Was CBO Pressured During The Health Care Debate To Hide Important Information From Congress?

[UPDATE: On September 14, 2010, Keith Hennessey retracted his post that CBO was pressured. See Hennessey's retraction "Retracting one of my CBO health care posts".]

Keith Hennessey thinks that the Congressional Budget Office was pressured to hide important information during the health care bill debate. CBO's recent data (PDF page 24, document page 6) shows that the new health care law will increase federal entitlement spending by $401 billion over the next decade, and will increase taxes by $525 billion over that same time period. Hennessey writes in his blog:

Based on CBO’s normal scoring practices and the intense scrutiny of both CBO and this legislation, this cannot possibly have been an oversight. I would bet heavily that CBO was pressured not to show this information.

If I’m right, CBO should have resisted this pressure and provided a picture that was both more complete and consistent with how they usually score legislation.

Deficits matter. So do spending and revenues. If they remain in place, these laws will make government spending $401 B larger this decade. By reducing the budget deficit through tax increases, these bills will shift some of the fiscal burden from the future to the present. By increasing government spending, these bills will increase the cost of government on the private sector that pays for it. That latter point is an important piece of information that Congress should have had when they voted.

I am generally a fan of CBO, and please don’t group me with the bashers who say they did everything wrong. This, however, was a failure.

Keith Hennessey served as Deputy Assistant to the President for Economic Policy and Deputy Director of the National Economic Council at the White House from August 2002 through the end of 2007. In 2008 and the first three weeks of 2009, he was Assistant to the President for Economic Policy and Director of the National Economic Council, a position now held by Dr. Larry Summers for President Obama.

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2011 Income Tax Calculator For Four Legislative Proposals

The Tax Foundation posted an income tax calculator to compute the 2011 federal income tax under four legislative proposals. The tax calculator is available here.

The calculator computes income taxes under the following scenarios:

1. Congress allows all of the Bush tax cuts to expire;
2. Congress acts to extend into 2011 all of the Bush tax cuts (the position of most congressional Republicans);
3. Congress passes the tax laws suggested in President Obama's budget, letting cuts expire for families making over $250,000 a year (and singles making over $200,000), as well as extending some stimulus measures and imposing new limitations on itemized deductions; and
4. Congress passes the tax laws recently proposed by congressional Democrats, similar to the Obama plan, but without extending stimulus measures and with no additional limitations on itemized deductions.

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Is The Goldman Sachs-SEC Settlement In Trouble?

A federal judge has refused to approve the Citigroup settlement with the SEC without more information. See "Judge won't approve SEC-Citigroup settlement over risky mortgages without fuller information" by Marcy Gordon, AP Business reporter. Also see The Wall Street Journal article, "Judge Won't Approve Citi-SEC Pact" by Kara Scannell.

From Scannell's article:

The judge, striking a frustrated tone, fired several questions at the SEC, among them why it pursued only two individuals in the case and why Citigroup shareholders should have to pay for the alleged sins of bank executives.

The judge's refusal to rubber stamp the The Citigroup-SEC settlement is a recent reminder of the things that are wrong with the SEC-Goldman Sachs settlement. ACA was never charged. There is no admission of guilt or wrongdoing by Goldman. The penalty is far in excess of the alleged or admitted harm.

See my earlier post, "Fair Analysis Of SEC Goldman Settlement: Will The Court Accept It?"

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The US House Price Bubble Went Undetected As It Happened

The small number of economists who argued forcefully for a bubble often did so years before the housing market peak, and thus lost a fair amount of credibility, or they make arguments fundamentally at odds with the data even ex post. For example, some economists suggested that cities where new construction was limited by zoning regulations or geography were particularly “bubble-prone,” yet the data shows that the cities with the biggest gyrations in house prices were often those at the epicenter of the new construction boom. We conclude by arguing that economic theory provides little guidance as to what should be the “correct” level of asset prices —including housing prices. Thus, while optimistic forecasts held by many market participants in 2005 turned out to be inaccurate, they were not ex ante unreasonable.

From the abstract to the Federal Reserve of Boston Public Policy Discussion Paper No. 10-5, "Reasonable People Did Disagree: Optimism and Pessimism About the U.S. Housing Market Before the Crash" by by Kristopher S. Gerardi, Christopher L. Foote, and Paul S. Willen.

From the complete discussion paper, which is available here:

From our review of the pre-crisis housing literature from the early-to-mid-2000s, it is apparent that well-trained and well-respected economists with the best of motives could and did look at the same data and come to vastly different conclusions about the future trajectory of U.S. housing prices. This is not such a surprising observation once one realizes that the state-of-the-art tools of economic science were not capable of predicting with any degree of certainty the collapse of U.S. house prices that started in 2006. The asset-pricing literature does not yet have a firm grasp on when and why prices can deviate from market fundamentals for long periods of time.

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Canada's Employment Reaches Pre-Recession Levels With Tax And Government Spending Cuts

Above chart from Carpe Diem, Mark Perry.

