We got a camera for Christmas, so expects some photos

The blog now has photo capability !!! So we hope to make the blog look a little better,

Lack of affordable housing in rich areas contributes to income inequality

From Bloomberg Business Week

Bloomberg BusinessWeek has a great story on the lack of affordable housing in the suburbs contributing US income inequality. However, the studies authors make a more startling argument: that rich neighborhoods are using zoning and land use laws to keep the poor from jobs in high income area.. This "discrimination" has stopped the shrinkage of the rate of income inequality that existed from 1880 to 1980.

The business week article is based on a paper by "Peter Ganong and Daniel Shoag" called "Why has regional income convergence in the US Stopped". Both work a Harvard University.

What's new in the paper is they have developed a data set that models communities land use and zoning laws.  The restrictions increase the price of housing. The authors content that the decrease in regional and state to state mobility has increased income inequality.

US Federal Reserve publically link unemployment and interest rate

Federal Reserve Commits to Monetary Targets

The United States Federal Reserve Board  announced on December 12th, 2012, it would link changes in the interest rate to a specific level of unemployment and inflation.  You can read the press release here.
The "Fed" also it would continue to buy mortgage backed securities and to extend the duration of Treasury holdings.

The committee said that it would keep the federal funds rate between 0% and 0.25% as long as the US national unemployment rate stayed above 6.5% and the two year forward interest rate was below 2.5%.  The fed left some room for changes if conditions changes. This is the fist time the fed has directly linked the interest rate to the unemployment rate and the the inflation rate.

The move by the federal reserve should also counter some bogus arguments by conservatives and Republicans that Obama's policies have contributed to uncertainty in the business environment.

If you want to real more about the Fed's internal discussion to fix the rates, you can read a Bloomberg Business Week story here.

Don't try this at home, Kiddies: UK austerity update.

The New York Times has a long look at UK austerity program under David Cameron's Conservative government. The New York Times article is here.  Cameron recently announced the austerity would continue for another five years.

The UK Independent has a piece on the UK budget deficit worsening.  The article from the UK Independent is here.

Here is a discussion in the London Review of Books calling the Cameron / Osborne policy a failure.  The story by John Lanchester.  He has a great reference in it to the International Monetary Fund's World Economic Outlook (October 2012) publication. On Page 41, of IMF Outlook,  they discuss the multiplier used calculating the effect of government spending cuts on the larger economy.  The IMF suggests that the GDP reduction effect could be as high as 1.7 times the cut.  In other word, removing 100 Billion pounds in spending would reduce economic activity by 170 Billion pounds.  Not something you want to be doing during a recession.

So you have to ask if the savings are worth crippling the economy.

In our opinion, voters want simple solutions to complicated problems and politicians are willing to provide just that. What is missing are leaders who understand the current crisis and are willing to use it was a "teachable" moment for their voters and drag them along. Remember the days when politicians would lead from the from rather than behind (behind the polls that is).

Thank goodness the US federal reserve has the right idea: Low, predictable interest rates for the short and medium term, short term stimulus until unemployment falls to a certain level and pressure on policy makers for gradually reduce long-term healthcare costs.

Can't have a good post without some charts. Below is a chart of the US GDP against the UK GDP.  You can see both economies were smacked by the recession.

Here another chart of the US Debt to GDP ratio.  The projected trend gradually slopes downward as taxes are increased and healthcare costs are reduced.  

No one knows the proper level of debt to GDP.

And finally the UK debt to GDP ratio which is around 66% but rising.  

So to summarize, no one really knows the proper level of national debt, but the UK austerity program dropped GDP growth and increased the debt to GDP ratio.  The austerity program was not the right move during a recession.

Fiscal Cliff a Joke and so is the coverage

The "Fiscal Cliff" is an over hyped joke.  It is also bad economic policy.  The "Fiscal Cliffs" real name is the Budget Control Act of 2011.  It was passed by congress and signed into law by the president in August 2011.  We will try to break down the history of the act and then tell why the Fiscal Cliff is baloney.

Back in the summer of 2011, President and the Republicans were arguing over raising the debt ceiling.  The debt ceiling is usually raised automatically without issue.  However, due to the TEA party influence on the Republican party, they were forced to take a harder line than usual during the negotiations   The republicans agreed to raise the debt ceiling in exchange for a bill that would automatically curb the debt based on automatic taxes increases and budget cuts at the end of the year 2012 after the presidential election.  The provision would only come into effect if no other budget deal was worked out.

