The Devil's Dictionary, No. 25

YANKEE, n. In Europe, an American. In the Northern States of our Union, a New Englander. In the Southern States the word is unknown. (See DAMNYANK.)

                         The Devil's Dictionary

More on Wal-Mart

Looks like they may be going too far....

The Free Flow of Capital

In his column on Monday Paul Krugman questions a pillar of the economic idealogy of our times: the free flow of capital:

In the first couple of decades after World War II, limits on cross-border money flows were widely considered good policy; they were more or less universal in poorer nations, and present in a majority of richer countries too. Britain, for example, limited overseas investments by its residents until 1979; other advanced countries maintained restrictions into the 1980s. Even the United States briefly limited capital outflows during the 1960s.

Over time, however, these restrictions fell out of fashion. To some extent this reflected the fact that capital controls have potential costs: they impose extra burdens of paperwork, they make business operations more difficult, and conventional economic analysis says that they should have a negative impact on growth (although this effect is hard to find in the numbers). But it also reflected the rise of free-market ideology, the assumption that if financial markets want to move money across borders, there must be a good reason, and bureaucrats shouldn’t stand in their way.

As a result, countries that did step in to limit capital flows — like Malaysia, which imposed what amounted to a curfew on capital flight in 1998 — were treated almost as pariahs. Surely they would be punished for defying the gods of the market.

But the truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.

It’s hard to imagine now, but for more than three decades after World War II financial crises of the kind we’ve lately become so familiar with hardly ever happened. Since 1980, however, the roster has been impressive: Mexico, Brazil, Argentina and Chile in 1982. Sweden and Finland in 1991. Mexico again in 1995. Thailand, Malaysia, Indonesia and Korea in 1998. Argentina again in 2002. And, of course, the more recent run of disasters: Iceland, Ireland, Greece, Portugal, Spain, Italy, Cyprus.

What’s the common theme in these episodes? Conventional wisdom blames fiscal profligacy — but in this whole list, that story fits only one country, Greece. Runaway bankers are a better story; they played a role in a number of these crises, from Chile to Sweden to Cyprus. But the best predictor of crisis is large inflows of foreign money: in all but a couple of the cases I just mentioned, the foundation for crisis was laid by a rush of foreign investors into a country, followed by a sudden rush out.

....

And it’s not just Europe. In the last decade America, too, experienced a huge housing bubble fed by foreign money, followed by a nasty hangover after the bubble burst. The damage was mitigated by the fact that we borrowed in our own currency, but it’s still our worst crisis since the 1930s.

I tend to put most of the blame for this on "free market ideology" and the manner in which the elites have pushed this ideology to their own advantage to the detriment of others.  It is a mantra that rings true to most Americans, who after having this pounded into them for the last 40 years have accepted it as a given, when it was not so accepted in the past.

There are so many points here that can be made, but the primary one is that there has got to be a recognition that free markets are not an end in themselves.  They are a tool - the mechanism by which we produce the best economic outcomes for our citizens.  If the tools are not working properly, then adjustments need to be made.  And the mechanism society uses to make these adjustments is our government.

They're Nuts

Poland still wants to join the Euro.

Wal-Mart's New Plan for Online Shopping

Susie Madrak on Walmart's plan to recruit shoppers to deliver packages for them.

Susie says:  "Wow. I really didn't think Walmart could stoop any lower..."

I did.

The Devil's Dictionary, No. 24

X in our alphabet being a needless letter has an added invincibility to the attacks of the spelling reformers, and like them, will doubtless last as long as the language. X is the sacred symbol of ten dollars, and in such words as Xmas, Xn, etc., stands for Christ, not, as is popular supposed, because it represents a cross, but because the corresponding letter in the Greek alphabet is the initial of his name -- Xristos. If it represented a cross it would stand for St. Andrew, who "testified" upon one of that shape. In the algebra of psychology x stands for Woman's mind. Words beginning with X are Grecian and will not be defined in this standard English dictionary.

                         - The Devil's Dictionary

Oldsters

Duncan makes an interesting point:

Carl Newman, who fronts the New Pornographers, tweeted this:

The distance in time between '77 punk and right now is the same as the distance between '77 Punk and the attack on Pearl Harbor.

I replied:

@ACNewman distance between now and Please Please Me is same as distance between 1963 and Archduke Ferdinand being alive

Obviously the big takeaway is holy crap I'm old (I was born 9 years after Please Please Me, but still), but I think there's a broader point about us olds not getting just how distant stuff is for The Kids Today. More than that, I also think there was a kind of continuity between people born, roughly, from the beginning of WWII until about 1993. The discontinuity here is the internet, a society transforming technology change.

I probably started listening to The Beatles (aside from randomly hearing them on the radio) in 1986 or so, when I was 14. Some 14 year old kid today listening to The Beatles would be equivalent to my 1986 self getting into music from 1939 or so. Those "old movies" weren't actually all that old, some of them anyway, when I was a teenager, but I sure did think they were old, even movies from the 70s! Imagine what they look like to The Kids Today. Probably every action/horror/mystery/thriller movie fails the "cell phone plausibility test," in that if characters had cell phones the entire plot would be ludicrous.