From the Carpe Diem post, "Canada, Land of Smaller Government, Has Regained All Jobs Lost in 2008-09 vs. U.S. Still Down By -8m" by Mark Perry:

Canada has actually been aggressively cutting both taxes and government spending, with impressive results in economic performance.

Only $66 Billion, 29 Percent, Of $230 Billion Infrastructure Stimulus Funds Paid Out So Far

From The Wall Street Journal article, "Slow Progress on Some Big Stimulus Projects" by Louise Radnofsky:

A year and a half after Congress passed the economic-stimulus plan, the state aid and tax cuts in the package have nearly ended, but some of the big infrastructure projects touted by the Obama administration are still months from visible development.
***
...the package offered $230 billion to fund an array of projects ranging from road repaving to modernizing the electricity grid to launching new high-speed rail services. Administration officials said when pushing for the program that the money would be targeted at projects that could create jobs quickly.

So far, $182 billion of the infrastructure money has been awarded, though the government has paid out only $66 billion of the total.

Read the complete article here.

1 Out Of 6 Medicare Recipients Is 18-64 Years Old

From "Nonelderly Medicare Beneficiaries: Access And Costs More Problematic" by Chris Fleming, August 12th, 2010, on HealthAffairs Blog:

A new study released today by Health Affairs [HTML version] focuses on an often-neglected segment of Medicare enrollees: people ages 18–64 with permanent disabilities, a group that currently numbers eight million, or roughly one-sixth of the total number of Americans on Medicare.

The study is available as a PDF here.

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Fiscal Stimulus Slows Growth By Channeling Demand To Wrong Sectors

From "To spend or not to spend: Is that the main question?" by Guillermo Calvo, Professor of Economics, International and Public Affairs at Columbia University, August 4, 2010 on VOX blog:

The argument [for fiscal stimulus] assumes that the government channels additional spending towards the very same goods that B [borrower] cannot afford. This is not true in general. In the US, for instance, small firms lost access to working capital that the government spends on solar energy. Hence, sectoral “lack of demand” is unlikely to vanish. The sun will set on B goods and shine on government goods.

Fiscal expansion could thus have little impact on unemployment, because the unemployed in the sector that caters to B's [borrower's] tastes are unlikely to find new jobs in those sectors that benefit from the government's largesse. One important reason for sluggish employment creation is that stimulus packages are transitory and hiring-and-firing is costly. Sectors producing government goods will go on overdrive, but will be reluctant to hire new workers. Equally important, labour reallocation is costly and cannot take place in the spur of the moment: a bricklayer does not become a computer technician overnight. This helps to explain why US unemployment is still high even though output is heading to recovery (see Calvo and Loo-Kung 2010). Moreover, if trust in financial intermediaries does not recover, even this type of inefficient and employment-less recovery may lose steam if fiscal stimulus is discontinued.
***
[W]e have reached a major fork in the road:

1. Maintaining or increasing fiscal stimulus will probably prevent a major slump of economic activity and a sharp rise in unemployment (the feared double-dip recession), but at the cost of slowing down growth and technical progress;


2. On the other hand, phasing out fiscal stimulus risks generating double-dip recession but, if unnecessary pain is avoided, it may result in a more vibrant economy in the medium run.

The choice is difficult and I am afraid that it will be guided by political expediency, and the outcome will depend, in no small measure, on implementation.

Read Professor Calvo's complete post here.

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Solution To Fixing The Ozone Layer Increased Global Warming

From "Beyond Carbon: How Fixing the Ozone Layer Contributes to Climate Change" by Adam Fischer on state of the planet blog:

Early on, HFCs [hydrofluorocarbons] became the primary CFC [chlorofluorocarbons] alternative. The man-made chemicals were ozone-friendly substitutes that could be used in consumer, commercial and industrial products (such as refrigeration, air conditioning, insulating foams, aerosols and fire extinguishers). HFCs, however, have one major shortcoming: their high global warming potential (GWP). A substance’s GWP is defined as the degree to which it contributes to global warming, relative to an equivalent amount of carbon dioxide (CO2). Since CO2 is the dominant greenhouse gas by volume, other gases are converted into CO2-equivalents according to their GWP; a substance with GWP of 10, for example, contributes to global warming 10 times as much as the same amount of CO2.

The dozen or so substances in the HFC family have GWPs ranging from 140 to 11,700. The lifespan of these chemicals also varies: the less harmful compounds stay in the atmosphere for just over one year, while the most damaging ones can last up to 260 years.
***
Due to population growth, HFC emissions in developing countries could be as much as 800 percent greater than in developed countries by 2050. At that time, HFC emissions, when measured by their CO2-equivalent, would account for roughly 9 to 19 percent of carbon dioxide emissions (in business-as-usual scenarios). As a result of this higher-than-expected atmospheric concentration, the impact of HFC emissions on the climate is slated to be about three times greater than what the Intergovernmental Panel on Climate Change (IPCC) had anticipated.

Read the complete post here.

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Items American Spent More Or Spent Less On This Recession

The above charts are from Mandel on Innovation and Growth blog, "Where Americans Are Spending More.."