The Republicans thought Obama might lose the 2012 presidential election. So they gave Obama a bill quite favorable to Democrats.  The BCA ends the Bush tax cuts and cuts military spending by about 10%. It cuts helath care spending by 2% and the non defense spending by 8 %.

The term "Fiscal Cliff" was created by Ben Bernanke, Chairman of the Federal Reserve Board, during testimony to congress in February 2012.  We was referring to the effect that a sudden increase in taxes and cuts in spending might push the economy over the "Cliff" and into recession.  May of the provision come into effect over the year 2013, leaving plenty of time to work out better legislation.

If you want to read more, here is a nice write-up from the Congressional Research Service on the Budget Control Act of 2011.

The reason the fiscal cliff act is bad economics is because it is dampens economic activity too much while the country is recovering from a large recession.  During a recession, you typically want to add to government spending to increase employment and growth. European countries like England and France are suffering because they imposed too harsh an economic  austerity trying to reduce their debts.  They ended up pushing their countries into a longer recession, decreasing economic activity and tax revenues, and increasing the period of austerity.

The Fiscal Cliff is also bad economic policy because there is no short term reason to reduce the debt. Especially not during a period of low inflation, high unemployment and low interest rates. In fact with record low interest rates, the government should be borrowing money to make investments in areas such as infrastructure or education.

Long term, we all agree, for reasons of stability, we need to reduce the debt to a manageable level (say 50-70% of GDP). And most reasonable people agree on how to do that:  slight increase in taxes on the wealthy, slight cuts in government programs and reducing the cost of healthcare.  We may also want to reduce social security and medicare payments to wealth individuals, reduce the size of the military (especially the navy), and reduce subsidies and loopholes in the tax code.  Just about everyone agrees on the above proposals

So how did the debt become an issue right now. We believe the issue comes from the Republicans anti-government beliefs pushed on by the new TEA party.

When discussing the debt, I always here two commonly offered reasons to reduce the debt.  they are "I have to live on a balanced budget and so should the government" or "government debt will crowd out private debt lowering private investment."  Actually most people do not live on a balanced budget.  They frequently borrow against future earnings for current consumption (credit cards, Christmas load) or current investments (college tuition, a car to get to a job).  The government should have the ability to do the same thing.

Second, for the "crowding out issue," no one is quite sure of the relationship between private investment and interest rate levels.  And if it does occur, how much business investment was actually affected (probably very small). Current, top rate businesses can borrow for 10 years at 2.35% interest.   But the possible small benefit of reducing interest rates is not in proportion to the damage that might be done to the economy.

The real reason for reducing the debt is ideological and selfish. The don't believe if the government helping people:  not older people, poor people, sick people or minority people. Plain and simple.  The the Fiscal Cliff negotiation is just another political tug of war.

The coverage is also pretty bad.  They cover it like a sporting event with winners and losers. The are missing a great chance to cover the nuts and bolts of national government fiscal policy.  This is a chance to show the American people where their money goes. Instead of explaining where we spend our money or any context about what we are buying, we are stuck with Boehner's latest proposal or Obama's new statement.

Fix the Debt: Simpson - Bowles Plan

First, let us state outright that the US Debt discussion is a smoke screen to cut social spending and the government. Period. It is just another political maneuver to reward their friends and cut spending for groups they don't like.

The real problem continues to be lack of jobs and lack of good paying jobs that are hollowing out the middle class.  Reducing the debt (or it's newborn cousin the Fiscal Cliff) is purely an ideological augment over the size and function of government.  The financial markets could mostly careless and the same goes for consumers.

Given all that, we like the Simpson-Bowles plan. Many of the CEOs who visited the white house recently supported the plan.  Simpson-Bowles raises taxes oh the rich, cuts military spending and curbs social security and health care costs. It also taxes corporate gains at the same rate as income.

Here are some of the CEO's that support the plan. The CEO Council of Fix the Debt recently meet with president Obama. You can read more at these web-sites but they are conservative leaning.  Most want to cut spending by cutting social security and healthcare without touching military spending or raising taxes on upper incomes.