Anyway, point is the kids don't live in the world of oldsters. Oldsters is old.

There are several thoughts I had when I read this.

First, of course, he's right.  The world our kids grew up in is not the world we grew up in.  And this extends well beyond the cultural/entertainment aspects of things.  I think that it really shows in a lot of political issues as well.  This week gay marriage has been a hot topic, and its not surprising that it's the oldsters having problems dealing with the issue.  It's been 36 years since Billy Crystal played Jodie Dallas in Soap, and depictions of gay men and lesbians have been ubiquitous ever since.  It's not surprising at all that younger people would have no issue with this.

There are two things we should keep in mind when it comes to generational things though.

First, the pace of change that we have seen since Archduke Ferdinand (hard to believe that's less than a century ago) has been tremendous.  A century ago, the world of one generation was not all that different from the world of the generation that came before or after.  That is clearly not the case today.  Because change happens so much more quickly, for many people it's difficult to deal with.  They just want it to stop.  To me, that's the underlying primal motivation of the tea partiers.  They just want it to stop.

Second, it's important for us oldsters to recognize this fact.

I've never been one who thinks of age and experience as being all that important.  I am reading a book now about colonial America, and one of the things that the author points out about Puritan New England is that emphasis place on honoring the older members of the society.  I think perhaps in that era it made sense.  The pace of change back then was not what it is now, and experience probably counted for a lot.  But today, when the world changes so much from decade to decade, experience can be a devastating liability.  The fact that Mitt Romney thinks our biggest foreign policy challenge is Russia is just a relic from a bygone age.  The fact that we had an administration full of old cold warriors when 911 happened proved a disaster.

We have a mandatory minimum age for elected officials in our Federal government.  I think we should have a mandatory maximum as well....

The Devil's Dictionary, No. 23

WHEAT, n. A cereal from which a tolerably good whisky can with some difficulty be made, and which is also used for bread.  The French are said to eat more bread per capita of population than any other people, which is natural, for only they know how to make the stuff palatable.

                        - The Devil's Dictionary

The Property Tax Deduction

A news report in Bloomberg today states that Congress is taking a hard look at the property tax deduction as one that may be eliminated in a future tax reform law. 

If this deduction is eliminated, it would be the end of a something that has been a feature of the income tax from its very origins.  There has never been a time when state and local taxes (other than sales taxes) have not been deductible.  Even the civil war income tax provided a deduction for state and local taxes.

I have been trying to discern the historical basis for this deduction.  My guess is that it was based in some concept of avoiding double taxation.  Hopefully I'll find something that will shed some more light on the question.

I can understand the idea behind eliminating this deduction (although why property taxes only as compared to other kinds of state and local taxes escapes me) - in fact, conceptually I agree with eliminating it.  But it represents a huge paradigm shift, and I wonder if we're really ready for it.

 

Marriage and procreation - a tale

Booman has what I think is an interesting take on the point Elena Kagan made during yesterday's Supreme Court hearing on Proposition 8:

A lot of people are laughing at how Justice Elena Kagan made the lawyer defending Prop 8, Charles J. Cooper, look foolish yesterday by summoning an imaginary couple over 55 years of age to make the point that the state doesn't deny marriage licenses to be people who can't procreate.

....

Let me try to construct a more coherent argument here. Cooper is saying that marriage serves to discourage sexual behavior out of wedlock, which is in the State's interest because children born out of wedlock create societal problems, including costs to the State. For this reason, it's important that people see marriage as an institution that is a prerequisite to both having sexual relations and to planning a family. Once we concede that marriage is really nothing more than an agreement between consenting adults to make a commitment to each other in the pursuit of their own happiness, then the sociological purpose and benefit of marriage (from the State's point of view) disappears completely.

....

So, the question, then, is whether or not genderless marriage will tend to reduce the occurrence of marriage over time. Will it result in more out-of-wedlock heterosexual behavior and more single-parent households? Will people get the idea that marriage is unrelated to procreation and choose to get married only and solely for their own happiness and not because that is the appropriate thing to do if you are going to engage in behavior that could result in a child?

Conservatives on the Court seemed sympathetic to the view that this might be a result and questioned whether or not we ought to wait until more sociological data is available to settle the question.

As a political and cultural matter, Americans seem to have already been sold on the idea that marriage is really about the happiness of the adults and not a prerequisite for sexual relations. In this sense, this argument seems like a rearguard action for extreme social conservatives. And, as a legal matter, I don't know that you can treat people's individual due process and equal treatment rights as a sociological question. But culture and the law aside, the institution of marriage has been encouraged over centuries as a way to make men take responsibility for their offspring and to thereby reduce the costs to society as a whole. In the past, this marriage requirement has been very coercive and not much concerned with the happiness of the adults. As marriage has become optional, and something you can enter and leave at will, it has become less effective in its original purpose.