Obama's Proposal To Raise Capital Gain And Dividend Taxes Will Retard US Economic Growth

From "Fairness and the Capital Tax Fetish. No serious economist thinks higher dividend and cap gains taxes are efficient ways to raise revenue" by Glenn Hubbard, dean of Columbia Business School, and a former chairman of the Council of Economic Advisers under President George W. Bush:

low [capital gain and dividend] tax rates encourage capital accumulation, productivity and wage growth.
***
Deficit reduction is a legitimate object of concern. But if this concern is the dominant one, I am aware of no serious analysis that would claim smaller costs to the economy—in lost output and foregone economic growth—of raising capital income taxes as opposed to increasing other taxes or limiting deductions or reducing federal spending.

If President Obama is interested in promoting growth now and in the future, he should commit to retaining the low tax rates Congress passed in 2003.

Read the entire Wall Street Journal article here.

More Long Term Unemployed

The red line says a lot about the severity of the current recession on employment compared to previous recessions since 1969.

The above chart is from Calculated Risk blog, "Duration of Unemployment" post.

New Jobs Have Left And Gone Away

Where have you gone, jobs I used to do
A nation turns it's lonely eyes to you (Woo, woo, woo)
What's that you say, economic bloggers
New jobs have left and gone away
(Hey, hey, hey...hey, hey, hey)

Sung to the tune of Mrs. Robinson, written by Paul Simon and sung by Simon and Garfunkel.

The employment report came out to day.

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Men And Women Work Equal Time In The Job And Home

From "Women's 'double shift' of work and domestic duties a myth finds new research" from the London School of Economics:

Feminists are wrong to claim that men should do a larger share of the housework and childcare because on average, men and women already do the same number of hours of productive work. In fact, if we consider the hours spent doing both paid work and unpaid household, care and voluntary work together, men already do more than their fair share, argues LSE sociologist Catherine Hakim in a special issue of Renewal: a journal of social democracy.

A copy of the study is available here.

We Still Do Not Know What Caused The 2008 World-wide Financial Crisis

From "What do we know about the causes of the crisis?" by Andrew K. Rose and Mark M. Spiegel, 2 August 2010, on VOX:

In our earlier research on early warning systems (Rose and Spiegel 2010b and 2010c), we found that it was difficult to reliably link macroeconomic or financial indicators from 2006 or earlier to a variety of financial and real manifestations of the 2008 crisis. Our more recent research corroborates our scepticism. Despite a broad search, we have been unable to find consistent strong linkages between pre-existing variables that are plausible causes of the Great Recession and the actual intensity of the recession.

It is natural for economists to generalise from experiences of a few particularly salient countries to make generalisations, though it is often inappropriate. Our poor results are simply telling us that the pre-conditions for the crisis in the US (or Iceland, or Latvia …) often do not describe other countries particularly well. Credit growth was high before 2008 in Australia, Canada, and South Africa, yet these countries seemed to have weathered the crisis well. Real housing prices actually fell in Japan, Germany and Portugal, yet these countries were hard hit. Since it is difficult to understand the cross-country incidence of the great recession even in retrospect, we are dubious about the potential for a comparable early warning forecasting model going forward.

Read the complete post here.

Without knowing the causes of the 2008 financial crisis, the Dodd-Frank financial reform law will not prevent the next crisis.

Without knowing the causes of the 2008 financial crisis, random and political government policies, such as stabilizing home prices, are unlikely to return the US to a pre-crisis level of output and employment.

Time To Let More Foreign Born, Foreign Trained Doctors Into The US

Foreign-born doctors practicing in the United States who earned their medical degrees abroad performed as well or better than their U.S.-born counterparts, a new study finds.

Read the complete Bloomberg Businessweek article, "Foreign-Trained Doctors As Good As U.S.-Trained Counterparts" by Jenifer Goodwin here.

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The Origins Of Oil Reserves

Excellent New York Times article, "Tracing Oil Reserves to Their Tiny Origins" by William J. Broad on the geological origins of oil reserves:

Today, a principal tenet of geology is that a vast majority of the world’s oil arose not from lumbering beasts on land but tiny organisms at sea. It holds that blizzards of microscopic life fell into the sunless depths over the ages, producing thick sediments that the planet’s inner heat eventually cooked into oil. It is estimated that 95 percent or more of global oil traces its genesis to the sea.

Read the complete article here.

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Is Nominal Bank Regulatory Capital The Cause Of Deflation Risk?

A comment I posted on, "Krugman: 'Why Is Deflation Bad?'" on Calculated Risk:

Electronics and other consumer goods, such as appliances, can experience quick price decreases (deflation). Sales are brisk because many retailers give price guarantees that if there is a lower price in a fixed time period after purchase they will match the price and refund the difference.

When events are expected or feared people use contractual provisions to remove the risk, as Coase would expect. If anticipated deflation were a real problem, people would add into purchase and debt contracts provisions to offset the deflation risk, just as CPI increases were added to offset inflation risk in many contracts.

