Rotwang strikes

http://www.huffingtonpost.com/ca-rotwang/mr-president-tweak-this_b_1954374.html?utm_hp_ref=politics

Read it and weep.

Jack Welch’s Ignorance Regarding Employment Data

Mark Thoma is very upset with the latest from Jack Welch and he should be. But let’s be calm and look at a couple of Welch’s two key claims:

In August, the labor-force participation rate in the U.S. dropped to 63.5%, the lowest since September 1981. By definition, fewer people in the workforce leads to better unemployment numbers. That's why the unemployment rate dropped to 8.1% in August from 8.3% in July. Meanwhile, we're told in the BLS report that in the months of August and September, federal, state and local governments added 602,000 workers to their payrolls, the largest two-month increase in more than 20 years.

The first claim is true – the labor force participation rate did fall from 63.7% to 63.5% but Welch conveniently omits the fact that this same rate rose from 63.5% to 63.6% as of September. And who told Mr. Welch that reported government employment shot up by over 600 thousand workers in just two months? I guess this person may have been Neil Cavuto or perhaps Donald Luskin because when I checked out the same series per FRED, I see an increase of only 55,000 over the past 3 months. As our graph shows, we have seen a very mild reversal of the unfortunate downward drift of government employment (I'm using seasonally adjusted data here - Mr. Welch didn't say what he was using and his claim is not even consistent with the data not seasonally adjusted). In all of his rants, Mr. Welch has proven only one thing – he is utterly clueless per the employment statistics that the professionals at the Bureau of Labor Statistics report. Before he decides to attack their integrity again – might I suggest he actually learn something about what they report?

Could the Recovery from the Great Recession Been Faster?

ABC’s This Week invited Nobel Prize winning economist Mary Matalin to debate known liar Paul Krugman. OK, I think I got this backwards even though Matalin did say:

I don’t make up numbers ... you have lied about every position and every particular of the Ryan plan on Medicare from the efficiency of Medicare administration to calling it a voucher plan ... You are hardly credible on calling somebody else a liar.

Actually - it was established a long time ago that Mary Matalin is a partisan hack but what about this claim:

Has there ever been this not be true in history that the deeper — the deeper the recession, the steeper and stronger the recovery. There is no such thing as a deep recession with a moderate recovery.

Poor Mary had not read this:

Fact-checking financial recessions is a salient issue, especially in a US election year. On the one hand, the incumbent faces criticism that the recovery is slow. In August the Mitt Romney campaign invoked US history to argue that performance has been poor: “The 2007-2009 financial crisis produced a severe recession ... But GDP growth has been anaemic since then, averaging just 2.2% per year since the trough. This pattern is unusual. The past ten recessions have been followed by faster recoveries, and GDP has fairly swiftly recovered to the previous trendline.” On the other hand, none of the last ten US downturns coincided with a financial crisis. In his convention speech nominating Barack Obama a month later, Bill Clinton intimated that the usual pattern in normal recessions was not relevant in this instance: “The difference this time is purely in the circumstances… no president, not me, not any of my predecessors, no one could have fully repaired all the damage that he found in just four years.” ... We reach back into the historical record over 140 years, examining the experiences of 14 advanced countries, to document the pervasive cyclical influence of credit in the economic fortunes of nations … The more excess credit in the preceding expansion, the worse the recession and subsequent recovery appear to be ... By this reckoning the US has done quite well, steering out of the to-be-expected financial recession range based on the inherited level of excess credit, especially if the shadow system is considered. Most importantly a deep financial recession was avoided at the outset, and this level effect remained intact ... To assume that this US recovery would resemble previous “normal recession” is to use the wrong benchmark.

