Category Archives: Monetary Shenanigans

Steve Pociask is Repetitive

As Paul Krugman has pointed out in many of his pieces, you can often tell when someone is arguing from ideology rather than reason. If the solution they prescribe never changes no matter what the problem is, then they don’t care about the problem; they just want to push their “solution.”

Case in point: Steve Pociask of the “American Consumer Institute Center for Citizen Research” (in quotes because the name does not describe at all what the organization actually does).

He looks at the upcoming expiration of the Internet Tax Moratorium and the FCC’s possible efforts to enforce Net Neutrality by reclassifying ISPs as telecommunications providers and sees a horrible threat!

By my estimate reclassification and end of the moratorium would eventually increase broadband prices by more than 17%, due to increases in state and local taxes traditionally imposed upon telecommunications and utility services, including property and receipts-based taxes. The increase in costs, when passed through to consumers in the form of higher prices, will lead to a decrease in the otherwise growing base of nationwide broadband subscribers by as much as 65 million by 2020.

This decrease in subscribership would affect economic output by reducing Gross Domestic Product by as much as a quarter of a trillion dollars over the next 10 years, including the loss of a half a million jobs. Finally, the effect of price increases and demand services would produce a decrease in consumer welfare by as much as $81.1 billion over the next ten years for the broadband services market. Lower levels of investment, higher prices and reduced demand are precisely the opposite outcomes that Congress and the FCC have set out to achieve in the National Broadband Plan. In short, allowing the moratorium to expire and reclassifying broadband services – would do more to make broadband unaffordable, which will discourage broadband adoption and lower consumer welfare.

Given the potential downside from the risk of increased Internet regulation and taxes, policymakers need to prevent this confluence of events. Congress is mulling over the Permanent Internet Tax Freedom Act, which would extend the tax moratorium indefinitely. On the Net Neutrality issue, the FCC needs to take a break from writing and promulgating new Internet regulations, at least until they can identify some serious violation that would require some regulatory remedy, rather than anticipating the potential for market failure. These actions would provide broadband consumers with adequate shelter from the storm.

First of all, when someone says that someone else “needs” to do something but handwaves away the specifics of why, be suspicious. The second paragraph above has the implicit assumption that (assuming that the numbers are accurate, which given that they come from the Heartland Institute, your one-stop-shop for obstructing climate change legislation) tax receipts disappear from the economy never to be seen again, which isn’t true at all. A huge part of what lengthened the recession that just happened is the mass firing of government employees at all levels, first local and state, and later federal. This meant fewer people working, fewer services being provided, and generally fewer things that need doing getting done. This despite the fact that raising taxes is a good idea given that we’ve slashed everything in state and local budgets to the bone except for law enforcement and the like. The meat of the piece is about two things: increased regulation, and taxes, both of which are Worse than Hitler in his eyes.

A compendium of wrongness:

The recession belongs to Obama, and taxes are worse than deficits.
Credit unions need to be less stable and risk people’s money the way banks do. This is a nicely done piece in that he’s sneakily trying to undermine the very thing that makes Credit Unions so attractive as well as justifying their tax break, under the guise of giving CUs FREEDOM.
Internet Freedom does not need to be preserved because FREEDOM! NOW WITH A FLAG BACKGROUND!
Municipal Wi-Fi is bad BECAUSE REASONS.
Taxes are worse than Credit Unions.
Internet access is not a utility, and having wires going to your house is the same thing as actually being connected to the Internet.

Note what he argues for in each of these things: lower taxes, more business FREEDOM, and less government. No matter the subject, those prescriptions never change.

If your doctor wanted to give you a coffee enema each and every time you visited, no matter what the visit was for, wouldn’t you start looking for another doctor?

Economic Gravity

With all the talk of Piketty’s book and its implications for the future, I decided to dust off an analogy that’s helped me make sense of what happens with a society’s money. At a microeconomic scale, money whizzes around with some degree of stability (because human beings need food and shelter) and some degree of unpredictability (because sometimes human beings buy pet rocks). It’s very hard to tell precisely what people are going to do with their money, let alone whether or not that’s going to be a good or a bad thing for that person (or any other party) beyond a very short time horizon.

In a macroeconomic sense, money is a little easier to describe for me. I think of money as having a strange kind of mass or as being matter in an abstract sense; it stores and transfers energy (think of momentum and collisions as what happens when money is invested or used in a transaction), its energy state can change to mirror the amount of entropy in the system (the higher the velocity of money, the higher the “state”), and most importantly, gravity (the return on financial investment, where you use money to make money almost in the abstract via investment in securities), and it can be transformed into other types of matter (currency trading/bonds/stocks, with some loss of value in the form of exchange fees and market inefficiencies). Now it’s not a stable analogy. The two counter-examples that first come to mind are that money is very often created or destroyed, and that while you can convert matter into energy, you can not transform money directly into economic activity. The thing money collides with to transfer energy is also ill defined (another type of matter? I wasn’t interested in thinking it through that far). The problems with the analogy largely but not completely center around money being a set of symbols that human beings use to signal other human beings that certain activities will produce a desired result that usually involves a monetary transfer. The transfer of energy (economic activity) itself is not an inherent property of money in the way that the transfer of kinetic energy when a bat hits a baseball is a property of matter.