Deflation protection for leases, rentals and sales are easy to incorporate and likely will be incorporated. Mortgages are much more difficult only because regulatory bank capital is in nominal terms and lenders cannot incorporate a deflation offset into debt such as mortgages without destroying their capital base. If the regulators would incorporate deflation into their regulatory capital calculations, then mortgages and other bank loans could also offer deflation protection into their debt terms upon issuance or upon renegotiation. A major impediment to banks in the recent financial crisis was the loss of bank capital if they recognized the lower collateral value of the real estate behind their mortgages.

The issue is not deflation. It is the contractually ability to protect against the deflation risk and government regulation of banks is the major impediment.

Transportation Delays Will Increase To Offset Carbon Fuel Tax

A comment I posted on The Bellows:

Transportation is usually an intermediate and not an end product in itself (although one can enjoy a Sunday drive and it can be a leisure activity by itself). It is mostly an input.

Alternatives, such as buses and trains, follow fixed routes which often increase the time to go from point a to b, especially if one is required to go into a central hub (a nearby town or city) and then depart from the hub to reach the final destination. Additionally, there is the waiting time until the next scheduled bus or train. Other modes of transportation that require human power, such as walking and biking will also increase the time of travel.

Costs equal the actual cost plus the opportunity cost caused by the travel time. Transportation time from delays, schedules, routes, etc. will expand until the two costs are equal. The marginal cost of fuel with a tax, and the marginal cost of alternative transportation with the opportunity cost of the extra travel time will equal each other.

Since travelling and waiting are inefficient and not productive activities, productivity will decline. One has to remember that most European countries have lower productivity measures than the US.

To offset the loss and increase productivity, additional people with the higher opportunity costs will move closer to work locations, often major cities, increasing real estate costs and expanding the area of expensive real estate around cities and other central work areas. It will push those with lower opportunity costs (usually non-professionals and lower wage earners) further away from central work locations.

Additionally, increasing transportation costs will increase 'just-in-time' business costs. Business will increase inventories and supplies until the marginal cost of storage equals the marginal cost of transportation. Additional inventories will require expanding storage facilities at businesses to hold the extra inventory and supplies, which will also add to costs.

Increased transportation costs will also have a major impact on agricultural and food production. Large-scale food manufacturing and packaging plants will break up into smaller units closer to end consumers to lower transportation costs. Major distribution centers for the major retailers such as Gap, etc., will downsize and more, smaller distribution warehouses will move closer to end consumers.

The costs of final goods and services will increase to absorb the extra business costs caused by the fuel tax.

Substitution will occur but not always in the most obvious ways. For example, more households may eat at home instead of going to a restaurant or choosing a closer restaurant. Of course, less expensive goods and services will be substituted for more expensive where possible. Where cheaper alternatives are unavailable, consumption will decline.

Furthermore, fewer restaurants will offer delivery services. One of the surprises and delights that many European have about the US is the availability of delivery and pick up services, for food, cleaners, etc. The Europeans that I have met and worked with who live in the US for a while like the benefits that come from lower fuel costs and miss it when they go back to Europe.

Most auto repair shops, including dealer repair shops, depend on frequent parts deliveries, sometimes more than once a day. As repair costs increase, there will be some decrease in car repairs, which in and of itself has negative consequences on safety and pollution. If dealers hold more inventories, it will also increase repair costs.

Shoppers will bundle their shopping for goods and services to decrease its cost and they will shop less frequently. Retail stores will change size and available inventory to offset the less frequent shopping.

There will be attempts to increase travel time efficiencies, in addition to shortening travel time, by creating more passenger space to allow computer, cell phone and other work related uses, which will decrease available passenger carrying capacity and increase transportation costs directly, through government subsidies with increased taxes, or through delays.

And of course, there will be many unexpected consequences.

Increasing fuel costs through a tax may reduce fuel consumption, but it is likely to negatively impact US productivity, increase consumer product costs, and decrease consumer product and service choices.

In effect, we will create a European economy.

Today Is Milton Friedman's Birthday

In honor of Milton Friedman's birthday (July 31, 1912 – November 16, 2006). A one on one interview in which he discusses many economic topics of relevance today.

Thirty-five years after this interview, the US still faces many of the same problems, which reinforces his point that government is often ineffective in solving problems.

Energy Density, Innovation, Gas Tax, Supply Chains And Economic Shifts

A comment I posted to "Innovation, and the Gas Tax" on The Bellows by Ryan Avent:

In response to high gasoline prices in Europe, Europe did not innovate. Europeans reduced their miles driven (actually the number of hours gasoline engines run) and reduced the weight and size of their vehicles, including the number and weight of passengers and cargo the vehicles can carry, which then require less fuel.

If they had been able to innovate, such as to produce a much more fuel efficient gasoline engine, they would own larger cars and drive greater distances. Most mileage improvements have come from changes to the vehicle body and not the engine, such as air drag reduction and lighter materials

There is a fundamental natural problem. For practical energy sources, gasoline has the second highest energy density only surpassed by nuclear power.

Alternatives to gasoline as an energy source have not materialized because other energy sources are like the energy differences between fire and sunlight.

