US Individual Income Equality Static For At Least 15 Years

From Political Calculations blog, "The Real Story Behind 'Rising' U.S. Income Inequality" by Ironman:

there has been absolutely no significant change in the level of inequality among U.S. individual income earners from 1994 through 2010, we thought we'd take a step back and look at the data for U.S. families and for households to examine those trends over time.

The chart below shows what we find for each grouping of Americans according to their Gini Coefficient, where a value of 0 indicates perfect equality (everyone has the same income) and a value of 1 indicates perfect inequality (one person has all the income, while everyone else has none):

Read the complete Political Calculations blog post.

Democrats Retake Presidential Election Market Lead Over Republicans

The Democrats have come back from behind the Republicans to retake the advantage in the 2012 presidential election. Currently, October 28, 2011, 6:15 PM DST NY, the Intrade odds of winning the 2012 presidential election are 50 percent for the Democratic nominee and 47.4 percent for the Republican nominee. 2 to 3 weeks ago, the prices were reversed with the Republicans having 2-3 percent advantage of winning the 2012 presidential election. Now the Democrats have the 2-3 percent advantage.

Epstein On The Benefits Of Income Inequality: PBS Video

Watch Does U.S. Economic Inequality Have a Good Side? on PBS. See more from PBS NewsHour.

Also good discussion of CBO's income inequality report:

Economic Models: Comment To Scientific American

My comment to the Scientific American article, "Why Economic Models Are Always Wrong; Financial-risk models got us in trouble before the 2008 crash, and they're almost sure to get us in trouble again" by David H. Freedman:

1995 Economics Nobel Prize winner Robert Lucas wrote an influential paper in 1976 about the inability to calibrate economic predictive models. The concept, known as the "Lucas Critique," even has a wikipedia page. http://en.wikipedia.org/wiki/Lucas_critique.

The basic problem is that over the historical calibration period, an economic policy is in effect, and so the predictive results are biased by that policy. Any change to existing policy going forward is not calibrated to the historical model.

Economists correct for this by using DSGE models, dynamic stochastic general equilibrium models. These models are much more accurate because they attempt to capture expectations, future behavior, of economic agents. Thomas Sargent won the recent Economics Nobel prize for work in this field, "Rational Expectations."

Rational Expectations implies that individuals will maximize their own welfare and undo the adverse impacts of the negative effects of government policies. So, as the Fed has substantially increased the money supply, which is potentially inflationary, to boost the economy, the consumer, during this recession, has decreased the velocity of money, the money multiplier, to limit inflationary effects of the Fed's policies. Obama and Congress have attempted to stimulate the economy using government debt, so the consumer has been aggressively deleveraging, paying down debt, using credit cards much less, etc., to lower the total debt of individuals and government.

Rational Expectations implies that external, unanticipated events, will affect economic results. Economic models do not give one predictive number, as one would think from the media. The models give a range with probabilities. Too often, we only hear about the most likely number without what its probability or confidence band is, or what the range of possible values is. Even then, the world is uncertain, unexpected and strange things happen and not everything that can affect economic levels is foreseeable.

Estate Tax Decreases Our Standard Of Living Through Over-Consumption And Lower Savings And Investment

Video of Steve Landsburg, professor of economics at the University of Rochester, about research on the estate tax.

The estate tax causes over spending, lowers investment and savings, and decreases gains to our well-being and standard of living.


(HT: Businomics Blog, Bill Connerly, PhD)

Best Productivity Decade Since 1960s

From Digitopoly Blog, "Not All the Economic News is Bad" by Erick Brynjolfsson:

this has actually been the best decade since the 1960s for productivity growth. Last year, labor productivity grew by over 4% and it has averaged over 2.5% in the preceding 10 years.

U.S. Productivity Growth by Decade:

Source: Digitopoly 

Per Capita GDP Below Pre-Recession Levels

From Wall Street Journal, "Vital Signs: Per Capita GDP Still Lagging" by Justin Lahart:

GDP per capita is still 2.9% below its pre-recession peak.

Wall Street Journal

US birth rates and population growth slowed since the recession began. With a historical higher birth rate, faster population growth rate, the GDP per capita would be further below trend than depicted in the chart. As the overall economy improves, birth rates will likely rise and increase the time needed for GDP per capita to return to trend.

The Well-Being Of The Poor And Middle Class Have Considerably Improved Over The Last 30 Years In The US

From "The Material Well-Being of the Poor and Middle Class Since 1980" by Bruce D. Meyer and James X. Sullivan:

Our results show evidence of considerable improvement in material well-being for both the middle class and the poor over the past three decades. Median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009. In addition, the middle 20 percent of the income distribution experienced noticeable improvements in housing characteristics: living units became bigger and much more likely to have air conditioning and other features. The quality of the cars these families own also improved considerably. Similarly, we find strong evidence of improvement in the material well-being of poor families. After incorporating taxes and noncash benefits and adjusting for bias in standard price indices, we show that the tenth percentile of the income distribution grew by 44 percent between 1980 and 2009. Even this measure, however, understates improvements at the bottom. The tenth percentile of the consumption distribution grew by 54 percent during this period. In addition, for those in the bottom income quintile, living units became bigger, and the fraction with any air conditioning doubled. The share of households with amenities such as a dishwasher or clothes dryer also rose noticeably.

Read the complete paper.

Investment Income Responsible For Large Part of US Income Inequality: CBO Study

From "Trends in the Distribution of Household Income Between 1979 and 2007" CBO Study, October 2011:

The other factor leading to an increased concentration of market income was a shift in the composition of that income. Labor income has been more evenly distributed than capital and business income, and both capital income and business income have been more evenly distributed than capital gains. Between 1979 and 2007, the share of income coming from capital gains and business income increased, while the share coming from labor income and capital income decreased.