There is a very simple way to think about this using standard IS-LM thinking. The 10 recessions from the late 1940’s to 2001 (see this for the dating of US business cycles) differed from the Great Recession as well as the Great Depression in terms of the ability of conventional monetary policy to quickly reverse these milder recessions. In those 10 situations, we could have and actually did reverse these recessions by allowing interest rates to fall. Some of these recessions (notably the ones from 1969 to 1982) were started by deliberate monetary contractions to “Whip Inflation Now” as President Ford once quipped. The ability to rely on monetary expansion had lead many economists including myself to wonder if we ever really needed fiscal stimulus to manage downturns in the modern business cycle. Yes – more fiscal stimulus would have been called for during the Great Depression but not in the modern US economy – unless we fell victim once again to the liquidity trap. The financial crisis in other nations such as Japan should have warned us that falling into a liquidity trap was a real possibility but I guess we had to relearn the lessons of history on our own. When Barack Obama prevailed in November 2008, he seemed to realize the need for a massive and effective stimulus package but alas didn’t push hard enough for what Christina Romer recommended. And alas, US fiscal policy has recently drifted towards austerity. So while I agree with those who argue that policy responses to severe financial crisis are different than policy responses to garden variety recessions, all this really means is that we may have to look beyond conventional monetary policies to have quick and effective remedies to downturns in aggregate demand. Alas the Republican Party and Team Romney to date has been opposed to fiscal stimulus unless it is of the military Keynesian brand.

Romney Insults Spain as He Shows His Ignorance of Macroeconomics

Bradley Klapper thinks the story is that Mitt Romney insulted Spain during the Presidential debates. Perhaps but let me extract the relevant economic portion of this story:

“I don’t want to go down the path of Spain,” Romney said Wednesday night during the first presidential debate. He argued that government spending under Obama has reached 42 percent of the U.S. economy, a figure comparable with America’s NATO ally. “I want to go down the path of growth that puts Americans to work.” … No one contests that Spain’s situation is dire, its economy in deep recession and unemployment hovering around 25 percent. But Spain’s level of government spending is actually low by European standards, and significantly less than Germany and Scandinavian countries with far healthier economic prospects. Spain’s woes were chiefly caused by the collapse of a property bubble that had fueled more than a decade of booming economic growth.

Klapper is properly noting that the U.S. recession and the Spanish recession were both caused by similar private sector events. The U.S. has fared less badly than some countries because we at least tried a bit of fiscal stimulus for a little while. Romney has been confused whether we should follow the UK’s disastrous austerity or use military Keynesianism. As far as Spain Matt Yglesias provides a nice graph showing how fast the changed in nominal government spending in Spain has declined:

If the entire argument is really over whether or not this Noteworthy Mercatusward Change in Spanish fiscal policy deserves to be called "cuts" rather than "rapid deceleration" then I suppose we've all wasted our time.

This may not have been the headline lie among all of Romney’s lies during the debate. And maybe Romney was less being dishonest than just completely ignorant of the facts in Spain. But it is very evident that he is either completely ignorant of the macroeconomic situation in the U.S. or is being incredibly dishonest. But hey – what else is news?

Modeling a Rational Romney

Sorry, I can’t help it.  Despite all my protestations, in my bones I must be an economist: if I see strategic behavior I have to consider how it could be represented as an outcome of rational calculation.  To be honest, however, I did not actually see the first Romney-Obama debate—I am willing to suffer for The Cause but only up to a point.  Instead, I am relying on hearsay.

What I gather is that Romney interrupted Obama repeatedly, employing an aggressive personal style and confronting his opponent with one egregious misrepresentation after another.  Obama responded with self-discipline to the point of distancing, acting as though he were conducting a calm seminar on politics; he allowed himself to be cut off, and he never confronted Romney with accusations of dishonesty.  Score one for Romney; apparently that’s what all the commentators did.

Now put yourself in the shoes of Romney and his advisers.  Given the political constraints both candidates face, what is the optimal strategy in the debate game?  I think Romney played his cards absolutely right: he provoked Obama to the maximum extent without going so far as to portray himself as a sociopath.  The debate moderator (and especially this particular moderator) was not in a position to challenge him.  The only resistance could come from Obama himself, and Obama faces the profound constraint of being a black man in America.

Look at it this way: what outcome from this debate would have been even better for Romney?  Answer: if Obama had lost his temper, showed personal anger toward Romney and called him a liar.  That would have proved to white America that, despite his post-racial stylings, underneath it all Obama is still the angry black militant that evokes a primal fear.  Romney can hope, of course: he can think up provocations that would really annoy Obama and make it difficult for him to stay on script.  But if Obama draws back from the challenge that’s OK too, as we’ve seen.