Innovators have not been able to find a practical alternative dense energy source. Many of the popular media alternatives, such as hydrogen, pose great dangers. Hydrogen interacts with its container, weakens it, and is highly explosive. Batteries contain and are manufactured with highly toxic heavy metal and rare materials, many of which are in short and limited supply. Batteries move more serious and harmful environmental issues from the car to the manufacturing and disposal facilities. Large batteries can also be explosive.

It is not clear that reducing passenger miles will help reduce carbon. If I will not drive to the Home Depot 10 miles away, hardware stores will have to move closer to where I live and within my acceptable driving distance. Supply trucks will drive the additional distance that I forego to bring the goods to the stores and more often because there will be more, smaller stores, with less inventory storage space, closer to more people. There maybe total carbon savings depending on relative fuel efficiencies or there may not be.

Additionally, 45 percent of a barrel of oil becomes gasoline. If gasoline use declines, the question is how much can oil barrel production switch to non-gasoline products. About 25 percent of a barrel of oil is use to make plastics and other products. One has to look at the price change that will occur in the other products. The price may go up or down. My guess is the prices will go up, because if they were currently more profitable than gasoline, production would have shifted to produce more of the other products than gasoline to maximize earnings. That means with less gasoline usage, the price of the other products from oil will rise to recover costs formerly recovered by gasoline's higher profitability.

Changing byproduct costs, such as plastics, lubricants, etc. that are widely used in the US economy will cause dramatic production and price shifts. These economy wide production shifts may or may not increase carbon production.

Most analysis about price changes (taxes) to gasoline look at the carbon reduction from the reduction to total miles driven. Driving shorter distances and using less gasoline will cause economic shifts to oil barrel production and the retail product supply chain in the US. The economy wide effects to the supply chain of reducing passenger miles will offset in part or in total the benefits of reduced passenger miles. Most European countries that place taxes on gasoline for cars recognize the need for increased trucking and do not place the same burden of taxation on trucks and other delivery vehicles.

Erica Goldson's Inspiring Valedictorian Speech

From Erica Goldson's excellent 2010 valedictorian speech at Coxsackie-Athens High School:

We are not enlivened by an educational system that clandestinely sets us up for jobs that could be automated, for work that need not be done, for enslavement without fervency for meaningful achievement. We have no choices in life when money is our motivational force. Our motivational force ought to be passion, but this is lost from the moment we step into a system that trains us, rather than inspires us.

Read Erica's complete valedictorian speech here.

Injunction Order Against Arizona Immigration Law

Copy of US District Judge Susan Bolton's injunction decision stopping enforcement of parts of Arizona's immigration law, SB 1070, is available here and here and below.


Arizona Immigration Law Preliminary Injuction

BP Oil Spill Is Not A Catastrophic Environmental Disaster: Updated TIME Weblink

From The TIME article, "The BP Spill: Has the Damage Been Exaggerated?" by Michael Grunwald, July 29, 2010:

Marine scientist Ivor Van Heerden, another former LSU prof who's working for a spill response contractor, says "there's just no data to suggest this is an environmental disaster. I have no interest in making BP look good — I think they lied about the size of the spill — but we're not seeing catastrophic impacts,"

***

LSU coastal scientist Eugene Turner ... says the BP spill will be a comparative blip; he predicts that the oil will destroy fewer marshes than the airboats deployed to clean up the oil. "We don't want to deny that there's some damage, but nothing like the damage we've seen for years," he says.

***

The good news does suggest the folly of Louisiana Governor Bobby Jindal's $350 million plan to build sand berms and rock jetties to protect marshes and barrier islands from oil. Some of the berms are already washing into the Gulf, and scientists agree that oil is the least of the problems facing Louisiana's coast, which had already lost over 2,000 square miles of wetlands before the spill.

Read the complete TIME article here.

Video - NJ Gov. Christie And Teachers' Salaries

From RealClearPolitics:

Christie: First of all, they're [Teachers are] not taking any cuts. I asked them to take cuts, and they said no. So, what cuts are they taking? These teachers are still getting their four or five percent increases. That interplay that you just saw was about me trying to convince people that they need to take a freeze, but, in the end, they didn't. The state teachers union said--they had a rally in Trenton against me. 35,000 people came from the teachers. You know what that rally was? The "me first" rally. "Pay me my raise first. Pay me my free health benefits first. Pay me my pension first. And everybody else in New Jersey, get to the back of the line." Well, you know what? I'm not going to sit by and allow that to go unnoticed, so we'll shine a bright light on it, and we'll see how the people react. But I think we are seeing how the people of New Jersey are reacting, and that's how you make it politically palatable in other states in the country. Just shine a bright light on greed and self-interest."

Visit msnbc.com for breaking news, world news, and news about the economy

Do Teachers Have The Voting Power To Give Themselves Raises?

Teachers are the largest professional group in the US workforce today. There are more elementary and secondary teachers than doctors, lawyers, and engineers, etc.

