Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Monday, June 18, 2012

Another 2 Cents Worth on Europe and the Euro Crises

Hi Everyone,

With the latest election results in Greece and France there is another round of media coverage on the ongoing crises in Europe.  I say “crises” plural because there are, in fact several national crises with different causes and different possible solutions.  All of them are contributing to an overall problem for the Eurozone as a whole.  That much is covered well in the press.  I heard this point in particular made today on NPR.  But what is not discussed is how the fact there are different types of crises in Greece, Italy, Spain and Ireland leads to different options for responding to each of them.  This is fitting because in a real sense, all of these problems result from a flaw in the Euro zone which was that there was no way to establish a single monetary policy that would be optimal for both rapidly developing but poor countries like those currently in crisis and the wealthier, slower growing countries of Northern Europe.  Just as there was no one optimal policy for the entire Euro zone before 2008, there is no one-size-fits-all solution to the various problems today. 

For example, in Greece the problem is that the government is incapable of enforcing its own tax laws.  Even though its population might have been able to support the level of government spending established in the heady days after the Athens Olympics, that would only have been possible if everyone actually paid their taxes – or at least a sufficiently high percentage of people that any losses to evasion would be manageable.  The problem is that the Greek government spent its resources during the boom largely on gifts to constituents.  Policies like lower retirement ages, more generous pensions, more generous vacations, etc, did not prepare Greece for the problems it might face in the future.  There was little emphasis on investing in things that might have enable Greece to weather an economic downtown.  Greece did not, for example, invest in civil service reform or professionalization.  While the world economy was inflating the global bubble, Greece could borrow money to finance all of this.  But as soon as borrowing became in practical, the Greek government simply did not have funds to function.  So  when the 2008 recession hit, much of the revenue available to the government disappeared just when demands for government services spiked and the government was incapable (note: not necessarily unwilling) to respond effectively to either development.  Now Greece is in a situation where its spending is unsustainable with locally attainable resources and its debt load is such that it cannot borrow more to keep things going through the current recession.  The debt load is so big that it cannot manage the payments on existing debt, let alone assume more debt on its own.  Greece has no choice but to cut spending and try to raise taxes (although it is unlikely to successfully increase revenue in proportion to its tax increases).  The only way Greece can do anything other than a massive austerity package for years to come is if someone else pays for it.  Even a devaluation would probably have to be so draconian that it would devastate not only the Greek economy with hyperinflation but risk dragging down the rest of the Euro zone along with it.  And by “someone else” of course I mean German and other Northern European tax payers.  And even in that event, the long term problem of the inability of the Greek civil service to effectively manage the political economy of the country would not likely be solved  by any bailout – at least not one envisioned by any of the key parties involved so far.  Greeks opposed to bailout/austerity package frequently complain that austerity is being forced upon them from the outside.  But their proposed solution, that German tax payers write a blank check to the Greek government is no less undemocratic and has the added flaw of being grossly unfair. 

Italy, Ireland and Spain
But in Spain and Ireland the government was relatively responsible.  Prior to the 2008 crash debt/deficit levels in these countries were manageable if a bit on the flabby side.  Italy and Spain in particular had recent histories of seemingly sustainable spending levels.  Italy had actually been paying down its debt for over a decade.  But the sustainability of their long term debt schedules were dependent on continued economic growth.  The 2008 crash hammered the real estate and construction bubbles in these three countries.  Even after that pounding, the Irish government could raise its corporate tax rates (for example) quite a bit and still have the lowest corporate tax rates in the Euro zone.  Another possible solution for these countries would be a relatively modest devaluation of the Euro (say back to its original value against the dollar at one-to-one).  That would boost exports and possibly stimulate some growth not only in the Mediterranean but in export dominated Germany as well.  The difference between these three countries and Greece is that IF these countries could manage to borrow  (or print) enough money to stimulate their economies back into growth, these three countries could be back on track in relatively short order (like a year or two instead of the decade or more of misery that Greece faces).  In these cases the people of these countries who complain about harsh austerity being imposed by Germany may have a point.  Other options are viable. 

Keynes and the Europeans
The interesting thing here is that the differences between Greece on the one hand and most of the rest of the European countries facing deficit crises is that it underscores the necessity of professionalized and effective government institutions for the success of a Keynesian approach to political economy.  Absent effective institutions, any attempt to apply the kind of Keynesian stimulus approach to a recession will only result in the kind of quagmire Greece faces today.  Eventually, no more new borrowing will be allowed and the government will have no other means of sustaining existing government services. But if there is a minimally effective government in place, Keynesian stimulus might be an option that deserves more consideration in Europe than it currently receives.  

Lessons for and false comparisons with the US
The US has a functioning and professional civil service.  The US also has historically low tax rates across the board.  When Republicans begin to shout that the current deficit/debt situation in the US will lead us to become “like Greece,” they are simply wrong.  If there are any useful analogies to be found for the US in Europe, they are Ireland with its low tax rates and fairly straight forward housing bubble collapse.  For both Ireland and the US simply raising taxes – even selectively and not dramatically - is a perfectly workable, long term solution.  It is also worth noting that the US economy is already flirting with growth rates that are high enough to make even the Italian debt levels sustainable based on their pre-2008 bond yield rates.  Unfortunately for Italy, Italian bond yield rates are now far higher, requiring a much higher growth rate to sustain continued borrowing. US bond yield rates however are very very low.  So we can engage in a lot of Keynesian stimulus and "get away with it" contrary to Republican rhetoric.  