Those two factors were responsible in varying degrees for the increase in income concentration over different portions of the 1979–2007 period.

In other words, to have income equality in the US, you either have to stop investment, business formations and entrepreneurship, and make people rely on labor income, or you have to take away the gains and monetary incentives of investors and entrepreneurs after they are successful. While not all entrepreneurs are monetarily motivated, many of their backers and investors are and would not put up the cash if there was not a positive return with a large upside.

Income equality breeds a lack of economic growth, risk taking, entrepreneurship and business formation. Is it better to be economically and materially well off, but less so than the very rich, in an income unequal society, or is it better to be less well off, to have less, in an income equal society? I would choose the former every time. Let me have a roof over my head, food to eat and conveniences, liked almost all Americans, such as air-conditioning, cell phone, computer, large screen LCD TV, etc. and who cares if others have more.

Income inequality promotes growth through the incentive that anyone can achieve success and become rich, especially in the US. Income equality removes hope and motivation for a better life and will lead to political instability, as a change of control of government will be the only way to improve one's well-being, such as in Egypt.

Trends in the Distribution of Household Income Between 1979 and 2007: CBO Study

Mammograms Are Overrated

From The New York Times, "Mammogram’s Role as Savior Is Tested" by Tara Parker-Pope:

[Dartmouth researcher Dr. H. Gilbert] Welch says it’s important to remember that of the 138,000 women found to have breast cancer each year as a result of mammography screening, 120,000 to 134,000 are not helped by the test.***“Of all the women who have a screening test who have breast cancer detected, and eventually survive the cancer, the vast majority would have survived anyway,” Dr. Begg [head of the department of epidemiology and biostatistics at Memorial Sloan-Kettering Cancer Center in New York] said. “It only saved the lives of a very small fraction of them.”

Read the complete article.

Independent Scientific Study Finds Global Warming: Funded By 5 Charitable Foundations Including Gates And Koch

From The Christian Science Monitor on MSNBC, "Climate study confirms what skeptics scoffed at: global warming is real: Koch, Gates charities pay for research backing earlier claims that came under fire" by Pete Spotts:

A new climate study shows that since the mid-1950s, global average temperatures over land have risen by 0.9 degrees Celsius (1.6 degrees Fahrenheit), confirming previous studies that have found a climate that has been warming – in fits and starts – since around 1900.***Money for the new study, dubbed the Berkeley Earth Surface Temperature project, came from five foundations, including one established by Microsoft founder Bill Gates and another from the Charles Koch Charitable Foundation, widely seen as a source of money for conservative organizations and initiatives that have fought efforts to curb greenhouse-gas emissions.

The work makes no attempt to attribute the rising temperatures to any particular cause. Nor does it include ocean temperatures, the subject of a future study.

Read the full Christian Science Monitor article.

The independent study group has published it objectives, methods and preliminary papers on a website, berkeleyearth.org, to be transparent about the data, process and conclusions.

Short Video For The Occupy Wall Streeters

YouTube video "My Friend Sarah" by Mark Meranta and Terra Strong, winners of the 2009 Fraser Institute Video Contest:

Making The US Into The Land Of Milk And Honey Again: Dallas Fed Chairman Fisher

From "Buy a Ticket! (With Reference to the Strauss Brothers, Ambassador Mike Moore, Kenneth Arrow, Financial Sharpies, Martin Luther King Jr. and Gov. Dewey)" Remarks before the Dallas Friday Group, Dallas, Texas, October 21, 2011, Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas:

Unemployment Is THE Issue

To create employment, we must have economic growth.

The simplest of econometric equations posits that the key components of economic growth are: domestic consumption, plus foreign demand for U.S.-produced exports, plus investment by businesses, plus spending by government.

I think it is pretty clear to everyone who lives on the planet that in order to expand our economy and put our people back to work, we must rely on our ability to curry to domestic and foreign consumption and invest here at home to produce the goods and services to sell into the marketplace here and abroad. You’d have to be from Mars to believe that our financially strapped federal and state governments will be the source of much direct spending stimulus to the economy going forward.***No Small Chore

This is no small chore. The parties involved must stop the hemorrhaging without inducing cardiac arrest; they must solve the long-run debt and deficit problem without, in the short run, pushing the economy back into recession, creating still more unemployment. And they not only must confront their addiction to debt and spending beyond their means, but also reorganize the tax system, redirect the money they spend and rewrite the regulations they create so as to be competitive in a world that wants to beat us at our own game.***We won the Cold War. Ho Chi Minh and Mao Zedong and all the brutal dictators who ruled the Soviet Union are long gone. In the blink of history’s eye, we have gone from mutually assured destruction on the battlefield to mutually reinforcing competition in the marketplace. This is what we spent an entire generation of American blood and treasure to achieve, and it is a far better thing.

The consequence, however, is that we are now being challenged as the place to invest job-creating capital by the Vietnamese, the Chinese, the Indians and countless others who have decided to engage full bore in the commercial interplay of a global economy. Our business operators are obligated by their shareholders and their creditors to earn a return on investment and maximize profit; we live in a globalized, interconnected world, and money is free to go to wherever it earns the best return. The point is that our fiscal and regulatory authorities do not operate in a vacuum. It will not be enough to reach a real deal on the debt ceiling or on reining in deficits. In the post-Cold War, post-Bamboo Curtain world, there are many governments and great swathes of people outside the United States that want to attract investment and improve their lot.

In crafting a solution to the nation’s fiscal crisis, our political leaders must take this new reality into account and develop an entirely new structure of incentives for private businesses and investors to put their money to work creating jobs, here at home rather than abroad.