There's plenty to debate here. For example, there was always a societal cost to unhappy marriages. Now that many fewer people are coerced into marriages and it is much easier to terminate unhappy marriages, those societal costs have gone down dramatically. Now that we've developed family courts and an efficient means to compel fathers to meet their responsibilities to their children, our interest in keeping unhappy families together is virtually erased. In many cases, the State's interest in protecting a woman and her children from an abusive husband exceeds their interest in keeping whole the family unit.

Coercive marriage was always a blunt instrument, usually backed by religious imperatives, aimed at creating a greater societal good. Eventually, it became clear that the institution had to be relaxed to better protect other societal goods, including individual rights and the right to the pursuit of happiness. So, I think Cooper's argument fails on any number of levels, but I don't think he necessarily deserved to be laughed out of Court.

In a sense, the recognition of gay marriage really does represent a formal acknowledgement that our society is rejecting the original societal interest in marriage. It's significant, but it only formalizes something we have already decided for ourselves in same-sex marriages. We get married because he love each other and because we want to get married, not because we feel we must if we want to have sex or children.

And reading this reminded me of a story my mother related to me awhile back about her aunt and uncle.  She was visiting her uncle - who was in the hospital dying of cancer - with her aunt there as well, and they revealed a secret to her that, up to that time (and after nearly 50 years of marriage) they had never told anyone.  My mother had known that for some time the two of them discretely celebrated a special day that was about six weeks before their anniversary.  It turns out that about six weeks before their wedding they had secretly gotten married without telling anyone.  When my mother asked why they would do such a thing, the only response she got was a sly smile on my uncle's face - which was all the answer she needed:  to have sex, of course!  They just couldn't wait for the official wedding day....

Obviously, this reason for marriage has fallen by the wayside for the vast majority of Americans.  Most couples I know who are married were active sexually prior to their marriage (and probably lived together before they were married), and most couples I know who are not married are active sexually as well.  Only the most prudish people question whether or not it's appropriate (although I would guess that a signficant percentage of people who are more traditional probably disapprove but tolerate it).   And I am aware of many couples who have lived together for years and are raising a family but have never been married.  I think it's fair to say that the connection between sex and marriage is something that, while we still to some extent pay lip service to, really has been severed.

The more basic question - which up to now has really not been raised by anyone - is that if this is the reason the state has an interest in who can get married and who can't, and that reason no longer applies, what is the state's interest in marriage at all anymore?  There's a lot more to this question than meets the eye.

A Brief History Lesson

In 1983, they increased FICA taxes by 60%.  The idea was to build-up a surplus in funds that would be  available to pay benefits when the baby boomers retire, knowing that at that time payroll taxes would not be high enough to pay all benefits.  That time has come.

At the same time, between 1981 and 1986, they cut the highest personal income tax rate by 60%.  It's risen a bit since then, but still is about 44% lower than it was in 1981.  Oh, the rate on capital gains is 70% lower than it was in 1981, and the rate on dividends is 78% lower than it was in 1981.

This was the deal.  Rich income tax payers were borrowing from workers through the social security trust fund.  

Now it's time for rich income tax payers to start paying those borrowings back.  And they don't want to.

And that's what the fight is all about.

Bailouts

If you bail out the borrowers, by definition you are bailing out the lenders.

The Devil's Dictionary, No. 22

VALOR, n.  A soldierly compound of vanity, duty and the gambler's hope.

"Why have you halted?" roared the commander of a division and Chickamauga, who had ordered a charge; "move forward, sir, at once."

"General," said the commander of the delinquent brigade, "I am persuaded that any further display of valor by my troops will bring them into collision with the enemy."

                         - The Devil's Dictionary

Exposing Divisions

Following up on my post from earlier this week comes this picture from Friday's Telegraph of from a protest in Cyprus earlier this week:

The economic crisis is exposing some nasty divisions in Europe.  I'm kinda worried....

The Devil's Dictionary, No. 21

ULTIMATUM, n. In diplomacy, a last demand before resorting to concessions.

                         - The Devil's Dictionary

The North Carolina Estate Tax

This morning I read this a blurb in the advance sheets about how the governor of North Carolina has proposed abolishing that state's estate tax.

Reading on, I noticed something interesting.  The North Carolina estate tax is equal to the state credit allowable under the federal estate tax.  That means that the North Carolina's estate tax actually isn't paid by the estate.  It's paid by the federal government. 

As an example, for the biggest estates, the estate tax is 40%, and the maximum state credit is 16%.  If the state imposes no estate tax, then the estate pays a tax of 40% to the federal government.  If the state imposes a tax of 16%, then the estate pays 16% to the state government and 24% to the federal government.

The estate pays the same amount either way.

So why would any sane governor propose doing this - making essentially a gift to the federal government?

Beats the hell out of me....

As Bad as the Banks

After reading the Brill article last month on the cost of health care, I find it hard to believe that the cost of this tax can't be borne somewhere in the system.  But the health care industry - particularly manufacturers of these devices, drug companies and hospitals - together are more powerful than the banks.

The Devil's Dictionary, No. 20

TRUTHFUL, adj.  Dumb and illiterate.

