Social Security: Ramesh Ponnuru Makes a Bid For Stupidest Man Alive

Some of us on the left sometimes argue that Ramesh Ponnuru is a reasonable rightie who has the foolishness to write for the National Review. Corner comments from Ponnuru prove us all wrong.



His first post claims Noam Scheiber and Josh Marshall do not wish to save Social Security. Of course, anyone with an IQ above the teens would realize that Josh and Noam are mocking the there is no Trust Fund canard. Ponnuru is not stupid so I suspect he has gone for sheer dishonesty as in his second posts:

The argument ignores the generational point: We're talking about different people. If you want to take money back from the affluent people who got supposedly unfair income-tax cuts in the 1980s, raising taxes on high earners from 2009 on isn't the way to do it.

Wait a second here. I’ve been paying those higher payroll taxes since I was 28 years old but now I’m only 52 years old. Guess what? I’m not retired. Nor are many of the other folks who benefited from the Reagan tax cuts. Ponnuru also leaves out the fact that we did see our tax rates go up in the 1990’s with the current General Fund mess being created by tax “cuts” (more like deferrals) that we passed just a few years ago. We might also remember that rich old people leave estates for their kids who become rich young people – especially with the Estate Tax on its way out.

His third “contribution” was an attack on Robert Ball:

So even if people get checks that keep up with inflation and wage growth and get them just as long as they used to - because the age of eligibility goes up but so do lifespans - it's still a "cut," unless total Social Security spending goes up to cover inflation, wage growth, and rising longevity.

The 1983 Social Security reforms were predicated on the premise that real wages and life spans would inch up over time. As far as I can tell, we have not had an unexpected increase in life spans. We have had faster productivity growth that was expected but that makes the system more solvent not less.

The CAT* is out of the Bag

*That’s Carbon Adjustment Tariff to you. It’s coming, probably, and here are some ideas for what form it should take.



The basic idea is simple: any country that gets serious about controlling carbon emissions will raise the price of the stuff, directly or indirectly. Because carbon inputs are important in many other goods and services, they will raise those prices too. If some countries take action on climate change and others don’t this will lead to distortions in global markets. Otherwise well-meaning governments might refrain from action, fearing the competitive effects. If the elasticities are particularly unfavorable, it is even possible that stringent regulation in one country could lead to an exodus of industry to places where carbon burns freely, resulting in an overall increase in global emissions.

So put a tariff on goods to offset price differences attributable to different carbon regimes. There isn’t an accepted name for the idea yet, so let’s call it a carbon adjustment tariff. The idea can be found in Warner-Lieberman and has been broached by heads of state in Paris and Berlin. It is difficult to see how individual countries can take the lead without it.

Good ideas can have bad consequences unless they are thought through, however. Here are three principles that ought to govern a CAT you could love.

1. A tariff schedule should be insulated as far as possible from self-interested manipulation. In a better world it would be the product of a representative and accountable global agency. In the shabby one we live in it should at least be the joint product of a subset of countries, rich and developing, that are willing to take some initiative.

2. All the money collected under such a tariff—repeat, all the money—should be returned in some fashion to the countries of origin, to finance green investment. Yes, I know a lot of this cash will be misspent, but it would be misspent in the collecting country too. The CAT must not become another means to suck scarce resources from South to North.

3. Some or all of the revenues should be held in escrow, pending the agreement of the trading partner to enter a “contract and converge” system under which it will approach a common per capita carbon emissions target. This money can sweeten a deal that should be made on its own merits.

It bears repeating: policies to forestall global warming are not only environmental policies. If they take their job seriously, they will have profound effects on national and global economies. They should be designed to be economically progressive and sustainable.

The Mixed Labor Market Report

Update: Lawrence Kudlow did comment on the BLS report and guess what? He’s adopted the Secretary Snow standard – the most reliable indicator of employment growth is the survey that gives the larger number for the month just reported. Kudlow can always be counted on if you’re looking for serial dishonesty.

