Socialism: The Answer To All Our Economic Woes

“Businesses don’t hire because taxes are lower. That’s because taxes represent a relatively small part of the cost of hiring. And if taxes did make a difference then it would stand to reason that hiring would have been much lower under Bill Clinton’s presidency when rates were higher than they were under George W. Bush when taxes were slashed. Unfortunately, the truth is quite the opposite — under Clinton, companies hired nearly eight times more workers – 22.2 million — while Bush presided over the creation of 3 million jobs – the worst performance in the last 60 years. “

 

— Peter Cohan, Socialism today…aka Forbes Magazine

 

Wow. Businesses don’t automatically create jobs when you give them huge tax breaks?! My whole life perspective…shattered…

The paragraph above comes from that crazy crazy leftist Forbes magazine (what the fuck do they know about business, i know.) But their ultimate conclusion is even more interesting:

 

Companies hire only when not hiring means they can’t satisfy customer demand. Put another way, companies hire when the profits missed from not hiring exceed the cost of adding a new worker.

 

For those of you who have trouble following the bouncing ball let me paraphrase and simplify.

It’s the demand stupid.

Conservatives often claim that businesses must be given incentives to hire people. This is 90% false and 10% true. As with any rational actor, businesses, like people, respond to incentives. But the equivocation that conservatives make occurs when they confuse market based incentives with government incentives. Government incentives only save profit. Consumer demand creates profit.  And if we want businesses to grow, IE hire more people, then we must cultivate a larger buyers market by financially empowering people and not big business.

 

 

 

Paul Krugman’s Explaination Of The GOP Medicare “Plan” in 200 Words Or Less

As usual Paul Krugman has it right. This time he sums up Paul Ryan’s “Medicare” “Plan” in one paragraph:

Here’s an analogy: think of Medicare as a footbridge that is deteriorating and will eventually become unsafe. You could propose structural repairs to fix its faults; Ryan doesn’t do that. Instead, he proposes knocking the bridge down and replacing it with trampolines, in the hope that pedestrians can bounce across the stream. And the Post declares that he deserves credit for pointing out that the bridge is falling down, and proposing a solution. Um, we knew that the bridge was in bad shape — and his solution is a fraud.

Personally I think my Medicare/Medicaid plan, euthanize the old and the poor, is much better.

A. It’s a structural reform
B. It reduces the deficit quicker, sooner, and cheaper
C. It involves fire (At least if you want to do it the cool way)

I mean if you’re slowly going to kill of the old and poor through inadequate health care and spending cuts “on accident”, why wait? There’s a budget crisis right now damnit! And if you’re a Republican who cares exclusively for deficit reduction, no matter how much you fuck over the elderly and the poor, you might as well skip the gimmicks and support my plan. Added bonus: dead people pay no taxes!

After all, what’s the difference between my plan and Ryan’s plan? Subtlety and the ability to use fire.

Score one for my plan.

Knowledge Briefs: The Real Cause of The Financial Crisis

Here’s an old entry cross posted from another blog

With everything that’s gone on in the past year and a half you would think that the case against deregulation would be pretty clear to even the most partisan person. After all, call me a “crazy liberal” but it seems like common sense that the government should demand that banks operating as insurance companies have enough money to pay off the “insurance” they’re selling . After all, we demand insurance companies do it. But the more I talk to even the casual conservative the more I hear this myth that the government encouraging lending to low income people who couldn’t pay their mortgages was the cause of our current mess.

Uhhhh….no.

So here I find myself, almost a year after the crisis hit its apex, trying to debunk this patently false myth. Of course, we could just do a few seconds of napkin math and figure this out for ourselves. The cost of all the mortgages in the United States + even the most insane interest rates < the estimated 11.96 trillion dollars lost because of this scandal.  But of course, that’s far to simple and straightforward to satisfy people who don’t even believe in evolution. So let’s break it down like C.R. Avery on the piano box

The Myth: The Financial Crisis was caused by banks forced into making bad loans to low income people by the Government

Conservatives love to talk about personal responsibility. That is of course, when it comes time for them to take responsibility for the mistakes they’ve made. The financial crisis at the heart of the economic recession we are in, and primary cause of our sky high unemployment rate, is no different. When you ask Republicans what cause the financial crisis, they don’t hesitate to place the blame on the two groups they love to hate the most. Low income people and the government.  Indeed, they answer so quickly that you’d swear that their response resulted more as a natural reflex rather than a careful and dispassionate examination of the facts. Had they done so, they probably would have realize how patently false this claim is.

The Truth: NO. Government encouraged lending to low income people DID NOT cause the Financial crisis.

The evidence against this myth is pretty cut and dry. Laid out clearly by Robert Gordon in the American Prospect. To help you digest his arguments more efficiently I’ll break them down point by point

1. The Community Reinvestment Act of 1977 was…well enacted in 1977, 30 years before the crisis:

The evidence strongly suggests the latter. First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation’s Ellen Seidman (and by Harvard’s Joint Center), that activity “largely came to an end by 2001.” In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law’s toughest standards. Yet sub-prime lending continued, and even intensified — at the very time when activity under CRA had slowed and the law had weakened.

2. Non- CRA were responsible for the majority of faulty sub prime loans:

Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn’t even apply to most of the loans that are behind it. As the University of Michigan’s Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

3. CRA Banks were less likely to engage in dangerous lending:

Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the “tendency to conflate the current problems in the sub-prime market with CRA-motivated lending? CRA, Yellen says, “has increased the volume of responsible lending to low- and moderate-income households.”

Gordon has more information in his article, like warning from various Governors of the Fed, about the unsustainability of the housing bubble, but you’ll have to read the full article for that.