                         - The Devil's Dictionary

Racial Divisions and Racial Politics

Josh Marshall has an interesting post today on how the demographic changes are affecting the politics of race in America.  But I want to focus on his concluding paragraphs:

It would be a great thing for America to have an at least partially deracialized politics. But I don’t think any of us can fully visualize the pervasive restructuring of our politics that would entail — far beyond what we normally think of as issues of race. Recent events make me think we are going to at least move in that direction. At least somewhat.  Eventually.

But racial divisions — which is different from ‘racism’ per se — are just more deeply rooted in our politics than most people care to admit. Taking that out of the equation, even to a degree, would upend more apple carts than we realize, would take longer than we realize. The GOP is deeply in hock to the white voters whose votes it’s focused on maximizing in recent elections. And that de-leveraging won’t come rapidly or easily.

Liberals like myself sometimes forget how unique the United States is in its extraordinary diversity, and how difficult it is to bridge racial, ethnic and sectarian divisions.  We only have to look at the last couple of decades in Europe to see how these divisions have long historical roots.

I remember during the Balkan War of the 1990s reading about how ethnic animosities in Kosovo dated back to the Battle of Kosovo in the late 14th century, a battle that eventually led to Serbia being conquered by the Ottoman Empire.  It was remarkable to me that events that took place so long in the past could still generate such feelings.  But then again, the Romans leveled Jerusalem and dispersed its Jewish population in the mid-2nd century, and some 17 centuries didn't prevent the rise of Zionism.

I have a number of friends that are immigrants - it's hard not to in NY - including many from Eastern Europe who migrated here after the fall of the iron curtain.  And I have been struck from time to time by their attitudes towards other Europeans.  The stereotypes we have of the various nationalities - Italians, Spanish, Irish, Turks - were carried here by the people who immigrated here, and continue to be perpetuated despite the integration of these nationalities into the United States.

And even now, with the economic troubles that are going on over in Europe, we have seen a troubling uptick in nationalism.   Despite the horrible history of the 20th century and decades of work at integrating Europe to prevent a repeat, those divisions still remain.   You hear condemnations of overbearing Germans in the south and disparaging comments coming regarding those countries undergoing financial crises coming from the north.  I truly fear what the ramifications will be if the Euro falls apart.

I have been reading a book called Albion's Seed, by David Hackett Fischer, a remarkable book about how the British colonies from which the United States evolved were settled by people from different regions in Britain, with cultural difference that continue to impact the cultural and political conflicts we have today.  It's actually kind of fascinating to see how regional (and no doubt ethnic) differences within Britain centuries ago continue to influence our society today.

Having an identity - an ethnicity - is part of human nature.  We all come from different groups with which we identify, and in so identifying we are making a judgment, conscious or not, about people of other ethnicities.

The miracle of America - what makes it work - is that most of us have made our racial, religious and ethnic identities secondary to what can only be seen as an political - or even ethical - ideal.  I have always thought that the American creed is stated in five words in the Declaration of Independence:  "All men are created equal."  It is the pre-eminence of that ideal that allows a country whose people are of such diverse origins not only to hold together but to succeed beyond what must be the wildest dreams of our founders.  It is the pre-eminence of that ideal that prevents us from devolving into chaos.

There are some Americans who do not agree with that pre-eminence.  Thankfully, most of us have not abandoned that creed, and in fact we continue to identify areas where we are coming up short of the ideal and are pushing the boundary ever forward.

The Race to the Bottom Continues #2

Britain to cut their corporate tax rate to 20%.

The Devil's Dictionary, No. 19

SYCOPHANT, n. One who approaches Greatness on his belly so that he may not be commanded to turn an be kicked.  He is sometimes an editor.

                         - The Devil's Dictionary

Postscript: not appropos of anything other than my current occupation.  Come to think of it, maybe my prior occupations as well....

Cyprus Again

Yves has a great rundown on what's been going on in Cyprus.  I highly recommend it.

Lawrence O'Donnell on Paul Krugman

Via Yves comes this from Bill Black:

O'Donnell Thinks Krugman is "A Lonely Voice Opposing Austerity" Because He Listens to MSNBC:

In sum, O’Donnell could be excused for believing that Krugman is a “lonely voice opposing austerity” if O’Donnell is getting his economic news and analysis from his MSNBC colleagues. (O’Donnell plainly does not get up early on Saturdays and Sundays to watch Chris Hayes – who has been excellent in explaining why austerity is an insane, self-destructive policy.)

What O’Donnell got wrong is not Krugman’s opposition to austerity. Krugman has explained that as he came to understand more fully the nature of money in a Nation with a sovereign currency he has moved strongly in the correct policy direction by increasingly opposing austerity as self-destructive. What O’Donnell, Matthews, and Scarborough all miss is that Krugman was never a “lonely voice” in opposing austerity. The reality is the opposite of Scarborough’s claims in his column – Krugman’s position that austerity in response to a Great Recession is a self-destructive, insane policy is the normal position of economists. Economists overwhelmingly support automatic stabilizers (which work in the opposite direction of austerity). While Republicans like Scarborough worship austerity now with the Obama administration in power, Republican administrations of the modern era have consistently refused to inflict austerity on the economy when they controlled our policy response to recessions.

