As the Stomach Turns . . .

Difficult to Swallow Stories

This is the way a lead story in the New York Times (subscription required, unless  you find a way around it) introduces us to the thinking of New Gingrich.

Newt Gingrich believes great leaders have to leave their kingdoms, better themselves and return as heroes.

Really, it does, that is a direct copy and post.  It seems Gingrich has redefined the definition of heroes.  In his world heroes are people who cheat in the marriage while preaching on family values and leave the Congress under the cloud of ethics violations.

It turns out that Florida State University has sold its Economic Department to the Koch brothers.  Paul Caron’s wonderful blog has the story here.

http://taxprof.typepad.com/

The same thing can be said about Conservatives at FSU as is often said about Congress.  We are not surprised they are for sale, but we are amazed at how low their price is.

GOP Panic in the Streets of Buffalo (Well Technically, in the Suburbs of Buffalo

In a western New York special House election, a Republican district so partisan that in many years Democrats didn’t even both to field a candidate electoral panic has set in.  The Republican candidate has endorsed the Ryan Plan to end Medicare as it exists today, and surprisingly enough not only are voters paying attention, they are indicating in polls that they really do not like the plan.

Karl Rove, you remember, the fellow who masterminded a solid Republican majority for George Bush into Democratic control of the White House and Congress is coming to town and bringing $350,000 with him.

http://blogs.buffalonews.com/politics_now/2011/05/rove-backed-committee-rushes-to-rescue-corwin.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2Fbuffalonews%2Fpolitics_now+%28Politics+Now%29

Now to be fair (that’s a Progressive trait usually lacking in Conservative circles, see Fox News, Rush Limbaugh etc) the race is tight in part because a third candidate is running as a Tea Party candidate.  However, the third party candidate formerly ran as a Democrat, so it is not certain how much Republican vote he is stealing.

Two things are certain, the Ryan Medicare Plan is not playing well and the GOP is in a state of pure panic.

Strange Happenings in Politics . . .

This is a major candidate?  Roll Call Politics reports that

Newton Mayor Setti Warren has become the second prominent Democrat to join the race to challenge Sen. Scott Brown (R).

This just goes to show how weak the Democrats are in this race, when the Mayor of Newton is considered a “major” candidate.

Politico reports that the Special House Race in western New York is very close.  This district is solidly Republican, so even a close win could be considered a big loss for the Ryan Plan for Medicare, which is the major issue in the race.

Newt Gingrich is expected to announce soon that he is a candidate for the Presidency.  The Dismal Political Economist continues to maintain that this is just a ploy to make Mitt Romney look good.

Uninsured Americans are leaving hospitals with about $49 billion in unpaid bills according to a USA Today story.

http://www.usatoday.com/news/washington/2011-05-09-uninsured-unpaid-hospital-bills_n.htm?loc=interstitialskip

Who do you think is coming up with the money?

Political Party Commits Suicide (No Not That One, the Other One)

While many are transfixed by the suicidal actions of the Liberal Democrats in Britain, a “third party” in Germany is going through a similar process.  The Free Democratic Party or FDP in German is a center/right liberal party (yes, in Europe the term “Liberal” is applied to Conservatives, go figure) that joined with the Christian Democrats to form a coalition government.  Their prize was the cabinet post of Foreign Minister.

The FDP earlier this year suffered the same massive defeat at the polls as the Lib Dem’s in Britain did just last week.  In fact the FDP defeat was probably worse.  The defeats were due to the same reason for both parties, a “selling of the soul” in return for participation in the national government.  Voters just don’t like that.  Selling out is ok, you just have to try to pretend, or at least make the effort to pretend that is not the case.  Otherwise you are insulting the voters.

The FDP is now facing a violent split in selecting its new leader, its old leader having done the right thing and resigned after the rejection by voters.  Mr. Clegg who is the Lib Dem leader in Britain does not seem to recognize that this is the thing to do (thus dooming his party to future election defeats).  The battle, as these battles usually go, is between forces which want to move the party more to the right, and those which want to move it into the center, which means more to the left. 

Complicating matters is the question of what will happen with Greece when everyone formally recognizes what everyone informally already knows, that Greece will be unable to make its debt payments in 2012.  Germany will have to decide its fate, if indeed Germany can reach a decision.

All of this should be serious reading for Democrats.  Republican policy positions are not accepted by a majority of U. S. voters, but the Republican Party has acceptance because it is clear and consistent in its goals and principles.  Democrats, abandon your positions at your peril.

Gingrich Works to Make Romney Shine . . .