**************

Over at Angrybear this morning, I noted the good news from the payroll survey (job growth = 166,000) was accompanied by bad news if you follow the household survey (job loss = 250,000). I ended with:

The employment to population ratio fell from 62.9% in September to 62.7% in October as the household survey recorded an employment decline of 250,000. The labor force participation rate also feel from 66% in September to 65.9% in October. Remember a few years ago when the National Review cheerleaders kept telling us how the household survey was the better measure of the labor market? Betcha they are not saying that today.

So what has Lawrence “the household survey is the best indicator” Kudlow saying these days?



While there wasn’t much today from the Corner Kids, Kudlow had plenty to say yesterday:

Real gross domestic product, the best summary report of the American economy, came in at a breathtaking 3.9 percent annual rate for the third quarter. In fact, following the 3.8 percent growth rate for the second quarter, the U.S. economy has posted its strongest quarterly growth in four years ... Even employment is holding its own. According to Automatic Data Processing’s private employment survey, which showed its strongest gain in four months, October looks like it will produce about 125,000 new jobs.

Not bad for the last two quarters but if one looks over the past six quarters, cumulative real GDP growth has been only 3.5% or 2.3% per year. Employment is holding its own? Let’s diagram the employment to population ratio from October 2006 to October 2007. It seems Larry’s favorite measure of employment is not keeping up with population growth after all.

Winner of the Title Contest

Based on Tom Geraghty's suggestion, the new title will be

The Invisible Handcuffs of Capitalism: How Market Control Stunts Workers and Undermines the Economy

Thank you Tom and Frank Rich. Let me know your address & you can be one of the first to get a copy.

Citigroup as a Bellwether

The New York Times reports on the sell-off today: "The sell-off began after Citigroup, the world’s biggest bank, was hit with a downgraded rating from an influential analyst group, which recommended the bank cut its stock dividends to raise funds. Citigroup wrote down $5.9 billion in assets in the third quarter after losses stemming from mortgage-backed securities and bad bets on asset backed commercial paper. The bank is considered a bellwether of the financial sector, which has faced a battery of poor earnings reports and credit troubles."

Citibank rang the bell earlier. Here is an extract from my new unpublished book that I discussed yesterday:


Citibank had been intent on "selling" -- many used the more accurate, term "pushing" (see Darity and Horn 1988) -- as much credit as possible to Latin America, so much so that Citibank had been getting nearly 50 percent of its revenue from its loans to Latin America.

The bank made these loans without much thought about the ability of Latin America to repay them or without putting adequate reserves aside to cover potential defaults. As a result, the company became deeply enmeshed in the Latin American debt crisis. By 1991, some Citicorp debt had been reduced to junk bond status. Public figures, as diverse as Representative John Dingell and Ross Perot, described Citibank as insolvent (Zweig 1995, p. 867 and 872).

Matters became so dire that the president of the New York branch of the Federal Reserve Bank had to fly to Saudi Arabia to arrange for Prince Alwaleed Bin Talal Alsaud to invest another $1.2 billion in the bank in late 1990. The Federal Reserve also had to be sure to keep interest rates down long enough to salvage the bank (Woodward 2000, p. 73).

[This material comes after a section describing Citibank's leader, Walter Wriston, writing a book that Thomas Friedman "borrowed" in his The Lexus and the Olive Tree.]

LATEST MIDDLE EAST POTPOURRI

1) King Abdullah of Saudi Arabia has visited UK and caused a stir by charging that the Brits did not pay attention to warnings prior to the 2005 terrorist attacks. MI5 says their warnings were off base and useless. Lots of commentators are taking the Saudis to task for funding Wahhabist madrassas that are viewed as missionaries of extremist terrorism and religious hatred. See crossroads arabia for more.

2) Abu Aardvark has shown a map that the Hakims, leaders of the largest political party in Iraq and itching for a separate South, have published, showing much of Sunni Anbar province carved off and given to them, a clasping pair of hands across the border with Iran, and the Sunnis getting some Kurdish territory. And the Bush people would like to replace al-Maliki with a Hakim. This is a formula for war and one more reason the Senate vote for Biden's "soft partition" plan was looney.

