No Empty Wallets

Monday Morning Readings

2009-08-02T21:41:00.003-04:00

I've really been slacking on the posting lately. The must read:
July Economic Data Summary

Recommended:
Turning Dumpsters Into Swimming Pools

A Simple Explanation of Health Reform

Unleashing the Spirit of Innovation

Things Are Looking Up at Ford

Some Contrarian Thinking On The Stock Market

Roubini on Bernanke

2009-07-28T21:42:00.003-04:00

Nouriel Roubini comments on why Ben Bernanke deserves to be reappointed as chairmen of the Federal Reserve:

Mr. Bernanke deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.

Mr. Bernanke understands that in the Great Depression, the collapse of the money supply and the lack of monetary stimulus during contractions worsened the country’s economic free fall. This lesson has paid off. Mr. Bernanke’s decision to keep interest rates low and encourage lending has, for now, averted the L-shaped near depression that seemed highly likely after the financial collapse last fall.

OT: Not to Pile On...

2009-07-28T21:21:00.002-04:00

But...

Hat Tip: Andrew

Monday Morning Readings

2009-07-27T07:40:00.001-04:00

I'm going to be posting a set of links from the weekend on Sunday nights...something to read while you are readjusting to the working world on Mondays.

Must Read:
NYTimes: Health Care Reform and You

Recommended:
Friedman Thinks the Bad Guys are Losing the "War on Terror"

Daniel Gross on Taxing the Rich

Free Exchange Discusses the Effects of a Minimum Wage

$20/Barrel or $20/Gallon Oil?

The Ghosts of Clinton Care

A New Strategic and Economic Dialog with China

2009-07-26T21:13:00.002-04:00

This op-ed by a Hillary Clinton and Tim Geithner tag team is worth featuring. What is the next step for diplomacy between the Chinese and US governments?

To keep up with these changes that affect our citizens and our planet, we need to update our official ties with Beijing. During their first meeting in April, President Barack Obama and President Hu Jintao announced a new dialogue as part of the administration’s efforts to build a positive, cooperative and comprehensive relationship with Beijing. So this week we will meet together in Washington with two of the highest-ranking officials in the Chinese government, Vice Premier Wang Qishan and State Councilor Dai Bingguo, to develop a new framework for U.S.-China relations. Many of our cabinet colleagues will join us in this “Strategic and Economic Dialogue,” along with an equally large number of the most senior leaders of the Chinese government. Why are we doing this with China, and what does it mean for Americans?

Simply put, few global problems can be solved by the U.S. or China alone. And few can be solved without the U.S. and China together. The strength of the global economy, the health of the global environment, the stability of fragile states and the solution to nonproliferation challenges turn in large measure on cooperation between the U.S. and China. While our two-day dialogue will break new ground in combining discussions of both economic and foreign policies, we will be building on the efforts of the past seven U.S. administrations and on the existing tapestry of government-to-government exchanges and cooperation in several dozen different areas.

Read the whole thing here

A New Type of School

2009-07-26T20:50:00.002-04:00

The Economist reports on KIPP Academy, a group of charter schools that were founded with a simple motto: "Work Hard. Be Nice." 90% of KIPP students graduate from college compared with the typical 7% college graduation rate for low income families (which make up the majority of students at KIPP). Not bad:

KIPP (Knowledge Is Power Programme) started in 1994 with a simple philosophy, encapsulated in its main motto, “Work hard. Be nice.” It stresses personal responsibility and hard work (even the youngest students can expect a couple of hours of homework a night, and teachers must be available on their mobile phones to help with it) and tells its pupils that “there are no short cuts.”

Health Care Dimming?

2009-07-21T20:26:00.002-04:00

I hope Tyler Cowen is wrong:

The prospects for health care reform seem to be dimming. If I were a progressive I would be wondering right now whether Medicare was a tactical mistake. The passage of Medicare meant that most old people get government-provided health care coverage. Yet the way to get things done in this country, politically, is to get old people behind them.

Maybe, how about the prescription drug bill? That Republican led disaster is an example of why governments shouldn't mess with health care. Is it giving them too much credit to say that this was the plan all along?

Work Life Balance and the Corporate Ladder

2009-07-21T19:54:00.002-04:00

Conor Friedersdorf didn't like Jack Welch's comments about work life balance:

"There's no such thing as work-life balance," Mr. Welch told the Society for Human Resource Management's annual conference in New Orleans on June 28. "There are work-life choices, and you make them, and they have consequences."
Mr. Welch said those who take time off for family could be passed over for promotions if "you're not there in the clutch."

Conor's response:

Imagine that three people, all about 50 years old, are competing to be named CEO of a large company like General Electric -- one that pays a premium to compensate its top executive on the theory that singular talent at the top, drawn by necessity from a small pool of applicants, vastly increases corporate worth. Does it make sense that this decision would rest heavily on whether or not one of the applicants took a year off in her late twenties to care for her child?

No it doesn't make sense, and that is why it doesn't happen. All Mr. Welch was saying that reaching the top of a large company like GE is a cut-throat, career long competition. If significant time is missed, it is difficult to make up. He isn't talking about if a woman takes maternity leave a few times to have children.

Daily Noise Reduction (7/20)

2009-07-20T21:11:00.002-04:00

Short update tonight, luckily it was a slow news day. The must read:
Yglesias on Poverty

Recommended:
This is Likely Where Journalism is Headed

The House Transportation and Infrastructure Committee Fights Back

New Home Sales Have Stabilized

Daily Noise Reduction (7/16)

2009-07-17T09:03:00.003-04:00

These are from Thursday, didn't get a chance to post them.

Must Read:
The Economist and WSJ Advocate a Bank Tax

Recommended:
Krugman on the American Medical Association

The Climate Change Elevator Pitch

How Can Republicans Win on Climate Change?

Goldman Sachs 2Q Profit - Because of Government Support?

Daily Noise Reduction (7/15)

2009-07-15T22:17:00.003-04:00

Today's Must Read:
Paint Roofs White - Solve Global Warming

Recommended:
Megan McArdle Doesn't Understand the Effect of Tax Rates

Paul Krugman - How Deficits Saved the World

The Complexity of the Current Health Care System

Show Me the Growth

2009-07-15T22:12:00.003-04:00

As I alluded to in my Farming Bubble post yesterday, before anyone talks about economic recovery, the growth question needs to be answered. Where does the growth that drives the recovery come from?

CalculatedRisk sums it up:

Housing usually leads the economy both into and out of recessions (this was true for the Great Depression too). However this time, with the huge overhang of excess inventory and high levels of distressed sales, it seems unlikely that residential investment will pick up significantly any time soon.

And that leaves Personal Consumption Expenditures (PCE), and as households increase their savings rate to repair their balance sheets and work down their debt, it seems unlikely that PCE will increase significantly any time soon. Maybe there will be a pickup in auto sales from the current depressed levels, but in general a strong increase in PCE seems unlikely. So even if the economy bottoms in the 2nd half of 2009, any recovery will probably be very sluggish.

I have yet to see a good analysis presenting what will be the growth engines for the "quick" recovery that many are now predicting. Until then, don't buy the hype, this will be a long, slow process.

Is Farming Poised to be the Next Bubble?

2009-07-14T21:59:00.003-04:00

Paul Kedrosky gathers some research pointing to an uptick in agricultural investing:

It’s interesting to see a major university endowment get behind the idea of farm investing in a fairly significant way:

George Washington University’s investment office, which manages the university’s $1 billion endowment fund, will lift farm investments to 10 percent of its portfolio, said Rodney Lake, an analyst at the university.

…The university’s investment office sees 10 percent to 15 percent as “the appropriate rate of return prospect” on its agriculture investments, according to Lake.

This makes sense when you look at what food importing governments are doing as the Economist pointed out in May:

The Saudi programme is an example of a powerful but contentious trend sweeping the poor world: countries that export capital but import food are outsourcing farm production to countries that need capital but have land to spare. Instead of buying food on world markets, governments and politically influential companies buy or lease farmland abroad, grow the crops there and ship them back.

Supporters of such deals argue they provide new seeds, techniques and money for agriculture, the basis of poor countries’ economies, which has suffered from disastrous underinvestment for decades. Opponents call the projects “land grabs”, claim the farms will be insulated from host countries and argue that poor farmers will be pushed off land they have farmed for generations.

One of the United States' many competitive advantages internationally is the fact that we are blessed with an abundance of water and farmland, enough to feed our entire population and then some. As China and India demand more and more food, the value of these resources internationally will only increase.

20 Bold Schemes to Save the World

2009-07-14T21:53:00.002-04:00

Some of these are pretty cool, my favorites:

2. A Giant Artificial Stomach That Eats Seaweed
Step One: Grow lots of kelp near the surface of the ocean. Step Two: Harvest it and “digest” it in a giant plastic “stomach.” The giant green mass gives off lots of gas — the CO2 could be siphoned off and put in some dark place and the methane could be used for powering humanity’s myriad doohickeys and gadgets. So it’s a twofer, removing carbon from the atmosphere and creating an energy source.