"During the 1999–2000 school year, a total of about 3,450,000 teachers worked in public and private elementary and secondary schools across the country—representing about 2.7 percent of the overall U.S. workforce that year. Elementary and secondary school teachers constituted a greater percentage of the workforce than physicians (0.5 percent), legal professionals (0.8 percent), postsecondary faculty (0.9 percent), engineers (1.0 percent), firemen and law enforcement workers (1.0 percent), registered nurses (1.5 percent), or any other professional group that year. Elementary and secondary school teachers constituted about the same percentage of the workforce as all secretaries and administrative assistants (2.7 percent) and slightly less than retail workers (2.8 percent) (U.S. Department of Labor 2002)." From National Center For Education Statistics, Special Analysis 2005.

Many teachers also live in communities where there is school budget voting. I suspect teachers are more likely to go to the polls to vote to approve larger school budgets and teacher salary increases..

When you add together the budget votes of spouses and close relatives of teachers, it is not surprising that salaries of teachers are rising.

They have the voting power to give themselves and other teachers raises, under the guise of improving children education.

The above was also posted on The Beacon, "Why More Spending Doesn’t Produce Better Schools."

UK Proposal For New Approach To Financial Regulation

The UK Treasury's 76 page proposal for new financial regulation is available here and here and below.

UK New Approach to Financial Regulation

Medical Competition Saves Lives Without Raising Costs

From "Death by Market Power: Reform, Competition and Patient Outcomes in the National Health Service" by Martin S. Gaynor, Carnegie Mellon University, Carol Propper, University of Bristol and Rodrigo Moreno-Serra, University of York, July 2010.

we estimate the impact of the introduction of competition on not only clinical outcomes but also productivity and expenditure. Our data set is large, containing information on approximately 68,000 discharges per year per hospital from 162 hospitals. We find that the effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost.

Ungated, free copy of the research paper is available here.

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Broad Basel Agreement On Bank Capital Reform And Contingent Capital

The oversight body of the Basel Committee on Banking Supervision issued a press release that it reached broad agreement on the overall design of bank capital and liquidity reform.

In particular, there is agreement on the definition of capital, the treatment of counterparty credit risk, the leverage ratio, and the global liquidity standard. Noteworthy, there is agreement on contingent capital, a capital conservation buffer and a counter-cyclical capital buffer.

The Committee will finalize the requirements before the end of the year and agreed to finalize the phase-in arrangements at its meeting in September.

The specifics of the proposal are available here.

The press release is available here.

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• Basel scales back rules in nod to banks (financialpost.com)
• Basel Group Reaches Accord on Bank Capital Rules (dealbook.blogs.nytimes.com)

Not Enough Health Care But Walmart Doesn't Run Out Of Shampoo

From "Britain Runs Out of Health Care, but Walmart Doesn't Run Out of Shampoo" by Doug Reich on THE RATIONAL CAPITALIST blog:

Isn't it amazing that McDonald's seems to know just how many hamburgers to have on hand? Isn't it amazing that Walmart seems to have just enough shampoo, toothpaste, and shaving cream on hand? Isn't it amazing that you can be driving in the middle of nowhere, stop at a gas station, and the Coca-Cola company has somehow managed to have a cooler full of soft drinks on hand which you can purchase for a few cents? Have you ever walked into one of these stores and been directed to a representative of a Primary Drink or Primary Shampoo Trust who determines whether you really need these products and decides how much, what brand, and even more important, when you will receive them? Have you ever been encouraged by the company not to buy their product or to only buy a very limited amount?

Mid-Season Review Of US Government Budget: Deficits Through 2020

The mid-season review of the US government budget was released on Friday, July 24, 2010. US budget deficits are projected at least through the end of the projection time period, 2020.

Mid-Session Review US Government Budget

Summary And Analysis Of Dodd-Frank Financial Reform Law By Skadden, Arps

The law firm of Skadden, Arps, Slate, Meagher & Flom LLP has summarized and analyzed the new financial reform law, "The Dodd-Frank Wall Street Reform and Consumer Protection Act."

Does Teen Drug Rehab Cause Addiction?

Increasingly, substance-abuse experts are finding that teen drug treatment may indeed be doing more harm than good. Many programs throw casual dabblers together with hard-core addicts and foster continuous group interaction. It tends to strengthen dysfunctional behavior by concentrating it, researchers say. "Just putting kids in group therapy actually promotes greater drug use," says Dr. Nora Volkow, director of the National Institute on Drug Abuse (NIDA).

From "Does Teen Drug Rehab Cure Addiction or Cause It?" by Maia Szalavitz, Friday, July 16, 2010, Time.com.

Where Did The Jobs Go? A Comment

A comment I posted on The New York Times blog post, "Mystery for White House: Where Did the Jobs Go?"

The rise in unemployment is a mystery unless one is willing to include the political agenda of the current administration as a possible cause. The excessive unemployment for this economic downturn and the lack of job creation as the economy rebounds shows that employers are shifting away from labor/worker and into capital/machinery and process improvements.

Contrary to the current administration's causality of blaming the past, employers base their hiring decisions on expectations about the future. The likely future cost increases for employees increases an employer's willingness to utilize more machinery and capital in production of goods and services, while reducing the number of employees.

