Conservatives Question Palin’s Fiscal Conservatism

Cato’s Chris Edwards focuses on the tax side:

On tax policy, Alaska governor Sarah Palin has a rather uninspiring, albeit brief, record. The following is some information gleaned from State Tax Notes.
Palin supported and signed into law a $1.5 billion tax increase on oil companies in the form of higher severance taxes. One rule of thumb is that higher taxes cause less investment. Sure enough, State Tax Notes reported (January 7): “After ACES was passed, ConocoPhillips, Alaska’s most active oil exploration company and one of the top three producers, announced it was canceling plans to build a diesel fuel refinery at the Kuparuk oil field. ConocoPhillips blamed the cancellation on passage of ACES [the new tax]. The refinery would have allowed the company to produce low-sulfur diesel fuel onsite for its vehicles and other uses on the North Slope, rather than haul the fuel there from existing refineries.” There are good reasons for an oil-rich state to tax oil production, but a fiscal conservative would usually use any tax increase to reduce taxes elsewhere. Perhaps I’m missing something, but I see no evidence that Palin offered any major tax cuts. She did propose sending $1.2 billion of state oil revenues to individuals and utility companies in the form of monthly payments to reduce energy bills, but that sounds like welfare to me, not tax cuts.
Palin has offered a few narrow or minor tax breaks, including:

A tax credit for film production in the state, offering about $20 million per year in breaks.

A cut in an annual business license fee from $100 to $25 (the legislature went half way to $50).

A one-year suspension of the state fuel tax to save taxpayers about $40 million.
A repeal of tire taxes to save taxpayers $2 million.

A tax credit for commercial salmon harvesting to save taxpayers about $2 million.

That’s about it.

Andrew Sullivan says Palin is a Bush-Cheney fiscal conservative:

low taxes, unprecedented new spending, utter incompetence, endemic cronyism and massive debt.

And Sullivan has the facts to back this up.

What You Can Learn From the Newspapers

Thursday's Wall Street Journal taught me that Sarah Palin is not a rigid fundamentalist. "She drew the ire from the religious right by shelving calls for new abortion limits, when she worried it would distract from her bipartisan deal to push through a new gas pipeline." And that's comforting, isn't it?

And the Labor Department does not have to follow the law in protecting corporate whistleblowers, when the whistleblower works in a subsidiary. That makes sense, doesn't it.

Of course, the common theme is that business is the true religion in America.

The Real Threat From China?

The international economy is supposed to be a bright spot for US business. The New York Times today mentioned that the falling value of investments the United States has the Chinese central bank strapped for cash. The article does not mention the possibility that the bank might slack off its purchasers of US paper. Does anyone have any thoughts about how sensitive US interest rates might be to declining demand by the central bank? Even more important, how long can the unhealthy codependence of the US and Chinese economies last?

Against the Day

I feel like a kid reporting, but with Labor Day passed I finally finished reading my big fiction book of the summer, Thomas Pynchon's _Against the Day_. I have long been a fan of his work (although I thought _Vineland_ was lousy), ever since I read his most famous work, _Gravity's Rainbow_ back in the mid-70s. This is his best since then, possibly better, and closest to it in themes. GR took place at the end of WW II with themes of technology and war. AtD starts at the Chicago World's Fair in 1893 and ends shortly after the end of WW I, with him clearly seeing WW I as what led to WW II. I think the day he is against is June 28, 1914, the day the Archduke Ferdinand was assassinated in Sarajevo, setting off WW I, which he makes clear was a catastrophic even in world history and civilization. His theme of technology is driven deeper by a much more profound investigation of the intellectual roots of relativity theory and other ideas in physics that would underly the various horrors of the 20th century, with long disquisitions on the themes of light and time.

