Tuesday, January 22, 2008

News Mash-Up (How to Read the Media Primer)

So, there's a lot of "news" right now. I'm going to focus on one event (the Fed cut the interest rate) and you read the following and tell me which one do I think is drving the following "news" reports, enjoy!

Pre-emptive nuclear strike a key option, Nato told
Ian Traynor in Brussels
Tuesday January 22, 2008

The Guardian

The west must be ready to resort to a pre-emptive nuclear attack to try to halt the "imminent" spread of nuclear and other weapons of mass destruction, according to a radical manifesto for a new Nato by five of the west's most senior military officers and strategists….

The five commanders argue that the west's values and way of life are under threat, but the west is struggling to summon the will to defend them. The key threats are:

· Political fanaticism and religious fundamentalism.

· The "dark side" of globalisation, meaning international terrorism, organised crime and the spread of weapons of mass destruction.

· Climate change and energy security, entailing a contest for resources and potential "environmental" migration on a mass scale.

· The weakening of the nation state as well as of organisations such as the UN, Nato and the EU.

A New, Global Oil Quandary: Costly Fuel Means Costly Calories

Published: January 19, 2008
New York Times

Rising prices for cooking oil are forcing residents of Asia's largest slum, in Mumbai, India, to ration every drop. Bakeries in the United States are fretting over higher shortening costs. And here in Malaysia, brand-new factories built to convert vegetable oil into diesel sit idle, their owners unable to afford the raw material.

This is the other oil shock. From India to Indiana, shortages and soaring prices for palm oil, soybean oil and many other types of vegetable oils are the latest, most striking example of a developing global problem: costly food. …

No category of food prices has risen as quickly this winter as so-called edible oils — with sometimes tragic results. When a Carrefour store in Chongqing, China, announced a limited-time cooking oil promotion in November, a stampede of would-be buyers left 3 people dead and 31 injured.

Cooking oil may seem a trifling expense in the West. But in the developing world, cooking oil is an important source of calories and represents one of the biggest cash outlays for poor families, which grow much of their own food but have to buy oil in which to cook it. …

[…]The food price index of the Food and Agriculture Organization of the United Nations, based on export prices for 60 internationally traded foodstuffs, climbed 37 percent last year. That was on top of a 14 percent increase in 2006, and the trend has accelerated this winter.

Markets in Flux After Fed Move

Published: January 22, 2008

New York Times

The Fed cut rates a week before a regularly scheduled meeting and about an hour before markets opened in New York. …

President Bush's State of the Union address is scheduled for Monday, January 28, 2008 at 9pm

Answer Key in next transmission.
Here's a hint: the food thing is not "news" people have been saying that for over a decade.

Appended at 3:22 pm
Here's a photo for all of you that think that the Fed can "do something" and the economy will just get better:

we're very confident.

Thursday, January 17, 2008

Remembering Reagan - He Nearly Killed Us All

The Following from Rick Perlstein, it is repeated from a piece he wrote at Reagan's death in 2004:

Nowadays, as we grapple with the malevolence of President Bush, it's Reagan we remember as the sensible one. At the risk of speaking ill of the dead, let memory at least acknowledge that there was much about Reagan that was not so sensible.

Again and again as president, Reagan let it slip that he concurred with fundamentalists' belief that the world would end in a fiery Armageddon. This did not hurt him politically. The kind of people offended by such talk had already largely abandoned the Republican Party. Those attracted by it -- evangelicals who had gone overwhelmingly for fellow evangelical Jimmy Carter in 1976 -- adopted Reagan, and his conservative Republicanism, as their own, and they never looked back. And in the eschatology of Cold War America, Christian apocalyptic thinking had everything to do with the assumption that the Armageddon would be a nuclear one, a confrontation with the anti-Christ bailiwick Russia, which Reagan identified in a March 1983 speech to the National Association of Evangelicals as the "Evil Empire."