In a rather devastating critique of Newt Gingrich, Inc. which are the various fund raising, lobbying and advocacy groups founded and supported by Mr. Gingrich, the Wall Street Journal

http://www.wsj.com/

reports how much of the money that is raised is used to support Mr. Gingrich, including private jets to ferry him around the country.  The story goes on to tell how Mitt Romney, who has plenty of money, generally uses commercial flights. 

Imagine that, Newt Gingrich making Mitt Romney look good.  Stranger things have happened, like this below.

On a Sunday talk show former Vice President Chaney was supportive and complimentary of Obama’s actions in the elimination of bin Laden.  In a related story, reports are out that a squadron of pigs was seen flying over Washington National Airport.

Fixing Health Care the Right Way

The economics of health care are relatively straight forward.  The goals for a system are nicely defined in this article by David Cay Johnston in Tax Notes

http://taxprof.typepad.com/files/131tn0619.pdf

“In addition to saving money, a modern healthcare system would reduce paperwork, eliminate

time wasted by businesses on health insurance, and make labor markets more fluid because small employers would not be forced to discriminate against people with preexisting conditions.

A well-designed modern system also would focus on prevention to minimize preventable chronic

conditions and reduce the massively wasteful use of costly technology like MRIs, which are needed for only very limited diagnoses.

A modern system would cover everyone. Currently about one in seven has no insurance, and at

some time during the year one in four goes uncovered, a situation not found in any other modern

country. Universal coverage would cut emergency room costs and provide care for chronic diseases

like cancer and diabetes.

It would end the practice of doctors who deny care getting bonuses, as detailed in my book Free

Lunch.”

Economists know how to make a system like this work.  It involves changing the health care payments system from one of “pay for procedure” to one of fixed payments to provide health care to an individual.  Under pay for procedure the incentives are all about raising health care costs, since each dollar of increased health care cost is a dollar of income to health care providers and health care organizations.

An example of a fixed payment system for Medicare would work like this.  Medicare would make a fixed payment, say $15,000 per person covered for example to a health care organization to cover all of the medical treatment for an individual in Medicare.  That organization would provide all health care services (with a small deductible and co-pay to prevent abuse) for the individual covered.  The organizations would be privately organized companies, in effect  Health Care Alliances, and could be organized by physician groups, hospitals or even insurance companies. 

Now under such a system the incentive would be to reduce costs and increase efficiencies. A Health Care Alliance with 10,000 enrollees at $15,000 each would have $150 million in revenue, and its profit would be determined by the difference between the cost of providing care and that $150 million.   Health care providers could still make a very high income, but they would do so by providing quality care at the lowest possible price.  If for example an individual did not need any care during the year the provider would have the entire payment as profit.  The incentives for an Alliance would be to keep the enrollees enrolled by providing quality care and keep them very healthy to reduce costs.

Individuals would choose the Alliance, (and change at least once a year) and competition among competing groups, along with regulatory oversight would insure treatment was not denied.  Organizations would be created by “co-operative alliances” between physicians, hospitals, and other facilities and providers.  The Alliances would have to provide enrollment to any eligible Medicare recipient who wanted to enroll, and the payment from the government would be the same regardless of age or health condition of the individual.  Obviously the most successful organization would be the ones that had high enrollment of a broad group of Medicare recipients, efficient operations, and successful programs to maintain the health of enrollees and prevent injury and disease.

Such a system would get the federal government out of the business of setting prices and a huge amount of paperwork.  Administrative costs would decline and the long term health of the population would increase.  Physicians would become salaried employees, not entrepreneurs and spend their time treating patients, not doing business plans.

Politically such a system should appeal to Conservatives, as it gets government out of the health care business and gives recipients the power to control their health care as they would be the ones choosing the Health Care Alliance.  Liberals should accept the system since it provides for universal coverage of a group and provides for safeguards to prevent abuse or lack of adequate care.  Once set up, an Alliance would not be limited to Medicare patients, and it could compete for employer health care plans, Medicaid patients and even individual enrollees.

Conclusion:  We know how to fix the health care system in the U. S., we just need the will to do it.

Another Day, Another Election . . .

The Candidate in a special election for a House seat in western New York has been a successful business person since the age of 8.  Really.  A Buffalo News report today cites the campaign literature of the Republican candidate as saying she was a success in business for 36 years before being elected to the New York General Assembly at the age of 44.  Yep, that would mean her business career started at age 8.

http://www.buffalonews.com/topics/chris-lee/special-election/article417450.ece

Now exaggeration is one thing, but the really interesting thing here is that when confronted with this obviously false claim the candidate stood by the literature and defended the claim. 