His political/economic stance is much clearer than in earlier books, with several of his major characters coming out of a family of anarchists from the western US at the end of the 19th century. He is very much concerned with class struggle issues, but frames them in terms of anarchism, making only the briefest of mentions of Lenin or Bolshevism, and unfavorably. There is also more character development in this novel, his longest at 1084 pages, and I suspect that he may have reacted against his critics on this matter, with many writing about him, and there even being an academic journal devoted to his works. But this book is a profound tour de force that I highly recommend, with much that resonates with our recent and current situations in terms of the deeper trends of world history and politics.

Profits vs. Technical Education

A few months ago, Computerword published an interesting article that might through some light on the ongoing debate about "H-1B visas, offshore outsourcing and the debate over whether an IT labor shortage even exists."

The idea is that efforts to cut costs for technology workers deflate students enthusiasm to train for such training. The article is also interesting because it breaks with the usual practice of blaming the prospective employees rather than the corporate employers.

Tennant, Don. 2008. "Pro or Parasite?" Computerworld (14 April): p. 8.
http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=316555

"There are a lot of CIOs [Chief Information Officers] around who dismiss the idea of hiring graduates fresh out of college. I know, because I've spoken with many of them .... But it seems like an awfully shortsighted approach to skills management."

"Of all the issues we cover, none seems more volatile or emotional than the subject of IT skills and labor management, encompassing as it does issues like H-1B visas, offshore outsourcing and the debate over whether an IT labor shortage even exists. During a panel discussion on this topic at our Premier 100 IT Leaders Conference last month, we polled the audience to see whether attendees believed there is such a shortage. Forty-six percent said yes, 43% said no, and 11% said they weren't sure. I wasn't surprised to see the results so evenly split."

"The lack of consensus extends to the question of whether the U.S. education system is producing enough graduates in technology-related fields. We've all read about the concern that the U.S. is losing its competitive edge because China, India and other countries are educating far more scientists and engineers than we are. But there's plenty of debate over whether that concern is legitimate."

"For example, last November, Harold Salzman of the Urban Institute testified before Congress that research conducted in collaboration with Case Western Reserve University and Georgetown University found no shortage of STEM (science, technology, engineering and mathematics) graduates in the U.S. "The available data indicate that the United States' education system produces a supply of qualified STEM graduates in much greater numbers than jobs available," Salzman testified. "If there are shortages, it is most likely a demand-side problem of STEM career opportunities that are less attractive than career opportunities in other fields." What needs to be factored into the equation, however, is that a hefty percentage of those graduates are foreign nationals."

"According to Salzman's report, in 2005, 38% of computer science and 42% of computer engineering graduates in master's degree programs were non-U.S. citizens. To the extent that the benefit of the knowledge gained by those foreign students lies outside of the U.S., it's clear that there's still a lot of work to be done to encourage young Americans to advance U.S. competitiveness by pursuing degrees in STEM disciplines."

"What's equally clear is that if the message being sent to our young people is that companies will be reluctant to hire them when they graduate, they'll steer clear of technology, the pool of homegrown talent will dry up, and the question of whether there's an IT labor shortage will be far less debatable."

McCain and Lieberman: Is This a Christian Nation After All?

News reports have it that Joe Lieberman was McCain’s top choice for VP, and that McCain went for Plan B (or was it Plan P?) because of opposition from the Christian right. I should preface what I’m about to say by pointing out that Lieberman is an orthodox Jew. In his branch of the faith, not only are women not allowed to be rabbis, they can’t sit alongside men in prayer, nor do they count when adding up bodies to find out if a minyan is present. To put it mildly, I am troubled by this.

But that is not why he was stricken from the list. No doubt, if you ask the fundamentalists who threatened to walk, they would say it was because of his views on abortion and similar issues. Nevertheless, can you name a single Jewish politician of national prominence in either party who could have passed their test? I’ve tried, and I can’t. Religious Jews have their obsessions, but they are different obsessions. So no matter how you slice it, this is de facto antisemitism. The Republican Party remains in the grip of fanatics who believe this is a Christian nation, and the rest of us are just guests, welcome or otherwise.

Happy Labor Day!