Fix the Debt 
Moment of Truth
Committee for Responsible Federal Budget

You can "Google" Simpson Bowles at "National Commission on Fiscal Responsibility and Reform" or read more here.

A better analysis is presented at
Tax Policy Center

While not directly criticizing the Simpson-Bowles plan, The Institute for Policy Studies has a counter argument here. 

Lastly, we are opposed to any tax change, such as a territorial tax, which would let companies bring revenue's back to the United States without paying their fair share of US taxes. Corporations receive a credit on their US returns for foreign taxes pad. Foreign taxes and US taxes are part of the cost of doing business.

Economically speaking, Obama has performed better than average for Black people

Obama has also done well for poor people.

I was about to write the standard post about how Obama has not done enough for my personal group of people: African Americans. But them I thought about it for a little while and got a different answer.

First let me say, we know the Presidents hands are tied with regards to Black people and poor people  He cannot directly be seen helping either group especially blacks.  We know he cannot do flashy or targeted programs just for Black or poor people.  They would never get through congress. They would offend many of his weaker support groups like White women and college educated men. The would open him to charges of favoritism by his critics.

But the President has done as good as job as can be expected. Better than previous Democrats with more personality and less values. His economic record is excellent. Even if he had done nothing beside universal health care, he would be good enough, but there is more.

Here is our list of the Obama's top economic accomplishments that benefit African Americans:

Universal Healthcare
Fiscal Stimulus Bill (American Recovery and Reinvestment Act)
Extended Unemployment Benefits (up to 99 weeks)
Expanded food stamps

None of these programs can be seen to directly benefit Blacks.  Instead they are all said to be "Middle-Class" programs. The programs are portrayed as helping people in need.  History will look back very favorably on Obama's economic successes.

You can get a full list of Obama's African American Agena in the links that follow.  The African American Leadership Conference seems more like a political event than a policy conference.

You can watch here:  2011 African American Policy in Action Leadership Conference.  Here is the link from You Tube. 

The White House press release is here.

The Obama's agenda for African American is here. 

It looked like a pretty limited affair designed to give the president cover with the African American Community.  They open ask participants to "spread the word" about the good things Obama has done.
The 40 page report lists every possible program that might benefit Black folks.

The strange part is that you could substitute Hispanic, Latino, poor, or even middle-class for the words "African American" in the report and 99% would be the same.

Senate Bill S. 1346 - Stop Tax Have Abuse Act

Carl Levin Democratic senator from Michigan is sponsoring a bill, S1346, to stop the abuse of offshore tax havens by US corporations.  The bill was introduced in July of 2011.  The details are here.

Here is a great detailed review from Citizens for Tax Justice. If you want to understand some of the accounting and legal tricks used to avoid US taxes, this document has plenty.

The bill would increase reporting requirements for offshore entities and treat tax entities managed by US companies as domestic corporations.

It also extends anti-money laundering reporting to off shore tax entities.

It would ban tax consultant contingent fees.

It also support the IRS process of issuing "John Doe" summons for tax information.

You can read the full bill summary here. S1346 Stop Tax Haven Abuse Act.

This bill has a snowballs chance in hell of passing.

Republicans: Low Income = Welfare

The Congressional Research Service has issued a comprehensive list of government program that benefit low-income Americans. And the Republicans quickly classified it as "welfare." They completely ignore, middle class welfare (mortgage deduction) or corporate welfare (R&D) tax credit or upper class welfare (low capital gains taxes).

CRS Report on Low-Income Federal Spending. The report has a comprehensive list of all low income programs sponsored by the Federal government.

They still have no fundamental policy on helping poor people.  Their answer is the usual collection of approved behaviors: stay in school, work hard, and get married. Funny part is that based on their ideology,  they may not be able to create one.

Anyway, here is the basic problem I have with the way Republicans have characterized this report. Any government activity that helps poor or low-come people is "welfare."  And not the "good" kind that keeps poor elderly and disabled people from starving or sends bright kids with no money to college. No, their image of welfare is that of the moocher who does not deserve anything because of low morals and bad choices. It just goes back to Romney's 47% remark.  "We Republicans have no responsibility for the poor."

Anyway, here is mis-labeled list of program to benefit low-income Americans.

CRS Report on Welfare spending.