And you thought those pesky child labor laws were still in force.

As Brad DeLong often states,

http://delong.typepad.com/sdj/

this is why friends don’t let friends vote for Republicans.

The AP reports that the Federal government has re-allocated the $2 billion in high speed rail funds that the state of Florida refused.  The new ultra conservative governor of Florida turned down the money.  Since he campaigned on creating jobs, maybe he can explain how not accepting federal money for transportation infrastructure helps the employment process. 

Conservative governors in Ohio and Wisconsin also rejected federal money.  Something for the citizens of those states to think about while their unemployment benefits run out.

Want to read Paul Krugman without having a subscription to the NYT.  Here is a link to a very good blog set up by Mark Thoma

http://economistsview.typepad.com/

Some Serious Stuff on Inflation . . .

The Specter of Inflation is haunting economic discussions.  One side are policy analysts who insist that the aggressive monetary policy of the Federal Reserve System will lead to high inflation very soon.  They want to Fed to pull back and see no problem with cutting government spending in order to reduce upward pressure on the economy.  These folks are the descendents of the Monetarists who believed that overall economic activity was under the total control of the money supply.  For them, Milton Friedman still lives.

The other side of the argument is the traditional macro-economic argument that inflation cannot take place where Aggregate Demand is at a level so far below full employment that the unemployment rate is historically high.  They point to lack of increased wage growth, both on a nominal and real basis, and argue that there is just not demand to push up prices.  These are the current day Keynesians.  For them Econ 101, Macro Economics is the right idea.

Who is right?  It looks like the Monetarists are right for the wrong reasons, and the Keynesians are wrong for the right reasons.  What both side fail to recognize is that the U. S. economy has moved into a much greater subservient role with respect to the world economy.  It used to be that the U. S. economic engine was so powerful that it dominated world economics.  Inflation in the U. S. drove world wide inflation, and the U. S. was not greatly affected by economic conditions outside its borders.

This has changed.  Emerging economies like China, India and Brazil, along with growth in developing nations in Asia, Africa and South America are now starting to dominate the world economy, particularly with the failure of the U. S. and much of Europe to fully recover from the recession.  As a result, rising inflation rates in those countries are very likely to spill over into the U. S. economy. 

Even if wage pressure remains low, pressure on the U. S. price level can be expected to be high for these four reasons.

1. Commodity Prices:  Demand for raw materials in China and other high growth countries are pushing up raw materials and food prices.
2. Health Care Costs:  The failure of the Obama health care bill to contain any type of cost control provisions means health care costs in the U. S. will continue to rise.
3. The Weak Dollar:  The decline of the U. S. dollar will push up import prices, particularly of non-durable goods.
4. Education, Training and Productivity:  As state and federal support for schools and job training declines, the cost of educational services may rise faster than the average rate of price increases and productivity of the U. S. workforce may fall.

Since the rate of inflation is an average, if these sectors are rising above the target level of 2-4%, other items must be falling in order to keep inflation low.  The largest sector for falling prices is housing, but this may be over soon, and rising housing prices will mean they do not offset other rising costs.

In short, those who say inflation is not a threat because of lack of Aggregate Demand are right to that extent, but lack of Aggregate Demand is only one part of the equation.

What's Wrong with this Picture?

Here is a nice article about the new head of the DNC.

http://www.rollcall.com/issues/56_118/wasserman_schultz_dnc_chairwoman-205431-1.html

So what’s the problem?  Well this person already has a day job, she is a member of the House from Florida.  She is also a mother of three.  She does not have the time to be an effective head of the DNC.

During the 2006-2008 election cycle the head of the DNC was Howard Dean.  It was his full time job.  He adopted a 50 state strategy and the results speak for themselves.  For some reason Mr. Dean incurred the wrath of the Obama folks and was replaced by Tim Kaine.  Only problem, Mr. Kaine had a day job, Governor of Virginia.  Result, electoral disaster in 2010. 

Prognosis for 2012 with a part timer has head of the party, not so good.

The NYT Wants Democrats Dead . . .

The New York Times in an editorial today (subscription required, sort of) criticizes the Democrats for going after the secret corporate money that Republicans have gone after as a result of the Citizen’s United case.  It seems the NYT wants the Democrats to forego that route in the name of moral purity.

Well the Democratic Party is not at Death’s door, but they are in the neighborhood and could stop and walk up to Death’s house at any minute. Following the advice of the NYT would just hasten that walk.  It’s fine to be for disarmament, but unilateral disarmament is  just another name for political suicide.

The War on the Unemployed Continues. . .