....

It is very harmful to the Nation that MSNBC has led people to believe that there is only one, presumably hopelessly weird, economist in the world who opposes austerity as a response to the Great Recession. Krugman’s view is the norm among economists – and the minority of economists here and in the EU who support austerity is made up overwhelmingly of the people whose policies have proven over the last three decades to be so criminogenic that they produced the epidemics of control fraud that drove the second phase of the S&L debacle, the Enron-era scandals, and the ongoing crisis.

MSNBC could do the nation a great service by routinely presenting the economic views of those with a track record of predictive success. I do not urge that we be the sole guests, but O’Donnell’s remarks about Krugman show that the exclusion of the many experts who got things correct has been so extreme that even O’Donnell is unaware that there is a consensus among economists against austerity – and that the degree of that consensus among the experts who have repeatedly been proven correct is extraordinary.

The reason Krugman is viewed as an aberration is that none of people in the mainstream media are economists.  They are politicians, ex-politicians, and very rich people who don't want to be taxed.  They are ex-investment bankers with vested interests in keeping the system the way it is.

Krugman is unique because not only is he an economist, but he is also a columnist with the New York Times.  This allows him to be the mouthpiece for the economic community in a way that no other economist match.  

All I can say is two things.  First, while there is alot about the Grey Lady that bears criticism, at least they haven't gotten rid of Krugman.  Without him jumping up and down and screaming, I doubt any of our Very Serious People would even think there was an alternative between Obama's austerity lite and the Republicans' Hooverism.

Second, Black is right about Chris Hayes, and I'm thrilled to see him moving to prime time.  It will be interesting to see whether the move will have an impact on this discussion.

Duncan Nails It

Contemporary Politics:

The current Republican party will never let a dem president get a "win" if they can stop it, especially if that democratic president is a Kenyan Muslim Socialist. Our great pundits generally conclude from this that a) we should not have Dem presidents or b) Dem presidents should just implement Republican agenda, and take responsibility for it.

Links

Here are some links to some interesting things I have been reading:

Maya on the press reaction to the Steubenville verdict.  I will say that in my mind, like gay marriage, the tolerance of "boys will be boys" is a issue of social morality that is slowly improving over time.  That's not to say that we often need to be told - LOUDLY - how horrible it is.

Booman on the end of the Reagan Era.

Haley Sweetland Edwards giving an inside look on how the banks are undermining the Dodd-Frank reforms.  One thing most people don't recognize is how important the regulatory process actually is in making sure that the laws passed by Congress are actually enforced.  ht/Kevin Drum

Hale Stewart on John Hinderaker's economic stupidity. I especially like his conclusion:

I usually don't jump into political frays, largely because they are so utterly devoid of the possibility of developing any meaningful dialog.  But the above "analysis" (and I use that term because none other really presents itself) is so full of wrong statements (about the only thing he got right was his name) that it needs to be hacked apart.  I read the financial press regularly and there are no calls for imminent doom or collapse -- unless you consider World Net Daily or Breitbart reputable sources for any information.  The world is not projected to fall apart tomorrow.  The people calling for a massive spike in inflation have been doing so for the last four years and they're no closer now to being right than they were when they first opened their mouths.  Instead, the general consensus is that we're in a slow growth, post-financial crash recovery which is slow due to the massive amount of de-leveraging that is going on.

I should also add that I'm praying that anyone who relies on the above analysis deserves to be on the other side of any trade I execute over the next few years.  At least then I'll know that I'm taking money from a complete sucker.

Sadly, Hinderaker sounds remarkably like Joe Scarborough.

Simon Johnson relates a story about Thomas Jefferson's fiscal conservatism.  Very interesting.

And so this is what the devil looks like:

Look familiar?

 

The Devil's Dictionary, No. 18

RESPECTABILITY, adj. The offspring of a liaison between a bald head and a bank account.

                         - The Devil's Dictionary

Chesterton's Thursday

I recently finished a book by G.K. Chesterton called The Man Who Was Thursday.  The story was about an undercover detective from Scotland Yard who infiltrates a secret anarchist society and becomes a member of what can only be described as its Europe-wide executive committee, who soon learns that most of the other members of the executive committee are also undercover government agents.  While it was written over a century ago, I thought its themes were very relevant to our times.

And now comes Glenn Greenwald with a new post about how the virtually all of the Federal government's terrorism prosecutions are based on sting operations.  

Chesterton was prescient in a lot of ways.

BTW, the book is available for free on Gutenberg.

The Race to the Bottom Continues

New Mexico cuts its corporate tax rate by 25%.

Cyprus

Am I the only one who sees irony in the fact that European leaders are calling the deposit confiscation plan a "solidarity levy."

The Devil's Dictionary, No. 17

QUILL, n. An implement of torture yielded by a goose and commonly wielded by an ass. This use of the quill is now obsolete, but its modern equivalent, the steel pen, is wielded by the same everlasting Presence.

                         - The Devil's Dictionary

Racial Sensitivity

To whoever it was that came up with the idea of having a discussion on racial sensitivity at CPAC: thank you! You made my day!