UPDATE: Here’s a lot more compelling evidence debunking this zombie myth

Paul Krugman graphs are more than a thousand words

Blame the poor minorities? How about the wealthy multiple house owners? Yves Smith OF Naked Capitalism reports that wealthy people are the most likely to default on their mortgages

Even governors of the Fed aren’t buying this CRA talking point

The FDIC chairwoman quite clearly says “CRA: NOT GUILTY”

Barry Ritholtz uses reverse logic to debunk the anti-CRA claim

Dainel Gross of Slate a must read article about the bullshit factual inaccuracies with this myth

Why Taxes Are Good For The Wealthy

The LA Times has an interesting editorial from a wealth venture capitalist on taxes in America:

For nearly the last decade, I’ve paid income taxes at the lowest rates of my professional career. Before that, I paid at higher rates. And if you want the simple, honest truth, from my perspective as an entrepreneur, the fluctuation didn’t affect what I did with my money. None of my investments has ever been motivated by the rate at which I would have to pay personal income tax.

….No one particularly enjoys paying taxes, but one lesson we should have learned by now is that for the good of the country, we need to tax people like me more. At a minimum, we need to return to the tax rates of the Clinton era, when the economy performed far better. Simply taxing the wealthiest 2% of Americans at the same rates they were taxed before the Bush tax cuts could reduce the national deficit by $700 billion over the next 10 years. Remember, paying slightly more in personal income taxes won’t change my investment choices at all, and I don’t think a higher tax rate will change the investment decisions of most other high earners.

What will change my investment decisions is if I see an economy doing better, one in which there is demand for the goods and services my investments produce. I am far more likely to invest if I see a country laying the foundation for future growth. In order to get there, we first need to let the Bush-era tax cuts for the upper 2% lapse. It is time to tax me more.

Word yo.

Ezra Klein once made the point that he had never seen someone quit their job or sell their company because they were being taxed too much. I agree, its not like wealthy conservatives or Wall Street CEO’s have ever decided to take a smaller executive bonus because of taxes.

“Whoa there, a $30 million retirement package. Do you know how much that is in taxes? I think I’ll pass buddy.”

At the same time people often overlook the positive externalities that come from properly taxing Americans. Tax cuts might make you feel warm and fuzzy on the inside but the ultimate goal of any economic policy should be to strengthen the economy, rather than promoting one’s fanatical die hard beliefs that what’s mine is mine.  Ultimately, if your economic philosophy can be summed up as “Screw you I got mine”, you are wrong.

(h/t) to Kevin Drum

Republicans: Deficit Spend for Rich not Poor

I smell a worse person in the world award in Senator Kyl’s near future…

The jackass says :

Top Senate Republican Jon Kyl (R-Ariz.) insisted on Sunday that Congress should extend the Bush tax cuts for the wealthiest Americans regardless of their impact on the deficit, even as he and other Republicans are blocking unemployment insurance extensions over deficit concerns.

“[Y]ou should never raise taxes in order to cut taxes,” said the Arizona Senator during an appearance on Fox News Sunday. “Surely Congress has the authority, and it would be right to — if we decide we want to cut taxes to spur the economy, not to have to raise taxes in order to offset those costs. You do need to offset the cost of increased spending, and that’s what Republicans object to. But you should never have to offset cost of a deliberate decision to reduce tax rates on Americans.”

So we can’t spend $30 million to help the unemployed but we can spend $687 billion on tax cuts for wealthy Americans. This is your Republican party America…

If anyone wanted a prime example of someone placing their ideology over reality this is one if I ever saw it.

Deficit Zombies And Their Quest For Brains: Why Spending is Irrelevant

“This bill is bad because it increases the deficit! Yeah, well this bill is good because Kuala Lumpur is the capital of Malaysia!”

Both true statements. Both completely irrelevant to the debate over whether a bill should be signed.

Pointing to debts and deficits as evidence for why a bill is good or bad is an intellectually bankrupt way of adjudicating its desirability.

The debt will go up!!

So what? What’s the ultimate impact to that? Why is this relevant? Unless you can explain and quantify your meaning behind this, statement it doesn’t mean a thing.

Focusing exclusively on on how much a bill costs is a silly way to analyze whether a bill is good or bad. When you’re buying toys for your children would you buy a cheap toy from China full of lead that’s just waiting to give them poison?  Of course not.

Spending decisions, like all decisions, exist in the framework of cost benefit analysis. How much benefit are you getting relative to the disadvantages incurred by your actions? In this case conservatives have failed to make the case for what the ultimate implication of increasing the debt/deficit is. It exist as little more than a neurological reflex that’s triggered anytime they see a dollar sign. It’s not really all that different than a legion of zombie’s bumbling down the street with a blank expression on their face saying “BRAINS. BRAAAAAAINS”.

The jobs bill would cost $30 billion. (Remember .000000001% of the deficit) So what? That’s an extremely small price to pay to extend loans to small businesses, invest in R&D, and to help struggling parents feed their starving children. Hell, considering  the benefit to the economy, I’d say the jobs bill is a bargain.

$30 billion spent by the federal government is $30 billion the government just injected into the economy. The idea that we shouldn’t pass bills that spend money is just empty rhetoric. Empty rhetoric that violates all measures of common sense. That’s like telling a business it shouldn’t reinvest its capital into the business. Not only does this violate simple common sense, it’s quite literally, anti-capitalist.

It’s so simple even a caveman can do it, but apparently not so simple that a Republican can. So next time you look at a bill weigh the pro’s and con’s before you reject it out of hand.

And do yourself a favor. Don’t be a deficit zombie.