Only fiscal authorities have the power to affect this outcome.***Economic Forecast―Caveat Emptor

You may need economists’ forecasts for planning purposes, but you should always take them with a grain of salt, even when the time horizon is a short one. I direct you to an article in the Feb. 14 edition of the Wall Street Journal as evidence. The Journal had polled 51 leading economists, and they forecast that gross domestic product would expand 3.6 percent in that very same first quarter, ending in less than a month’s time. Growth came in at 1.9 percent.***I personally don’t care which party is in the White House or controls Congress. All I know is that the “honorable” members of Congress, Republicans and Democrats alike, have conspired over time, however unwittingly, to drive fiscal policy into the ditch. They purchased their elections and reelections with popular programs so poorly funded that they now threaten the economic well-being of our children and our children’s children. Instead of passing the torch on to the successor generation of Americans, the Congress is simply passing them the bill. This is the opposite of honorable, and it must stop.

Back to the Land of Milk and Honey

Now, lest you think I am just another central bank sourpuss, I should tell you that I am actually encouraged that the public―from the Tea Party to the unemployed and disaffected who have taken to the streets―is forcing the politicians to focus on the dire need to get their act together. Indeed, I refuse to yield to pessimism, even as it becomes fashionable to do so. I am the child of immigrants. My parents came to this country because there was no limit to upward mobility; they came to the United States because it was the land of milk and honey. It still is. We just have to re-create a fiscal and regulatory environment that―in conjunction with the Fed conducting prudent monetary policy―will liberate the forces of entrepreneurial risk taking that have always been America’s hallmark. Only then will we get back to generating the jobs and the prosperity for all of our people, not just for financial sharpies. Only then will we restore faith in the prospect of upward mobility for all, not just the few. [Emphasis Added, Footnotes Omitted].

Read Fisher's complete remarks.

Gender Bias Found In Evaluations At Wall Street Law Firm

A study of performance evaluations at a Wall Street law firm found pro male, anti female bias in the numerical ratings given to junior attorneys at the firm. The numerical ratings are used as the basis for promotions and partnerships.

From "The Language of Performance Evaluations: Gender-Based Shifts in Content and Consistency of Judgment" by Monica Biernat, University of Kansas, M. J. Tocci, Fulcrum Advisors, Pittsburgh, PA, and Joan C. Williams, University of California Hastings College of the Law, published in Social Psychological and Personality Science:

Given the masculine context of finance law, we predicted that male attorneys would receive more favorable numerical ratings than female attorneys in this Wall Street firm. This was indeed the case, and based on the requirement of high ratings for partnership, more men than women in this firm were headed toward partnership. Of course, this finding alone tells us little about the presence of gender bias, for it is possible that men were objectively ‘‘better’’ performers than women. But arguing against this possibility is the fact that the pro-male bias was not apparent in narrative comments, which revealed greater reference to positive performance words for women than men, and no sex differences in narrative ratings of technical competence and interpersonal warmth. If men were objectively better, one might expect to see evidence of this in all forms of evaluation.Furthermore, when even the best men and women were compared—those judged equally highly favorably in narrative mentions of partner likelihood and technical competence—men still fared better in terms of the numerical ratings they received....

Read the complete paper.

Infographic Of Credit Card Number Logic

From OnlyInfographic

Source: OnlyInfographic

Locavores Increase Food Contamination: The Strong Case Against Locavores

From Freakonomics, "Lessons of the Listeria Outbreak: Do Locavores Make Us Less Safe?" by Steve Sexton:

That the outbreak [of cantaloupe listeria killing 25] occurred on a small farm selling principally to regional buyers is an obvious point, but also an important one because this kind of food contamination is less likely to occur at the large-scale farming operations that locavores love to hate .... Comparative advantage explains why corn is grown in Iowa, almonds in California, and winter vegetables in Florida. The different regions, with different soils, land qualities, climates, and opportunity costs specialize because they can produce their respective crops better than other regions. Comparative advantage implies significant gains from interregional and international trade. And it isn’t just relevant to costs of production and farm yields. It applies also to food safety.

Some regions are just safer places to grow certain crops than others—a point made recently by long-time food industry observer Jim Prevor at his “Perishable Pundit” website. Colorado, he notes, is a particularly unsafe place to grow cantaloupes, which are particularly susceptible to contamination because bacteria can hide out in the crevices of the melon’s rough skin. Rains splatter mud on the melons in Colorado, requiring them to be washed post harvest, a process that can lead to cross contamination among melons and create the moist conditions in which bacteria thrive.

In contrast, dry summers in California and Arizona create safe conditions for cantaloupe production because the crops are watered by drip irrigation and are much less likely to get dirty. Consequently, California cantaloupes bypass the rinsing phase and are packaged dry, sometimes right in the field. But the local foods movement kicks comparative advantage to the curb, favoring foods grown within a certain distance over foods grown in the best conditions.

Read the entire post at Freakonomics.

Kenneth Rogoff Sees Another Three Years Before Economy Is Normal: Interview On The Great Contraction In McKinsey Quarterly

From McKinsey Quarterly, "Understanding the Second Great Contraction: An interview with Kenneth Rogoff: The economist and coauthor of This Time Is Different explains what history can teach us about the global downturn and why climbing out of it is still rife with risks." by Bill Javetski and Tim Koller:

Kenneth Rogoff: The historical experience gives a very clear view that the aftermath of a financial crisis brings slow and halting growth, sustained high unemployment, and surging public debt—with the overhang of public and private debt being the most important impediment to a normal recovery from recession.***Indeed, we haven’t yet gotten back to the same per capita GDP where we started. Our perspective is that we have never left the recession; we’re still very much in it. I hope in another two or three years things will be feeling more normal. But there are a lot of difficulties to traverse before we get there.