No wonder that when, in November 1983, NATO launched a war games exercise code-named Able Archer, the Soviet Union misread its intentions as offensive and put its nuclear forces on alert, and the world came closer to ending than it ever had before.

It took this near miss -- and not, certainly, the largest mass demonstration in American history, the million people who gathered in Central Park in 1982 to demonstrate for a nuclear freeze (another moment you probably won't read about in all the Reagan eulogies) -- to get Reagan thinking seriously about negotiating an arms control agreement with the Soviet Union. To his enormous credit.

But he never did make a similar peace with the "welfare queens" he fabricated out of whole cloth to push his anti-compassionate conservatism. Nor with the African Americans he insulted by launching his 1980 presidential campaign in Philadelphia, Miss., where three civil rights workers were slaughtered by the Ku Klux Klan in 1964. Nor with the Berkeley students demonstrating in a closed-off plaza whom he ordered tear-gassed by helicopter in 1969.

Nor, last but not least, with the tens of thousands of AIDS corpses whose disease he did not even deign to publicly acknowledge until 1987.

As the eulogies come down the pike, don't let conservatives, once again, win the ideological struggle to determine mainstream discourse. Remember Reagan; respect him. But don't let them make you revere him. He was a divider, not a uniter.

You may also want to read about the man who saved the world during Reagan's administration, here.
Just wanna remind you that we are responsible for the histories we teach. This election, listen to the histories the candidates are fabricating.

Monday, January 14, 2008

On the New Serfdom

The New Road to Serfdom: An illustrated guide to the coming real estate collapse
By Michael Hudson
posted on

Free markets are based on choice. But more and more homeowners are discovering that what they got for their money is fewer and fewer choices. A real estate boom that began with the promise of "economic freedom" almost certainly will end with a growing number of workers locked in to a lifetime of debt service that absorbs every spare penny. Indeed, a study by The Conference Board found that the proportion of households with any discretionary income whatsoever had already declined between 1997 and 2002, from 53 percent to 52 percent. Rising interest rates, rising fuel costs, and declining wages will only tighten the squeeze on debtors.

But homeowners are not the only ones who will pay. The overall economy likely will shrink as well. That $200 billion that flowed into the "real" economy in 2004 is already spent, with no future capital gains in the works to fuel more such easy money. Rising debt-service payments will further divert income from new consumer spending. Taken together, these factors will further shrink the "real" economy, drive down those already declining real wages, and push our debt-ridden economy into Japan-style stagnation or worse. Then only the debt itself will remain, a bitter monument to our love of easy freedom.

Saturday, January 12, 2008

Quick Question to All Y’all and Thoughts on Poverty Alleviation

Are you finding this stuff worth reading?
Is there a topic you'd rather I focus on?
I'm visiting my mom today in North Cackalackey (sorry, Ari, I am only here for the day) and we're talking about my year of service (we've not really talked about it all this year and I think my work may be a little confusing unless I give a more thorough explanation of what I do).

Anywho, we're talking today and I realized that one of the best poverty-reducing institutions I can think of is the bank account. 30 million Americans operate without bank accounts according to the Aspen Institute.

How would a bank account help alleviate poverty? A bank account is a neutral thirda party accounting tool. It simply says how much was spent, when, and where. But, having that statement shows you what your actual income is. It tells you what your cash flow really looks like. I get dozens of people across my desk who say their cash flow is great because they have a thousand dollars in their account. When I do a three month analysis, however, I see that the person actually had a large deposit (say a tax return) in one month and has generally been spending tow or three hundred dollars more than they earn every month. That means that although they may have money in the bank, they actually have negative cash flow.