Happy Labor Day! for those of you in the United States, Canada, or Australia, where I understand the first Monday of September is an official holiday to celebrate working people and their efforts and status. I had long been under the assumption that this date was a pacifying alternative created in the US to distract workers from the more socialistic and radical May Day version that is celebrated in all the rest of the world that has such a day (not all countries do, e.g. Saudi Arabia).

In fact, the US version predates the May Day version, although not by much. Whereas I had long presumed the US version came out of the relatively conservative AF of L, in fact it was started by the much more radical Knights of Labor, with the first march celebrating it taking place on Monday, September 5, 1882, in New York City, with a carpenters sub-unit of the K of L being the main organizers, with this being repeated in 1884. In 1887, Colorado became the first state to make the first Monday of September an official holiday called "Labor Day," with this being adopted at the national level in the US in 1894, although certain individual states held off.

May Day was to memorialize the Haymarket massacre in Chicago, which happened on May 4, 1886. May Day was declared an international labor festival in 1889 in London by the Second International, with May Day having deep roots in Britain with its positon in the Celtic calendar opposite All Saint's Day, with Candlemas and Lammas as the quarter points. I am not sure which nation first had May Day as an official national holiday, but I suspect it was the Soviet Union after the Bolshevik Revolution.

California Budget Mess

California still does not have a budget. The Republicans have taken a vow not to raise taxes. To pass a budget will require a few Republican votes, but whoever wavers will be severely punished by the Republicans. The Republicans are holding out to get existing rules trashed, put on permanent spending caps, and cut spending. Governor Arnold has a "compromise," which is bad, but the Republicans strongly reject it, holding out for a complete capitulation. Arnold also proposes to put almost all state workers on minimum wage. This brilliant idea is put on hold by a court challenge.

Schumpeter is of interest here:

Schumpeter, Joseph A. 1954. "The Economic Crisis of the Tax State." International Economic Papers, 4; reprinted in Schumpeter, Joseph A. 1991. The Economics and Sociology of Capitalism, ed. Richard Swedberg (Princeton: Princeton University Press): pp. 99-140.

101: "The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare -- all this and more is written in its fiscal history. ... The public finances are one of the best starting points for an investigation of society."

Theological Question

Didn't Pat Robertson explain that Hurricane was God's punishment for abortion and/or homosexuality? Would Gustav similarly be a reprimand for the sins of the Republicans?

Stock Buybacks Again

I have written a couple times about the irrationality of stock buybacks from the standpoint of corporations using their money to manipulate stocks in expectation of higher bonuses. Today's Wall Street Journal offers another take on the subject. Besides providing a sense of the magnitude of stock buybacks, the article concentrates on the personal irrationality of corporate management, rather than the systemic irrationality of the capitalist system. In particular, the article suggests that corporations often squander money by purchasing stocks that turn out to be overpriced.

The article also offers examples of corporations purchasing unrelated corporations to make a quick buck, rather than developing their own productive capacities. My favorite example here was Exxon's entry into the typewriter business, suggesting that the management may be so inept that stock buybacks might not be so bad.



Zweig, Jason. 2008. "With Buybacks, Look Before You Leap: Repurchases Routinely Give Shares a Lift, But the Effect Could Be Ephemeral." Wall Street Journal (30 August): p. B 1
http://online.wsj.com/article/SB122005273251785043.html?mod=todays_us_money_and_investing


"Stocks regularly jump up 3% to 6% on the announcement of a buyback."
"Benjamin Graham pointed out a paradox: The better a company's executives are at managing its businesses, the worse they are likely to be at managing its cash."

"Three decades ago, with oil skyrocketing and profits gushing in, energy companies squandered billions of dollars on one bone-headed diversification after another. Mobil bought Montgomery Ward, the dying retailer. Arco acquired Anaconda Copper just before metal prices collapsed. Exxon even got the bright idea of manufacturing typewriters."

"So far in 2008, ConocoPhillips has spent $5 billion buying back stock; Chevron, $3.6 billion. From the end of 2004 through this June 30, says analyst Howard Silverblatt of Standard & Poor's, Exxon Mobil has soaked up an astounding $102.2 billion worth of its own shares."