The Devil's Dictionary, No. 16

PEACE, n. In international affairs, a period of cheating between two periods of fighting.

                         - The Devil's Dictionary

The Devil's Dictionary, No. 15

OCEAN, n. A body of water occupying about two-thirds of a world made for man - who has no gills.

                         - The Devil's Dictionary

Section 1706

I was reading this post from Lambert when I came across this passage:

Following a shot at my own consulting firm, which temporarily succeeded, but then failed, owing partly to my less-than-stellar (INTJ) marketing abilities, but mainly to IRS Section 1706 (the same law that caused that Texas guy to fly his small plane into an IRS building), which prevented me from leveraging skillz into billable hours without going through a rent-sucking intermediary — which, of course, wanted nothing to do with me.

IRS Section 1706?  What is he talking about?  Well, in reality this is a reference to section 1706 of the Tax Reform Act of 1986.  This is another one of those small technical provisions that lobbyists get into tax bills that are of huge import.  This provision makes it easier for employers of technical personnel to treat them as independent contractors.  When you're an independent contractor, you have to pay all of your social security taxes and you can be excluded from benefit programs that your employer makes available to its regular employees.

In other words, classifying an employee as an independent contractor allows the employer to shift many of its normal costs of employment on to the employee.

One of the changing features of the labor market over the last 30 years or so has been the shift away from traditional employment to "contract" employment.  The actual relationships haven't changed all that much.  What has changed is the ability of employers to skirt the line between "employee" and "independent contractor," the growth of firms that specialize in finding temporary contractors for employers, and the willingness of the government to turn a blind eye to these practices and, as in the case with this provision, to actively encourage them.

This is something that I've had experience with in the last couple of months.  First, the company that I work for which provides online information services, employs a large number of technical personnel, and I am kind of surprised at how many of them are "temporary contractors" rather than employees.  In fact, one of my colleagues - who performs the same job I do - was originally hired as a contractor and "promoted" last month to permanent employee.  What is it about the relationship that allows my employer to classify two people doing the exact same job differently?  Hell if I know.

Second, and even more pernicious, I just found out that my 16-year-old son is getting a part-time job with my ex-wife's employer.  She asked me whether he would qualify for exemption from taxes because he was a full-time student, and I gave her advice on how he should fill out his W-4. "Oh," she said, "he's a 1099 employee."  Which means he's an independent contractor.  Apparently, the idea of having to pay its half of the FICA tax is just too much for his employer to bear.

It's hard for me to fathom all of the changes that have occurred in the employment relationship since I first started working - nearly 40 years ago.  All of these have been to the detriment of employees.  It's been a long, slow, steady movement to reducing labor costs so that it goes directly to the bottom line.

When you see charts like this (red line wages, blue line corporate profits):

....this is one of the reasons why.

The Holder Letter

There's been a lot of sturm and drang about the letter the Attorney General sent Senator Paul in response to his question regarding the President's power as commander-in-chief to authorize a lethal action against a US citizen on US soil.  Holder's response can be seen here, and the key passage is as follows:

It is possible, I suppose, to imagine an extraordinary circumstance in which it would be necessary and appropriate under the Constitution and applicable laws of the United States for the President to authorize the military to use lethal force within the territory of the United States.

I don't see how anyone can argue with this.  I mean, it's not like it hasn't happened before.  See here, and here, and, of course, here.

Frankly, I think that the government would have been justified in shooting down Flight 93 had it not crashed in Pennsylvania beforehand.  And I don't think it would have made a difference if the hijackers were American citizens.

So yeah, I can imagine a circumstance.  And it is frightening to think how this power can be abused.  But to argue that it doesn't - or shouldn't - exist is just foolish.

And when I read things like this, I kind of think the President should have this power.

The Devil's Dictionary, No. 14

NOISE, n.  A stench in the ear.  Undomesticated music.  The chief product and authenticating sign of civilization.

                         - The Devil's Dictionary

The Devil's Dictionary, No. 13

MAD, adj. Affected with a high degree of intellectual independence; not conforming to standards of thought, speech and action derived by the conformants from study of themselves; at odds with the majority; in short, unusual. It is noteworthy that persons are pronounced mad by officials destitute of evidence that themselves are sane.

                         - The Devil's Dictionary

More on Italy

Over the weekend I said this about the Italian election last week.  Yves Smith has more:

Even though we were keen about how voter repudiation of austerity in the Italian elections last week was throwing a wrench in the Troika’s austerity plans, we also warned, based on the example of Greece, that they’d try to neutralize the results. That effort is already underway.

Honestly, I don't think these efforts will work with Italy like they have with Greece and Ireland.  But we shall see....