A bank account teaches people at least two REALLY IMPORTANT lessons about being poor in America:
1) it costs more for a poor person to purchase things that middle- and upper-class families buy and need:
If you're poor, you probably have poor credit. That means your car payment interest is higher, your mortgage payment is higher, your car insurance is higher (that's right, they use your credit report to determine what your insurance will cost).
2) it costs money to have the money you earned by working:
If you're poor you probably don't realize the relative cost of banking fees are. I have a client that spends on average $55-75 a month just in fees for using the debit card. Why? ATM fees, fees for using your card to purchase groceries (a PIN-based transaction fee is usually how it's stated)

SORRY, I have to go now; I will post later

Friday, January 11, 2008

One Last Taxes Blog

Okay, well, maybe I'm doing you a favor as you go into tax season by talking about taxes in an election year.
Fact is, you're not going to get much more than rhetoric from the candidates (ever) and I feel that if you're going to have an opinion it should be based on reflection and deliberation with the facts as they lay.

Today I point you to Paul Krugman and AngryBear as they dove tail nicely around the question of how government intervention affects (I don't mean "effects") the economy.

Right now there is talk about the Federal Reserve cutting the lending rate, again, this time an anticipated .5%; but what does that mean? From Krugman's Post :
Monetary policy mainly exerts its influence through housing: high interest rates squeeze home construction, low rates encourage it. Interest rates have much less direct effect on business investment. The reason? Housing lasts much longer.
Suppose you take out a loan to buy a machine whose economic life is only 5 years — which is highly likely, given both physical wear and tear and technological obsolescence. How much difference does it make whether the interest rate on the loan is 4 percent or 6 percent? Not much: the monthly payment on a 5-year loan at 4% is less than 5% lower than the monthly payment on a loan at 6%. So interest rates don't have much effect on business investment.
On the other hand, suppose you buy a house with a 30-year mortgage. The monthly payment on a 4% mortgage is more than 20 percent lower than on a 6% mortgage. So interest rates make a lot of difference to housing.
So here's what normally happens in a recession: the Fed cuts rates, housing demand picks up, and the economy recovers.
Krugman goes on to point out that the problem with this strategy, this time, is that the source of recessionary pressure lies largely with the housing market, itself. This happened because accounting for banks changed (the following from Calculated Risk):
The accounting rule in question, Financial Accounting Standard 114, was adopted in 1993. Lynn E. Turner, a former chief accountant of the Securities and Exchange Commission, recalls that it was enacted because of abuses by financial institutions during the savings and loan debacle. Under the old rule, banks could avoid reporting losses so long as they expected to get the principal back eventually, even if the borrower did not have to pay interest on the restructured loan. The rule put an end to that.

Or at least it put an end to it for most types of loans. These banks live with F.A.S. 114 for their commercial mortgages and corporate loans, but according to Ms. Utermohlen, they don't have systems in place to do the calculations for large numbers of restructured residential mortgage loans.

The calculations, it turns out, are not that complicated. You could do them with a decent financial calculator, or an Excel spreadsheet. But the banks argue that would take too much effort, given the volume of loans likely to be restructured.
"This would be extremely time-consuming and would likely involve additional staff dedicated to this purpose," Ms. Utermohlen said in a letter to the Financial Accounting Standards Board this week.
(emphasis added)
That's right, the banks are arguing that they're not responsible for the recession because EXCEL IS TOO HARD TO USE.

Well, it wouldn't be a big deal, I suppose, except for the fact that since this Bush came to office we've been fighting a recession by stimulating the generation of long term loans we call mortgages. Why do this instead of promote long term growth through paying down debt or promoting government spending on education and grants to scientists? I don't know why not. That's not what this administration and those within our government wanted to support.

Probably because those supporters of less government intervention (let the markets fix themselves, that's fair) believe that tax cuts (reducing the amounts of taxes individuals pay) have a stimulating effect on the ecnomy.

They say that instead of paying the government, those individuals will invest in the market (remember the dot-com crash?), or save (Americans now carry thousands more in debt than in savings), or create jobs (unemployment is expected to return to 6% because housing construction has ceased). Here are some graphs from AngryBear's blog:
Below is a graph showing the annual growth in real GDP per capita, by president starting with Ike, sorted from fastest growth to slowest growth. Data comes from the BEA's NIPA table 7.1. For each president, its calculated from the last year before the President took office to the last full year the President served. (Since JFK was killed and Nixon quit more than half-way through the year, I assumed JFK's "last full year" was 1963 and Nixon's was 1974.)