9. Huge Solar Farms in the Sahara
A relatively small piece of the Sahara could theoretically provide electricity for the entire planet if it were covered in solar thermal mirrors. Plus think of all those jobs to build a solar plant the size of Britain. The
new transmission grid would be quite a project as well

I'm not sure that any of these are remotely feasible, but interesting nevertheless.

Health Care Reform - One Step Closer

2009-07-14T21:40:00.002-04:00

The big news today was the house of representatives releasing its health care plan, from a quick read of the bill and early pundit reaction, it seems like a good plan. At the least, a great first step.

The major points:

A public plan! In my opinion, one of the must haves of any reform to help get costs under control
Some new taxes on those making over $300K including a 5.4% tax increase on those making over $1 million
Caps out of pocket expenses for the insured
No denying of coverage on pre-existing conditions
Use reimbursement rates in Medicare to focus on quality of care instead of quantity

And the total cost seems like a quite a deal, as Krugman says:

OK, so the CBO score for the 3-committee House health care plan is in: $1 trillion over the next decade for 97 percent coverage of legal residents.

That’s a bargain: the catastrophe of being ill without insurance, the fear of losing insurance, all ended — for much less than the Bush administration’s useless $1.35 trillion first tax cut, quickly followed by another $350 billion.

I'll be following this closely the next few weeks.

Daily Noise Reduction (7/13)

2009-07-13T23:05:00.004-04:00

There was a lot to get posted today. Here are some remainders including today's must read:
Barry Ritholtz Rips Megan McArdle

Recommended:
Wells Fargo Sues....well, they sue Wells Fargo

Drum Comments on the SSA's "Luxurious" Offsite

Mark Thoma Doesn't Want California to Print Money

Job Losses Outpace GDP Decline

2009-07-13T22:47:00.003-04:00

Arnold Kling at Atlantic Business has an extremely optimistic post about why he thinks we'll see a quick recovery in the US. Key quote:

1. Cutbacks in employment (and, I would add, hours worked) are sharp relative to the cutbacks in output.

In addition, I would point out that:

2. The stock of automobiles is aging, because hardly any new cars have been bought for the past year.

3. Household formation is falling, because people cannot afford to form new households.

4. The rate of homebuilding is way below the long-term trend.

All of these factors will turn around once economic growth picks up. Firms will find themselves needing to add workers in order to meet demand. People will have pent-up demand to form households and get new cars. Homebuilding will actually start to contribute positively to growth.

Point number one is based on this article by Sudeep Reddy:

In a research note, Carson says job losses in prior downturns have been roughly proportional to the decline in gross domestic product. But in the current recession, the proportion of jobs lost is running about a third greater than the drop in real GDP.

While Reddy's data point is encouraging, Kling doesn't mention what will be driving economic growth going forward? (see bold text)

Former CIGNA Exec on Health Care Reform

2009-07-13T22:34:00.003-04:00

Mark Thoma posted excerpts from a fascinating interview with a former CIGNA executive who very candidly discusses health care reform and the industry's current lobbying efforts. This is a must watch/read and I highly recommend forwarding this along to anyone who may be wavering in their support for health care reform. Key quote:

WENDELL POTTER: That we shouldn't fear government involvement in our health care system. That there is an appropriate role for government, and it's been proven in the countries that were in that movie.

You know, we have more people who are uninsured in this country than the entire population of Canada. And that if you include the people who are underinsured, more people than in the United Kingdom. We have huge numbers of people who are also just a lay-off away from joining the ranks of the uninsured, or being purged by their insurance company, and winding up there.

And another thing is that the advocates of reform or the opponents of reform are those who are saying that we need to be careful ... because we don't want the government to take away your choice of a health plan. It's more likely that your employer and your insurer is going to switch you from a plan that you're in now to one that you don't want. You might be in the plan you like now.

But chances are, pretty soon, you're going to be enrolled in one of these high deductible plans in which you're going to find that much more of the cost is being shifted to you than you ever imagined.

Video is here from PBS

OT: Ron Artest's Tribute to MJ

2009-07-13T22:21:00.003-04:00

Seriously....

I'm not sure if I've ever heard a worse rap song. Oh, wait...

What Is It About Indonesia?

2009-07-09T19:45:00.003-04:00

This article is a great read, it makes you question how we could adjust our current approach in Afghanistan and Iraq, and maybe save some of the billions we are currently spending to force a square peg into a round hole:

At minimum, Indonesia is an example of a country that has done almost the complete opposite of what the US and its allies have counseled, and with now five years to examine the results, it seems the Indonesian strategy worked, and ours remains a subject of debate.
What did they do differently? Most obviously, they fought terrorism firmly and lethally, but with police and courts, not military prisons and cluster bombs. They countered the arguments of extremists with the arguments of sectarians, not with censorship or strongly-urged talking points or switching every TV in the executive palace to the equivalent of Fox News.

Pros and Cons of Homeownership

2009-07-09T19:21:00.003-04:00

Joel Kotkin describes the benefits:

Rather than a source of economic weakness, this renewed quest for homeownership could underpin a sustainable recovery. As prices fall to reasonable levels, more people will qualify for reasonable loans. First, the empty houses and somewhat later, the condominiums now on the market will find buyers, in most places in a matter of a few years.
This shift will create huge opportunities for a diverse set of geographies. For urban areas like New York or Los Angeles, there will be a unique--perhaps once in a generation--chance to induce middle-class people to settle down in big-city homes or condominiums. If they become homeowners, they will be more likely to stay than move elsewhere to the suburbs or other regions when the time comes to buy a home.

And against:

Robert Shiller, an economist at Yale University and an expert on national housing markets, has estimated that "from 1890 through 1990, the return on residential real estate was just about zero after inflation." Throw in the costs of maintenance of the property and it's easy to see how renting could certainly be cheaper than owning, even if you include the tax advantages. Yet the opportunity cost of those home investments - the foregone investment opportunities elsewhere - go largely unseen ...

Not to be forgotten, a homeowner is slowly building an asset that can later be used to help support their retirement. More responsible homeowners will, at least in theory, mean there will be less people completely dependent on their government when they stop working. That is the main reason I am supportive of government policies to encourage home ownership. In a way, it is forced savings. However, the government also has a role to play through regulation to protect these homeowners from the type of bubble we are climbing our way out of now.

Awkward...

2009-07-09T19:14:00.005-04:00

This is random and old, but I just ran across this clip of real estate mogul and LA Lakers owner Jerry Buss's 19 year old son accepting the NBA Championship Trophy on behalf of his dad:

Ouch, apparently money doesn't buy communication skills.

Daily Noise Reduction (7/8)

2009-07-08T22:12:00.002-04:00

Today's Must Read:
Regulation and Financial Pay Seem to be Linked (Surprise!)

Recommended:
Communist Russia Shouldn't be Used to Sell Health Care Reform

The Public-Private Investment Program Lives

Why Don't Politicians Listen to Sky-Is-Falling Economists

Why It's So Hard to Find a Job Right Now

How to Evaluate Health Care Plans

2009-07-08T21:40:00.003-04:00

David Leonhardt, an economics journalist for the New York Times, has a great article describing one way to evaluate the upcoming health care legislation, he sets up the issue:

Right now, men with the most common form — slow-growing, early-stage prostate cancer — can choose from at least five different courses of treatment. The simplest is known as watchful waiting, which means doing nothing unless later tests show the cancer is worsening. More aggressive options include removing the prostate gland or receiving one of several forms of radiation. The latest treatment — proton radiation therapy — involves a proton accelerator that can be as big as a football field.

Some doctors swear by one treatment, others by another. But no one really knows which is best. Rigorous research has been scant. Above all, no serious study has found that the high-technology treatments do better at keeping men healthy and alive. Most die of something else before prostate cancer becomes a problem.

And why this is a problem:

But if the treatments have roughly similar benefits, they have very different prices. Watchful waiting costs just a few thousand dollars, in follow-up doctor visits and tests. Surgery to remove the prostate gland costs about $23,000. A targeted form of radiation, known as I.M.R.T., runs $50,000. Proton radiation therapy often exceeds $100,000.

And in our current fee-for-service medical system — in which doctors and hospitals are paid for how much care they provide, rather than how well they care for their patients — you can probably guess which treatments are becoming more popular: the ones that cost a lot of money.

This really is a critical piece of any health care legislation that is passed. In my opinion, universal coverage takes a back seat to getting the costs, which are crippling industry and entrepreneurship, under control.