"All told, the companies in the Standard & Poor's 500-stock index have bought back shares valued at more than a half-trillion dollars' worth of their shares in the past year."

"Every three months, Duke University economist John Graham surveys hundreds of chief financial officers. During the week of March 13, 2000, the absolute peak of the market bubble, 82% of finance chiefs said their shares were cheap, with only 3.4% saying their stock was "overvalued." More recently, buybacks hit their all-time quarterly high of $171.9 billion in September 2007, just before the Dow crested at 14000."

"Mistimed buybacks can be deadly. In 2006 and 2007, Washington Mutual spent $6.5 billion on buybacks. In January 2007, with the stock at 43.73 per share, chief executive Kerry Killinger called the repurchase program "a superior use of capital." Also in 2006 and 2007, Wachovia sank $5.7 billion into buybacks at an average price of more than 54. Citigroup spent $8.3 billion to repurchase stock in 2006 and 2007 at share prices of about 50. In April 2008, all three banks were so capital-starved that they had to raise cash by selling shares for a fraction of what they had recently paid for them -- WaMu at 8.75, Wachovia at 24, Citi at 25.27 a share."

Happy Birthday: You May Have His Axe, But I Have His Ball Peen Hammer

Happy Birthday, Charlie Parker! I borrow the following from Garrison Keillor:

It's the birthday of jazz saxophonist Charlie Parker, born in Kansas City, Kansas (1920). He is considered one of the half-dozen greatest jazz musicians, right up there with Duke Ellington and Louis Armstrong. Early in his career, he received the nickname of "Yardbird," and he became known as "Bird."

Before Parker, jazz meant swing, melodies played at dance tempos by musicians in big orchestras who never got to take solos for very long. Late at night, after their big band jobs were over, Parker, Dizzy Gillespie, and other black musicians kept on playing, improvising long lines at blazing speed. Parker used a lot of flatted fifths, and jazz players used the word "bebop" to sing a flatted fifth, but Parker didn't like to use the word for the way he played. "Let's not call it bebop," he said. "Let's just call it music."

As a teenager, Parker became addicted to morphine while hospitalized after a car accident. He later became addicted to heroin, which contributed to his death at 34. The official cause was listed as pneumonia and a bleeding ulcer. The coroner made a mistake in estimating Parker's age to be between 50 and 60.

Parker said, "I realized by using the high notes of the chords as a melodic line, and by the right harmonic progression, I could play what I heard inside me. That's when I was born."

The EU: A Slow Learner

The EU is preparing make even more costly mistakes in its carbon emissions reduction program. Reuters reports that draft legislation will increase offsets to fully a fourth of (paper) reductions. If past experience is a guide, this means that the true cap has just been lifted again, and that billions more euros will be made in profits at the ultimate expense of consumers. (The difference between the increase in revenues companies get by charging more for carbon-intensive products and the cost of manufacturing an offset is the source of rents divvied up by buyers, sellers and financial packagers of offsets.) Will the US legislation we enact next year be equally corrupt and ineffectual?

Auto Da Fé

Who will get burned by the conjuncture of rising fuel prices and household debt deflation? The Frankfurter Allgemeine Zeitung reports that some corporate paper issued by GM is now trading at 50% of face.

The Beauty of Markets and Markets of Beauty

In looking through William Stanley Jevons' Principles of Economics, mostly a collection of unpublished fragments, Jevons concluded a section on negative value with a fascinating story from Herodotus on auctions in the Babylonian marriage market. The story speaks for itself and requires no commentary on my part.



137: "According to Herodotus the Babylonians managed to find husbands for all their young women. They collected together whatever maidens might be of marriageable years and sold them by auction, beginning with those esteemed the most beautiful. They gradually proceeded downwards in the scale of comeliness until some damsel equidistant between beauty and plainness had to be given away gratis. Then the plain and the ugly and the deformed were brought out by degrees, and the bidding went on; but in the other way, the premiums obtained for beauty being spent as dowries for the less favoured. All the women found husbands, and all the husbands found what they desired."