Employers are acting rationally to an expected increase in the cost of labor. The new healthcare law significantly increases the cost of employing labor versus capital. Many other proposals from the Obama administration, such as card check, increase the cost of labor to companies. Obama's anti-business, pro-union policies give employers the impression that more costs are likely in the future.

Employers have responded as anyone does to increase costs. They have chosen cheaper equivalent alternatives. Employers are shifting away from workers to machinery in response to the administration's policies of increasing the costs of hiring workers.

The Democrats and the President see businesses as bottomless pits of cash and profits. Employers have logically reacted to the administration's business philosophy and are attempting to reduce their future costs by employing fewer workers and using more capital as the economy grows. Unfortunately, it takes time to switch to more capital and machinery, which adds to the slowness of the economic recovery.

It is unlikely that the current administration will change its view of business, which means that the economy is unlikely to improve until those in office see business and capitalism as their friend and not as their enemy.

Fair Analysis Of SEC Goldman Settlement: Will The Court Accept It?

From "The SEC’s strike suit" by Larry Ribstein on July 18, 2010, on Truth on the Market blog:

The bottom line is that this suit [SEC vs Goldman Sachs] has proved to be no more than a common "strike" suit, no better than the sort of private securities class actions that triggered Congressional reform 15 years ago. Instead of attorneys’ fees, the SEC’s objective appears to have been purely political. In the end it extracted a ransom payment from Goldman so the firm could reclaim its reputation and get back to business.

The court must now review the settlement. It should take a cue from the dissenting Commissioners and reject it because of the puzzling and troubling inconsistency between the amount of the settlement and Goldman’s meaningless admissions. The SEC should have to prove exactly what Goldman did wrong. This will force Goldman to either litigate or make a meaningful settlement. Goldman is hardly an object of pity at this point. In any event, the issues here go far beyond Goldman to, among other things, the proper role and function of the SEC.

It is sad that the SEC not only cannot be trusted to find fraud, but that it can no longer be trusted to litigate and settle cases involving the supposed frauds that it finds. But this is where we find ourselves in the days following 'financial reform."

[Definitional link for strike suit added].

Read much more about the Goldman case and settlement from Larry Ribstein here.

Final Version Of Dodd- Frank Financial Reform As Passed By Congress

On 7/15/2010, Congress passed financial reform by the Senate agreeing to conference report, 111-517 (in Congressional Record H4977-5202), by Yea-Nay Vote, 60 - 39. Record Vote Number, 208.

The complete 848 page text of the final version of financial reform, now known as "Dodd-Frank Wall Street Reform and Consumer Protection Act" is available here and at alternate site here. It is also embedded below.

Dodd Frank Wall St Reform and Consumer Protection Act

[The law firm of Skadden, Arps, Slate, Meagher & Flom LLP has summarized and analyzed the new law.

Obama Effect Of Taxing The Rich And Ending Bush's Tax Cuts?

Remember Obama's tax the rich and do not extend the Bush tax cuts?

From The New York Times article, by Motoko Rich, July 16, 2010, "The Rich Catch Everyone Else’s Cutback Fever"

"One of the reasons that the recovery has lost momentum is that high-end consumers have become more jittery and more cautious," said Mark Zandi, chief economist for Moody’s Analytics.

***
The American consumer accounts for an estimated 60 percent of the country’s economic activity.

But the Top 5 percent in income earners — those households earning $210,000 or more — account for about one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts, according to an analysis of Federal Reserve data by Moody’s Analytics. That means the purchasing decisions of the rich have an outsize effect on economic data.

Retail sales reports and surveys indicate that high earners have grown more cautious....

CBO’s Economic Forecasting Record 2010 Update

The Congressional Budget Office (CBO) regularly evaluates the accuracy of its economic forecasts by comparing them with the economy’s actual performance and with others’ forecasts. Such evaluations help guide CBO’s efforts to improve the quality of its forecasts and are also intended to assist Members of Congress in their use of the agency’s estimates.

CBO’s Economic Forecasting Record 2010 Update:

CBO’s Economic Forecasting Record 2010 Update

Goldman's SEC Settlement Documents

Copies of Goldman Sachs' Consent to Judgment and Proposed Final Judgment via The Wall St. Journal Servers.

Goldman Sachs Consent Judgment 07-15-10

Goldman Sachs SEC Proposed Judgment 07-15-10

Does Unemployment Insurance Have Macro-Economy Benefits?

A comment I posted on capitalgainsandgames blog, "Sense and Nonsense About Extending Unemployment Insurance" posted by Andrew Samwick:

In the aggregate, to continue to consume, the unemployed can use savings (including decreasing any additions to savings). Additionally, they can borrow from relatives and friends, sell assets (sell one of their two or three cars and become a one car family, sell their home for a positive amount and become a renter or move in with relatives, cash in a whole life insurance policy, etc.) or while eligible spend unemployment insurance benefits.

Since unemployment benefits are a fraction of workers' previous wages and do not completely replace workers' wages, all the alternatives listed above to continue consumption cause a decline in consumption or a decline in incremental savings. It is unlikely that unemployment insurance is enough to continue a mortgage payment.