Daily Noise Reduction (7/7)

2009-07-07T20:55:00.002-04:00

Must Read:
How Much Does it Cost to Drive A Car in Manhattan?

Recommended:
Drum is Confused About Oil Bubbles (So Am I)

Ryan Avent on America, Climate Change and the World

David Brooks Wishes for the Age of Dignity

On Political/Economic/Public Policy Blogging

2009-07-07T20:39:00.002-04:00

Call me crazy, but it seems like there is a topic or two every day that almost every blog weighs in on. A dispute will start, and then instantly everyone links to and discusses that dispute. These aren't about important issues either, they are about obscure, minutia like "Adminstrative Health Care Costs" or "Urban Farming". I've probably fallen into this trap as well but I can promise I'll avoid that from now on.

Just an observation...

Daily Noise Reduction (7/6)

2009-07-06T22:49:00.002-04:00

Must Read:
CNN on Canadian Health Care

Recommended:
The Economist Weighs on the Current Political Process

The NY Times Can Make Interactive Graphs (Very Cool)

What About the Next Palin?

2009-07-06T21:52:00.009-04:00

Sarah Palin shocked the political world late last week by resigning her position as governor of Alaska, effective at the end of July. Some people have blamed the press and "elitists" for her downfall, while others just don't think she was cut out for the job. Either way, almost everyone agrees that barring a miracle, her political career is likely over.

I won't rehash much of what has already been written about her recent decision, instead I'd like to focus on what Mrs. Palin's rise says about America. From mayor of a small town, to governor of a small state to vice-presidential candidate of the most powerful country in the world...all in a little over 6 years. President Obama also rose to the heights of American power quite rapidly, but he at least spent 4 years on the national stage prior to his election. Sarah Palin was on the national stage for a matter of months before the country was asked to a make a decision about her, and it showed in her first national interviews.

On top of the botched interviews, the press began to dig into her background, discovering numerous mini-scandals such as Trooper-gate, Todd Palin's membership in a secessionist party, etc. It soon became apparent to Democrats and Independents that she was completely unprepared and unqualified for the position she was running for.

Despite all that, she remains extremely popular with a significant portion of the United States. As of late June, 45% of the country held a favorable view of her. Which way is that segment of the population trending? In another 8/12/16 years, will another "Palin" come along? And if that person isn't running against one of the most impressive and charismatic politicians of all time, does that person win?

I don't know the answer to that question. I do know that a democracy that can no longer tell the difference between a capable and incapable leader is a democracy that won't be around long enough to get lucky.

NewsFlash: Kissinger = Smart

2009-07-06T21:35:00.002-04:00

This interview by Der Spiegal is worth a read, Kissinger offers thoughts on the how the Treaty of Versailles still affects modern policy and how he thinks Obama is doing thus far.

Key quotes:

SPIEGEL: So in your view, peace is not the normal condition among states?

Kissinger: The preconditions for a lasting peace are much more complex than most people are aware of. It was not an historic truth but an assertion of the view of a country composed of immigrants that had turned their backs on a continent and had absorbed itself for 200 years in its domestic politics.

And:

SPIEGEL: Do you think it was helpful for Obama to deliver a speech to the Islamic world in Cairo? Or has he created a lot of illusions about what politics can deliver?

Kissinger: Obama is like a chess player who is playing simultaneous chess and has opened his game with an unusual opening. Now he's got to play his hand as he plays his various counterparts. We haven't gotten beyond the opening game move yet. I have no quarrel with the opening move.

Weekend Links

2009-07-05T15:00:00.005-04:00

I have a bunch of links to post from last week that I never got around to. Think of this as a super edition of the Daily Noise Reductions.

Must Reads:
Friedman Weighs in on the Cap and Trade Bill

Kedrosky with a Great Post on Debt and Class Warfare

Recommended:
Tyler Cowen Covers the Collapse of an Amish Bank (Yes, really)

Drum on the Politics of Healtcare

Is Bamboo the Next Big American Crop?

Mark Thoma Discusses What Went Wrong with the Stimulus Bill

Happy 4th!

2009-07-05T14:29:00.006-04:00

I'd like to share the final passage from one of my favorite books, Founding Brothers by Joseph J. Ellis. I'm not sure how many people know the story of the deaths of two of the greatest Americans that ever lived, the 2nd and 3rd Presidents and longtime friends, they died on the same day, the 4th of July, exactly 50 years after the founding of the United States:

On the evening of July 3, 1826, Jefferson fell into a coma. His last discernible words, uttered to the physician and family gathered around the bedside, indicated he was hoping to time his exit in dramatic fashion: "Is it the Fourth?" It was not, but he lingered in a semiconscious condition until shortly after noon on the magic day. The same morning, Adams collapsed in his favorite reading chair. He lapsed into unconsciousness at almost the exact moment Jefferson died. The end came quickly, at about five-thirty that afternoon. He wakened for a brief moment, indicated that nothing more should be done to prolong the inevitable, then, with obvious effort, gave a final salute to his old friend with his last words: "Thomas Jefferson survives," or by another account, "Thomas Jefferson still lives." Whatever the version, he was wrong for the moment but right for the ages.

From time to time, day to day, it's easy to forget that there is something magical about this country. Between beers and hot dogs, take a moment to reflect. Happy 4th!

The Future of Newspapers and "Free"

2009-07-01T22:51:00.005-04:00

Malcolm Gladwell's review of Chris Anderson's new book "Free" set off a big blogosphere discussion the past couple days. Which I guess is what you want when you are trying to sell a book. Gladwell didn't write a very favorable review, and Anderson responded today by saying Gladwell didn't understand the book. The majority of Gladwell's review was discussing the newspaper industry and how "free" business model isn't a business model at all.

Many others weighed in with comments here, here, here, here and probably a million others. I don't want to delve into the argument about whether "free" is the future, but I do want to make a point about the newspaper business that I didn't see mentioned in the discussion.

It isn't a big secret that newspapers are struggling, but the wrong root cause is often pointed to. Newspaper readership has been rapidly declining, due in part to the internet and the greatly increased availability of information. However, the big problem is that newspapers are spending lots of money to compete in areas they have no chance at winning. No business can survive if they attempt to compete in markets in which they have inherent disadvantages.

Consider three common sections of any newspaper: Technology, Sports and Arts. The Tech section is competing with a myriad of tech-focused content providers such as CNET, Wired, IGN, etc. The Sports section is competing with ESPN, Sports Illustrated, Rivals, etc. The Arts section competes with Amazon, RottenTomatoes.com, etc. All these competitors are focused on a specific, defined market while a newspaper is trying to provide this information to an undefined readership. There is a reason why there isn't a company out there that makes PCs, cars and clothes...the newspapers are spreading themselves too thin.

If I'm in charge of a newspaper tomorrow, the first thing I would evaluate is where we are providing value. Where is the competetion the thinnest? Think op-ed pages from star pundits and investigative journalism. How many times during the Presidential campaign was the news cycle driven by these two sources? I would then form partnerships with these other content providers that specialize in certain market segments and aggregate that data to a broader population. Finally, I would re-evaluate my advertising models to leverage new technologies: a website that millions of people visit and are registered with has inherent value that needs to be capitalized on.

Sounds simple doesn't it?

Inflation Adjusted S&P 500 Graph

2009-07-01T22:45:00.005-04:00

Guess what this graph tells us:

It rhymes with GUY...

Hat Tip: Ritholtz

Canada, Obamanomics and the Right

2009-07-01T22:11:00.005-04:00

I normally like David Frum, but I can't help but take issue with this article titled "Canada well-positioned to benefit from Obamanomics":

A decade ago, incomes per capita, even in wealthy Ontario, trailed those of every U.S. state except Mississippi. Obama’s poor economic management offers the opportunity for a stunning reversal of fortunes.
And maybe that’s the issue Prime Minister Harper should be sharpening as he prepares for his ultimate contest against Michael Ignatieff. Ignatieff’s goals as prime minister are hazy and maybe non-existent. Perhaps Harper could counter with one national goal: simple, clear and confident:
Canada will avoid reckless spending, avoid accumulating debt, hold the line on taxes and reduce the burden of government regulation, all to achieve, for the first time in Canadian history, higher average incomes on the Canadian side of the border than the American.

The basic premise is that because of the Obama administration's "staggering" spending, average incomes in Canada will surpass the US for the first time. A few commentators pointed out the absurdity of this, and really, there is no economic basis for that line of thinking considering 80% of Canadian exports go to the US. However, I'd like to take issue with a different portion of the article, the continuous harping on administration spending by right wing pundits.

Frum uses the current projections from the CBO for the Obama Health Care plan to make his point that spending is out of control. Ignoring the fact that those projections are bunk and based on an imcomplete plan, what are the other options? Something needs to be done about health care, 85% percent of the country supports fundamentally changing the health care system. Just like something needed to be done to stabalize the financial system, stimulate the economy and protect our strategic and economic interests in having a strong US based auto industry. This is what happens when political leaders are visionless for 8 years. There are a lot of problems that need fixing all at once.