If I’m right, we are likely to see more of this in the future.  Can Obama fight back without invoking the racial stereotypes that would destroy him?  Can he be relaxed and smiling and still twist the knife?  That’s a thin line to walk, and if he gets it wrong there would be no recovery.  His whole political career has been based on avoiding white panic over aggressive, and therefore threatening, black males.  Perhaps his best move is to allow Romney to take all of these debates on points and trust that he has enough other resources to pull out a victory in November.  His TV ads can trash Romney without limit, of course, since the voices and images that express anger in them are not black.

None of this has anything to do with political substance, except insofar as racialized judgments regarding acceptable behavior still constitute an important part of American politics in our enlightened year of 2012.

Sesame Street Economics

You’ve likely seen all the documentation you need to know how much Mitt Romney serially lied last night. After all – he never proposed cutting taxes by $5 trillion. And of course he’ll create 12 million new jobs by doing nothing. Actually what offended me more than this was his attempt to deny that part of the Republican agenda was to just sit back and let cash strapped state & local governments lay off public school teachers. But he did admit to one thing - Big Bird should be fired! After all – saving $445 million a year is all we need to do to magically balance the budget if you scribble it on Art Laffer’s cocktail napkin. And we all know austerity is the path to prosperity. Too bad we didn’t have The Count as Romney’s running mate so we can make sure the math all works out just right. But don’t worry about Big Bird as I hear that he is moderating the next debate.

What Was the Value of DoubleClick When Romney Gifted Shares to His Kids?

Jesse Drucker wrote on September 27:

In January 1999, a trust set up by Mitt Romney for his children and grandchildren reaped a 1,000 percent return on the sale of shares in Internet advertising firm DoubleClick Inc. If Romney had given the cash directly, he could have owed a gift tax at a rate as high as 55 percent … Romney or his trust received shares in DoubleClick eight months before the company went public in 1998. The trust sold them less than a year after the IPO … In January 1999, Romney’s trust sold $746,000 worth of DoubleClick shares, for a gain of about $674,000, or an almost 1,000 percent return

Via Brad DeLong we see that Daniel Shaviro claimed:

The extreme undervaluation certainly looks like tax fraud. Key evidence would be the close proximity of the valuation date and the sale date

What was the fair market value of this DoubleClick stock when Romney set up this trust fund? Drucker and Shaviro are certainly arguing that the fair market value was much higher than what was claimed at the time these shares were gifted. We should note, however, that the value of Doubleclick shares has had a controversial history even up to the time that Google purchased the company for over $3 billion during April 2007. About two years earlier, a private equity firm had purchased the company for just over $1 billion:

DoubleClick shareholders will get $8.50 in cash for every common stock share, a 10.6 per cent premium over the average closing price of the company's stock in the last thirty trading days. The valuation is very low compared to DoubleClick's valuation in its hey days.

We should also note that two people commented over at Brad’s place that stock valuations were quite volatile if not exuberant during the late 1990’s. Mind you that I’d be the last to cast doubt on this Drucker-Shaviro claim that Mitt Romney hired some hack appraiser:

But back to the estate attorney who has a Rolodex of appraisers who will give him any whore answer for the right fee. The appraiser/whore that is chosen to evaluate the fair market value of the business has three tricks up his (her) sleeve ... Doesn’t the IRS have their own appraisers that can effectively rebut the bogus valuation reports commissioned by the estate attorney? One would think so – but read most of the Tax Court decisions in this area and realize that even the National Review looks smart and honest by comparison.

Shaviro’s “Key evidence would be the close proximity of the valuation date and the sale date” reminds me of the “expert” testimony in Nestle v. Commissioner of the Internal Revenue Service which involved the value of the various Carnation trademarks and other intangible assets both at the time the U.S. affiliate of Nestle purchased Carnation (January 1985) and when this affiliate sold them to the Swiss parent, which was on April 30, 1985. Nestle had commissioned one appraiser to argue that the value of the intangible assets was approximately $425 million at both dates. The IRS, however, argued that the value of the intangible assets was only $175 million as of January 1985 but accepted the $425 million value for the intercompany sale price as of April 30, 1985. I’m sure if one wished to read the trial court decision which accepted the IRS view one could mock at the quality of analysis by both sides, and the Appeal Court ultimately rejected the IRS position for its own silly reasons. But note that the IRS never bothered to explain why the intangible assets in such a mundane industry could more than double in a period of less than four months. Which is to simply say – both sides often play games when it comes to valuations for tax purposes.