Sunday, May 27, 2012

Capitalism and Accountability

There is an old saying they use to have in Soviet Russia. "They pretend to pay us and we pretend to work." This bears some thinking. Capitalism works when there is autonomy leading to motivation and resulting in accountability. And in today's market, dominated by corporate entities, the common clerk or local manager has little autonomy and thus, even less motivation to make a decision. Accountability in today's market is a depersonalized annual appraisal. Office Space, the movie, shows a new kind of Marxism in action. As a moderate Democrat, I can definitely understand why some Republicans get their dander up about over-regulation in some areas. Part of our employment problem, I think, is less about money and more about the pure hassle of getting a good employee to begin with and then getting rid of bad ones. And it is all tied into this question of autonomy and accountability, which has much larger ramifications for society and economy.

Marx was quite clear about the alienation that can come from mass production. Well, we are seeing the results in spades- in the service industry. In my case, I see it most immediately in my daily interactions which usually involve retailers. But I see it my office as well. We see this lack of accountability since 2008, in banks, insurance dealers, and the like. I am afraid capitalism and communism have become in essence the same thing by another means. I am sure this will spark some long-missing, lively blog discussion. But let us consider: What is the difference between a government centralizing production and prices and corporate entities that even if they don't totally control prices or production, are so big, they no longer respond to customers (i.e citizens) and who have monopolistic tendencies?

Here are some examples from my daily life-

1) I discovered last week that someone had paid off the $38K balance I still owe on my student loan. After a hear-racing moment, I called the USDE only to discover, like many others before me, that the USDE no longer administers my loan. It has now contracted out the Missouri Higher Education Loan Authority (MHELA)- a non-profit created specifically to get this kind of deal. This happened with no prior notice to me. Had I not chanced to log into my USDE account, I would not have known that the payment address and account number had totally changed. Good to know ahead of time, don't you think? "Doesn't my government owe me the courtesy of an explanation letter BEFORE they screw with the account", I ask the customer service rep. "Never mind," I say. It's not your fault."

2) Michaels: I was sent two coupons by Michaels, a chain craft store. One was for 50% off a regular priced item May 25-27th. The second was 20% off the entire purchase, but only good on Monday. So I took the 50% off coupon and selected my full price item. At the counter, I learn that the item is actually on sale (it wasn't marked as such on the shelf) so I can't use the coupon. The coupon would be a better deal than the sale price. "Can you take the 20% off today and I'll surrender the coupon?" "Nope. Come back tomorrow." "Forget it," I reply. They lost a $35 sale and the local and state government lost the tax revenue from the purchase. I won't be going back. No point telling the clerk off. It's not her fault. The store belongs to some distant entity, she pretends to work, and they pretend to pay her. I am sure she gets little better than minimum wage.

3) Staples: I am a photographer. I use a lot of ink. Staples use to give you $3 credit on recycled ink cartridges. You would take recycled cartridges in, buy new ink, and get an immediate price cut. No more I recently discovered. Now you have to go online, sign in, print a certificate (ironic considering you are now using the very ink you are trying to conserve, or you may not be able to print if you are out of ink) and bring it to the store when you want to buy your ink. I complain to the clerk, "So what used to be possible in one trip now takes 2 trips,and you are going to make me jump through hoops? That's not service. But I know, It's not your fault." She agreed it was dumb, and that it wasn't her fault. But it ensures that fewer people take advantage of the program. It is made to look like the company is giving you a deal, hoping that you won't actually take them up on it. It's like rebates that get advertised as sales

Get the theme? No one is a fault. We have a specal deal on boots today. Get in line. Yes, all of them are red and all them are size 12! But they are on special today! What does it remind you of?

Now let's look at how we shut a majority of people out of the system entirely- reverse discrimination. In an attempt to play by the numerous hiring rules, to avoid litigation, and to be sensitive to the less fortunate in society, we have succeeded in making hiring a nightmare for everyone. Since the very fact that I select means that I discriminate, then we prevent me from really selecting, but then try to hold me responsible for the outcome.

1)In my office, I want to hire someone to do a job. But I can't just hire someone who is qualified. This person must log on to a special website. Spend 60 minutes posting their information (we used to call it a "resume") and then wait for a confirmation number. This process has been streamlined substantially by the Obama Administration by the way. It used to take several hours. Then some computer system will filter all the candidates who applied for the job. I will get a list of people ranked based on their points. Points are given for veterans and current competitive service employees, disabilities, and god knows what else. After that, an only after that, do your qualifications count. Then we are told that we don't hire enough people with disabilities. And that while we don't have quotas, we have a goal of having 20% disabled on the staff. But we aren't allowed, I point out to ask on a form if someone is disabled. Yes, we are told, but the person can volunteer to declare themselves disabled. So, I point out, if you actually could get everyone currently on staff who is on Prozac to admit it, then we might actually exceed the "goal". I am told that this is true. So rather than selecting and being responsible for the selection, I need only ask for a list containing, excuse me for the crassness, a veteran with a gimpy leg or head injury of minority status. And then I can randomly choose 5 people an hope for the best. Because, after all, it won't be my fault. Who cares if the government gets stuck with some one of lesser qualifications, that they then can't fire even if performance is poor.

So I am looking around, and asking myself who is responsible? We have centralized so much, that some mystical, Kafkaesque emerald castle runs everything and we aren't sure who is behind the curtain. For any system to work, but particularly for capitalism to work, there must be a sense of responsibility and a sense of autonomy and accountability based on individual decisions. What we have now is defeatism, and a surrender of responsibility to computer systems and organizations where everyone is responsible, so no one is responsible. And don't even think of challenging the system too much. The Occupy Movement was the closest we got and it seems now invisible- the way the green revolution is in Iran, the protesters are in Russia now that Putin is elected.