Let's at least give the administration a year to implement their economic policy before we condemn it. And oh yea, Canada, the example given of an economically responsible country, they have universal health care. If they've figured it out, so can we.

Shelia Bair - A Profile

2009-06-29T23:34:00.001-04:00

This was a worthwhile read. She seems like one of the few appointments that Bush got right:

Although she has no formal training as an economist, she has worked on and off as a financial regulator in Washington for nearly two decades. In 2006, George W. Bush appointed her to run the F.D.I.C., the agency that, established during the Depression, insures bank deposits. The position has a five-year term and is usually held by an anonymous bureaucrat, but Bair has forced her way to the center of the debate over the financial crisis.

Lenny Dykstra Isn't Smart

2009-06-29T22:54:00.004-04:00

Everyone associated with the Lenny Dykstra interview on HBO Sports from Spring 2008 should be ashamed of themselves. In case you don't know, up until recently, Lenny Dykstra (yes the former baseball player) has been building a name for himself in the business world. Unfortunately, the recession seems to have hit him pretty hard.

Watch this video first, the interview from 2008:

Then watch the one from this year. (Deadspin doesn't let you embed their videos)

A recap of my favorite part:
Goldberg: "What do you say to all those people who say once you were flying high, now you are flat broke?"
Dykstra: "I don't know, man." (pulls out $75 cash from his pocket)
Goldberg: "Ok, so you have $75 in your pocket, that doesn't make you rich."

And really, Cramer just can't win (see the first clip), what an idiot.

House Cleaning

2009-06-28T20:57:00.004-04:00

I cleaned up the blog over the weekend, including the following:

Fixed the line spacing issue
Increased the font size of the post text
Fixed the comment posting (it had disappeared)
Added ShareThis to each blog post (this is very cool, try it out)

I have quite a few bigger posts coming this week. Stay tuned.

Daily Noise Reduction (6/26)

2009-06-26T17:22:00.002-04:00

Today's Must Read:
Krugman on Obama and Health Care Reform

Recommended:
The Most Expensive World Real Estate Markets

The Cost of the Upcoming Cap and Trade Bill

Are Mortgage Rates Below 5% Gone for Good?

Why Does Eddie Murphy Still Get to Make Movies?

The GOP is in Trouble

2009-06-26T17:07:00.010-04:00

This graph really demonstrates the trouble the GOP is in:

Hat tip: Yglesias

RIP

2009-06-26T16:23:00.006-04:00

Daily Noise Reduction (6/23)

2009-06-23T22:28:00.003-04:00

Wow, not much out there worth posting today.

Must Read:
A Look at Landmark Train Stations and Their Replacements

Other:
Barry Ritholtz Has Really Soured on Obama

Empathy?

2009-06-23T22:22:00.002-04:00

I don't know, its hard for me to feel bad for this lady:

Uhazi is drowning in a sea of debt. And, like millions of other Americans, it is a debt load that she built up slowly over more than two decades of easy credit that made it all too simple to spend. Now she worries she won’t be able to pay it off because of the recession, which has led to a reduction in her salary and an increase in her credit card bills.

Doesn't sound too bad, until you see that the "sea of debt" is actually $60,000. How do you rack up debt like that and not notice?

Explaining Failure to 9th Graders

2009-06-22T22:35:00.002-04:00

I enjoyed this 2009 commencement address to 9th graders by Paul Tudor Jones. Read the whole thing here:

...
I’m here with you young men today because your parents wanted me to speak to you about service—that is, serving others and giving back to the broader community for the blessings that you have received in your life. But that is a speech for a later time in your life. Don’t get me wrong, serving others is really, really important. It truly is the secret to happiness in life. I swear to God. Money won’t do it. Fame won’t do it. Nor will sex, drugs, homeruns or high achievement. But now I am getting preachy.
...

Hat Tip: The Cunning Realist

National Home Prices and Unemployment

2009-06-22T22:30:00.003-04:00

Interesting data from Calculated Risk:

Hat Tip: Bubble Meter

Daily Noise Reduction (6/22)

2009-06-22T22:09:00.002-04:00

Today's Must Read:
The Effect of Lobbying on Health Care Reform

Recommended:
Ritholtz Comments on "Too Big to Fail"

Yglesias on Obama, the Deficit Slayer

A Hidden Provision in TARP

2009-06-21T21:52:00.002-04:00

I'm about 6 weeks behind on the Economist right now (hey, I'm a busy guy) and I was catching up over the weekend. I was shocked when I read this line in this April 30th article about job recruitment:

A provision in the Troubled Asset Relief Programme requires companies that receive government funds to hire Americans before foreigners.

Why do we do this to ourselves? This idea that there will be a limited amount of highly skilled jobs going forward just isn't based in reality. We need to attract top tier talent to the US and turning away people who want to be here just isn't smart policy.

Isn't it great how provisions like this just "sneak" in to major legislation?

Iran Update

2009-06-18T21:05:00.003-04:00

Following this has been fascinating. One gets the sense that we are watching (or really reading) as a historical event unfolds. As I posted previously, Andrew Sullivan has basically converted his blog to an Iranian Election blog and has been doing an amazing job following the story.

At the same time, one needs to stay in touch with reality, and the likelihood of regime change in Iran is unfortunately quite slim.

Still, something has changed fundamentally on the ground in Iran, and even if Ahmadinejad remains in power, the world's view of Iran is very different now compared with just a week ago.

A Public Health Care Option

2009-06-18T08:30:00.004-04:00

There has been a lot of recent discussion and disagreement over a "public" health care option. Some of the Democrats, including the President, want a public health care option that would be similar to the health care plan offered to members of congress. This public plan would be just one plan that people could choose from when selecting their health insurance. As can be imagined, this idea hasn't gone over very well with Republicans. However, the other day some health care executives did a good job of unintentionally making the case for such a plan:

An investigation by the House Subcommittee on Oversight and Investigations showed that health insurers WellPoint Inc., UnitedHealth Group and Assurant Inc. canceled the coverage of more than 20,000 people, allowing the companies to avoid paying more than $300 million in medical claims over a five-year period.

It also found that policyholders with breast cancer, lymphoma and more than 1,000 other conditions were targeted for rescission and that employees were praised in performance reviews for terminating the policies of customers with expensive illnesses.

So just to be clear here, people enroll and pay their health insurance premiums in order to be covered when something goes wrong, but when they get sick, these insurance companies cancel their coverage. This practice must have been going on under the radar and surely couldn't be endorsed by the CEO's of these companies right?

Late in the hearing, Stupak, the committee chairman, put the executives on the spot. Stupak asked each of them whether he would at least commit his company to immediately stop rescissions except where they could show "intentional fraud."

The answer from all three executives:

"No."

Wow. A public option would force these insurance companies to treat their customers fairly.

Hat Tip: Kevin Drum

Daily Noise Reduction (6/17)

2009-06-18T08:20:00.002-04:00

There were quite a few good articles from yesterday. The must read:
Diaries from People Who Have Quit Driving

Suggested Reading:
Mark Thoma Explains Health Care Rationing

Cramer Calls A Housing Bottom...

Ryan Avent Questions the Filibuster

Daily Noise Reduction (6/16)

2009-06-17T07:11:00.002-04:00

Didn't get a chance to post these yesterday.

Must read:
Krugman Explains What Is Going On With Interest Rates

Suggested Reading:
Tyler Cowen Thinks Health Care Reform is Falling Apart

Drum is Not Impressed by the New Financial Regulations

NYC Hyline Park Hater Alert

2009-06-15T21:19:00.002-04:00

This was a pretty entertaining read. James Howard Kunstler, an author, lays into Americans and infrastructure planning in this country:

One of Kunstler’s consistent themes is that America has become a nation of juvenile-minded people who live in a fantasyland of cultural distraction and have forgotten how to do real stuff. We’re good at getting creative tattoos and minutely calculating the social implications of our hairdos — but not so good at the hard and relentless work of looking after the foundations of our society. We came into a vast amount societal capital, and like a spoiled trust fund kid sobering up after an epic binge, we’re starting to realize that we’ve burned through the inheritance and are going to have go get a job at Burger King or something.

Your Daily Noise Reduction (6/15)

2009-06-15T20:17:00.009-04:00

There is a bug affecting text spacing that I'm trying to fix. Should have that resolved in the next day or two.

In the meantime, here is today's set of links. Today's must read:
Ritholtz on How to Fix Financial TV

Suggested Reading:
Peter Orszag from OMB Comments on Health care

US Home Prices Still Overvalued?