RIP Francis Newton

"Francis Newton" is the pseudonym Eric Hobsbawm employed for his jazz criticism written for The New Statesman and collected in a book called The Jazz Scene.

An extraordinary historian,  a good man, and a decent jazz critic to boot, is dead.. RIP

The Catalalunya (Catalonia) Card

According to a column in FT Weekend by David Gardner, sometime this month the annual parade in Barcelona, capital of Catalonia (standard spelling; or Catalunya, the Catalonian spelling, get used to it), honoring the dead from the defeat in 1714 of the Catalans at the end of the War of the Spanish Succession in which they supported the incumbent Hapsburgs against the victorious Borbons, was attended by over a million people calling for Catalan indepence from Spain.  Since then, Catalan Generalitat President, Artur Mas, went to see conservative Spanish PM Rajoy in Madrid trying to negotiate a fiscal agreement that would make Catalunya like the Basque country, able to collect their own taxes.  Currently, Catalunya sends 9% of its GDP to Madrid in revenues net, with that twice the figure in most Eurocountries for rich areas sending funds to poorer regions, with the province also having the largest individual provincial debt (not an issue in the discussion).  The Basques send little.  On top of this, the Spanish constitutional court overturned an agreement passed by the previous Socialist government that granted Catalunya substantial autonomy. Since then the Catalan independence movement has erupted big time.

Mas was long a moderate on all this, supported by the lead author of the 1000 page "Bible" of grad micro theory courses, Andreu Mas-Colell, former Catalan fin minster. They want out.  Mas has now called for a an election in November, with him calling for full independence.  This is viewed as a prelude to a full referendum on the independence issue, even though the Spanish central government says that this would be unconstitutional.  Si, we shall see.

The EU, and particularly its Eurozone part, is unhappy about all this.  It coincides with a broader fiscal and financial crisis in Spain, with bonds now above 6%, triggering all kinds of alarm bells and a renewed slide of the euro after the Bernanke support (Yes, kids, when things look good and the US stock market goes up, the US dollar goes down against the euro).  So, the negotiations by the Spanish central government with the troika of the ECB, IMF, and ESB, with the Germans running the whole show anyway, are seriously muddled by this constitutional crisis, and that is exactly what it is.

This is serious stuff.  I have long been declaring that most of the constantly repeated forecasts of doom and gloom for the euro have been overdone, with US commentators from both the right (mostly), Martin Feldstein and the late Milton Friedman, and the left, most prominently Paul Krugman, with all of these claiming the euro could never get off the ground in the first place and only too eager too trumpet the current problems as showing that they were not total fools in the first place, gag.

Anyway, me the pollyanna on the euro thinks this might be the real banana (the word used to name that which could not be named back in the Ford [or Carter?] administration).  It will take some time to work out, and I can easily see them muddling through yet again; but this one will be much tougher than almost any they have to deal with so far.

Heck, Greece does not involve them trying to beat up on the poor Macedonians or the Turkish Cypriots as they so like to do completely idiotically, given their utter fiscal irresponsibility and outright fraud and lying.  This is more serious.  The Eurozone can dump Greece, but it cannot dump Spain.  That would be the end of the game.

The Thirties: The Arts In Italy Beyond Fascism

Not the usual fare here, but there have been a lot of people claiming that "liberalism is fascism" (and socialism and nazism and communism, all in one) lately, to the point where it is a regularly repeated mantra in certain inane circles. Often cited for this argument is the racism and oppressiveness of Woodrow Wilson, along with certain FDR initiatives being modeled on ones in Mussolini's Italy, and of course the true fact that Mussolini himself was initially socialist.  Indeed, he did engage in nationalizations of some companies, ones that held well into the post-WW II era, in contrast with the "National Socialist" Nazis who in fact nationalized nearly nothing.  In any case, an art exhibit in Florence, Italy with the title of this post sheds both light on the complicatedness of the fascist era and raises more questions than it answers about that tangled period.