In Florida another law which assaults the basic benefits enjoyed by Americans has been sent to the ultra Conservative Governor for approval.  This bill would cut benefits for the unemployed.

http://www.nytimes.com/2011/05/08/us/08florida.html?_r=1&ref=us

Florida, you may remember, also wants to privatize their school system, and also wants to cut taxes for businesses. It seems the Sunshine States will provide sunshine for only some of its residents.

Slow but Interesting Day

The jobs report was exceptionally good in April.  This is part of the residual impact of the Stimulus, where job creation is always a lagging process and partly the impact of the weak dollar and partly the impact of a technical recovery.  A recession can only last so long, ultimately consumers and business must replace durable goods like cars, appliances, machinery etc, and the economy gets a jump start.

The risk is that just as the economy is taking off the “let’s cut government spending” crowd will ruin things. 

Fannie Mae continues to need government infusions of cash.  Where are the blithering idiots who privatized the Company? 

The Kentucky Derby was run today.  Can someone tell us again why anyone cares?

It is now May 7.  Does anyone know where the Gang of Six Plan is?

Just in case you cared, the Alternative Voting System in Britain, for which the Lib-Dem party sold its soul, was defeated by 69% to 31%.

Reading the WSJ So You Don't Have To

The Wall Street Journal is a wonderful newspaper, with a horrible editorial section.  It’s not the positions that the editorial writers and contributors take that are so bad, it’s just that there analysis, justifications, reasoning and logic is just so painful, even, we suppose to supporters of the cause.  Anyway, we read the Journal so you don’t have to.

The WJS Friday noted that GM’s first quarter profit was propped up by asset sales and that the firm had “only” $2 billion in EBIT.  Well given the dire predictions after the government takeover which insured the company’s survival, we would say we are more than pleased.

After 52 years scientists have proven Einstein’s theory of relativity.  A major discover, the Earth’s circumference is distorted by about 1.1 inches.  Cost benefit analyis:  Cost - $750 million, Benefits – zero.

Intel has a new chip design that is a major breakthrough.  Good for them.

The march towards restructuring Greek debt continues.  Essentially what will happen is that IMF/EU/ECB money will replace private investment.  Greece, soon to be a wholly owned subsidiary of Germany.

The weak, sniveling dollar which is dropping is producing major gains for the U. S. in the manufacturing sector. 

The front page of the WSJ recounts another probe into another hedge fund trader.  Did any of these folks make an honest dollar?

An editorial praises an Indiana school voucher program which allows direct funding of religious schools.  We wonder how they will feel when the money starts going to non-Christian schools.

British Political Party Commits Suicide; News at Eleven

The British third party, the Liberal Democrats or Lib Dem’s for short took their case to the polls in British mid-terms elections yesterday, and the people showed them the door.

http://www.independent.co.uk/news/uk/politics/av/poll-bloodbath-for-lib-dems-2279970.html

Britain has a Parliamentary form of government in which the majority party forms a government, takes cabinet positions and rules as the party leader becomes Prime Minister.  In the last election, with three major parties contending for seats no party won a majority.  The third party, the Lib Dem’s joined the Conservatives in a coalition government despite the fact that the governing philosophy of the Conservatives was in strong opposition to the philosophy of the Liberal Democrats.

As an incentive, the Lib Dem party had its leader become Deputy Prime Minister, were given some minor cabinet positions,  and most importantly the Conservatives promised a referendum on a measure to change the voting procedure so that it would be more favorable for third parties.  Of course, the Conservatives also said they were opposed to such a change, and would campaign against it, which they did.

In yesterday’s election the change in voting failed miserably, and voters also voted massively against the Liberal Democrat party.  Why?  Because they viewed the party as having sold out, gone against their principles to gain a seat in the coalition.  If the trend continues, the Lib Dem party will slowly fade away, with a few remnants left to remind the rest of us that voters may be stupid but they are not that stupid.

Today in Weird . . .

Paul Krugman’s Blog (NYT, subscription required, sort of) reports that Sen. Marco Rubio(R, Fl) is saying that the Ryan Medicare Plan does not result in a decrease in Medicare.  Wasn’t that kinda the point?

The Republicans are having a debate tonight in South Carolina.  Did anyone participate?

VP Biden is having another deficit reduction group meet with him.  Republicans say everything is on the table except cutting the deficit.

Republicans are now backing away from the Ryan Medicare Plan.  They say the 69% who disapprove had nothing to do with it.

Pakistan is reportedly very unhappy that U. S. combat personnel went into that country after bin Laden.  Simple solution, if you do not want U. S. combat forces in your country don’t give sanctuary to mass murderers.