Iran

2009-06-14T23:47:00.004-04:00

In case you haven't been following the election in Iran, most reports are calling the "results" a fraud. Very little information other than the total percentage of the votes received by each candidate have been officially reported.

Andrew Sullivan has the best roundup I've seen and has been blogging the election all weekend. The latest news is of disturbing violence towards the protesting students:

I'm getting several reports of a brutal assault on the students of Tehran University. It's part of an attempt to terrify people into not rallying tomorrow.

I'm baaaack

2009-06-14T10:03:00.002-04:00

After a much longer than expected hiatus (sorry about that), I'm back with a completely redesigned look. What do you think of it?

Regular posting will begin again today, and look for some new features to be rolled out in the near future. Hopefully some of my regular readers have stuck with me through the long posting drought.

Hiatus

2009-05-01T22:32:00.002-04:00

Sorry for the lack of posts, my computer crashed early this week and I'm also putting the finishing touches on my masters thesis. Should be back with a new and improved version of NoEmptyWallets soon...

Break Up the Banks

2009-04-22T22:53:00.002-04:00

I sense this idea is starting to gain some well deserved momentum. Mark Thoma has some detailed commentary on why he thinks the large banks may actually be the root cause of the current crisis:

But what should we make of the fact that every singe step in the process is compromised? Every market that was supposed to self-regulate failed? Does every single market in the chain fail at the same time through some highly unlikely coincidence? What are the chances that, on their own, independently, each and every step in the chain would have been subject to a market failure that just happened to let the bubble keep inflating? Whatever it took to keep the money flowing through the system seems to have come to pass.

So more and more I'm starting to thing there may be a single explanation after all, that the regulators of these markets were captured by powerful forces that wanted the game to continue. The power of regulators, and the will to enforce the regulations, must match - in fact exceed - the will and power of those being regulated to resist having constraints placed on their behavior. I've talked about why ideology may have eroded the will of regulators, but their will is partly a function of their power. So long as we allow huge, clearly over-sized financial institutions to exist, this problem will potentially be present.

A Surprising Profile of Barney Frank

2009-04-22T22:49:00.002-04:00

Now one of the most powerful people in America, I was surprised by the fairly positive profile in the Economist, a magazine that isn't very sympathetic to the Barney Frank world view:

But his talents have never been put to better use than they are today. He has been a fixture on the financial services committee since 1981, mastering arcane detail about everything from securities to insurance. He has been at the centre of the financial crisis from the start: Nancy Pelosi, the speaker of the House of Representatives, made him the Democrats’ chief negotiator with the Bush administration back when Lehman Brothers collapsed.

Mr Frank has also accumulated a long record of brokering deals between free-market Republicans and pro-regulation liberals—experience that is standing him in good stead when it comes to balancing the conflicting demands of the pragmatists in the Treasury and the populists in Congress. He claims to be a strong supporter of free markets, and has provided plenty of evidence that this is more than talk. He has refused to sponsor legislation regulating hedge funds, backed many free-trade agreements, and has voted against farm subsidies.

Daily Noise Reduction (4/22)

2009-04-22T22:30:00.002-04:00

Today's Must Read:
How Healthcare and Education are Related

Recommended:
Ryan Avent on the IMF's "Bearish" World Economic Report

Meet the Treasury Secretary

Daily Noise Reduction (4/21)

2009-04-21T21:33:00.003-04:00

Today's Must Read (especially for anyone considering investing in bank stocks):

Magic Bank Profits

Recommended:

Bloomberg on Mayoral Control of Schools

Are the Banks Really Well Capitalized?

Krugman (He's So Angry) On Saving $100 Million

High Speed Rail Is Coming

2009-04-21T21:07:00.003-04:00

This map of high speed rail lines under consideration is pretty exciting, it will be interesting to see how much the stimulus spending can bring down prices.

Hat Tip: Ryan Avent

Another Botched Story on Taxes

2009-04-20T22:20:00.008-04:00

Is it too much to ask that journalists actually know what they are writing about, prior to writing an article that will stay on the front of Yahoo! Finance all weekend and Monday? I guess so:

Ellen Parnell and her husband, Donald Parnell Jr., seem like the kind of well-off couple President Barack Obama has in mind when he suggests raising taxes on families earning more than $250,000 a year. A surgeon at Fort Sanders Sevier Medical Center in Sevierville, Tenn., he drives an Infiniti. They vacation at a beach resort every year.

Yet, right now he is working seven days a week. The car is more than a decade old, the vacation home in Sandestin, Fla., comes at a moderate weekly rate because members of Ms. Parnell's extended family own it. Her family of five would like more room than they have in their 2,500-square-foot home, yet they can't afford anything larger. The downturn has them skittish about paying for renovations.

"I'm not complaining, but the reality is Obama may call me wealthy, but I thought we were just good old middle class," says Ms. Parnell. "Our needs are being met, but we don't have a load of cash to cover wants."

Continuing:

Under Mr. Obama's budget proposal, two of the highest tax brackets would see rates rise, and deductions would be reduced for households earning more than $250,000 annually. President Obama said Wednesday, "We've made a clear promise that families that earn less than $250,000 will not see their taxes increase by a single dime."

Yes, they may see rates rise, but only on their 250,001st dollar. The tax increase is on the marginal rate, which means that someone earning $249k and $251k will be paying roughly the same amount of taxes.

That being said, this proposal by Matt has merit:

I wouldn’t have a problem with launching a new, slightly higher rate, starting at $500,000 and a higher one starting at $1 million and another at $2 million another at $4 million another at $8 million and another at $16 million. I don’t see any reason to think that the progressivity of the scale should max out at $250,000 when obviously there’s a huge difference between someone earning that much money and someone earning ten times that amount.

The Banks - Something Doesn't Add Up

2009-04-20T22:12:00.004-04:00

There was quite a bit of banking news today, largely spurred by this NY Times article discussing the government's plan to convert their preferred shares from TARP to common shares as a method of recapitalizing the banks.

Krugman, Cowan, Kwak and others have argued that this is "just an accounting gimmick" akin to "arranging the chairs on the deck of Titanic". I'm always suspect, of any Krugman criticism of the Obama administration since he hasn't had a good thing to say about it yet (it started with this spat during the primary). That isn't to say he hasn't been right about some things.

However, this is a situation where he and the others mentioned are a little off base. The preferred shares that the government currently owns are very similar to debt, obviously you wouldn't further increase the liquidity in the credit markets by saddling a bank with more debt (it's another question on why this was done initially). University of Louisiana at Lafayette professor Linus Wilson makes the point :

Even if no new money goes into banks, common stock creates different incentives than preferred. Managers, if they are doing their job, maximize the value of common stock (not preferred stock). Limited liability means that a distressed bank will have perverse incentives until it has enough common stock to absorb those losses. With too little common equity, banks will pass up good loans because too many of the gains are realized by preferred stockholders and debt holders. Managers running banks with too little common equity will be tempted to make speculative loans and shift those losses onto senior creditors (preferred stockholders and bondholders).

Maybe that explains why the banks haven't been lending:

Note: as you can see above, some banks like Wells Fargo actually have been lending

But if they haven't been lending? Why are they rushing to give back the TARP money, which they clearly need to be comfortable lending again? It has to be the executive compensation limits, but if that is the case then that is a very bad sign for the future of the "public-private" partnership. Hopefully Geithner stands his ground and doesn't allow the return of the TARP money until the banks show they are willing to lend.

Daily Noise Reduction (4/20)

2009-04-20T21:36:00.004-04:00

Today's must read:

Is the Green Economy a Myth?

Some Perspective on Taxes from Eric Martin

The Cunning Realist Comments on the Tea-baggers

Stewart on Fox and the "Protests":

The Daily Show With Jon Stewart

M - Th 11p / 10c

Nationwide Tax Protests

thedailyshow.com

Daily Show
Full Episodes

Economic Crisis

Political Humor

Home Ownership, Health Care and Labor Mobility

2009-04-18T00:07:00.007-04:00

This Economist article about a side effect of America's high home ownership is interesting:

Mobility is part of the American dream. In “The Grapes of Wrath”, when Tom Joad’s farm in Oklahoma was repossessed he packed up his family in a sputtering truck and set off for California. Things didn’t work out so well for John Steinbeck’s hero. But throughout history, Americans have dealt with economic shocks by picking themselves up and moving on. Their mobility underpins America’s flexible, dynamic labour market. Now it faces two threats.
One is the housing bust. House prices have collapsed by 27% since their peak in 2006. By December last year a fifth of homeowners with mortgages owed more than their homes were worth. Such people are only half as likely to move as those whose homes are above water, estimate Joseph Gyourko and Fernando Ferreira of the Wharton School of business.
Some cannot sell their homes at all. Others could, but don’t want to take a big loss on an investment they thought was safe as houses. Either way, they are stuck. If a good job comes up in another town, they cannot take it. This effect is partly offset by the impact of foreclosures. Last month alone 291,000 homes received a foreclosure notice. The newly evicted are not merely free but obliged to move. This is unfortunate, but although jobs are in short supply nearly everywhere, being mobile at least increases the odds of finding one.