Read more of Rogoff's interview.

Majority Now Blame Obama For Bad Economy

From Huffington Post, "Majority Of Americans Blame Obama For Economy, Gallup Finds"

For the first time, more than 50 percent of Americans blame President Barack Obama for the nation’s economic woes, a Gallup poll released Thursday finds.

Read the complete Huffington Post article.

GAO Finds Fed Needs Governance, Transparency, Conflicts And Diversity Improvements

From Bloomberg, "GAO Says Fed Boards Need to Improve Diversity, Conflicts Policy" by Craig Torres:

A Government Accountability Office report on Federal Reserve governance released today said that the nine-member boards of reserve banks lacked racial and ethnic diversity in 2006 to 2010, and noted that further work is needed to avoid potential conflicts of interest.

GAO Report:
Federal Reserve Bank Governance GAO Report

More Proof You Cannot Pick Winning Investments And Technologies Beforehand

From Ted Talks, "Ian Ritchie: The day I turned down Tim Berners-Lee"

Imagine it's late 1990, and you've just met a nice young man named Tim Berners-Lee, who starts telling you about his proposed system called the World Wide Web. Ian Ritchie was there. And ... he didn't buy it. A short story about information, connectivity and learning from mistakes

.

Transcript:

Well we all know the World Wide Web has absolutely transformed publishing, broadcasting, commerce and social connectivity, but where did it all come from? And I'll quote three people: Vannevar Bush, Doug Engelbart and Tim Berners-Lee. So let's just run through these guys.

This is Vannevar Bush. Vannevar Bush was the U.S. government's chief scientific adviser during the war. And in 1945, he published an article in a magazine called Atlantic Monthly. And the article was called "As We May Think." And what Vannevar Bush was saying was the way we use information is broken. We don't work in terms of libraries and catalog systems and so forth. The brain works by association. With one item in its thought, it snaps instantly to the next item. And the way information is structured is totally incapable of keeping up with this process.

And so he suggested a machine, and he called it the memex. And the memex would link information, one piece of information to a related piece of information and so forth. Now this was in 1945. A computer in those days was something the secret services used to use for code breaking. And nobody knew anything about it. So this was before the computer was invented. And he proposed this machine called the memex. And he had a platform where you linked information to other information, and then you could call it up at will.

So spinning forward, one of the guys who read this article was a guy called Doug Engelbart, and he was a U.S. Air Force officer. And he was reading it in their library in the Far East. And he was so inspired by this article, it kind of directed the rest of his life. And by the mid-60s, he was able to put this into action when he worked at the Stanford Research Lab in California. He built a system. The system was designed to augment human intelligence, it was called. And in a premonition of today's world of cloud computing and softwares of service, his system was called NLS for oN-Line System.

And this is Doug Engelbart. He was giving a presentation at the Fall Joint Computer Conference in 1968. What he showed -- he sat on a stage like this, and he demonstrated this system. He had his head mic like I've got. And he works this system. And you can see, he's working between documents and graphics and so forth. And he's driving it all with this platform here, with a five-finger keyboard and the world's first computer mouse, which he specially designed in order to do this system. So this is where the mouse came from as well.

So this is Doug Engelbart. The trouble with Doug Engelbart's system was that the computers in those days cost several million pounds. So for a personal computer, a few million pounds was like having a personal jet plane; it wasn't really very practical.

But spin on to the 80s when personal computers did arrive, then there was room for this kind of system on personal computers. And my company, OWL built a system called Guide for the Apple Macintosh. And we delivered the world's first hypertext system. And this began to get a head of steam. Apple introduced a thing called HyperCard, and they made a bit of a fuss about it. They had a 12-page supplement in the Wall Street Journal the day it launched. The magazines started to cover it. Byte magazine and Communications at the ACM had special issues covering hypertext. We developed a PC version of this product as well as the Macintosh version. And our PC version became quite mature.

These are some examples of this system in action in the late 80s. You were able to deliver documents, were able to do overnight works. We developed a system such that it had a markup language based on html. We called it hml: hypertext markup language. And the system was capable of doing very, very large documentation systems over computer networks.

So I took this system to a trade show in Versailles near Paris in late November 1990. And I was approached by a nice young man called Tim Berners-Lee who said, "Are you Ian Ritchie?" and I said, "Yeah." And he said, "I need to talk to you." And he told me about his proposed system called the World Wide Web. And I thought, well, that's got a pretentious name, especially since the whole system ran on his computer in his office. But he was completely convinced that his World Wide Web would take over the world one day. And he tried to persuade me to write the browser for it, because his system didn't have any graphics or fonts or layout or anything; it was just plain text. I thought, well, you know, interesting, but a guy from CERN, he's not going to do this. So we didn't do it.

In the next couple of years, the hypertext community didn't recognize him either. In 1992, his paper was rejected for the Hypertext Conference. In 1993, there was a table at the conference in Seattle, and a guy called Marc Andreessen was demonstrating his little browser for the World Wide Web. And I saw it, and I thought, yep, that's it. And the very next year, in 1994, we had the conference here in Edinburgh, and I had no opposition in having Tim Berners-Lee as the keynote speaker.

So that puts me in pretty illustrious company. There was a guy called Dick Rowe who was at Decca Records and turned down The Beatles. There was a guy called Gary Kildall who went flying his plane when IBM came looking for an operating system for the IBM PC, and he wasn't there, so they went back to see Bill Gates. And the 12 publishers who turned down J.K. Rowling's Harry Potter, I guess.

On the other hand, there's Marc Andreessen who wrote the world's first browser for the World Wide Web. And according to Fortune magazine, he's worth 700 million dollars. But is he happy?