They're called the 'Unholy Trinity' – the IMF, the World Bank and the WTO. Part One.

Introduction.

The IMF and the World Bank were originally established in 1944 at the Bretton Woods conference between allied forces (essentially the US and Britain). It was a response to a wide range of international economic problems in relation to global trade that were experienced at the time and in the preceding decades. The most notable examples of such difficulties were exchange rate instability, ‘hot’ money flowing in and out of nations unpredictably, and the lack of a mechanism to adjust the balance of payments problems of countries, post-World War II debt and the need for the reconstruction and development of economies across the globe.

The IMF was designed to put in place a stable exchange rates regime with some scope for revaluation and convertibility of currencies when required. Short-term liquidity crises were to be managed by lending money to nations that experienced a temporary balance of payments crisis or by providing some form of orderly devaluation of the affected nation’s currency in times of more persistent BOP problems. It was hoped that these two latter processes would allow nations to reduce their deficits without resorting to protectionism or by experiencing deflation.

The International Bank for Reconstruction and Development (the World Bank) had the purpose of financing projects and infrastructure development in the war-torn European nations as well as to assist the industrialisation of post-colonial societies.

Under Bretton Woods the US dollar became the global reserve currency. This meant, amongst other things, that while every other national currency could devalue against the dollar, the US dollar could be devalued only against gold.

John Maynard Keynes and other negotiators at Bretton Woods had originally advocated a global reserve currency that was not, in fact, to be linked to any particular national currency. But the US held the hegemonic power at the time of these negotiations and its leaders designed the system to serve their priorities [1]. They wanted an up-dated gold standard to facilitate the liberalization of global trade and they wanted financial power concentrated in Washington and New York. US ‘negotiators’ won the day and lost the cause by doing so.

Because of the economic asymmetry between he United States and the rest of the world it soon began to experience a persistent balance of payments deficit. This situation arose under Bretton Woods because without the persistent US capital outflows the world experienced (for a number of reasons) a liquidity shortage. “In the early postwar years, the capital outflow consisted largely of foreign aid. By the end of the 1950s, private long-term investment abroad (mainly direct investment) exceeded military expenditures abroad and other official transfers (Eichengreen 199 1).” [2]

That Bretton Woods system crumbled after 1968 and ended with the closing by President Richard Nixon of the gold window on 15 August 1971. Prior to that at least one US presidential administration had used the nation’s economic hegemony to intervene and disrupt the operations of the Bretton Woods institutions. [3]

By the early 1970s the free market had become largely a historical relic in any case. “It [had] been transformed by three systemic forces over the [previous] 40 years: accelerating concentration of industry and banking, increasing intervention of government into the “private sector”, and…the spectacular rise of the intracorporate (nonmarket) economy of the global oligopolies.”[4]

For more on the background and history of the Bretton Woods system see: The Bretton International Monetary System: A Historical Overview, by Michael D. Bordo.

END OF PART ONE


[1] Keynes’ Achilles’ heel was his lack of political sense, according to his biographer Robert Skidelsky. “He never studied the sources of power nor how society is affected by social stratification or the forces of social control.’. Page 494 ‘John Maynard Keynes, Fighting for Freedom, 1937 – 1946’ by Robert Skidelsky.

[2] The Bretton International Monetary System: A Historical Overview, by Michael D. Bordo, professor of economics at Rutgers University.
www.nber.org/chapters/c6867.pdf

[3] Documents show that the Nixon administration engaged in an invisible economic blockade against the Allende government in Chile, intervening at the World Bank, IDB, and Export-Import bank to curtail or terminate credits and loans to Chile before Allende had been in office for a month. See: Department of State, Memorandum for Henry Kissinger on Chile, December 4, 1970:
http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB8/ch20-01.htm

[4] ‘Global Reach – The Power of the Multinational Corporations’ by Richard J Barnet & Ronald E Muller. Simon and Schuster1974. SBN 671-22104-3 Paperback.