The article also points out that health insurance being tied to a persons job further reduces mobility. The point about foreclosures is important, but once housing settles it would be interesting to see a study of how this affects overall American competetiveness, if it affects it at all.

Daily Noise Reduction (4/17)

2009-04-17T23:34:00.002-04:00

Must Read:

More Tea Party Pushback from a Republican

Kedrosky's "Four Bad Bear Markets" Chart

Mark Your Calendars - Stress Test Results May 4th

More Pessimism from Krugman

What Do The Protesters Want?

2009-04-15T21:44:00.003-04:00

I've avoided commenting on the tea-baggers up until now because these protests are just noise. However, at a certain point the noise becomes the issue and I think these "tea parties" have reached that point.

From what I can tell, these protests are focused on the Obama administration because of the government's rapidly increasing deficit, the bailouts and the proposed spending in Obama's budget. Yet, the majority of the recent deficit increase is due to cleaning up the last administration's mess: the financial industry bailouts and an economic stimulus supported by all leading economists. No leading economists have disagreed with either of those at a conceptual level.

The key point here is this, to cut spending and reduce the size of government right now would require 2 things:

Cutting spending during a massive recession
Cutting Medicare, Social Security and Defense or massively raising taxes

There is no expert or historical support for doing either of those things right now. To attempt #1 with knowledge that being afraid to spend money is exactly what caused and prolonged the Great Depression is insanity. To attempt #2 would require massive tax increases (again, insane during a recession) or to resolve issues that have been hanging over this country for 25+ years.

Solving Medicare, Social Security and Defense spending, the 3 largest drivers of the federal budget in his first few months in office is completely unreasonable.

But look at the tone of and initial cuts in Gate's FY10 defense budget that was released weeks after Obama's budget. I suspect as Social Security and Health care are addressed in the coming months, you will see spending adjusted accordingly as well. These things take time, the bureaucracies built around defense, health care and social security are extremely complex and can't be unwound with an edict from the President.

Daily Noise Reduction (4/15)

2009-04-15T21:16:00.002-04:00

Must Read:
More Stimulus?

Recommended:
Interactive Government Spending Guide (via Andrew)

Yglesias Comments on the Geithner Plan Narratives

The Race for the Electric Car

2009-04-13T21:44:00.002-04:00

America has some competition:

So when Buffett's friend and longtime partner in Berkshire Hathaway (BRKB), Charlie Munger, suggested early last year that they invest in BYD, an obscure Chinese battery, mobile phone, and electric car company, one might have predicted Buffett would cite rule No. 3 above. He is, after all, a man who shunned the booming U.S. tech industry during the 1990s.
But Buffett, who is 78, was intrigued by Munger's description of the entrepreneur behind BYD, a man named Wang Chuan-Fu, whom he had met through a mutual friend. "This guy," Munger tells Fortune, "is a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it."

A bad sign for the future of American auto makers, their recovery depends on being the first to develop a commercially viable electric car. This also a bad omen for American ingenuity and entrepreneurship. Regardless, an impressive story of a self-made business man.

Daily Noise Reduction (4/13)

2009-04-13T21:32:00.002-04:00

Must Read:
Publius Makes a Point About Regulation and the Internet

Recommended:
Ari Fleischer On Tax Reform

Ritholtz on Bear Markets

Stimulus Projects Running Under Budget

2009-04-13T21:02:00.003-04:00

From today's press conference at the Department of Transportation:

And that's why I'm pleased to hear that in state after state across America, competition for these projects is so fierce, and contractors are doing such a good job cutting costs, that projects are consistently coming in under budget. The final bid for one road project in Connecticut was $8.4 million less than the state budgeted for. Another one in Louisiana was $4.7 million less. A project at BWI Airport will be completed for $8 million less than expected. Bids for projects in North Carolina have been 19 percent under budget. Colorado is reporting bids up to 30 percent less than they expected. And the officials in California have seen bids that are close to half as much as they had projected.
And because these projects are proceeding so efficiently, we now have more recovery dollars to go around. And that means we can fund more projects, revitalize more of our infrastructure, put more people back to work, and ensure that taxpayers get more value for their dollars.

Interesting timing for the President's statements considering there was some growing sentiment that trying to control wasteful stimulus spending was counter-productive. A win for the administration.

Is the Banking Crisis Over? - Hell No

2009-04-11T00:12:00.002-04:00

Andrew linked to this Time article late last week:

Banks became the visible and ugly wound that reminded Wall St. each day that it had torn down what it spent decades building, which was a money-making machine driven by leverage and the cleverest synthetic financial instruments the world has ever seen.

But, the great banking crisis of 2008 is over. It began last September 15 when Lehman Brothers filed for bankruptcy and bottomed when Citigroup (C) traded below $1 last month.

The author seems to equate the apparent bottom of banking stocks with the banking crisis, two very different things. He then backs up his argument by pointing to the Wells Fargo earning surprise that was announced last week:

All of those plans, no matter how well-intentioned they may seem, are unnecessary now. Wells Fargo (WFC) indicated that it made about $3 billion in the first quarter of the year and declared its buyout of the deeply troubled Wachovia to be a success. Wells Fargo (WFC) said that the low cost of money from the government combined with a surging demand for mortgages was all the medicine that it required.

Banks stocks reacted to the news, which took the markets completely by surprise, by driving up Wells Fargo's stock by 32%. Bank of America (BAC) shares jumped 35%.
Oddly absent from the discussion of how well Wells Fargo did is why the government was in the midst of testing bank balance sheets at all. The experts at the Treasury had been thrown off the scent and consequently had missed the fact that there was not need to test what is already working well.

Again, and I hate to be the bearer of bad news, but the banking crisis is nowhere near over. Wells Fargo has been the best positioned bank throughout this crisis, to use them as an indicator for an overall banking recovery is wishful thinking.

Considering two banks failed the day the article came out, I wouldn't bet on the author.

Daily Noise Reduction (4/10)

2009-04-10T23:50:00.002-04:00

Must Read:

Mark Thoma on the Inheritance Tax

Krugman on Making Banking Boring Again

Thomas Barnett on Expert Pessimism

Daily Noise Reduction (4/8)

2009-04-08T23:53:00.002-04:00

An all independent noise reduction today, the must read:
Public Goods and Stimulus

Recommended:
The Public Is Gaining Confidence, the Pundits?

The "D" Word

The Widening Fiscal Gap

2009-04-07T20:30:00.005-04:00

This article by Clive Crook is pretty weak:

Mr Obama intends to squeeze the rich, but the scope for this may be more limited than US liberals would wish. Few Americans seem aware that the US income tax code, as a recent Organisation for Economic Co-operation and Development study showed, is already one of the most progressive.* Even before the rise in top marginal rates promised by Mr Obama, the US income tax collects 45 per cent of its revenues from the highest-income decile. Compare that with Britain at 39 per cent, Canada at 36 per cent, France at 28 per cent, Sweden at 27 per cent and an OECD average of 32 per cent.

Hmm, I wonder if that has anything to do with the fact that incomes for the vast majority of Americans have been stagnant for 30 years, while incomes have risen astronomically for those in the top 10% of earners. Take a look at these charts:

The above chart shows the median household income according to the US census, adjusted for inflation using CPI.

This chart shows the US income per person, an increase of 80% using inflation adjusted numbers. Since median household income has barely increased, this large increase in overall income (total income divided by number of people) means that all that extra income has gone to a small group of top earners.

Crook's article accuses the middle class of not providing their fair share, while at the same time writing a sob story about how much the top earners are paying in taxes. Please. To suggest that the President should do something about this now (read: raise taxes on the middle class) is bad policy, bad economics and bad politics.

The real gap Crook should take a shot writing about is the growing gap between the top earners and the middle class. Once some balance is returned there, while being careful not to penalize the successful, the economy will take off again (a strong middle class has money to spend) and then the focus can turn to balancing the budget.

One note: The article I linked to above (where these charts came from), tries to debunk the data using some voodoo math (modifying the inflation rate and redefining what household means). Ignore it, I just wanted to provide the source of the data.

What Happened to the US Market Summary?

2009-04-07T20:24:00.003-04:00

In case you were wondering, I had to remove that U.S Market summary that used to be on the right of the screen, the creator modified it to include a huge spam message begging for donations.

I'll try to find a replacement.

Daily Noise Reduction (4/7)

2009-04-07T19:27:00.003-04:00

Must Read:
Comments on a Global Currency

Recommended:
Goldman's CEO Calls for Executive Pay Overhaul

Greenspan: Will Stocks Lead the Recovery?