(Laughter)

(Applause)

Wash DC Is Richest US Metro Area

From Bloomberg, "Top Income in U.S. Is...Gasp!...Wash. D.C. Area" by Frank Bass and Timothy R. Homan:

Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show.

The U.S. capital has swapped top spots with Silicon Valley, according to recent Census Bureau figures, with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046.

Read the complete article here.

CBO Testimony On Alternatives To Current Charitable Tax Deduction

CBO Testimony "Options For Changing The Tax Treatment Of Charitable Giving" before the Committee on Finance, United States Senate on October 18, 2011:

At current levels of charitable giving, the cost of that deduction—measured as the additional revenues that could be collected if the deduction was eliminated—will total about $230 billion between 2010 and 2014, according to the Joint Committee on Taxation (JCT).***Allowing all taxpayers to claim a deduction for charitable giving would have increased donations in 2006 by an estimated $2.0 billion (or 1 percent) and increased the total tax subsidy by $5.2 billion (or 13 percent) from the 2006 amounts. Combining a deduction for all taxpayers with a floor, however, could both increase donations and decrease the tax subsidy. For example, such a deduction combined with a fixed dollar floor of $500/$1,000 would have increased donations by $800 million in 2006 and decreased the tax subsidy by $2.5 billion.

Replacing the current deduction with a 25 percent tax credit would increase donations and also increase the government's forgone revenues. Combining such a credit with certain contribution floors, however, could boost donations while reducing the tax subsidy or could decrease donations by a small percentage while reducing the tax subsidy by a large percentage. Setting the credit at 15 percent would reduce donations but would reduce the tax subsidy by a larger amount (both in dollars and as a percentage change).

Read the complete CBO summary here, the complete testimony here or on Scribd here.

Options for Changing the Tax Treatment of Charitable Giving

World Has Plenty Room For A Lot More People

From "If the world’s population lived in one city…" by Tim De Chant:

From: Per Square Mile by Tim De Chant

(HT: Craig Newmark)

Cain's 999 Tax Plan Boosts Output, Jobs And Tax Revenues: Arthur Laffer

From The Wall Street Journal, "Cain's Stimulating '9-9-9' Tax Reform: A new sales tax could be raised in the future—but so can any other tax. And the low marginal rates would jump-start the economy." by Arthur B Laffer:

The whole purpose of a flat tax, à la [Herman Cain's] 9-9-9, is to lower marginal tax rates and simplify the tax code. With lower marginal tax rates (and boy will marginal tax rates be lower with the 9-9-9 plan), both the demand for and the supply of labor and capital will increase. Output will soar, as will jobs. Tax revenues will also increase enormously—not because tax rates have increased, but because marginal tax rates have decreased.

Read Laffer's complete opinion piece here.

Shale Gas And Oil Powering Domestic Industry Growth

From The Wall Street Journal, "Shale Boom Reshaping U.S. Energy" by Russell Gold and Ryan Dezember:

Other industries and government officials are rethinking the implications of this sudden abundance of gas and increasing supply of oil [from shale rock]. In the early 2000s, the chemical industry was mothballing U.S. plants and shifting overseas where gas was cheaper. Today, Dow Chemical Co. and others are building new world-scale facilities along the Gulf Coast because of the inexpensive energy available. In the Rust Belt, steel makers are building new mills to meet the demand for pipes needed to tap shale discoveries.

Read the complete article here.

Industries Decreased Their Workforce Despite Growth In Demand

From supply and demand (in that order) blog, "Growing Businesses Cut Payrolls, Too" by Casey Mulligan:

In many industries, sharp employment cuts during the recession cannot be attributed to a lack of demand.***Since 2007, the number of mobile connections has increased almost 20 percent, to 303 million from 255 million. The Bureau of Economic Analysis estimates that consumer spending on mobile communications increased 15 percent (not inflation adjusted) over that time frame.

Despite continued demand growth, employers in the wireless telecommunications industry sharply cut employment, at an even greater rate than employers in other industries. After growing 6 percent from 2005 to 2007, the industry’s employment had fallen 14 percent by 2010.

There is no way to blame that sharp employment drop on “poor sales.”

This pattern is not limited to the cellphone industry. Other industries sharply cut back their employment even while their revenues were falling little, if at all; the employment loss from such industries numbers in the millions.

Read the complete post here.

Daily Vitamin E Supplement Causes 17 Percent More Cases Of Prostate Cancer

From National Institute of Health News "NIH-funded study shows increased prostate cancer risk from vitamin E supplements" Tuesday, October 11, 2011:

Men who took 400 international units (I.U.) of vitamin E daily had more prostate cancers compared to men who took a placebo, according to an updated review of data from the Selenium and Vitamin E Cancer Prevention Trial (SELECT). The findings showed that, per 1,000 men, there were 76 prostate cancers in men who took only vitamin E supplements, vs. 65 in men on placebo over a seven-year period, or 11 more cases of prostate cancer per 1,000 men. This represents a 17 percent increase in prostate cancers relative to those who took a placebo. This difference was statistically significant and therefore is not likely due to chance. The results of this update appeared Oct. 12, 2011, in the Journal of the American Medical Association.

Request For Public Comment On Volcker Rule: Embedded Copy Of Proposed Rules

Federal Reserve Board seeks comment on proposal to implement "Volcker Rule" requirements of the Dodd-Frank Act

[OCC release follows after Fed Res release below. Embedded copy of proposed rules after OCC release.]