In the meantime, I found this comment to her post a good summary of where things seem to be headed:

There is a revolution brewing up in Europe. Italy is only the begining. Over the week-end Switzerland, hardly a hot bed of radicalism, overwhelmingly approved a referendum to outlaw golden handshakes, golden parachutes, financial incentives to sell or merge companies and to subject board and top management compensation to a binding shareholders vote. Over the week-end Dutch trade unions withdrew their support for more austerity measures and the Dutch government had to announce it would not meet its 2013 deficit targets. The French government has already done so. Still over the week-end there were massive demonstration in Portugal where the president has sent the 2013 budget to the constitutional court to rule on the fairness of the tax increases. Angela Merkel and Brussels are facing a general revolt against austerity, that is supported by the IMF: last year it changed its view on the contractionary impact of austerity. As much as last year I thought markets (especially in the US) were underestimating European governments support to the euro, this time around I think the risks of a euro zone break down are real if Berlin does not give up on austerity. You would never guess that eading the establishment medias: the FT only started to mention Grillo the Thursday before the Italian elections. But that makes sense when you look at the increase in European unemployment. The German austerity diktat is no longer politically sustainable and Merkel has to change her policies or risk getting hoisted on her own petard.

The Devil's Dictionary, No. 12

LAWFUL, adj.  Compatible with the will of a judge having jurisdiction.

                         - The Devil's Dictionary

Brill's Article on Healthcare Costs

There has been a great deal of chatter this week over Steve Brill's cover story in Time about health care costs, which really needs to be read by anyone who cares about this issue.

Which, of course, should be everyone.  Health care now comprises an incredible 20% of our economy. Anyone caring about our country as a whole must be concerned about this sector of our society.  It is huge, and getting bigger.  

Some things to be noted as we think about this.

First, of course, is that it's the prices, stupid.

Second, regular readers of this blog know that I often rant about "tax-exempt" entities.  The tax exempt sector is huge, and the fact that such a large portion of economic activity - of profit - is being generated and no tax is being paid on is just plain wrong in my view. As Uwe Reinhardt mentions in a discussion of the Brill article:

As these earlier reporters and Mr. Brill underscore, all manner of amazing behavior can hide under the pious label of “nonprofit.” A giant, inscrutable economic sector, in command of trillions of dollars in resources, nonprofits are governed by nonelected, self-perpetuating boards and virtually no effective accountability to any “owners” or the general public. By comparison, for-profit institutions are paragons of good corporate governance, transparency and accountability; I shall comment more on that in a future post. (Allow me to disclose that in the past I have served on the boards of both nonprofit and for-profit hospitals.)

But it's not just hospitals where this phenomenon exists.  Colleges and universities fit into the same mold, and it should not be surprising that we've seen the costs of a post-secondary education rise over the last several decades even more quickly than health care costs:

Third, the increasing use of government sanctioned monopolies - which it is increasing clear is what hospitals are - is really a trend that we need to put the brakes on.  There are three aspects of this.  First, the government has apparently abdicated all responsibility when it comes to anti-trust actions.  A quick perusal of recent articles regarding anti-trust cases all involve private actions, the exception being relatively small actions that affect minor industries or a local community.  The increase in monopolistic practices in our economy - with most industries dominated by a handful of huge players - is a major problem.  Second, with a publicly sanctioned monopoly must come increasing regulation.  Otherwise the players involved will inevitably use their monopoly to increase their profits.  Third, and of course related, is this fact:  A corporate entity exists to make profits.  That is its raison d'etre.  This is not a criticism -it's just a fact.  Corporation's exist to make money and there is nothing - nothing - they do that's not geared to that end.  Even when they donate to charities or support good causes, they are not acting in altruism - the PR value outweighs the cost.  If that weren't true, they wouldn't do it.  So when we give a corporation an on opening to make money, they will take it.  Which means that government sanctioned monopolies should be approached with extreme caution.

Finally, as much as you say this it has to be repeated.  The regular rules of the marketplace do not work when it comes to healthcare. Consumers don't make their decisions about what to buy and how much to pay in the same manner as other products and services. We won't fix this problem by introducing market based solutions.  The sooner we come to realize that and act accordingly, the better off we all will be.

The Education of Ezra Klein

Ezra finally learns what the Republicans really want.

Krugman has more.

I honestly would go even further.  I think that Obama could drop his insistence to new revenues altogether, and Republicans still wouldn't reach a deal with him.  I don't think this is like the other points on which the Hastert rule was overcome.  I think any deal with Obama, no matter how much in the Republicans' favor, is going to be rejected, because what is really driving them is their (or more importantly, their constituents') hatred of Obama.

Happy to be proven wrong on this, so long as the cuts make relatively more sense than what's happening right now.

The Devil's Dictionary, No. 11

KILL, v.t. To create a vacancy without nominating a successor.

                         - The Devil's Dictionary

That Hippie Bernanke

Paul Krugman on Ben Bernanke:

It didn’t seem to matter what evidence critics of the rush to [the Iraq] war presented: Anyone who opposed the war was, by definition, a foolish hippie. Remarkably, that judgment didn’t change even after everything the war’s critics predicted came true. Those who cheered on this disastrous venture continued to be regarded as “credible” on national security (why is John McCain still a fixture of the Sunday talk shows?), while those who opposed it remained suspect.