Blodget on How Bear Markets End

The Bush Years: The Lost Decade?

Daily Noise Reduction (4/6)

2009-04-06T22:53:00.003-04:00

The NCAA Hoops Championship turned out to be a dud, as a Big Ten guy, I was hoping for a better showing by MSU.

Also: Sorry for my laziness on Friday in not getting any links up.

Today's Must Read:
Gates Unveils His Defense Budget Approach

Recommended:
WSJ: From Bubble to Depression?

Counter to My Thinking: House Prices to Fall another 30%?

The Weekly Standard Piles on The GOP Budget

Ezra: Could This Be Worse Than The Great Depression?

Andrew Comments on a Return of Confidence

Daily Noise Reduction (4/2)

2009-04-02T22:23:00.002-04:00

G20 today - did it matter:

The Economist Has a G20 Roundup

Recommended:

Is Geithner's Plan A Taxpayer Curse?

Has Reaganism Failed?

Case-Shiller Index for January

2009-04-01T23:10:00.002-04:00

The Case-Shiller 20-city home price index came out yesterday, unfortunately the national numbers only come out quarterly, but the 20-city index showed the same sharp decline that the national NAR January numbers did:

The Case-Shiller 20-city home price index fell a record 2.8% in January ...

Prices are down 29% from the peak in mid-2006, according to Case-Shiller. Prices have fallen to September 2003 levels.

Remember, these are only looking at a set of 20 US cities, they aren't national numbers. The NAR median home prices stayed relatively flat in February, it will be interesting to see if the CS numbers again follow suit. The NAR numbers are normally more volatile than the CS numbers due to what they measure.

The GOP Budget Proposal - Part II

2009-04-01T22:45:00.003-04:00

The GOP unveiled their budget "with numbers" today. I gave version 1.0 a fair shake last week so I don't feel bad calling it what it is: utterly incoherent. A round-up from the blogs:

Publius:

As we already knew (because it was the one specific detail in the last “budget”), the plan has a massive tax cut for the wealthy – lowering the highest marginal rate to 25%. Higher-earning taxpayers can, however, voluntarily opt to pay the old higher rate. Here’s the kicker – the GOP’s deficit assumptions assume that everyone will opt for the older higher rates.

Drum:

That's it? Seriously? They claim Social Security is going bankrupt and their proposal is to reduce PIA by 0.25% per year starting in 2036? This takes gutlessness to a whole new level.

Conor Clarke on the below graph:

As near as I can tell, Paul Ryan and his staff just took the CBO projections that ended in 2019 and drew a random line, extending upward at about a 45 degree angle, until 2080. There's no real attempt to make it look scientific.

John Marshall:

We see today from their House GOP 'budget' that their new-found allegiance to fiscal discipline has them lowering the top marginal tax rate to 25% (it's currently 35%, with the Bush tax cuts), which for anyone who knows anything about the federal budget would pretty much inevitably lead to gargantuan federal deficits and the Treasury exploding probably some time early in the next decade.

Freddoso trying to stay positive:

This graph, featured in a House Republican press conference this morning, whets my appetite for some real numbers, which will be forthcoming tomorrow. You'll notice that it projects out to 2080, which is a bit far for my taste. It's bad enough to look at Obama's budget through 2019.

I must say, it looks like any opposition to Obama is going to have to come from the moderate democrats. The current GOP has become about as irrelevant as AOL.

Daily Noise Reduction (4/1)

2009-04-01T22:17:00.004-04:00

Thanks to the reader who provided the "scale" idea, I like it.

Today's Must Read:
Drum Comments on the Unveiled Cap and Trade Bill

Recommended:
Frum Puts the Current Economic Environment in Context

Calculated Risk Notes the Auto Sales Uptick

Consumer Confidence

2009-04-01T00:04:00.003-04:00

A pretty bleak picture, but a slight uptick this month:

A look at consumer confidence in this decade. Confidence began to fall in late 2007 which signaled the coming recession.

This chart shows just how horrible confidence is right now, and rightly so. The economy can't turn in an environment like this.

Daily Noise Reduction (3/31)

2009-03-31T23:34:00.002-04:00

Anyone have any ideas on what type of symbol I can use for "independent"-leaning articles? The question marks seem pretty low rent. Respond in the comments if you have ideas.

Must Read:
This is Really Bad News Regarding Pensions

Recommended:
Thoma, On DeLong, On Kick Starting Employment (?)

The Economist on 'Bottom Fatigue'

Apparently, Obama Thinks Bankruptcy is Best Option for GM (?)

Yglesias Has a Good Look at When A Recovery May Come

An Analysis of Wall Street "Brain Power"

Daily Noise Reduction (3/30)

2009-03-30T23:33:00.003-04:00

An absolute must read:

Inside the IMF (?)

Hilzoy on Write Downs of Mortgage Debt

Random Horrible Advice Flashback

2009-03-28T23:11:00.002-04:00

I was strolling through some Real Estate Investment Trust (REIT) related information this week and stumbled across this article from 2006 by John Waggoner:

REIT returns have been spectacular in the past five years. Real estate mutual funds, which invest mainly in REITs, have soared an average 139%, compared with 21% for the average stock fund and 10% for the Standard & Poor's 500-stock index.

All of which means that five years ago was a swell time to invest in real estate funds. But is it too late now?

Well, yes and no. If you're counting on booking a 139% gain in the next five years, REITs and real estate funds are likely to disappoint you. "Nothing is cheap," says Samuel Lieber, manager of the Alpine U.S. Real Estate fund.

But, why let data get in the way of a "good" investment:

"There's not a lot of upside here," says Alpine's Lieber. But there's not a lot of downside, either. REITs will probably raise their dividends in the next few years, making them slightly more attractive. Should the stock market turn down, those dividends will ease the pain.

Unless you plan to pick your own REITs, it's probably best to invest in a real estate fund. The top-performing real estate funds the past five years are in the chart. Right now, a $1,000 investment in a real estate fund will cost you less than a few days in a major city hotel.

Why not toss a mint on your pillow and invest the savings in a real estate fund? You'll get some decent income and save on aftershave, too.

If you had followed this advice and bought one of the funds listed in the article, you would have lost 50-70% on your investment to date. Oops.

The GOP Budget Proposal

2009-03-28T22:30:00.002-04:00

The GOP released their "budget" this week and they probably didn't receive the response they had hoped. It was universally panned by both the right and left due to a complete lack of actual details.

As an illustration of just how weak the opposition party is right now, David Feddoso comments:

One cannot help but get the impression that Obama's challenge to present an alternative caught the Republicans unprepared. It's great that they're going to present an alternative budget, but it's a bit disappointing to be promised a budget and to get a general statement of policies instead.

Still, there is some information about the current GOP's vision to be gleamed from the proposal. The general objectives are:

Curb Spending
Create Jobs and Lower Taxes
Control the Debt

Who can disagree with those? Unfortunately, the solutions seem to have a common theme, see if you can pick it out. For example, on health care:

Republicans support leveling the playing field through policies that will provide tax incentives for millions more working families and small business owners to obtain access to coverage.

On creating jobs:

Instead of raising taxes on all Americans in the midst of a recession, Republicans seek to reduce the tax burden on working families and small businesses in order to create jobs and unlock private capital.

On energy:

Instead of taxing all energy users with a new energy tax that will cost up to $3,128 per household, Republicans want energy independence with increased exploration and the development of new renewable energy sources, such as wind and solar.

Cut taxes, cut taxes, cut taxes. There are some other solutions such as "ending bailouts" and "reducing the deficit" without any real details on how to do that. The plan does close with a counter proposal to the fed's loose monetary policy to help reduce the long term prospects of inflation. Probably the least comprehensible to the general public but it is worth hearing more about.

Apparently, the GOP will produce an actual budget this week, I'm on the edge of my seat.

Weekend Reading

2009-03-28T21:57:00.003-04:00

Must Read:
The Economist Comments on the Geithner Regulation Plan

Recommended:
The New EU Head Doesn't Like Obama's Stimulus

The Economist Chimes in on Banks Buying Up Bad Assets

Calculated Risk Has a Nice Comparison of 4 Bear Markets (?)

Daily Noise Reduction (3/26)

2009-03-26T22:38:00.002-04:00

Today's Must Read:
Nicholas Kristof on "Expertise"

Recommended:
Robert Reich Predicts the Recovery

Andrew Sullivan Summarizes Some "Bottom Hunters"

Daily Noise Reduction (3/25)

2009-03-25T21:44:00.002-04:00

Slow news day today, the must read:
Ezra Follows Up on the One Bank We Did Nationalize

Recommended:
Some Details on the Senate Budget

An AIG Executive Resigns and Writes About It (?)

Drum Previews the Coming Financial Regulations

Another (If Obscure) Indicator of a Bottoming (?)