The Federal Reserve Board on Tuesday requested public comment on a proposed regulation implementing the so-called "Volcker Rule" requirements of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 619 generally contains two prohibitions. First, it prohibits insured depository institutions, bank holding companies, and their subsidiaries or affiliates (banking entities) from engaging in short-term proprietary trading of any security, derivative, and certain other financial instruments for a banking entity's own account, subject to certain exemptions. Second, it prohibits owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund, subject to certain exemptions.

The act also prohibits banking entities from engaging in an exempted transaction or activity if it would involve or result in a material conflict of interest between the banking entity and its clients, customers, or counterparties, or that would result in a material exposure to high-risk assets or trading strategies, in each case as defined by the rule. The act similarly prohibits banking entities from engaging in an exempted transaction or activity if it would pose a threat to the safety and soundness of the banking entity or to the financial stability of the United States.

The proposal, which was developed jointly with the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, clarifies the scope of the act's prohibitions and, consistent with statutory authority, provides certain exemptions to these prohibitions. It is anticipated these agencies will issue a comparable proposal today or in the near future.

Transactions in certain instruments, including obligations of the U.S. government or a U.S. government agency, the government-sponsored enterprises, and state and local governments, are exempt from the statute's prohibitions. Consistent with the statute, other activities exempted include market making, underwriting, and risk-mitigating hedging. The statute also permits banking entities to organize, offer, and invest in a hedge fund or private equity fund subject to a number of conditions.

The proposed rule would require banking entities that engage in these activities to establish an internal compliance program that is designed to ensure and monitor compliance with the statute's prohibitions and restrictions, and implementing regulations. The proposed rule provides commentary intended to assist banking entities in distinguishing permitted market making-related activities from prohibited proprietary trading activities.

The proposal also requires banking entities with significant trading operations to report to the appropriate federal supervisory agency certain quantitative measurements designed to assist the federal supervisory agencies and banking entities in identifying prohibited proprietary trading in the context of certain exempt activities and identifying high-risk assets or trading strategies. It also includes a number of elements intended to reduce the burden of the proposal on smaller, less-complex banking entities. For example, the proposal limits the extent to which smaller banking entities are required to report quantitative measurements.

Comments on the proposal will be received through January 13, 2012.

For media inquiries, call 202-452-2955.

Attachment (1.1 MB PDF)

The OCC Issues Volcker Rule Proposal for Public Comment

WASHINGTON — The Office of the Comptroller of the Currency today requested public comment on a proposed regulation implementing the so-called "Volcker Rule" requirements of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 619 generally contains two prohibitions. First, it prohibits federally insured depository institutions and their affiliates (banking entities) from engaging in short-term proprietary trading of any security, derivative, and certain other financial instruments for a banking entity's own account. Second, it prohibits owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund.

The proposal, which will be issued jointly with the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Securities and Exchange Commission, clarifies the scope of the Act's prohibitions and, consistent with statutory authority, provides certain exemptions to these prohibitions.

The proposed rule would require banking entities to establish an internal compliance program, subject to supervisory oversight, that is designed to ensure and monitor compliance with the statute's prohibitions and restrictions. The proposal also requires banking entities with significant trading operations to report to the appropriate federal supervisory agency certain quantitative measurements designed to assist the federal supervisory agencies and banking entities in identifying prohibited proprietary trading in the context of certain exempt activities and identifying high risk trading assets and strategies.

Transactions in certain instruments, including obligations of the U.S. government or a U.S. government agency, government-sponsored enterprises, and state and local governments, are exempt from the statute's prohibitions. Activities exempted include market making, underwriting, and risk-mitigating hedging. The statute also permits banking entities to organize and offer a hedge fund or private equity fund subject to a number of conditions, including permitted de minimis investments in such funds subject to limitations.

The proposed rule includes regulatory commentary intended to assist banking entities in distinguishing permitted market making-related activities from prohibited proprietary trading activities. It also includes a number of elements intended to reduce the effect of the proposal on smaller, less-complex banking entities. For example, the proposal limits the extent to which smaller banking entities are required to report quantitative measurements.

Comments on the proposal will be received through January 13, 2012.

Related Link

Notice of Proposed Rulemaking (PDF)

Proposed Volcker Rule

Prostate Cancer Screening Is Risky And Ineffective: PSA Test May Lose Insurance Coverage

From Bloomberg, "Routine Prostate-Cancer Screening Risky: U.S. Panel" by Molly Peterson and Michelle Fay Cortez:

Prostate-cancer screening doesn’t save enough lives to justify exposing men to risks of death, incontinence and impotence, a U.S. panel will say today in a report that sparked immediate criticism from patient advocates.

The draft recommendations from the Health and Human Services Department’s Preventive Services Task Force may prompt insurers to stop paying for tests measuring PSA, a protein associated with prostate cancer at high levels. The panel will give the public four weeks to comment.***The PSA test “doesn’t distinguish cancer that will never make a difference in a man’s lifetime from cancers that will make a difference,” prompting many men to undergo aggressive treatments they don’t need, Virginia Moyer, the panel’s chairwoman, said yesterday in an interview.

Read the complete article here.

US Needs More Millionaires, Not More Millionaire Taxes

The US needs economic growth policies from the President and Congress and not a millionaire's surtax. The number of millionaire tax returns dropped 40 percent between 2007 and 2009 (latest data) and millionaire reported income (AGI) dropped by 50 percent.

From The Tax Foundation, The Tax Policy Blog, "How Do You Tax a Millionaire? First, You Get a Millionaire" by Scott A. Hodge:

Recent IRS data for 2009 indicates that the recession did more to reduce the number of millionaires than any surtax. Comparing the 2009 data to the pre-recession data for 2007 shows that not only did the number of millionaires fall by 40 percent, but the overall income of millionaires fell by 50 percent. The result for the U.S. Treasury was that 54 percent of the total drop in tax revenues during this period was due to the falling tax collections from millionaires.***The lesson from this IRS data is that we don't need higher tax rates on millionaires to collect more tax revenues from them. We need economic growth to create more millionaires. Once we have more millionaires, the tax collections will take care of themselves. [Emphasis Added].