And, even more remarkably, a very similar story has played out over the past three years, this time about economic policy. Back then, all the important people decided that an unrelated war was an appropriate response to a terrorist attack; three years ago, they all decided that fiscal austerity was the appropriate response to an economic crisis caused by runaway bankers, with the supposedly imminent danger from budget deficits playing the role once played by Saddam’s alleged weapons of mass destruction.

Now, as then, this consensus has seemed impenetrable to counterarguments, no matter how well grounded in evidence. And now, as then, leaders of the consensus continue to be regarded as credible even though they’ve been wrong about everything (why do people keep treating Alan Simpson as a wise man?), while critics of the consensus are regarded as foolish hippies even though all their predictions — about interest rates, about inflation, about the dire effects of austerity — have come true.

So here’s my question: Will it make any difference that Ben Bernanke has now joined the ranks of the hippies?

Krugman goes on to point out that in his testimony before Congress this week the Fed Chairman made three key points that nobody seems to be paying attention to:  first, that current budget projections do not show an increase in government debt relative to the size of the economy; second, that cutting the deficit now will slow what little recovery we are now enjoying; and third, that cutting spending now is likely to result in increased - not decreased - deficits in the future.

Is anyone listening?

Bair, Stiglitz and Inequality

Sheila Bair - the former head of the FDIC - has been relegated to the sidelines.  It's unfortunate, because it's views like hers that could bridge the yawning gap between our political parties right now:

I am a capitalist and a lifelong Republican. I believe that, in a meritocracy, some level of income inequality is both inevitable and desirable, as encouragement to those who contribute most to our economic prosperity. But I fear that government actions, not merit, have fueled these extremes in income distribution through taxpayer bailouts, central-bank-engineered financial asset bubbles and unjustified tax breaks that favor the rich.

This is not a situation that any freethinking Republican should accept. Skewing income toward the upper, upper class hurts our economy because the rich tend to sit on their money — unlike lower- and middle-income people, who spend a large share of their paychecks, and hence stimulate economic activity.

But more fundamentally, it cuts against everything our country and my party stand for. Government’s role should not be to rig the game in favor of “the haves” but to make sure “the have-nots” are given a fair shot.

This last sentence - that government's role is to make sure that the have-nots are given a fair shot - really lies at the heart of my political beliefs.  I've never been a believe in equality of outcomes, but I am a believer in equality of opportunity.  Honestly, I don't know how anyone can object to that as a concept.  Our biggest problem, as I see it, is that there is a substantial block of conservatives that disagree with this statement.  They may not believe that the government should rig the game in favor of the haves (although certainly many of them play that role - and some so-called liberals do that too).  They just don't think the government has any role to play at all.

But Bair says something I have been saying for a long time and that more and more people are coming to realize and which bears repeating:

Skewing income toward the upper, upper class hurts our economy because the rich tend to sit on their money — unlike lower- and middle-income people, who spend a large share of their paychecks, and hence stimulate economic activity.

This is essentially the same thing that Nobel Prize winning economist Joe Stiglitz says in his book The Price of Inequality.  His op-ed in January hit on a number of the arguments why inequality is hurting us:

There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth. While the top 1 percent of income earners took home 93 percent of the growth in incomes in 2010, the households in the middle — who are most likely to spend their incomes rather than save them and who are, in a sense, the true job creators — have lower household incomes, adjusted for inflation, than they did in 1996. The growth in the decade before the crisis was unsustainable — it was reliant on the bottom 80 percent consuming about 110 percent of their income.

Second, the hollowing out of the middle class since the 1970s, a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses.

Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks. The recent modest agreement to restore Clinton-level marginal income-tax rates for individuals making more than $400,000 and households making more than $450,000 did nothing to change this. Returns from Wall Street speculation are taxed at a far lower rate than other forms of income. Low tax receipts mean that the government cannot make the vital investments in infrastructure, education, research and health that are crucial for restoring long-term economic strength.

Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable. Though inequality did not directly cause the crisis, it is no coincidence that the 1920s — the last time inequality of income and wealth in the United States was so high — ended with the Great Crash and the Depression. The International Monetary Fund has noted the systematic relationship between economic instability and economic inequality, but American leaders haven’t absorbed the lesson.

Italy - UPDATED

When I see events like the Italian election earlier this week, I think of Santayana and shudder:

Those who cannot remember the past are doomed to repeat it.

In the wake of the financial crisis that led to the Great Depression, governments imposed austerity that imposed harsh economic conditions on their populations.  In some countries the result was the rise of what were considered to be fringe megalomaniac leaders - Hitler being the most obvious example - that turned out to be disastrous for the whole world.

We have had two elections in Europe in the last year - in Greece and now Italy - which should give everyone pause.  Radical movements are rising, and who knows where it will lead.

UPDATE:  I was going to mention -in the post above - the worrying developments in Hungary as well, but recent developments there made it look like the threat was averted.  Looks like I was wrong about that.  So take note of Hungary as well.

The Devil's Dictionary, No. 10

JUSTICE, n.  A commodity which is a more or less adulterated condition the State sells to the citizen as a reward for his allegiance, taxes and personal service.

                         - The Devil's Dictionary