Now, another graph... This one shows the annual change in taxes as a percent of personal income. With the same color scheme. (I hope you've figured it out!!) This includes taxes on labor and capital gains. The data comes from the IRS.

That's right: the less you tax individuals (now remember, a corporation is by law an individual and given the same or more rights and protections as a human being), the less the economy has benefited.

This should be a no-brainer becuase if you ask someone who actually makes a lot of money they will tell you that paying more in taxes shows that you've made more money.

Why did Carnegie give away all that money? He knew, and stated that he knew, that he made his fortune by exploiting the conditions of his society. He felt he had to give back the largest portion of it so that society would benefit somewhat from his exploitation in the end.

Further, your taxes are there to support you, citizen. You like that road? Your taxes built it. You like that park? Your taxes paid for it. You like that there is less crime? Your taxes are used to alleviate the pressures that lead to crime.

And now, a final note about why you want to better understand taxes and what is unfair about the tax code today. I want to talk about the Earned Income Tax Credit (EITC). The following is from the Atlanta Prosperity Campaign:
The EITC is a tax benefit for low- to moderate-income working families. U.S. Census Data show that in 2003, the EITC lifted 4.4 million people out of poverty, including 2.4 million children – more than any other single program or category of programs. Without the EITC, the poverty rate among children would have been nearly one-fourth higher. For tax year 2005, 79,338 households in the city of Atlanta received $170,351,176 in Earned Income Tax Credits, resulting in an average EITC credit per household of $2,147. However, the Internal Revenue Service estimates the EITC participation rate for eligible individuals ranges from 75% to 80% Thus, increasing the EITC participation rate for Atlanta families by a mere 10% (7,934) could result in over $15 million in additional benefits.
If an individual qualifies for the EITC, he or she might also qualify for the Advance EITC, which allows workers to receive part of their refund in their paychecks during the year. It provides an opportunity for employers to effectively give their employees a raise without having to increase their salary. To increase enrollment in the Advance EITC, employers need only to be equipped with the knowledge and the tools to help their employees apply for the program.
(The emphases, obviously, are mine.)

What's unfair is that there are numerous opportunities for large corporations to avoid paying taxes and they have the financial resources to pay for accountants to find those opportunities. Those accountants, then, turn around (once the egg is on their faces) and make some hare-brained response like the one we have above.

Thursday, January 10, 2008

More About Flat/Fair Taxes

I'm glad to see y'all are willing to look over some of this economic stuff. I'm hoping that y'all will begin to look to these blogs as a starting point for forming your own opinions and gaining a better understanding of what we have traditionally been made to feel was not accessible.

The question from two folks was, "but there is a difference between flat taxes and "the fair tax." There ain't. Both are simply euphemisms for regressive taxation. What we have now is a progressive tax, where the more you make the more you get taxed. In theory. As you will read in Angry Bear's Experiment here, to understand better what is at stake in all this tax talk is this:

"If you don't believe a flat tax (or "fair tax") on the books is really regressive in practice, ask yourself these two questions:

a) Who gets a greater percentage of her income from tax free munis - Paris Hilton or a maid who works at the Hilton?

and b) Who is more likely to retain the services of a high powered tax services company which knows all the loopholes that can be used to shield income or inflate costs, and who is more likely to get a W-2 - Paris Hilton or a maid who works at the Hilton?

As to a consumption tax like the flat tax, all you need is one question: who has to spend a greater percentage of his income just to keep body and soul together each and every year of his life - Steve Forbes or a janitor at the magazine that Forbes inherited?"
What I really appreciate about this posting is that the attempt to make the neocon argument is there. Read it through and I think you will see that the what is actually being argued for by these ideologues is not fairness.

I particularly like how he ends it:
these are, to the best of my ability, honest arguments for something that a lot of people really want to see happen. But they don't have the decency to make the honest argument for it. And you can't have a debate with a grifter.