So if the analogy has so many holes in it, why do I find it so fascinating? Because of gravity. The metaphor built into the statement that money has gravity is incredibly powerful. While money can and often is used to generate more money through investment in capital markets, money in large amounts can draw even more money only interacting with other financial products: a money market (whether this money is made for the person it belongs to or their agent, such as a bank which uses it as reserves for making loans). See here for a description of the difference between the two. This means that in every period where the return on capital investment is less than the return on financial investment (or what you get as an almost freebie for being rich and not doing stupid things with your money), the divide between the haves and the have-nots will increase even more, and the wealthy stand a decent chance of missing out on most of the effects of the stagnation, since their constant income stream will be diminished (losses on investments in capital markets) but their bread-and-butter money market investments are more secure.

From the Economist blog post linked above (please keep in mind that this is not an approving description so some things (such as the difference between ideal rate of return and actual rate of return) are completely skipped:

From this history, Mr Piketty derives a grand theory of capital and inequality. As a general rule wealth grows faster than economic output, he explains, a concept he captures in the expression r > g (where r is the rate of return to wealth and g is the economic growth rate). Other things being equal, faster economic growth will diminish the importance of wealth in a society, whereas slower growth will increase it (and demographic change that slows global growth will make capital more dominant). But there are no natural forces pushing against the steady concentration of wealth. Only a burst of rapid growth (from technological progress or rising population) or government intervention can be counted on to keep economies from returning to the “patrimonial capitalism” that worried Karl Marx. Mr Piketty closes the book by recommending that governments step in now, by adopting a global tax on wealth, to prevent soaring inequality contributing to economic or political instability down the road.

So when you see the wealthy and their political agents directing what looks like (and really is) the destruction of our ability to make money by building things, doing things, and making sure people have reasonable living conditions, remember that this is because they are protecting their ability to make money with money, which is not only a more secure “investment” to them (to horribly abuse the word “investment”), it is also something that is much easier to pass on to their heirs. Of course, while this may be a perfectly reasonable economic decision on their part, it is a remarkably shitty way to treat the rest of us, and should attract the appropriate amount of outrage in response.

Do we want this, I mean really?

According to the Wall Street Journal, the Shrub is claiming that Social Security privatization would look much like the Federal Thrift Savings Plan (our gratitude to the Wonkette for her pointing at the article in the late summary for Dec 22nd). For the WSJ to be as pessimistic about a pro-business plan as it is in this article, it must stink to high heaven. As a good friend of mine says, however, “but wait, there’s less!”

“Safe is not an adjective I would use” to describe the TSP investment options, says William Shipman, chairman of Carriage Oaks Partners LLC, co-chair of the Cato Institute’s Project on Social Security and a backer of private accounts who advocates an initial limit on workers’ exposure to stocks. Just because an investment option is an index fund “does not get around the risk” of the underlying investments.

While the article goes on to say a few token good things about the TSP, it then describes how people lost their shirts in the stock market bubble.

Okay W, when the friggin Cato Institute, one of the biggest cheerleaders for your “Ownership Society,” is dissing your plan you’ve got no credibility.

More social security.

John Marshall, over at Talking Points Memo, has his own contribution to the growlings about the Shrub’s plans for Social Security. He has many important things to say, centering around the idea that the Democrats have to confront what’s actually happening, not run a critique of the Republican actions and tactics. From the article:

The issue is balance and commonsense. A breadwinner with dependents who gets a lump sum salary at the beginning of the year and invests it all in a few hot start-ups doesn’t believe in the market; he or she is just a fool. A wise investment portfolio is balanced between riskier and more conservative investments. The best way to make this argument (and the most valid one) is to make it clear that Democrats want people to be able to invest. That really is the path to wealth. But Social Security is different. It is, among other things, a baseline of guaranteed retirement security and income for everyone. You get it whether you retire in boom times or bust times, whether life has dealt you good cards or bad cards. The two things are simply different.

The Hilarity of Business Ethics

Katrina vanden Heuvel, in her Editor’s Cut column, today touched upon the moral (and perceptual) failings of the current business culture. Not only is what the average corporation does to its employees just Wrong, the over-inflated image of the ability and value the executive higher-ups have of themselves is just amazing.

At a non-profit organization that was undergoing a reorganization to be more along “business” lines that I worked for, an interesting memo was printed to a public printer – two corporate officers were being asked to be paid their very lucrative performance bonuses despite the fact that they missed their targets. The reason they gave? 9/11. The

It’s also important, Lapham argues, to understand–and change–the fact that “we live in a winner-takes all society, where individual achievement is honored and concepts like teamwork and community are generally ignored. There is a myth in our society that certain individuals are smarter, more motivated, get up earlier, work harder, take risks…and thereby create wealth all by themselves…We often come across successful individuals saying with a straight face ‘I never got any help from anybody.'”

Right. No-one ever changed their diapers, taught them to read, write, and do ‘rithmetic, taught them the basics of their trades, maintained their utilities (power,water, etc.), maintained the roads in their communities, got the mail to them, or anything else. They never got any help from the public sphere. Liars.

My Hero on the Social Security Krysis

Molly Ivins, (who even if I’d never read anything else by her would have become my hero for writing this article alone), has made her feelings very clearly known about the Shrub’s Social Security plans. As always with my favorite Texan, a wonderful and enlightening read. As with any article about the Shrub’s plans for us, it’s also infuriating.