The Tax Policy Center is reporting that the benefits from tax expenditures go the wealthy taxpayers.  Gosh, since you have to have high income and itemized deductions to benefit from most of them, would exactly did they think they were going to?

http://taxvox.taxpolicycenter.org/

Someone is being quoted that “Mitt Romney is running a Rose Garden strategy, just doesn’t have the Rose Garden.”  Maybe the illegal immigrant gardening company that did his yard can get him one.

Reading the WSJ So You Don't Have To

The Wall Street Journal, www.wsj.com, is a wonderful newspaper, except for its editorial section which operates someplace in the void.  Since the editorial writers do not comment on the news stories, we think we have to.

European wholesale prices are up 6.7% over a year ago.  This does not bode well for expansionary economic policy.  The worst of all worlds is high inflation and high unemployment.  Coming to a European country near you.

The WSJ has a story on the evening news business and notes that Fox News does not have an evening news show.  And yet they call themselves a news channel!

On the deficit front it appears VP Biden is developing a plan, which is not the plan of the administration, and Sen. Conrad is developing a plan, which is different from the Gang of Six plan of which he is a member and different from the Commission plan of which he was a member.  How long before trading cards come out with your favorite deficit reduction plan?

Portugal has reached agreement on a deal to bailout its economy and its banks.  Up next, Spain.

The editorial pages of the WSJ are crowing about the Conservatives winning a majority in Canada, conveniently forgetting that it was tight banking regulation that kept them largely out of the global financial collapse.

Worldwide sales of luxury goods are surging.  Well, another reason why increasing taxes on the wealthy to balance budgets just might be justified,

There is other news . . .

Just about every financial press is writing that Greece is about ready to need restructuring of its debt.  Restructuring of course is the spin for default, because the word default is too scary even for the grown-ups of international finance.

In Canada the Conservative party won a majority in the parliament.  Voters continue to punish the formerly powerful Liberal party for bad government when they were in power.  Democrats take note.

Germany will now take an unlimited number of immigrants from Eastern Europe. 

Spain’s unemployment rate continues to be a major problem.  Spain is the only country left from the PIGS group (Portugal, Ireland, Greece and Spain) that does not yet need a bailout.  Policy to contract an economy results in contraction.

In the U.S. the Army Corp of Engineers blew up a levee to prevent flooding.  Gosh, anyone remember when they built levees to prevent flooding.

Enough Said . . .

In July 2008, Larry King asked Sen. John McCain (R-AZ), "If you were president and knew that bin Laden was in Pakistan, you know where, would you have U.S. forces go in after him?"
McCain said he would not.

"Larry, I'm not going to go there and here's why: because Pakistan is a sovereign nation."

Thanks to Taegan Goddard!

And Now for Something Completely the Same. . .

In today’s WSJ Martin Feldstein,  respected, by some economists, and former member of the Reagan administration proposes a somewhat unique fix to Social Security.  Feldstein supports private accounts, but with a difference.  In his proposal, employees would voluntarily commit an additional 3% of pay to send to the SS administration who would invest the funds in a broad based mutual fund.  The result, according to Feldstein would more than double SS retirement income.

Here’s how it would work.

1. Employees would be enrolled in the program, but could opt out.
2. Assuming a 5.5% real rate of return, at age 67 employees would get about $22,000 in an annual payout.
3. Employees could get their money out before retirement, but probably would not.

Now the really remarkable thing here is not the plan, which is pretty reasonable, but Mr. Feldstein’s apparent lack of knowledge that such a plan already exists.  It is called a 401k plan (or an IRA).  All that has to be done is to raise the contributions limits, if necessary and require automatic enrollment.

http://online.wsj.com/article/SB10001424052748704330404576291452454935100.html?mod=rss_opinion_main

As Howard Cosell used to say, “he has an intuitive grasp of the obvious”.

Corporations Are OK For Not Paying Some Taxes

The Boston Globe reports today that a large number of Massachusetts companies paid no federal corporate income tax in 2010, and some got refunds despite making money in 2010.

http://www.boston.com/business/taxes/articles/2011/05/01/millions_in_profits_and_a_tax_bill_0_to_envy_in_massachusetts/

In most cases this is the results of losses in previous years, which under federal tax law can be used to offset future income for tax purposes.

Now the Dismal Political Economist is a strong fan of having corporations pay taxes, particularly since the Supreme Court declared them “persons” with rights under the Constitution.  However, using tax losses in prior years to offset past or future taxable income seems like an acceptable practice.  It is fair and gives struggling corporations a boost when they turnaround their finances.