3) Juan Cole notes the announcement that the State Department is trying to force diplomats to serve in Iraq. They are resisting. Cole says all bloggers should push for shutting down the monstrosity of an embassy we have there. It is a war zone, and that thing is a colonial horror. So, I am agreeing here and supporting his call. Shut it down!

Is Josh Marshall An Amateur on the Social Security Issue?

Josh writes:

When it comes to the policy and number-crunching nitty-gritty of Social Security I'm definitely an amateur.

This is the only line in his post that I disagree with. Permit me to quote a few of his best insights.

We need to remember that now and for at least a decade into the future Social Security is actually subsidizing the rest of the federal budget. The program brings in much more than it pays out. As we all remember from the voluble debates two years ago, the surplus is being used to buy US government bonds which go into the Trust Fund. And that socked away money will keep the program solvent through the middle of this century as the baby boomers retire, and revenues in no longer cover promised payments out. We've been doing that for about a quarter of a century. The problem on the political side of the equation is that the enemies of Social Security have spent a couple decades arguing that the Trust Fund doesn't exist or that it is simply a bookkeeping device with no true financial meaning. If that's true, it means that Americans workers have spent the last twenty-five years using their payroll taxes to subsidize general revenues and make it easier to float big tax cuts for upper-income earners without getting anything in return.

Well said! Read the rest as he has some real insights on the politics as well.

Behind the 2007Q3 Preliminary GDP Growth Estimate

The latest news from BEA can be found here. James Hamilton provides some details on this 3.9% annual growth rate bit of goods news and lowers his recession probability. A few more observations are in order.



Consumer demand growth was only 3 percent – which to a Rubinesque bear like myself is sort of good news if this eventually translates into more investment. Investment demand barely grew however as the growth in business investment barely offset the continuing fall in residual investment. Ah but the Federal Reserve did lower the Federal Funds rate by more than inflation dove Brad DeLong would have.

The two other GDP categories are government purchases and net exports. Government purchases grew by 3.7 percent at annualized rate almost entirely because of defense spending growth. One has to wonder why our neocon President had his temper tantrum yesterday morning. But the truly excellent news was the rise in exports. Let’s hope this continues – even if it means Lou Dobbs would have one less thing to complain about.

WALL STREET DEMS LET FRANKENSTEIN'S MONSTER OUT AFTER SOCIAL SECURITY WITH "ENDOWMENTS COMMISSION"

Eeeeek! Frankenstein's Monster is back on the loose, prowling the landscape chanting "Social Security Crisis! Social Security Crisis! Fix Social Security!" It is bad enough that Obama has joined the Ghoulsbee bunch chanting this nonsense that Goldman Sachs's Robert Rubin's appointees to the Social Security Trustees under Bill Clinton instituted as "Official Projections" back in the late 1990s, since proven drasically overly pessimistic, but continued by the Bushies. Now Kent Conrad (D-ND), Chair of the Senate Finance Committee, along with Judd Gregg (R-NH), in cahoots with Goldman Sachs's current Treasury Sec, Paulson, are creating an "Endowments Commission" supposed to frighten the next president into "doing something about endowments."

This is a bait and switch the enemies of social security have been playing to for some time. Scare everybody with genuine long run problems in funding endowments. However, instead of focusing on medicare and medicaid, the sources of these problems, these entities formed to deal with endowments suddenly start going after untroubled (so far, still running a rising and nearly $200 billion surplus) social security. I understand people like pgl who might go along with this, given that so many people have fallen for the lies about social security's fiscal status, it may well be politically that the only possible tax increase out there is one on social security, sold to Republicans along with a benefit cut as some kind of deal. But, it is based on a lie. Can we not try to educate people and deal with ther real problems, please, without letting Wall Street get its mitts on social security (and some kind of privatization would almost certainly be part of any such deal)?

