielding Medicare and Social Security for the rest of the decade, the Ryan budget would need to cut remaining programs by nearly 23 percent, the memo concluded.

Compare that to the cuts coming due to the sequester:

  • $42.7 billion in defense cuts (a 7.9 percent cut).
  • $28.7 billion in domestic discretionary cuts (a 5.3 percent cut).
  • $9.9 billion in Medicare cuts (a 2 percent cut).
  • $4 billion in other mandatory cuts (a 5.8 percent cut to nondefense programs, and a 7.8 percent cut to mandatory defense programs).

Berkeley economist Christina Romer on increasing the minimum wage

Christina Romer Berkeley economist

Timothy Noah, for The New Republic:

In a March 3 New York Times op-ed laying out her objections, Romer began by dismissing some of the more familiar conservative arguments against the minimum wage. It isn’t true, she pointed out, that the beneficiaries would mostly be burger-flipping teenagers; half would be families now earning less than $40,000 a year. It also isn’t true that raising the minimum wage is a job-killer; “the overall adverse employment effects are small.” (In the online version, these words link to a recent literature review from the nonprofit Center For Economic Policy Research that states the case more bluntly: “the minimum wage has little or no [italics mine] discernible effect on the employment prospects of low-wage workers.”) One reason a minimum-wage increase doesn’t kill jobs is that the increase in the price of labor is balanced out by reduced turnover and a general increase in productivity.

After dismissing these arguments, Romer goes on to say that she thinks the Earned Income Tax Credit is a better instrument for helping the poor because it would boost overall employment. In response, Noah reminds us that the political climate in Washington doesn’t allow for stimulus at the expense of reducing the deficit:

Say it with me: The minimum wage can be boosted without costing the Treasury a dime. The GOP may not go for this argument, but it’s an easier sell than asking Congress to spend money.

What makes a President successful? Controlling Congress

The Powerless Presidency : The New Yorker:

The boring fact of our system is that congressional math is the best predictor of a President’s success. This idea is not nearly as sexy as the notion that great Presidents are great because they twist arms in backrooms and inspire the American people to rise up and force Congress to bend to their will. But even the Presidents who are remembered for their relentless congressional lobbying and socializing were more often than not successful for more mundane reasons—like arithmetic.

Lyndon Johnson’s celebrated legislative achievements were in reality only a function of the congressional election results—not his powers of persuasion. In 1965 and 1966, after the enormous Democratic gains of the 1964 election, Johnson was a towering figure who passed sweeping legislation. In 1967 and 1968, after he lost forty-eight Democrats in the House, he was a midget.

The President does not have some magical power that allows him to change the mind of his political opponents. President Obama’s record of compromising with Republicans during the first term shows that he understands this. Pundits who claim that Obama has somehow failed to show “leadership” by being unwilling to work with the other side are simply ignoring reality:

And Obama most certainly did try to keep that promise — to the deep annoyance of his base. To entice Republicans to a deal, the president included tax cuts in the stimulus package; he dropped the public option during negotiations of the health-care bill, and he kept all of the Bush tax cuts in 2010. This penchant for compromise continues to drive Democrats and liberals nuts and makes them wary. Former labor secretary Robert B. Reich told the New York Times last month that Obama is “still the same President Obama who wants a deal above all else and seems willing to compromise on even the most basic principle.”

Pundits like to make the point that maybe Republicans would go along with Obama on fiscal matters if he were willing to follow a “balanced” approach – improving the state of the budget through both revenue increases and spending cuts. The only problem with their argument is that Obama has been pushing for that exact approach: 

The claim that Obama campaigned “on poll-tested tax hikes alone” is just flatly false. In February of 2012, Obama submitted a budget that contained hundreds of billions in spending cuts — including cuts to Medicare. The nonpartisan Committee For A Responsible Federal Budget analyzed Congressional Budget Office numbers and concluded that Obama’s budget proposed nearly $480 billion in spending cuts — several hundred billion of which were to Medicare.

In the link above, Greg Sargent goes on to give further examples to the present day of Obama advocating for both more tax revenue and spending cuts over time. What we see is that the opposition has time and time again rejected Obama’s offers of compromise.

If the President can’t force the other side to work with him, what can be done? As Obama said during his speech on March 1st, the day the sequester went in place, the American people can tell Congress that they don’t approve of constant obstructionism:

The question is can the American people help persuade their members of Congress to do the right thing, and I have a lot of confidence that over time, if the American people express their displeasure about how something is working, that eventually Congress responds. Sometimes there is a little gap between what the American people think and what Congress thinks. But eventually Congress catches up.

Swiss ‘fact cat initiative’ goes after excessive executive pay

daniel vasella Novartis

BBC News:

Support for the plans – brain child of Swiss businessman turned politician Thomas Minder – has been fuelled by a series of perceived disasters for major Swiss companies, coupled with salaries and bonuses staying high.

Our correspondent says the main example is banking giant UBS, which wrote off billions in the wake of the 2007 sub-prime mortgage crisis, and then had to be bailed out by the Swiss government.

A further incident came in February when it was announced that the outgoing chairman Novartis’, Daniel Vasella, would be receiving a 72m Swiss francs (£51m; $78m) “non-compete” pay off over six years, designed to stop him working for other related industries.

Going after the people who profit from wrecking the economy isn’t “class-warfare” or “socialism.” It’s making sure that no one in the system is able to stack the deck in their favor at the expense of everyone else. It’s the same as going after trusts, cartels, and monopolies. We figured this out a century ago.