Read the complete post, along with charts and data, here.

In Honor Of All The Consumer Welfare Steve Jobs Created: RIP

I read that Steve Jobs net worth was around $8 billion. I do not know if that is accurate or not, but it seems to be a credible amount. That amount is less than $30 per person in the US and significantly less than $30 per person if one includes the people of the other countries where users also enjoy Apple products.

People who have IPhones, IPads, IPods, and Mac computers and laptops probably do not mind paying $30 (actually more since only buyers pay) to Steve for all the pleasure and productivity Apple products give them. These people probably feel that it was a bargain.

Hooray for capitalism because it creates consumer welfare. Hooray for capitalism because it rewards successful entrepreneurs who enrich our lives through their innovation and products. Hooray for Steve Jobs who found a way to create consumer value in his ideas. Hooray for Steve Jobs because his successful products and successful wealth accumulation are a motivation to future innovators.

How sad that our schizophrenic culture loved Steve Jobs, loved his products and his company, yet hates successful and rich businessmen. How sad that our President, many in our Congress, and State and local governments despise business success (except when they need political donations) and do their best to build barriers and degrade incentives for future achievements and successful innovations.

Government Mandates And Not Capitalism Raised Health Insurance Premiums

From The Undercurrent Blog, "Don't Blame Capitalism for High Health Insurance Costs" by Paul Hsieh

State regulators currently require health insurers to include numerous "mandatory benefits," whether customers wish to purchase them or not. The exact mandatory benefits vary from state to state, but might include services such as acupuncture, in vitro fertilization, and autism therapy. Altogether, the 50 states require insurers to provide nearly 2000 benefits, typically driven by special-interest lobbyists exerting political "pull."

Read the complete post here.

Review Of Research On Securitization Causing The Mortgage Crisis

From Federal Reserve Bank of Atlanta, Real Estate Research, "The uncertain case against mortgage securitization" by Ryan Bubb, assistant professor at the New York University School of Law, and Alex Kaufman, economist with the Board of Governors of the Federal Reserve System:

In this post we report on the latest round in an ongoing academic debate over this issue [Did mortgage securitization cause the mortgage crisis?]. We recently released two papers, available here and here, in which we argue that the evidence against securitization that many have found most damning has in fact been misinterpreted. Rather than being a settled issue, we believe securitization's role in the crisis remains an open and pressing question.***Conclusion
Our findings, of course, do not settle the question of whether securitization caused the crisis. Rather, they show that the [620 credit score] cutoff rule evidence does not resolve the question in the affirmative but instead points a bit in the opposite direction. Credit score cutoffs demonstrate that large securitizers like Fannie Mae and Freddie Mac were able to successfully impose their desired underwriting standards on banks. We hope our work causes researchers and policymakers to reevaluate their views on mortgage securitization and leads eventually to a conclusive answer.

Read the full article here.

FY2012 Projected US Deficit Is Over 50 Percent Higher Due To Slow Economy

From the CBO October 4, 2111, "Letter to the Honorable Chris Van Hollen" on the portion of the deficit due to cyclical weakness:

an estimate of the portion of the federal deficit that is due to the current underutilization of capital and labor resources in the economy. The Congressional Budget Office (CBO) estimates that if those resources were not underutilized—that is, if the economy was operating at its potential level—the projected federal deficit under current law in fiscal year 2012 would be about a third lower, or roughly $630 billion instead of the $973 billion projected in CBO’s most recent baseline. That deficit would be equal to about 4.0 percent of gross domestic product (GDP), compared with the 6.2 percent deficit projected for 2012 in CBO’s baseline. If the economy was operating at its potential, the deficit would be lower because incomes and, therefore, revenues would be higher, while the rate of unemployment and, therefore, outlays for certain government programs would be lower.

Portion of Deficit Due to Cyclical Weakness

Individuals Saw Largest Health Insurance Premium Increases From New Healthcare Law

From AON Hewitt Consulting "2011 Health Insurance Trend Driver Survey", document page 20, (PDF page 21):

Overall, for 2011 health plans reported estimated increases due to PPACA of 4.7% for individual policies, 1.5% for small group plans, and 0.8% for large group plans on a weighted average basis. These impacts are additive to the other trend components discussed previously.

(Click chart to enlarge).

Analysis Of Government Intervention Incorporating Welfare Economics Lowers Value Of Government Actions

Welfare Economics Demotes Government Stimulus Spending To The Bottom Of The Policy Heap

Harvard Professor N. Gregory Mankiw in his latest paper, "An Exploration of Optimal Stabilization Policy" with co-author Assistant Harvard Professor Matthew Weinzierl, adds welfare economics to an analysis of Keynesian stimulus spending:

The goal of this paper is to address this set of issues in light of modern macroeconomic theory. Unlike traditional Keynesian analysis of fiscal policy, modern macro theory begins with the preferences and constraints facing households and firms and builds from there. This feature of modern theory is not a mere fetish for microeconomic foundations. Instead, it allows policy prescriptions to be founded on the basic principles of welfare economics. This feature seems particularly important for the case at hand, because the Keynesian recommendation is to have the government undo the actions that private citizens are taking on their own behalf. Figuring out whether such a policy can improve the well-being of those citizens is the key issue, and a task that seems impossible to address without some reliable measure of welfare.