Introduction to My New Book in Progress

Now that the Confiscation of American Prosperity has been published, I have a new book that is fairly well advanced. I expect that , The Manacles of Capitalism: How Market Control Undermines Productivity, I will have the manuscript ready to send to Stanford University Press in a few months.

Here is my introduction. Any suggestions would be appreciated. Most of all, my title is clunky. Anyone who comes up with a title that works for me, will win a free copy of the book.



Introduction: The Hidden Manacles

Setting the Stage

This book makes the case that the modern economy has matured to the point where markets do not and cannot harness the anything near the full productive potential of society; and even more important, that markets seriously undermine economic performance.

This book will emphasize only one of the many defects of the market that markets rely on a system of incentives that are self defeating. Purely monetary incentives may appear to work effectively when one takes a narrow view of their operation, but from a larger perspective they are counterproductive for the economy, as well as society as a whole.

To make my case, I will concentrate on the United States of America, which is the purest example of capitalism today. Here is the most powerful economy in the world, yet it seems powerless to meet the most pressing needs of society. The current U.S. economy falls short on a maddening array of counts. The list of pervasive problems includes excessive poverty, inadequate health care, environmental damage, pervasive toxins, and an unsatisfying quality of life, just to name a few. Although the United States neglects these problems in order to nurture market relations, the relative economic strength of its economy seems to be eroding.

The contradictory nature of the U.S. economy raises a host of relatively obvious questions about the quality of life. Why has a widening circle of poverty begun to engulf more and more people, even when the pace of technological change began to accelerate in the late twentieth century? Surely, an economy with a communication system that would have been unimaginable only a few years earlier should be able to nurture a sense of community or at least create a satisfying culture. Although the majority of the population may have access to considerable material goods, the current economic system fails miserably in creating a good quality lifestyle.

Such questions, while important, largely adopt the position of people as "consumers" whom the economy affects. This book will take a different perspective looking at how market incentives impact people as producers. To make this focus clearer, this book will, for the most part, leave aside many serious problems that typically tend to be seen from the perspective of people. For example, the market system has the adverse environmental consequences (see Perelman 2003). Most people regard these negative effects of the economy as a quality of life issue.

This producerist focus is doubly important because economists studiously ignore it; instead, they cleverly justify the status quo by arguing that people supposedly benefit greatly from the market through their participation in society as consumers. For example, Wal Mart is to be applauded because its prices are low while obscuring the company's effect on people as producers. Although the consumer perspective is important, the producer perspective should not be overlooked. This book is intended to remedy that neglect.

Some elements of the producer and consumer perspectives merge. For example, the pollution that degrades the quality of life can also seriously affect production through negative health effects on workers. Other seemingly consumer oriented questions have more far reching producerist consequences.

Consider the role of modern technology. Although engineers have devised methods of producing sophisticated electronic devices with virtually no human labor, the market economy has not managed to discover a way of reducing the working day. How is it that virtually nobody stops to ask even the better paid, but harried people if they would prefer to sacrifice some of the stuff that they consume for more leisure?

The producerist implication of this technology are equally important. One must wonder why an economy with such advanced technological capacities does not provide for more fulfilling work. Although this leisure might be used for more consumption, it could also increase the workers' productive capacity by improving their health. More leisure, like the opportunity for more fulfilling work, could also allow workers to develop improved skills.

The Theological Defense of Markets

The responses to anybody who dares to question the market are predictable. In their first strong line of defense, defenders of markets will respond, that any measures to address deficiencies other than the standard knee jerk remedy of expanding market powers even further threaten to interfere with economic efficiency. A second, and even stronger line of defence, will admit that problems exist, but insist that the cause is not the system, but the personal inadequacies of the people. As Margaret Thatcher, the Conservative British Prime Minister, popularly known as the Iron Lady once explained: "Economics (sic) are the method. The object is to change the soul" (Harris 1989). This call for spiritual Procrusteanism inspired the extreme neoliberalism that continues to this day.