Drum Responds

2009-03-24T22:19:00.002-04:00

Kevin Drum responds to my post on housing prices:

Mike suggests that lower mortgage rates and the upcoming stimulus tax credit will prop up prices a bit compared to past levels, and that's possible. But mortgage rates are only slightly lower today than in 2000, and the effect of the tax credit is hard to judge. I'm just guessing like everyone else (and since I have a house I'm trying to sell I'd be delighted to end up wrong about this) but I'd keep my money on a further 20% drop.

No real issues with his calculation, he was using the Composite-20 measure of the Case-Shiller Home Price Index, which looks at housing prices across 20 major cities.

I will only make a couple points (warning, this gets technical). First, the Case-Shiller numbers are delayed 2 months instead of 1 like the NAR numbers I was using, and January was a really bad month for housing prices, declining 8.3% (at least according to NAR). Also, they aren't national numbers so we weren't comparing apples to apples, if you use the national Case-Shiller numbers, the index was at 139 in December 2008. If we add in the same 8.3% January decline, the index becomes 127 and then adjusting with the GDP deflator (divide index number by GDP deflator of 123), we are at 103. That is exactly where you would expect the bottom to be, especially with all the incentives that buyers have right now.

I will hedge a little and say that you can't really "predict" anything in the current environment and it clearly depends what indexes and data you look at, the data I'm using supports a "national" bottom. Remember, this is national data, there are pockets that still have much further to fall and other areas that may be starting to recover. Finally, just because prices have plateaued, that doesn't mean they will immediately bounce back. If you look at the inventory numbers, we are still a long way away from working that off.

Your Daily Noise Reduction (3/24)

2009-03-24T22:02:00.002-04:00

Must Read:
President Obama Comments on the Economic Crisis

Recommended:
The Curious Capitalist Questions the Krugman Worship (?)

Comparing the Geithner Plan to the FDIC

And if you are thinking of buying a home...
A Great FAQ on the $8,000 Housing Credit

A Housing Bottom?

2009-03-23T22:04:00.007-04:00

In a post about the good housing news today, Kevin Drum says:

It's not clear what caused this, since home prices are almost certainly going to keep falling another 20% or so. In fact, this might even be bad news in a way, since the faster we hit bottom and get back to trend growth, the faster we're likely to see the end of the recession.

I'd like to know what he is basing a further 20% decline on, I don't see it. If you look at a number of indicators, we are at, or very near a housing bottom.

Housing affordability as of December 2008 was at a historic high:

Keep in mind, this affordability metric was based on a median existing home sales price of $180k in December 2008. As of the data released today (for the month of February), the median existing home sales price was down another 8.3% to $165k.

Adding in the stimulus tax credit for buying a home in 2009, we can reduce that median price another $8k and then factor in interest rates at 5%, the lowest in decades. Housing affordability has never been higher.

Now looking at historical home prices, the median existing home sales price is already very close to the historical, inflation adjusted average of $150k:

If prices were to fall another 20% to $132k as Drum suggests, or $124k when adjusted for the tax credit, we would be at the same inflation adjusted median price as the early 80s (when mortgage rates were a whopping 18.5%).

Update: Kevin responds here and I follow up here.

Your Daily Noise Reduction (3/23)

2009-03-23T21:24:00.002-04:00

Must Read:
A Great Explanation of Geithner's Plan Using Cars (?)

Recommended:
Andrew Summarizes Brad DeLong on the Plan

And Geithner, In His Own Words

On Distractions

2009-03-22T22:00:00.003-04:00

Anyone else find it humorous that the 3 biggest stories this past week were:

1) The AIG Bonuses - (0.000065% of 2008 US Tax Revenues)
2) President Obama "Wasting Time" on Leno - (0.00011% of Obama's time as President)
3) President Obama Taking On Too Many Things at Once

Has the press just completely given up?

Uh Oh - Initial Details of the Treasury's Toxic Assets Plan

2009-03-21T19:55:00.013-04:00

The first details of the treasury plan have leaked, covered by the NYT here.

The Times does a nice job of explaining the objective of this plan:

Risk-taking institutional investors, like hedge funds and private equity funds, have refused to pay more than about 30 cents on the dollar for many bundles of mortgages, even if most of the borrowers are still current. But banks holding those mortgages, not wanting to book huge losses on their holdings, have often refused to sell for less than 60cents on the dollar.
The result has been a paralyzing impasse. Banks, unwilling to sell their loans at fire-sale prices, have had less capital available to make new loans. Mortgage investors, unable to leverage their investments with borrowed money, have been unwilling to pay more than fire-sale prices.
To break that impasse, the government’s crucial subsidy is meant to provide investors with the kind of low-cost financing that has been utterly unavailable in today’s credit markets.

A Friday evening leak, and if the initial reaction is any sign, this probably won't go over well. Although, the press has decided that Geithner can't do his job and is going to go after anything he puts out. I'm not going to defend Geithner, and I think he obviously needs some political/PR training, but people need to understand that there are no "good options" in the current crisis.

Krugman sums up the opposition to the plan, more below:

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.

Krugman's charge that the Obama administration thinks "there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank" is a leap. Unless I'm missing something, this plan means that they think the assets are worth more than 30 cents on the dollar but also that they are worth less than 60 cents on the dollar, far from "nothing fundamentally wrong" with the assets. In the links below, you can see that there are some gaps in the details released so far, people are just assuming the worst.

Everyone agrees that these toxic assets are choking the system, and the fact remains that if you don't do something like this, you either take over the banks and their bad assets (huge cost to the taxpayer among other complexities) or pay the 60 cents on the dollar for the bad assets that the banks are willing to sell for (again, huge cost and a bad investment). The key thing to watch is if the banks are allowed to set a reserve price at the auction of the assets, say at 60 cents on the dollar. If they can, then I agree that this plan is probably the wrong one.

There are some credible supporters of a plan like this, Lucian Bebchuk, an economist at Harvard is one.

However, there are many detractors, below is a roundup of respected economists who have panned the initial details:
Krugman is unhappy. Really unhappy.

Calculated Risk is not enthusiastic

Yves Smith at the Naked Capitalism Has a Detailed Rebuttal. And a follow up.

Are they right? Let's hope not.

Your Daily Noise Reduction (3/20)

2009-03-21T18:56:00.002-04:00

Forgot to post these on Friday.

Must Read:
Brad DeLong Has a Great Idea for Exec Compensation

Recommended:
Is AIG Really "Too Big to Fail"? (?)

Obama Is No Socialist (?)

The TED Spread Stabalizes

2009-03-18T23:04:00.004-04:00

I'm going to start monitoring some of the key economic indicators to help track where we are in the economic recovery process. The first that we will be looking at is the TED Spread.

In short, the spread is used to measure of the perceived risk of credit in the overall economy. It measures the difference between interest rate on US Treasury Bills (considered to be risk free) and the cost of inter-bank loans ("credit flow"). See the chart below:

The TED spread has stabilized to August 2007 levels, and with the FED taking some drastic action, I would expect the spread to trend down in the coming months. Yet another positive indicator that the crisis is beginning to find a bottom.

Your Daily Noise Reduction (3/18)

2009-03-18T22:36:00.003-04:00

In light of the anger over the AIG bonus debacle, today's must read:

Who Is The Villain That Caused The Crisis? (?)

Recommended:
How Well Does America Respond To A Crisis

What the Fed Just Did

The Housing Surge

2009-03-18T22:13:00.004-04:00

It isn't quite clear what to think of the surge in new housing starts:

Initial construction of U.S. homes unexpectedly surged in February, after falling for eight months, according to a government report released Tuesday.
Housing starts rose to a seasonally adjusted annual rate of 583,000 last month, up 22% from a revised 477,000 in January, according to the Commerce Department. It was the first time housing starts increased since June, when they rose 11%.

In the aggregate this is troubling, as Shepardson notes:

"With new home sales still falling and the months' supply at a record, there is no reason for homebuilding to rise," wrote Ian Sheperdson, chief U.S. economist at High Frequency Economics in a research note. "This is a temporary rebound, not a recovery."

However, looking at the data by region, in the areas with the most overbuilt markets (the west), housing starts declined by 25%. This is a positive sign that confidence is returning and builders have decided it is time to take advantage of the huge decline in the cost of building materials.

Policymakers must be vigilant as move forward though, we cannot risk starting yet another unsustainable boom in housing. Part of this collapse of the housing market is unavoidable and really will be a good thing for long term economic stability.

Your Daily Noise Reduction (3/17)

2009-03-18T21:54:00.002-04:00

A catch up post, didn't have time to post these yesterday:

Must Read:
Larison Questions the Earmark Crusaders

Recommended:
China Isn't Happy About Obama's Budget

The Difference Between Economists and the General Public (?)