By adding Welfare Economics, the constraints faced by households and firms, Mankiw and Weinzierl find a hierarchy of policy instruments for dealing with recessions and a drop in aggregate demand. They find that stimulus spending, increased government spending, is at the bottom of policy options. Stimulus spending should be used when targeted tax policy is unavailable. The order of policy options is:

1. conventional monetary policy
2. unconventional monetary policy
3. fiscal policy that incentivizes interest-sensitive components of spending, such as investment
4. increasing government spending, as well as cutting the overall level of taxation to encourage consumption.

Mankiw and Weinzierl state:

The goal of this paper has been to explore optimal monetary and fiscal policy for an economy experiencing a shortfall in aggregate demand. The model we have used is in many ways conventional. It includes short-run sticky prices, long-run flexible prices, and intertemporal optimization and forward-looking behavior on the part of firms and households. It is simple enough to be tractable yet rich enough to offer some useful guidelines for policymakers. These guidelines are tentative because, after all, our model is only a model. Yet with this caveat in mind, it will be useful to state the model’s conclusions as clearly and starkly as possible. One unambiguous implication of the analysis is that whether and how any policy instrument is used depends on which other instruments are available. To summarize the results, it is fair to say that there is a hierarchy of instruments for policymakers to take off the shelf when the economy has insufficient aggregate demand to maintain full employment of its productive resources.

The first level of the hierarchy applies when the zero lower bound on the short-term interest rate is not binding. In this case, conventional monetary policy is sufficient to restore the economy to full employment. That is, all that is needed is for the central bank to cut the short-term interest rate. Fiscal policy should be set based on classical principles of cost-benefit analysis, rather than Keynesian principles of demand management. Government consumption should be set to equate its marginal utility with the marginal utility of private consumption. Government investment should be set to equate its marginal product with the marginal product of private investment.

The second level of the hierarchy applies when the short-term interest rate hits against the zero lower bound. In this case, unconventional monetary policy becomes the next policy instrument to be used to restore full employment. A reduction in long-term interest rates may be sufficient when a cut in the short-term interest rate is not. And an increase in the long-term nominal anchor is, in this model, always sufficient to put the economy back on track. This policy might be interpreted, for example, as the central bank targeting a higher level of nominal GDP growth. With this monetary policy in place, fiscal policy remains classically determined.

The third level of the hierarchy is reached when monetary policy is severely constrained. In particular, the short-term interest rate has hit the zero bound, and the central bank is unable to commit to future monetary policy actions. In this case, fiscal policy may play a role. The model, however, does not point toward conventional fiscal policy, such as cuts in taxes and increases in government spending, to prop up aggregate demand. Rather, fiscal policy should aim at incentivizing interest-sensitive components of spending, such as investment. In essence, optimal fiscal policy tries to do what monetary policy would if it could.

The fourth and final level of the hierarchy is reached when monetary policy is severely constrained and fiscal policymakers can rely on only a limited set of fiscal tools. If targeted tax policy is for some reason unavailable, then policymakers may want to expand aggregate demand by increasing government spending, as well as cutting the overall level of taxation to encourage consumption. In a sense, conventional fiscal policy is the demand management tool of last resort. [Emphasis Added].

Welfare Economics Not Considered In Environmental Costs And Policy

A paper in the current American Economic Review about economy-wide accounting for the cost of pollution, "Environmental Accounting for Pollution in the United States Economy" by Nicholas Z. Muller, Robert Mendelsohn, and William Nordhaus finds that coal fired power plants can cause environmental damage of over 5 times the value added from the power plants.

The authors have to qualify their tabulation of the negative effects of energy, agriculture and manufacturing production in the US by stating:

We note several qualifications. First, our estimates are accounting measures and not measures of economic welfare.....Second, we note that although GED [Gross Environmental Damage] exceeds VA [Value Added] for some industries, this does not necessarily imply that these industries should be shut down. [Emphasis Added].

Welfare economics might undo some of the negative effects of pollution. For example, cheaper but polluting electricity, i.e. coal fired plants, might have more welfare benefits than closing the power generating plant or raising the price of electricity to pay for the added cost of pollution control equipment.

As posted on "There He Goes Again" on The Big Questions Blog by Steve Landsburg:

taxing the source of an externality might or might not be efficient policy, depending on the available alternative remedies. It would, for example, be tragic to tax coal plants out of existence if it proved substantially cheaper to clean up their emissions after the fact, or to relocate the victims of those emissions.

NY Fed Finds Short Selling Not Cause Of Stock Market Declines

From the Federal Reserve Bank of New York "Market Declines: Is Banning Short Selling the Solution?" by Robert Battalio, Hamid Mehran, and Paul Schultz, September 2011 Staff Report Number 518:

Our cross-sectional tests suggest that the decline in stock prices was not significantly driven or amplified by short selling. Short selling does not appear to be the root cause of recent stock market declines. Furthermore, banning short selling does not appear to prevent stock prices from falling when firm-specific or economy-wide economic fundamentals are weak, and may impose high costs on market participants.

Read the complete research report here.

US Public Equally Republican And Democrat

From Rasmussen Partisan Trends:

During the month of September, 33.9% of Americans considered themselves to be Republicans while 33.7% consider themselves Democrats.

Banks Collecting Mortgage Loan Deficiencies After Foreclosures From Borrowers

From The Wall Street Journal"House Is Gone but Debt Lives On" by Jesse Silver-Greenberg:

Forty-one states and the District of Columbia permit lenders to sue borrowers for mortgage debt still left after a foreclosure sale. The economics of today's battered housing market mean that lenders are doing so more and more.

Foreclosed homes seldom fetch enough to cover the outstanding loan amount, both because buyers financed so much of the purchase price—up to 100% of it during the housing boom—and because today's foreclosures take place following a four-year decline in values.