The stubbornness of the prevailing ideological rhetoric of today reflects the view that markets are an end in themselves rather than a means to an end. Any challenge to the market, no matter how mild, reeks of heresy. Edmund Burke, perhaps the most famous British statesman of the eighteenth century, famously set the tone for theological defense of markets, declaring: "... the laws of commerce ... are the laws of nature, and consequently the laws of God" (Burke 1795, p. 137). The modern Journal of Markets and Morality continues to promote that theological tradition.

From a less elevated perspective, business and political leaders commonly join the familiar litany of praise for the market, bandying about lofty terms, such as freedom, democracy, and justice, not to mention efficiency and prosperity. While first running for president in 1999, George W. Bush offered a simpler formulation, declaring that "trade and markets are freedom" (Schwartz 2005, p. 6; citing Fischer 1999).

Surely nobody could object to people being allowed to enjoy freedom, democracy, or any of these other positive attributes of the market. Why would anyone be foolish enough to challenge the existing economic system, which supposedly represents the pinnacle of social organization or at least it would be if ill considered taxes and regulations did not interfere with what President Ronald Reagan called "the magic of the marketplace"?

But adults should not believe in magic. Despite Reagan's fanciful rhetoric, the market is a harsh taskmaster. Frederick Winslow Taylor, known as the father of scientific management and who devoted his life to cutting split seconds from workers' tasks, gave a more realistic verdict of the modern situation, observing: "In the past the man has been first; in the future the system must be first" (Taylor 1911, p. 7). But how well does this system serve people's essential needs? This book argues that it does not.

A Different Theology

Turning to a quite different theology than that of Burke according to Greek legend, a bandit named Damastes terrorized people near Eleusis, in Attica. People called him Procrustes, or "The Stretcher" because he compelled unwary travelers who fell into his hands to spend the night on an iron bed. He sadistically murdered his guests by stretching the ones who were too short for the bed, or, if they were too tall, cutting off as much of their limbs as necessary to fit the dimensions. His sadism supposedly turned the surrounding countryside into a desert. Procrustes's reign of terror was eventually cut short. Theseus, famous for his legendary exploits and destined to become king of Athens, subjected Procrustes to his own bed treatment.

This mythological reference might seem out of place in a book on the economy, but the workings of the economy have become so absurd and the language of the economy so perverted that reframing the subject in an unfamiliar context seems appropriate. As Frederick Winslow Taylor, who attempted to use the scientific method to tighten the screws on the Procrustean bed, suggested, the modern economy requires that people conform to its dictates: "the system must be first."

Max Weber, the famed German sociologist, who was hardly a radical, vividly captured this harsh spirit of the Procrustean world. For Weber, "the market is the most impersonal relationship of practical life into which humans can enter with one another .... Such absolute depersonalization is contrary to all the elementary form, of human relationship" (Weber 1921, pp. 636 37).

One of Weber's most famous expressions is his metaphor of the iron cage (actually a mistranslation of a less poetic "shell as hard as steel") (Weber 1904 5, p. 121). Weber described the inhuman consequences of this cage/shell:

Today's capitalist economic order is a monstrous cosmos, into which the individual is born and which in practice is for him, at least as an individual, simply a given, an immutable shell, in which he is obliged to live. It forces on the individual, to the extent that he is caught up in the relationships of the "market," the norms of its economic activity. [Weber 1904 5, p. 13]

Beyond the Procrustean Economy

In the spirit of Weber at least the mistranslated Weber you can think of the market as a Procrustean bed. Those who do not accommodate themselves to the system suffer a cruel fate. Like Procrustes, the market is also destructive of its surroundings.

In describing the economy as Procrustean, I realize that I am distancing myself from conventional economics. Certainly, the story economics tells about the market economy is very different. Markets are supposed to be purely voluntary arrangements. People chose to work where they want and to buy what they want. Nobody tells anybody what to do (except on the job).