When there is no autonomy, no one is responsible, and therefore, we pretend, and they pretend. How is it really differently from the system we claimed to defeat in 1989?


Sunday, March 25, 2012

What the Cal State Gambit Says about Public Education Costs

Recently the California State University announced that unless a referendum passes that will partly restore their funding levels, they cannot afford to admit more students. So they won't. They're going to freeze admissions.

Think about what that says. Populist rhetoric would have you believe that the reason the costs of education are rising because universities are gauging students. I often hear my students complain about the costs of their education (the university I work at has the lowest tuition in its peer group). They believe that these costs are simply a result of feckless professors and administration gauging the students because they can. But in a world where state support for public education is dropping fast, in large part because the same politicians who use and encourage this populist view are arguing that they have to punish the professors and administrators for the rising costs by cutting funding further.

In response public universities have tried to keep tuition costs down. But the result is now that every new student that comes in the door of the universities represents a loss. That is, it costs more to educate that student (especially in a Science/Technology/Engineering/Math) than their tuition covers. I've talked to lots of professors in various colleges, disciplines etc and they all tell the same story. Tuition doesn't even cover half of the costs of operating the program. The populists will tell you that is because professors costs more. But here's a secret. Tuition never covered costs - ever. Public education was always subsidized by tax money and private education was subsidized by charitable donations and endowments.

That the CSU system sees freezing enrollment as a viable budgetary strategy tells you that cuts to public education have gotten so bad that the universities can no longer afford to keep operating unless they get more money from the state or dramatically increase tuition to the point where most of their students couldn't afford to attend.


Friday, March 23, 2012

Terrorism in Toulouse

While the French media ask how a man who was under surveillance managed to amase a weapons cache, I have a bigger question, one that I am sure the French will be asking themselves once the memorals are over and the bodies burried: What social forces push these people toward delinquency that would land them in jail to be radicalized? Did this young man, and his brother who seems to also be radicalized, feel marinalized? These are questions we ask every thime there is an attack.

Toulouse is heavily populated with Pieds Noirs, North African born French who are often resented in France, or at least noted as something “Other”. Mohamed Merha was French, born of Algerian immigrants. This also made him an “other”. And being "other" in France means exclusion. The French media focuses on his troubled teen years, his delinquency, and even refers to him as the “madman”, but that is just too easy. Madmen aren't born. They are made. They are products of their homes and communities.

Toulouse is a agriculture region that, true to form, votes conservative. Le Pen or his party reps usually do pretty well in conservative Southern France. However, in the last elections, the socialists took the Midi-Pyrenees, the department where Toulouse dominates. This is in large part because Muslim voters, who made up about 5%of voters in the 2007 election, went socialist. That doesn't sound like a large share, but made a huge difference. Sarko’s get-tough on immigrants talks scared many of them away. Toulouse is a first and foremost, a city of immigrants.

Today on the streets of Toulouse there was a “million person march” in honor of the victims. And this weekend, there will be another silent march to the Jewish school where the students and teachers were shot. Among the banners being unfurled in Toulouse today were two in particular that were noted in the Depeche Du Midi, the regional daily newspaper. The two were written in French, Arabic, Hebrew, and Occitan (regional dialect). One said: “Live Together: equality, solidarity, dignity” and the second said: “Jews, Christians, Muslims, same God:Love”. The meta message beyond the multilingualism is clear and strikes me as a changed attitude. In my days in Toulouse, in the late 1990s, such a thing would not have been seen. Let's hope it will continue.


Friday, February 24, 2012

The No-Reality Primary

Every day we see more and more bizarre statements from Santorum, Gingrich, and Romney that are so far removed from reality it is hard to know how to respond. All three say that President Obama is going to turn the United States into a socialist state. There is no evidence for this idiotic statement, and none is ever adduced. At the same time, and without irony, they complain that the new health care law reduces funding for Medicare. Santorum said this morning that the United States is alienating every ally and appeasing every enemy. It is hard to know where this comes from. The only ally whose relationship is not MUCH stronger now than it was under Bush is Israel and Pakistan, and that is only because Obama have a much more irascible Netanyahu to deal with and Paksistan is such a freaking mess. The charge of appeasement of enemies is hard to fathom. Killing Osama Bin Laden on Pakistani soil was appeasement? Apparently an apology for soldiers stupidly burning the Koran is appeasement, which is nonsense. A moral person apologizes for his own wrongs even if others have also committed wrongs against him. What else?

What you have from these Republicans is blind hatred of Barack Obama for reasons more or less unrelated to the man or his policies, or anything in reality. This is not how you win an election with persuadable independent voters. This is why the primary is so volatile and strange. It is not based in reality.

This is, at heart, an inside debate by a core Republican electorate that is reacting from the unspoken, unacknowledged feeling that something is going very wrong if a black man is President of the United States of America.


Monday, February 06, 2012

Quit Politicizing Women's Health

There has been a lot of news the last couple of weeks about changes to medical policies that directly affect women’s health. The most recent has been the Obama Administration’s declaration that all medical care providers who receive federal funding and who serve diverse populations will have to offer birth control. Before that, it was the Susan G. Komen For a Cure foundation. That foundation was going stop paying Planned Parenthood for mammograms.Before that, we've had political discussion about HPV vaccinations.

Everyone just needs to stop politicizing women’s health. I can’t think of a single men's heath issue that is politicized or made such an open subject for public scrutiny. No one is talking about offering condoms or vasectomies to men, both opposed by the Catholic Church. Nothing about Viagra or testosterone supplements. What about reproductive services? Unless something has changed, the Church doesn’t like infertility treatments either. All of these health decisions that MEN and women make daily are private choices. They should not be fodder for religious and political games.

Freedom of religion means that you have the right to choose to practice your faith or not. And you can choose to practice any faith you wish. That said, forcing religiously affiliated institutions to offer an array of health services and reproductive services does not violate religious rights. It simply allows people to have a choice. If I am a practicing Catholic, then I can choose not to use birth control. So what these institutions are really saying is that they don’t want to offer choice because most people would choose “wrongly”.

Religiously affiliated medical facilities and universities should be medical facilities and universities FIRST and religious organs last.


Tuesday, January 03, 2012

Iranian Saber Rattling- Don't Panic

Iran has been threatening to close the Straits of Hormuz- again. They do this periodically. I doubt very much it will actually happen. I think this is “North-Koreaesq”/”Saddamesq” game playing of a desperate regime. What they really want is a spike in energy prices to further weaken Western economies. They are using the tools they have.

The Iranian government is weak and slowly collapsing. There have been reports of tensions between the Ayatollahs and Ahmadinejad. The latest round of sanctions is aimed at the Iranian Central Bank and seeks to hasten the process. And while we haven’t heard much publicly about the Green Movement, it is alive and well underground. It still threatens the regime. Choking off money with these sanctions will fan the coals. That is what we want.

Some have speculated that the saber rattling over Hormuz is intended to draw first fire from the US or its allies, which would then re-entrench the current government and its Ayatollahs. I doubt they are hoping to get the US to shoot first, but they may be baiting Israel. With the Syrian regime weakened, Israel is probably feeling queasier than usual. But Iranians are intelligent gamblers. They know we won’t strike militarily in an election year. We don’t have the money. They do know what a spike in Energy prices would do. The mere threat has already caused a spike. But then, it doesn't take much to cause an oil price hike.

Another news commentator on NPR said that Saudi is increasing its oil production and that we are hoping for Libya’s oil to come back on line as well as Iraqi oil. I wouldn’t count on that. Iraqi security is obviously a problem and the Iraqi government isn’t going to do too much to anger its Shia cousins in Tehran. We may have live with higher oil prices and take the hit.

We should not underestimate the game Iran has been playing over the last 30 years. They have been more effective that Libya ever was at creating terror cells. They have kept their population poor by turning their oil money into guerrilla movements, like Hezbollah and Hamas. But they have also funded several other groups in places like Pakistan, Iraq, Afghanistan, and India. This is well known and documented. I myself have commented on it several times in this blog. Wherever there was an opening for insecurity and mayhem, Iranian money could be found. It’s a rogue state- but a very ancient civilization that has survived by skillfully playing diplomatic and military games. So while we should be wary, we should not panic. We need to see this for what it is. The worst thing we could do is to attack or allow our allies to attack!


Monday, December 05, 2011

Why I Don't Think the Euro Will Dissapear

Hi Everyone,

The punditocracy is waxing panic stricken about the future of the Euro. With the ongoing crisis in Greece, Italy, Spain, Portugal and Ireland, there is increasing pressure on government borrowing throughout the Eurozone. This has many TV experts pronouncing that a break up of the Euro and a return to national currencies is inevitable. From this, many go on to predict that the EU itself is in serious danger. These types are fond of referring to the EU as an "experiment." But I think there is another outcome that is at least as likely. I think the EU will become even more centralized. Here are my reasons.

First, a number of economists have reported (see this article in Der Spiegel) that the costs of abandoning the Euro will be even greater than the costs of fully committing to a bail out of all the countries in crisis. The key quotation is here:

UBS chief economist Deo, has even gone so far as to estimate that 20 to 25 percent of GDP might be realistic in the first year after a German exit alone. That would translate to a per capita cost of between €6,000 and €8,000, with costs of between €3,500 and €4,500 in subsequent years. By comparison, if, after Greece, Portugal and Ireland each had to be given a debt haircut of 50 percent, Deo estimates it would only cost around €1,000 per German citizen -- and it would be a one-time cost.

In other words, the German government has a choice between a really bad outcome and a truly horrendous one. Similar choices face the governments of the other Euro-zone countries. So long as European leaders are not so foolish as to put this choice (or more likely part of it) to a popular referendum, I'm fairly confident that each government will be wise enough to chose the really bad option and avoid the truly horrendous outcome.

Another reason I think the EU will become more centralized has to do with what the German government will demand in return for financing these bail outs. As the EU leaders begin to talk about reforming the treaties that govern the EU, the proposals all seem to be in the direction of more integration and more central control over national spending. One would be forgiven for thinking that the Germans are insisting that if they get stuck with the lion's share of the bill, then they should be allowed to remake the European Central Bank more in the image of the German Bundesbank. That is a powerful and independent central banking institution that acts to restrain inflationary government spending policies.

Furthermore, if we think about the incentives to a country like Greece to ditch the Euro, the choices have been badly misunderstood in the press. The way the story is reported in most media, it is assumed that the Greek people are being made to suffer more for the sake of staying in the Euro. This is most likely not the case. If Greece left the Euro, it will still be obliged to pay off its debts. Having left the Euro, it would have to do this by printing Drachmas... A LOT of Drachmas. Predictions of hyper inflation are not unreasonable in this event. That would hit Greece at exactly the same time that it gave up the trade advantages and attractiveness to Northern European investors that came with the Euro. In other words, Greece has a choice between painful austerity and painful austerity plus stagflation! Greek politicians have already indicated their choice... they'll take the austerity and pass on the stagflation.

Finally, even though all these changes will require heroic compromises between governments with often opposing interest, I think a deal for long term reform will happen. The consequences of failure to reach a compromise will be so dire that the governments will make the deal happen. It will be messy, lurching, awkward and push things to the final final deadline, but I think a deal will happen. And although the Germans will end up paying most of the bills for this mess, the price they will charge in return will be in the form of major reforms to the EU itself. In five or ten years we will be talking about the de facto Bundesrepublik Europa.

I should also emphasize that I'm not predicting a rapid economic recovery in Europe. I still think the EU will be hit with a nasty recession. I'm just surprised that so many people think that this recession will destroy the Euro and the EU. I get the impression that most commentators simply do not understand how firmly established the EU really is. They seem to think of it as some kind of European version of NAFTA with a currency union tacked on to it. It is far more institutionalized and deeply rooted than that.


Tuesday, November 01, 2011

I'm Sick of the Greeks!

I have often blogged or commented about my opposition to direct democracy. Usually, my ire is directed at Prop 13 and other examples of how direct democracy undermines good government in California. But today I'm going to direct my disapproval at the proposal of the Greek Prime Minister, George Papandreou's, that the EU debt deal be subjected to a popular referendum in Greece. In particular, Mr. Papandreou, a social democrat from the PASOK party, is arguing that since the deal requires further austerity measures in Greece, he cannot implement them without the mandate of a popular referendum. I shall make three arguments against this step. The first is institutional: that Mr. Papandreou could in fact implement these measures immediately. The second is practical: that the average Greek citizen is not qualified to understand the implications of rejecting this plan and is even unlikely to understand which alternatives are genuinely viable. The third argument is moral: that since a significant contributing cause of the crisis is the widespread tax evasion of ordinary Greeks, they do not have the moral authority to plunge the entire European Union and the world with it, into another Great Recession.

Greek institutions are exceptionally centralized. Policy implementation in Greece, when it happens, is a relatively straightforward process. Most policies are implemented under the supervision of local prefects appointed by the interior minister. The interior minister is appointed by the Prime Minister and since Greece is nearly always governed by a single party government, Prime Ministers are the top of a highly centralized chain of command within the bureaucracy. There might be a legislative problem. Mr. Papandreou's party have a very slim majority and there have been resignations. One might suggest that this could prevent Mr. Papandreou from enacting the necessary legislation. However, the main principles of the austerity measures are in line with the typical agenda of the center right. As it happens the only serious opposition party in Greece is a center right party, New Democracy. Surely some deal could be struck that would allow cooperation between both parties. Indeed, several PASOK members of parliament have called for a grand coalition of national unity between the two major parties to do exactly that. The only reason a referendum is "necessary" is because Papandreou is trying to avoid getting the political blame for painful austerity measures.

So why is it more practical for this be done by a representative legislature instead of a referendum? There a three reasons for this. First, a referendum by its nature can only be a straight up or down vote on a given proposal. Negotiations and amendments, even minor ones, are not possible. A legislature allows for nuance and flexibility that may be critical in a time of monumental economic crisis. Second, voters cannot be expected to understand the complexity of all policies. One should not expect the average voter to understand the enormous complexity of a debt restructuring program that involves numerous national governments in Europe, North America and beyond along with global intergovernmental organizations like the International Monetary Fund. Third, if a majority of Greek voters reject the restructuring package out of a reluctance to accept the pain of the austerity elements, it would almost certainly provoke a disastrous financial tsunami on the order of the 2008 financial collapse. The Greek voters simply cannot be relied upon to understand the consequences not only for their own country but for the world if they indulge in some emotional populism in the form of this referendum.

But why, you may well ask, should a democratic society be expected to accept massive economic pain (and it will be painful) without being given the chance to vote for their own interests? Normally, I'd be quite open to this line of reasoning. However, the Greek situation is one of their own making. International banks did not force the Greek government to neglect the training and staffing of their tax collection authority. International banks did not force individual Greeks to take advantage of that lack of tax collecting enforcement by engaging in widespread tax evasion. As I have said in other blog entries that raising taxes is not a viable option because the Greek tax collection capacity combined with the ubiquitous tax evasion means that raising the nominal tax rates will simply change the text of the tax laws that everyone is ignoring. It won't actually generate more revenue. The Greek people, politicians and bureaucrats brought this catastrophe on themselves and the rest of us. They should NOT be given a veto over how the world decides to fix the mess.

There is plenty of pain being shared around the world in this restructuring. German tax payers will be paying off Greek pensions for a generation or more as it is. German taxpayers are also putting up additional emergency funds to cover future problems should the debt crisis spread to Italy or Spain. French banks are going to write off enormous portions of the debts Greek borrowers owe them. The Italian parliament just approved austerity measures of their own to stave off a similar crisis emerging in that country. Ireland has been living with these austerity policies since 2009. For the Greeks to now sabotage this plan is adding insult to the injuries already being endured around Europe! Enough! Mr. Papandreou should enact this law NOW. And if it means his political career ends after that, so be it!


Friday, October 28, 2011

Obama's Proposals Don't Change Student Loans

It has been reported that the President wants to change the student loan program. One change that is being touted is that students are allowed to consolidate private and public student loans.

Well, this isn't a change. This is a long standing policy. I had both private (i.e. Sallie Mae) and USDE loans (Public). I consolidated them with the USDE in 2000. What they do is average out the interest rates on all your loans to get a new interest rate for your current loan. The benefit is that you make one payment to one lender at one interest rate. Usually this means a single lower monthly payment. Credit counselors have used this trick for years to help "restructure" the debt of their clients. This type of consolidation is not new nor does it represent a change to the current student loan systems.

Assuring that student loan payments don't exceed more than 10% of someone's disposable income doesn't represent much of a change either.The student loan program introduced an "income contingent" repayment plan back in the early 2000s. They take your pay stub and based your monthly student loan payment on your gross salary. The bad news here is that if your income is low, then your monthly payment under the income contingent program may not be enough to cover the interest that accumulates over the moth. Interest that is not paid is capitalized, meaning added to the principle of the loan. So there is a whole cycle there. Interest needs to amortized like they do with home mortgages to really be fair and help students pay down the loans. Building bigger principle is simply a desperate measure to alleviate today's pain. Income contingent re-payment only keeps people under the boot of debt longer.

I am not sure if the Obama Administration is being misunderstood by the media, or if it really is selling a load of crap to the "Occupy" crowd and the voters. I would hate to believe that the Obama Administration is that cynical.

Really the best deal for students and lenders is what I already proposed in my earlier post.


Thursday, October 20, 2011

The End of Gadhafi

It's official, Lybia is now well rid of Moammar Gadhafi. This may seem like a minor event to most Americans who - justifiably - may be focussed on more pressing economic troubles at home. But this could have enormous, mostly positive implications not just for the Middle East for Africa and the rest of the developing world.

Gadhafi saw himself as world revolutionary leader with particular interest in tilting at internationalist windmills. In the 1970s Gadhafi was a prime moving force behind abortive plans to unite various Arab countries into the Arab Islamic Republic or the Federation of Arab Republics. The FAR plan's collapse led eventually to a war between Egypt and Libya (Egypt won reasonably easily). In the 1990s, Gadhafi turned his vision southward and pushed for the creation of a United States of Africa.

Gadhafi was not only a consistent backer of terrorist attacks but he was also the primary source of training and weapons for some of Africa'sworst dictators and irregular militia groups. Gadhafi had close military ties with (among others): Idi Amin, Charles Taylor, Robert Mugabe, the Janjaweed, Slobodan Milosevic, FARC, Hugo Chavez, Daniel Ortega and other, less infamous, tyrants, cleptocrats, thugs and killers. It's worth noting however that Gadhafi was consistently incompetent militarily. Other than successfully winning his coup d'etat 42 years ago, I don't think he was victorious in any military operations of note (I may be wrong but a string of famous defeats is foremost in my head now).

This man was not merely a quirky and somewhat clownish dictator who oppressed his own people. He was a force for chaos and bloodshed around much of the world. He had a knack for picking loathsome allies. His only saving grace was his military incompetence. If he had succeeded in more of his plans, the world would have been even worse off than it was given his bloody failures.


Tuesday, October 18, 2011

Occupy Wall Street: Student Loan Forgiveness

Some Occupy Wall Streeters are calling for student loan forgiviness. This sounds like a great idea, especially for people like me with high debt. However, I disagree with this proposal. Rep. Hansen Clarke (D-MI) has sponsored a bill to forgive student loans and MoveOn.or is sponsoring a petition in support of this.

I do not agree with complete loan forgiveness. Nor do I think it should be discharged in bankrupcy court. They tried that once and young people ended up filing for bankrupcy at alarming rates. 1) moral hazard arguments still stand 2) So long as the price of education is inflating faster than that of medical care, student loans are going to be a necessary and permanent evil. We cannot create disincentives for lenders or further barriers to qualified students. 3)Currently, there is a new bubble forming around student loans as they are packaged and sold as derivatives. The chain reaction has been sent into motion just like the housing market. This will encourage larger loans to lesser qualified students, and further fuel rising tuition costs.

But the program rules should be changed to make the loans more fair on borrowers. I have some more moderate suggestions that I would like lawmakers to consider.

Some background: I graduated with my MA in 1999 with over $60K in debt- of which about half was used for tuition and the other half for housing and expenses. I took on this debt freely, but out of necessity. The job market requires a graduate degree, I needed the money to help pay for it. I consolidated my debt with the USDE at 7.26% interest, low compared to many of my predecessors.

When interest rates began to fall in the mid-2000s, I called the USDE to see about re-financing and was told that this was not legally possible. Once consolidated, borrowers are not allowed to refinance unless they are willing to take out a private loan, usually a second mortgage. I didn't own a home and couldn't afford one with my debt levels froms school, and even in 2004 most lenders were not going to provide a loan without collateral. Therefore, I continue to pay an interest rate more than twice the current market rate.

I do receive a tax deduction on the interest I pay. However, this is little help throughout the year as monthly bills come due. Nor does it adequately address the inherent unfairness (almost usury) in how interest is handled in the student loan programs. And let's face it, it isn't an asset-backed necessity like housing. So I'd be willing to sacrifice it for some real reforms.

Interest on student loans accrues daily. And no matter how much you pay beyond your fixed amount, the interest is always paid first and it usually eats up most of the payment. And what’s worse, it's a moving target. The amount I pay in interest changes constantly and is nearly impossible to budget for, calculate, or get around. To date, the amount I have paid back in interest is nearly equal to the principle balance I started with and I still have $42K to go. Currently, if I were to make payments so that I could pay the remaining balance in 10 years, I would have to pay over $750 a month, down from the over $800 I would have paid 10 years ago. Either
way, that's not possible. But the debt is still my responsibility, students still need loans, and the USDE needs the revenue stream these loans create.

Rather than forgive debt entirely, I would suggest the following:

1) that the law be amended to allow for refinancing of all student loans down to current rates
2) once the amount paid back in interest exceeds more than say 20% of the original principle, the interest should be curtialed entirely while the remaining principle is paid down.
3) if #2 is not feasible, then the interest should be regulated in the same way has home loans.
4) outlaw the selling of derivatives on student loans.

These changes would lessen the burden on borrowers without the moral hazard associated with total loan forgiveness or the loss to the lenders, which includes the USDE. They may be enough to prevent fueling education inflation. Making the terms a bit more fair would be welcome and would help the longer term economy and a generation of young people trying to get started in a jobless economy who will default in droves if we don't do something.


Friday, October 14, 2011

Rading Social Security Funds

This is a short post, but this article, Looting of Social Security posted on today is the clearest explanation of what has happened to Social Security funds that I have yet seen. It is a quick and easy read.

Basically, the 2.7 trillion surplus that was to be invested in Social Security has been poured into the general fund and spent. It's gone. There is nothing but a literal cabinet filled with IOU statements.

Now, will the government repay this money?? Well that is a good question. From where will it get the money? Since it wasn't invested as promised.

Again, I remind everyone that this isn't news. Remember Al Gore and his "lock box". So we are all investors who have been swindled. So, in light of this, I agree with the President that the 2% cut in payroll taxes should be continued. And it's all legal. Because in a democracy, you can pass all kinds of laws to make what you want or need to do legal. In another context, this would be termed "corruption".

Because money paid for social security is going into the general fund, it amounts to a 2% income tax hike on the salaried class. Another reason we are the 99%.


Thursday, October 13, 2011

National Sales Tax... Worst idea ever

Herman Caine is surging in the polls as the latest "Not Romney" As he is, the media is falling all over themselves to do halfassed analyses of his 9-9-9 tax plan. As you may have heard this refers to a 9% flat income tax, 9% flat corporate tax and a 9% national sales tax. Most of them focus on whether it will raise or lower the over all tax burden on the average family or whether it will generate enough revenue to cover existing spending. It is probably not surprising that a plan put forward by a Republican reduces revenue and further shifts tax burden away from the wealthy and corporations and onto middle class families. But the problems with the 9-9-9 are, if anything, even more catastrophic than simply yet another screwing the middle class the Grand Old Plutocrats. That 9% sales tax is a like a bomb let off in the heart of the US economy.

Right now, retail sales/household spending make up about 70% of the US economy overall. If we suddenly imposed a 9% sales tax to everything bought in the US, it would certainly cause that vital sector of the economy to shrink. Consumer demand in the United States is not only a vital part of our economy it is an important driving force for the entire world economy. For example, China exports about 20% of all their exports to the US alone. If the US demand for Chinese stuff suddenly drops, it would be a serious blow to the Chinese economy as well. The same goes for Mexico, Canada, the EU, etc etc etc.

With the world economy in a fragile state now, Herman Caine's plan could plunge the world into a demand slump depression along the lines of what we saw in 1929. Imagine, just as we are showing the faintest hints of recovering from a capital crisis recession and just as the Europeans are getting their collective act together about Greece, Cain would have us voluntarily jump off the cliff again. You can't run a global economy like a pizza delivery joint.


Monday, October 10, 2011

Oct 5th Statement from Occupy Wall Street

They didn't leave anything out. That is for sure!


Friday, October 07, 2011

Neutron Bomb

Last night, Harry Reid exercised what is known as the "nuclear option" in some circles over Senate rules. He led a majority of Democrats to overrule a parliamentarian and cut off the right of the minority to call for multiple votes on amendments after cloture. It happened rather unexpectedly in an attempt to an amendment to the Chinese-currency-kvetching bill. McConnell wanted to force a vote on an amendment containing Obama's original jobs bill (not the current version with the millionaire's tax) to embarrass the president and cause more delay. This restricts post-cloture maneuvering by the minority. Of course, this is not really a nuclear option in the sense that that term was created to talk about outlawing the filibuster altogether in 2005. (Note, according to The Hill, a similarly arcane such use of the majority-overrule took place in 2000 under Bill Frist's leadership to eliminate votes on "sense of the senate" resolutions under such circumstances.)

This is actually a very big deal. It is the first time Harry Reid has ever done anything to stand up to the minority in the Senate worth a damn. It is the first time he has reacted seriously to the way McConnell has flouted tradition to all but shut down the Senate. Republicans are threatening direly about possibly messing with the filibuster when they're in the majority as retaliation. I have no doubt they will do so no matter what Reid does. I hope we see more of it. Part of what made it work was the Reid sprang this on McConnell unexpectedly and got the 51 votes without much fuss and bother. No showdown, just a win.


Wednesday, October 05, 2011

Two Visions of Frustration

In light of the last post about the Occupy Wall Street protests and how they might be an emerging contrast to the Tea Party I thought I would post two links to the Democratic version of the "us vs elites" meme and the Republican version of the "us vs elites" meme.

Here is Elizabeth Warren's now famous statement about fair taxation and "class warfare."

Here is Governor Rick Perry's address to a Republican/Tea Party rally in Austin Texas.

One thing that strikes me is that Warren's rhetoric is must more focussed economic distribution. Who wins and who loses from the current economic regime. Perry's rhetoric does mention taxes but mainly focusses on abstracts like "states' rights" and "the constitution" and "the founding fathers" etc.

Another difference is that Perry's rhetoric - to the extent it talks about economic distribution - focusses on the idea that government should stop taking things from individuals. Warren's rhetoric focusses on the idea that corporate elites have been taking things from the community without paying anything back.

It's not obvious to me which message will have more traction in the midst of ongoing sluggish economy or renewed recession. But certainly the mere fact that there is now a clearly enunciated and easily understood alternative to the "taxes bad" mantra of the Tea Party makes the 2012 election campaign more competitive. It's also refreshing that this may turn out to be the first election in a long time in which the two parties are clearly debating rival visions of the future in a substantively meaningful way. It will be nasty and hard fought. And many people will be upset that their side didn't win but this is exactly the kind of policy debate so many people who are frustrated with politics as usual want to see.