Unless one shows that the marginal effect, in the aggregate, of consumption after receiving unemployment benefits is greater than consumption using private alternatives, such as savings, unemployment benefits do not increase aggregate economic consumption and do not benefit the macro-economy.

In individual cases, unemployment payments may decrease hardship, where borrowing from relatives or friends is not available. However, one must remember that there are hardship alternatives in the US for destitute families, such as food stamps, Medicaid, etc, and it is unclear what the incremental benefit of unemployment insurance payments is to the unemployed.

It seems more of a class distinction. Unemployed workers can claim they are receiving unemployment benefits instead of government assistance. It may be a distinction without a difference to the macro-economy.

Sensible Example Of Way For States To Save Money

From the Associated Press, "Conn. dropping car window registration stickers" in The Journal News:

Connecticut officials say the state will save about $800,000 yearly when it discontinues front window car registration stickers and makes other changes.

State Department of Motor Vehicles Commissioner Robert Ward says the stickers are unnecessary now that troopers can instantly check a vehicle's registration status electronically.

If only all the states looked at all departments and services for ways to improve productivity, increase efficiency and reduce unnecessary requirements before they sought tax increases. We probably could lower taxes and still maintain the same level of services.

Court Denies Obama Gulf Drilling Moratorium During Appeal

Reuters is reporting:

A U.S. appeals court on Thursday refused to suspend deepwater oil drilling while the merits of the case are considered but another moratorium is expected and, with it, likely more litigation.

New York Times article here.

Marginal Effects Of Unemployment Insurance

There is a lot of discussion in the popular press by economists, politicians and others about the economic effect of extending the term of unemployment insurance.

One should look at the marginal effect of unemployment payments versus no unemployment payments.

Some unemployed are in two wage earner families, have savings, have retirement funds, can rely on family or friends for help, or can borrow until they get re-employed. In these cases, unemployment payments substitute government unemployment spending and debt for private spending. There is no increase in overall consumer spending but there is an increase in government debt.

For the destitute unemployed, there are other government programs, such as food stamps, Medicaid, Disability benefits, Social security for the older unemployed, etc., which become available. In these cases, overall government debt does not increase by extending unemployment payments. The debt just switches program budget categories.

So, the question is how many people fall into the categories not covered by those with available resources and those eligible for other government programs.

To have no income or liquid savings and be ineligible for a government program generally means one has illiquid assets, such as a house, jewelry, auto, etc. whose value exceeds the eligibility thresholds. These programs require converting the assets into cash and spending down, which unemployment insurance does not require. In these cases, one will substitute government debt of unemployment payments for private spending, but overall consumer spending will not increase.

Unemployment substitutes government money for private funds and may increase government debt, if an unemployed individual without resources is illegible for other government programs.

The above is similar to a comment I posted on "Basic Econ: To Stimulate One Group, You HAVE to De-Stimulate Some Other Group, Net Effect = 0" on Carpe Diem by Mark Perry.

Copy Of USDOJ Complaint Against Arizona Immigration Law

Copy of USDOJ Complaint Against Arizona Immigration Law.

US Motion for Preliminary Injunction.

USDOJ press release with links to supporting documents.

US Federal Complaint Against Arizona Immigration Law

Text Of Controversial Arizona Immigration Law, SB 1070

Text of Arizona Immigration Law as web document.

Text of Arizona Immigration Law as PDF document.

Arizona Immigration Law

Taxes Will Rise Without Congressional Action

from "Why Taxes Are Going Up" by Donald Marron:

CBO’s bottom line is thus simple: tax revenues will rise faster than the economy even if Congress does nothing new. Indeed, revenues may rise faster than the economy even if Congress enacts substantial tax cuts. Our long-run fiscal dilemma exists because the scheduled growth in future spending is even larger than the scheduled growth in future revenues.

Read Marron's complete blog post here.

World Keeps Defying The Pessimists

From "Down with Doom: How the World Keeps Defying the Predictions of Pessimists" by Matt Ridely:

In fact every single one of the dooms I had been threatened with had proved either false or exaggerated. The population explosion was slowing down, famine had largely been conquered (except in war-torn tyrannies), India was exporting food, cancer rates were falling not rising (adjusted for age), the Sahel was greening, the climate was warming, oil was abundant, air pollution was falling fast, nuclear disarmament was proceeding apace, forests were thriving, sperm counts had not fallen. And above all, prosperity and freedom were advancing at the expense of poverty and tyranny.

I began to pay attention and a few years ago I started to research a book on the subject. I was astounded by what I discovered. Global per capita income, corrected for inflation, had trebled in my lifetime, life expectancy had increased by one third, child mortality had fallen by two-thirds, the population growth rate had halved. More people had got out of poverty than in all of human history before. When I was born, 36% of Americans had air conditioning. Today 79% of Americans below the poverty line had air conditioning. The emissions of pollutants from a car were down by 98%. The time you had to work on the average wage to buy an hour of artificial light to read by was down from 8 seconds to half a second.

Read his complete article here.