Why Flat Taxers Are Nuts

It's an election year, you've seen the pick-up trucks and minivans with the flat tax stickers; you hear the rhetoric about the middle class being pinched. What does it all mean? What are we supposed to do? I was talking with a friend that I love to death and I usually think is a really smart, right-on kinda fellah. Then he started spewing that vitriol about flat taxes and I had to keep my jaw from falling off my face and onto the table and then rolling over to him and punching him in the penis.
That's when I realized that he was way too smart to be talking like one of those economic hacks; and so I am sharing with you some resources that will try to explain how taxes work and why flat taxes won't.
So, flat taxers tend to congregate around a constellation of beliefs, among the most humorous is that government intervention will only lead to botched efforts and unnecesary influence in the market. This is of course preposterous because if the market were allowed to run its course we may likely still have slaves, Irish wouldn't be allowed to vote and women would likely only have recourse to property rights.

Look to the real estate market right now for an example of how markets don't "correct" themselves naturally - people will hold onto the values they believe in until some other agent (by means of force, whether economic or military) enjoins them to shed that value in exchange for another. Another example of this would be to look at how quickly Americans were willing to shed their civil liberties (a long held value) in exchange for a new value called "security." But I digress....

So Flat Taxers (hereon, Flatheads) believe that consumption itself should be taxed, n'est-ce pas? The belief is that spending is universal and regular and the economy does not have phases, etc. Those Flatheads take the assumption that people will always by stuff and this is nearly a good observation, "Look to the Phillipines, the per capita income their is ridiculously low, yet, per capita cell phone use is through the roof! Even poor people will buy expensive stuff!" This is an example of how those who believe in the Flat Tax will support their argument. But it doesn't have any explanatory power.
The logical question to the above would be, "Well, how much does it cost relative to the income of those poor Filipinos to own a cell phone? Do they even own the phone? How much does it cost to use a cell phone and how does it compare to us?" Instead of explaining why it makes economic sense to have a cell phone in the Phillipines, the Flathead rather uses the above to make an emotional appeal, the flavor of which would be, "hey, taxes are unfair, poor people are poor 'cause they make dumb decisions and the rich can afford to not pay, so why should I?"
The Flat Tax, as sold to me, is usually not about economic justice (it doesn't address the fact that the CEOs of firms make 500-1000 times more than their base employees); it's usually sold with a punitive streak smeared a mile wide across the class line. The rich support the flat tax because they will pay less taxes, the lower-middle class support it 'cause they think poor people are directly benefiting from their own hardships, and no one cares how the poor fit in to all this.
What the flat tax proposes to do is tax people on how much they spend per month; those who make very little money would get a "pre-bate" each money to defray the cost of getting basic goods. What this doesn't address are serious are sad: what would the motivation to work be, then? Most importantly, the actual cost to those with little money would be MUCH GREATER THAN it is today. The rich would do exactly what they've always done - pay the minimal amount of taxes they feel comfortable with; those that are serially poor and unconcerned about "contributing to society" would continue to not work as they would still receive their "prebate" and the working-poor and those just barely able to be middle class would become permanently poor because the relative cost this consumption tax would be more like 50% of their actual income.
What if large groups of people cannot purchase a home, what does that do to tax generation?
this is one of my favorite blogs, by the by.
Here's some (light) reading on taxes and are great for discussion and analysis of tax proposals and their real effects on the economy and perhaps on individuals
Also, understand what poverty really looks like in Georgia:
"1 in 3 counties in Georgia have been deemed 'Persistently Poor' meaning 20% or more of their population have lived in poverty over the past three decades."www.cviog.uga.edu/services/research/poverty/georgiacounties.pdf
Analysis of Flat Tax Proposals:

Are We Paying Too Much in Taxes?

The Cult of Supply-side Economics

How Do Tax Changes Effect the GDP?

Republicans and their corporate tax cuts: