Another Perspective on Gutting Social Security and Medicare

Dean Baker provides a lot of great insights. His perspective always seems to be that of the normal person. Most people in this country will rely, in whole or in part, on Social Security for their retirement and on Medicare for their health care at some point in their life.

In this article, Baker takes on some pillars of the liberal media establishment which are parroting current demands to slash these programs.

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/substituting-money-for-competence

Desiderata

Insider Trading Probe

– The SEC and the Manhattan DA are in the midst of a massive insider trading probe. It’s early in this one, so we can follow it from the beginning. Initial focus is in part on “expert networks” that trading companies put together to bolster the information they have on certain industries and companies. No charges yet. Let’s guess how the story is cast in the B-press: 1) overzealous prosecutors with some anti-Obama administration angle; 2) the ever changing face of insider trading rules; 3) insider trading rules are so complex even sophisticated investors don’t understand them. This should be fun. Stay tuned.

War of the Worlds (brought to you by a moron)

– Some clown at Yahoo wrote a piece about how the world would end if the Chinese stopped buying US Treasuries. Presumably, this is part of the rhetoric being put up to slow down QE2. Not mentioned by this moronic fear monger is what happens if the US stops buying Chinese goods, why the Chinese would benefit from total chaos in world financial markets, why others wouldn’t buy US Treasuries or the fact that these same stories were written 20 years ago, only then the villain was Japan, not China. Japan, with a structurally fucked up economic system went down. China will too, but it will take some time.

The World Isn’t Going to End

– Meanwhile, back at the ranch, or in this case the Cleveland branch of the Federal Reserve, a report says that inflation will stay low for the next couple of decades. OK, we have a bias against professional economists, but it is fun to see a group of economists saying inflation isn’t a big worry when there is a constant drumbeat from politicians that the Fed’s program of buying Treasuries to put money into the economy to increase investment (and thus economic activity) is going to turn the US into the Weimar Republic. The only group less dependable than economists is politicians. Particularly any group or politicians which includes the dumbest, most consistently wrong person alive today Billy William Kristol of the National Review. Whatever this gas bag says…bet on the opposite.

Desiderata

The Value of the Dollar

– It’s nice to see something on this topic that clearly highlights the relevance of this issue. A piece in the NYTimes contrasts two companies with different outlooks on the value of the dollar versus the remnimbi. PS Brands, an importer of socks from China, wants the dollar to stay high so they can continue to import socks cheaply. Staco Systems, a manufacturer of aerospace electronics, wants the dollar to go lower so their products are more attractive to Chinese buyers. What’s better: an artificially low remnimbi which helps import cheap socks for people without jobs or a higher dollar that supports exports and high-value manufacturing jobs? Hmmmmmm.

Champerty

– That’s a strange old word from the common law. It is the act of an attorney footing the bill for the cost of a lawsuit and taking part of the settlement in return. Champerty was forbidden because – you guessed it – it encouraged lawsuits. There’s a place in the world for contingency agreements (the modern word for legalized champerty), but surely things have gone too far when hedge funds are investing in lawsuits. There’s actually a company called Ardec Funding whose business is to fund lawsuits for a cut of the award. Ardec, in turn, is bankrolled by a hedge fund. God only knows which one. I’m sure they’ve funded some cases with wonderful plaintiffs, but this has got to be the ultimate example of bottom feeding lawyers.

QE2

– This is the cheeky nickname given by the business press to the Fed’s second round of quantitative easing. For the most part the business press said QE2 would lead to the END OF THE FUCKING WORLD in the form of rampant inflation and a swoon in the value of the dollar. So far: “QE2 was supposed to send the dollar down. Instead it’s going up. Interest rates were supposed to go down. Instead they’ve gone up.”

Another example of the business press pushing its own agenda thinly disguised as analysis. But this is an even better example of the fact that economists are making well informed guesses. Keep that in mind the next time you hear an economist saying this or that policy is terrible and will have horrible results, or is great an will have terrific results. They’re just guessing (see our earlier post where they admit that they’re just guest).

Foreclosure Update

– Maybe champerty ain’t so bad after all! Banks are being hit with class action suits targeting their foreclosure processing: you know, robo-signing, bad documents, botched evictions, the usual. The icing on the cake is the RICO suits. Yes, RICO suits against the banks. Couldn’t happen to a better group of people. RICO is a statute that was designed to go after the mob, but was twisted into a way to go after everyone. Why? Because it lets the plaintiff ask for treble (TRIPLED) damages. RICO stands for Racketeering Influenced and Corrupt Organizations, so using it against banks in this instance probably isn’t too much of a stretch.

Remember, the business press is there to support big business so don’t be afraid to question it!

William Kristol is Opposed so Quantitative Easing Must be OK

We are not political. However, when a political hack like William Kristol takes a position on economic policy, it’s got to be wrong. An open letter in today’s WSJ by “economists” takes issue with the Fed’s recent approach to monetary policy of buying up Treasuries (this is what is called “quantitative easing”) saying that it will debase the currency and drive up inflation. I put economists in quotes because although they were billed as the authors of the letter, it was signed by gasbags like Kristol as well.

Since the goal of this site is to translate this sort of nonsense into something understandable, let’s start with a couple of easy observations.

First, there are economists on both sides of the argument. There is NO agreed upon position by economists as to the efficacy of this approach.

Second, there are Fed economists on both sides of the argument. While this is closely related to the first point, it is worth noting that in this case, the Fed isn’t a monolith. In fact, there are right-leaning economists at the Fed who support the policy.

Third, one impact of this policy that nearly everyone agrees on is that the dollar will be devalued. What that means for ordinary working people is that our exports will be less expensive overseas, and we should be able to sell more of them. That should translate into more jobs.

Fourth, there is no indication that this will lead to rampant inflation. The economy is very weak at the moment; a situation which will act as a damper on inflationary pressures.

Bottom line: Many US economists adhere to a mantra of keeping inflation down at all costs and at all times. This is not a universally shared outlook. There is no reason to think that the second round of quantitative easing will lead instantly to rampant inflation. None.

Oh, and for what it’s worth, the dollar rose today, as investors put their money in this safe haven currency as problems continued in the Euro Zone. I guess the people who wrote this letter were disappointed in that.

Finally Some Good Economic News

Lawrence Summers has left the Council of Economic Advisers. That, dear reader, is great news. If you were to come up with a caricature of all of the worst ideas that led to the current crisis, it would look like this clown.

The crowning glory of his idiotic ideas was his support for the Commodity Futures Modernization Act. This allowed credit default swaps – among other derivatives – to be traded without regulation. Those items, in turn, had a big role in the recent economic meltdown.

My personal theory is that the big money boys at Goldman use people like Summers and Timothy Geithner, Alan Greenspan and Phil Gramm to give their obviously self serving ideas intellectual cover. What do I mean by that? If you’ve ever seen the documentation associated with a publicly traded stock, you know that there is a regulatory scheme in place that is based on disclosure and regulation that works pretty well, and has done so for decades. So if someone said, “hey, let’s introduce a huge new class of securities without regulation,” the common sense response would be to laugh them out of the room.

Everyone knows that if you let Wall Street firms issue securities without loads of disclosure and regulation, they’d instantly be selling all sorts of trumped up bullshit as reliable securities. And of course, that’s exactly what they did. So how did they ever get the authority to do this? They let fools like Greenspan and Gramm go on and on with their ideas that the markets are perfect and the participants have a self interest in seeing to it that there is full disclosure and transparency. Phil Gramm and Summers pushed the Commodity Futures Modernization Act (who could be against modernization) and Greenspan pushed the idea that players in a market have a self interest in transparency.

These ideas are so childishly wrong as to be suspect from the very start. But when Treasury Secretaries like Robert Rubin and Henry Paulsen can rely on the research and theories of the Chicago school of economics, Alan Greenspan, Lawrence Summers and Senator Gramm (himself a PhD), to say that such non-regulation isn’t really an example of the fox guarding the henhouse, then all of a sudden these naive ideas get taken seriously.

I think it goes like this:

Goldman Banker #1: “If we could get a couple of academic types to go along with the idea that the market self regulates, then maybe we can pass some legislation that let’s us issue securities without regulation.”

Goldman Banker #2: “Sure, but that’s such a preposterous idea, no one would EVER go along with it.”

GB #1: “I’ll bet they would if we put them on our board and paid them a little.”

GB #2: “You’ve got a point there.”

Anyway, as Johnny Rotten once said, good riddance to bad rubbish.

btw: for the readers with daughters, Summers is the same asshole who once said women are genetically incapable of being good at science.

originally posted 9-22-2010

Economists – Useless by Their Own Admission

When it comes to the economics of public finance, surely the economists at the Federal Reserve are some of the best and brightest our nation has to offer. And certainly one of the things economists do is to keep an eye on the economy; especially economists at the Federal Reserve, who have responsibilities relative to the health of the national economy.

So it may come as a surprise when the economists at the Boston Federal Reserve Board recently issued a white paper saying that the huge housing bubble which was at the center of the recent economic disaster, was not just unseen, but was UNSEEABLE.

Never mind the fact that there were economists out there who rang the alarm well in advance of the meltdown, and who did so by looking at literally decades of historic data on the housing market. That doesn’t matter. This piece of self-serving sophistry not only excuses them from blame for completely and utterly failing at their jobs, but it actually says they didn’t really even fail, because what they the bubble simply couldn’t be detected.

Let’s think of some of the ramifications of this:

1. These people are absolutely not to be listened to in the future. That’s a safe conclusion, right? They said that they don’t have the tools to do what they’re supposed to do, so let’s not burden them with the task in the future.

2. These people are hopelessly incompetent. Again, nothing controversial in this statement. They’ve actually made the case for us. If you asked a Federal Reserve economist, “hey, are you guys keeping an eye on trends in our economy?” they would’ve said yes. Since they totally blew it, they fucked up.

3. Economics is the sociology of business, buttressed with statistics, big titles and money. There is a complete and total lack of consistency or agreement among economists on nearly every pressing issue. There are economists on the “right” and on the “left” whose opinions on a given topic can be predicted in advance, regardless of the evidence before them.

Why is this important? DON’T LET THEM BUFFALO YOU INTO THINKING THEY’VE GOT ANSWERS. When you hear an economist say the government is about to go bankrupt, don’t be afraid to call bullshit. When you hear a business commentator say things that don’t seem to make any sense, call him out. He’s most likely full of shit and just laying down a party line.

For example, yesterday I heard a highly regarded columnist being interviewed on the Nightly Business Report. He was going on about the value of free markets for trade. He said China doesn’t have a free market because of how they manipulate their currency. CHECK. I’m with you so far. Then he said that this was bad for the Chinese economy. WHAT? Hundreds of millions of people have gotten out of poverty in China because of the growth of their economy. Every economy that has experienced the kind of growth we’re seeing in China and India (and Japan earlier, and the US before that) protected their domestic market. And, every economy that opened up their domestic markets before they were fully developed (I’m looking at you South America) was eviscerated by the more highly developed and competitive economies of the first world countries.

The guy was full of shit.

Don’t be fooled. These people have an agenda, and they are dressing it up as science. Stay tuned and we will continue to bring examples.

The goal here is to let you go to the next cocktail party and have plenty of ammunition when some douche bag is saying that [insert political opinion here] is essential or right because of some economic theory. That person is most likely an idiot.

originally posted 9-21-2010