Unlike the irrational sadism of Procrustes a parasite that destroyed its host economists present the modern economy as the height of rationality. Contemporary economists are fond of comparing the organizational achievements of a market economy with the efficiency of a computer or even the brain itself.

While I admit that many individual actors in the economy often do act quite rationally in furthering their own short term self interest, this book will show how, taken as a whole, the modern market economy falls quite short of the excellence ascribed to it. How can anyone rationalize that hours of work have not radically decreased despite the proliferation of modern, labor saving technology? How anyone reconcile increasing job insecurity and stagnating wages with market efficiency?

No, the market is indeed Procrustean. The business leaders, politicians, and economists who are quick to explain that the logic of the system is immutable and who come down hard on anyone who dares to question Procrustean rationality, are generally immune from the harsh demands of Procrusteanism.

The position advocated in this book flies in the face of prevailing opinion. Besides the dogmatic defenders of the markt, some well intentioned people acknowledge some shortcomings, but pin their hopes on minor regulatory tinkering. History does not look kindly on those who have expected much from such piecemeal measures in the past. Still others might promise that better technologies will be able to correct existing problems within the framework of market. The underlying problem, however, is not technological inadequacy. Nor is it a material deficiency. For example, people do not go hungry because too little food is produced. After all, food surpluses have long plagued most developed countries.

Viable alternatives do exist, but they might seem impossibly utopian only because the gatekeepers of the Procrustean economy adamantly refuse to accept any dialogue or even the possibility of a dialogue. As Prime Minister Thatcher proclaimed: "There is no alternative." The iron bed must remain in place. Everyone must learn to accept the dictates of the Procrustean economy. Neither individuals nor societies have any choice in the matter. To defy the logic of the market would be suicidal at least in an economic sense.

This book makes the case that this Procrustean ideology is as absurd as it is inhuman. The book shows why markets are incapable of permitting people to use their productive potential, while, at the same time, pointing in a more positive direction. Once people realize that the economy does not have to put the system first, as Taylor suggested, society can tap into people's potential and create a more fulfilling life.

The first step is a critical evaluation of the market. Hopefully, with sufficient intelligence, courage, and imagination we can get the kind of economy we deserve an anti Procrustean one in which the productive system will finally adjust to meet society's most pressing needs.

Military contracting.

George Mason [read: laissez-faire] economist Tyler Cowen wrote in the New York Times that -

Private contractors [such as Blackwater] may not respect virtue for its own sake, but like most businesses, they will respect the wishes of their most powerful customers, in this case governments. What is wrong with Blackwater may, most of all, mirror what is wrong with Uncle Sam.

This article is a useful read and makes some important points (while tending to oppose Bush's Splendid Little War). But as usual with free-market types, Cowen leaves important stuff out.

His basic point makes sense: in the end, Blackwater's sins fall on our government's head, and thus on the voters' heads. (Also, it makes sense in our current capitalist system that at least some government functions will be privatized and that we have to balance benefits and costs of privatization.) But there are two points in addition:

1) No contract is perfect. Given the incomplete information about what the contractor must do and uncertainty about the future, it is (almost?) inevitable that there will be loopholes. Further, profit-seeking companies will look at contracts to find absolutely all loop-holes. Companies such as Blackwater will then exploit all the profit-enhancing ones. This "loop-hole" mining is familiar to students of banking, where financiers are always looking for ways around regulations, even those which ultimately are to their benefit.

This tells us that in addition to contracts with privateers, there must be vigorous direct supervision of them. (This, of course, must be part of the original contract, agreed to by the privateer.) Contrary to the laissez-faire crowd, we cannot rely on the "magic of the market" (to use Ronald Reagan's phrase) to supervise the privateers.

2) The government does not just respond to the interests of the voters. In a capitalist system such as ours, it responds to the concentrated power of money. And it did so before the poorly-conceived campaign finance reforms that now prevail.