Saturday, October 01, 2011

Occupy Wall Street A Potential Game Changer?

Something interesting is happening in response to a year of Republican austerity measures imposed by the 2010 elections at the state level and by House Republican blackmail over government shut downs and government debt defaults. A new wave of protests have emerged modeled on the "Occupy Wall Street" protests in NYC. The protests are spreading to cities across the country. What's more, while unions were not the initial driving force, they are quick to see the potential of allying themselves with these protesters. Several big unions are planning to join the protesters.

Here is why I think this is potentially a big deal. First, this seems to be a continuation of the anti-union busting protests in Wisconsin that lead to the recall of several Republican state legislators in that state and threatens to lead to the recall of Republican governor Walker. These kinds of protests are provoked by Republican policy overreach and have a record of have electoral consequences.

Second, and this may be more important, both the Wisconsin protests and the Occupy Wall Street protests are changing the nature of the anti-elite populism that the Tea Party has tried to tap. Where the Tea Party directs their ire at government and intellectuals, these protests are defining the elite in terms of wealth. Instead of calling high school teachers "communists" or railing about homosexuals, immigrants and "librul elites" these protests are zeroing in on the mega wealthy at the top of corporate America. In other words, the Tea Party now has serious competition for the leadership of the angry masses. If the new wealth-based definition of bad-guy elites takes hold, it will directly undermine the Republican 2012 political campaign and find an obvious ally in the Democratic party which is already pushing for more transfer of wealth from the mega rich to the middle class and poor.

Finally, the single greatest fear of the Republican party is a high turnout election in which large numbers of middle and low income people vote based on their rationally identified economic self interest. So long as this segment of the population can be distracted by "Guns, Gays, and God" or by the Tea Party's cartoonishly ideological rants, the GOP can survive the fact that their policies are actually likely to have a negative impact on the clear majority of voters' lives. These protest threaten to put the focus of the 2012 elections on income disparity and tax fairness. If those become the dominant themes of 2012, it gives the Democrats and inherent advantage. It also gives Democrats something to rally their otherwise demoralized base around.


Thursday, September 22, 2011

Obama's New Approach

President Obama has adopted a new approach to going after the Republicans. Rather than bending over backwards to compromise with uncompromising jerks, he is focussing the spot light on meaningful policy differences that most people can readily understand. This is a good idea. The deficit/debt problem is fundamentally a distributive one. Specifically there is no solution that makes all interested parties better off without making someone worse off. That means that any debate will ultimately boil down to WHO is going to be made to be worse off that the others may benefit. Republicans are insisting that it should be the middle class and poor who are made worse off so that the wealthy and corporations benefit. That's a hard position to defend when it is revealed for what it is.

The Democrats' position is that taxes should be raised on the top brackets and corporations. At this point the mood of the country is increasingly angry with exactly the targets of these increases.

So long as Obama continued to try to find common ground the stark differences would not be revealed and Republicans could more easily hide the real effects of their policies. But with Obama's new confrontational approach, the Republicans will be forced to state exactly why the super rich should continue to pay low tax rates while the rest of the country struggles. Obama dug quite a whole for himself through the (I think necessary) compromises to avoid defaulting on the debt, but the more the 2012 election becomes about these two competing visions, the harder it will be for Republicans to win. If the Republicans are foolish enough to nominate Perry, the contrast will only become starker.


Friday, September 16, 2011

In Defense of Crossing T’s and Dotting I’s

There is an emerging talking point among Republicans that the way to create jobs is not to spend government money on infrastructure projects or even to cut payroll taxes or give tax breaks to companies that hire new people. All of these things have been supported by Republicans in the past. But now they swear that the only policy worth pursuing is eliminating a wide range of existing regulations. I was watching CNN this morning as I ate breakfast and it is clear that American journalists are simply not equipped to report on this subject. Instead of engaging in a discussion of what regulations are and how they are enacted, CNN ran a human interest style story where they interviewed the owner of a small car painting business in California. He swore that he was personally committed to protecting the environment etc but that some regulations were simply unreasonable intrusions into his business. He described these as regulations that did nothing but force him to “cross t’s and dot I’s.” The point of the story was clear: Regulations are silly because they make well intentioned business owners waste their time filling out paper work instead of creating new jobs. This interview reminded me of a conversation I once had with a group of small business owners at a yacht club in Santa Barbara. They are standing around grousing about exactly this sort of regulation. They hated it and blamed “socialists” in Sacramento and Washington for the whole thing. Here is the gist of what I told them.

The complexity of the paperwork is not a result of “socialist” dominance. On the contrary, the excess of paperwork is a direct result of a regulatory system that depends overwhelmingly on self-reporting. The self-reporting approach was insisted upon by conservatives who were able to force it through the necessary compromises so common in American politics. In more centralized democracies, such as the UK, there is a good deal less paperwork to fill out. However, such countries have a good deal more inspectors barging into businesses and snooping around. I asked the cluster of businessmen at the yacht club if they would rather have paperwork or government inspectors and they all said, “Paperwork!” without hesitation.

Clearly the Republicans are trying to use the persistent economic troubles as an excuse to undo a century of regulations entirely. They want to return us to a Dickensian dystopia of the 1890s. If we eliminate the paperwork without hiring thousands of new inspectors at the state and federal agencies that enforce environmental, workplace safety and other regulations, we would effectively eliminate the original regulations. These regulations were not imposed to make life difficult for business. Rather they were put in place because businesses were making life unlivable (literally) for the workers who were getting sick and injured in dangerous workplaces, the neighbors who were being poisoned by industrial run off and the many species that were being driven to extinction by the same (such as the bald eagle that Republicans love to fetishize).