In fact, unless people are pissed and actively organized in their anger against the government enough to push against the normal mode of government operation, Big Money trumps voters every time. This was true even under FDR, despite recent efforts to paint the New Deal as some sort of Golden Age. Back then, however, a big fraction of the plutocrats was scared of the popular discontent. So they did the Right Thing (or rather, part of it) for awhile.

Anyway, the power of money means that companies such as Blackwater can arrange for weak oversight of their contracts. They can almost guarantee that there will be loopholes and that enforcement will be feeble and chummy.

Of course, Blackwater was a very small company just a few years ago, so something had to happen first for it to have so much influence. What happened was part of the general neoliberal movement of the last 30 years or so, i.e., the Cheney/Rumsfeld effort to privatize as many military functions as possible. (My dad was in the Navy Supply Corps, feeding sailors during World War II. If he were alive today, he'd be doing his job for some private company.)

This privatization movement -- which involves much more than merely hiring mercenaries -- has created (1) a bunch of companies made rich by government contracts with (2) a vested interest in lobbying the government for more privatization (more business opportunities for them) and (3) providing more campaign contributions for those pushing privatization (not just Cheney & Rumsfeld, but also W. J. Clinton). There's a vicious circle of crony capitalism going on.

The Big Money voters are the ones who are ultimately responsible for the poor contracts and poor contract enforcement that Blackwater et al. have profited from (until they were caught). It's only when the actual voters -- real, live, people -- decide to throw out Big Money that we are responsible (in practice) for what our government does. Until then, the sins fall on the heads of the real rulers of the United States government.

This second point should be obvious to the George Mason folks. Their "public choice" school of economics tells us that we cannot simply take government policies for granted or as representing the "true" interest of the people. What they miss is the power of the capitalist class and the influence of important sections of that class (such as military privateers).

Jim Devine

"Saving" Social Security, Obama Style

If this article is correct, the Obama team has a lot of explaining to do.



In particular, they need to tell us whether their guy doesn’t have the chops to understand Dean Baker and Paul Krugman, or if he is serving some other, darker interest. And don’t give me any bull about how virtuous it would be to raise the cap on SS taxes: it all depends on the narrative. If you get to a more progressive tax system by flashing false alarms about Social Security, you feed the beast under the guise of clipping its clawnails.

Globalization -- A New Twist

I just spent the weekend with a pretty high level delegation from China. At the final banquet, some of them were telling my wife that they appreciated the low prices in US stores. They were especially happy with some shoes that cost 6 times more than in China. They were taken aback when she mentioned that the shoes were made in China, where they presumably cost far less than in Los Angeles.

The Best Fit Ever

Krugman on his blog uses Larry Bartel's data, from the latter's *What's The Matter With What's The Matter With Kansas* to puncture the myth that the rich are more likely to vote Republican.

In my forthcoming *What's The Matter With What's The Matter With What's The Matter WIth Kansas* I find a perfect negative correlation between intelligence and a tendency to vote Republican. My inverse measure of intelligence? - the tendency to vote Republican!

$90 Oil Prices: Is This a New Record in Real Terms?

AP reports:

With the recent gains, the price of oil is closing in on the inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Should we inflation adjust using the GDP deflator or the CPI deflator?



James Hamilton does the latter in a chart entitled dollar price of West Intermediate divide by ratio of CPI. By this measure, we are not yet an inflation adjusted record. WRTG Economics has their own historical price in real terms though 2006. The inflation-adjusted real price record in terms of 2006 dollars was less than $70 per barrel. I suspect WRTG Economics is using the GDP deflator, which has not risen as much as the CPI deflator since 1980. AP was not kidding when they said “depending on the adjustment”. I get the $101 figure if we use CPI but where does the $96 dollar figure come from? The GDP deflator in 2007QIII were only 2.29 times the GDP deflator as of 1980QI so wouldn't the inflation-adjusted oil price been $87 not $96 dollars?

Of course, it also matters which measure of the spot rate one uses for this. WRTG also reports both the WTI spot price and Brent Spot price, which was considerably lower.