First, we must note Mussolini's socialist background. However, at his core he was a militarist nationalist dictator, and his initial fame came from his splitting with the Italian Socialist Party in WW I, with that party taking a pacifist position and opposing Italian entry into the war, in contrast with those in France and Germany.  Mussolini became the leader of the warmongering faction of that party, soon setting off to lead his own.  In the aftermath of the war, he became the champion of frustrated veterans, and these would always be at the core of the Italian Fascist Party, which gradually moved to the right over time, eventually adopting the racism and anti-Semitism of the Nazis in the late 30s, along with a repressive attitude to culture and the arts, pushing forward certain schools and approaches, although, still less repressive than Germany, there remained some room for dissident artists and movements.

There has been very little effort in Italy to straighten all this out, I think due to how deeply embedded fascism was in Italy, ruling for nearly a solid 20 years, from 1923 to 1943.  Movements and individuals moved in and out of favor and few have been made to face up to what they did or did not do.  As it is, this exhibit claims to approach all this "objectively," and I would say it makes a brave effort, helped by the fact that by now all the artists involved are finally dead.

So, certain movements were not favored by the fascists, notably abstract art and metaphysical art, the latter a particularly Italian movement founded by Giorgio de Chirico, who spent the entire period out of the country in Paris.  One 1936 abstract painting shown was vandalized by fascists.  Besides various hackneyed efforts to look back to the Church or the Renaissance or Rome, the leading pro-fascist movement was the monumentalist Novocentisti one, which indeed combined some of these elements, while looking a lot like the "classical" period of Picasso right after WW I.  The most complicated movement was futurism, which in the teens was followed by many on the left, including the later Soviet poet, Mayakovsky, but which came to be used by the fascists as part of the pro-technology and modernization movement, even as they harked back to antique models (the symbolic "fasces" themselves being a symbol from the Roman era).  In the late 1930s the Novecentisti would be glorified, while the metaphysical and abstract schools were vilified at about the same time the Germans were pushing "Aryan art," and also denouncing "degenerate art."  This coincided with the Italians finally adopting the racist laws of the Germans.

Nevertheless, this exhibit raises many loose ends and questions.  These are symbolized by the strange and unexplained case of Carlo Carra.  He was initially a political anarchist and a futurist painter in the mid-teens.  After that he would become one of the most important followers of de Chirico and the Metaphysical School.  Indeed, the only works of his I had previously seen were from this period.  However, throughout the early part of this exhibit it became clear that by the late 1920s he had become one of the leading Novocentisti and was a major influence on other artists to follow this approach.  Despite that, the exhibit showed an article from 1938 denouncing the politically unacceptable schools and specifically denounced the metaphysical paintings by Carra.  No explanation was given regarding whether he then got in trouble or how this related to his later Novocentisti move or any of this.  After seeing the exhibit I went online and found a big fat zero on this, other than one source indeed noting that he followed the Novocentisti approach after his futurist and metaphysical periods.  This complete lacuna in the records regarding this rather important figure simply makes it clear to me that there is a lot more to all this in the broader cultural history of the period, and probably in other areas as well, which simply have not been delved into in any serious way.  Maybe this exhibit is the harbinger of an impending major reexamination of what it was really all about?

Did Matt Ygelsias Really Endorse Lowering the Tax Rate on Capital Income?

Greg Mankiw seems happy that Matt is now educating the rest of us silly economists on the wonders of reducing the tax rate on capital income. While it is true that Matt walks us through a discussion of the incentives to consume now versus save but he also adds this:

Empirically, it's a bit difficult to verify that variations in capital gains tax rates and the like really are making a material difference to investment levels. But then again the data is noisy. What's more the thing we have the most real-world experience with is measures like George W. Bush 2003 tax cut for investment income which was financed with government borrowing rather than higher wage taxes, consumption taxes, or spending cuts. It's not at all clear that the basic theoretical considerations in favor of low taxes on investment income apply to the case of a debt-financed tax cut. This is also separate from the question of whether hedge fund and private equity fund managers should be allowed to pretend their labor income is really investment income by calling it "carried interest" and paying at a low rate.

Indeed we had another experiment with lowering tax rates on capital income that actually increased real interest rates and lowered investment – that being the original Reagan “supply-side” tax cut. Of course, Team Romney keeps wanted to pretend they have found some magic recipe for deficit neutral ways of reducing taxation on capital income. The problem, however, as Howard Gleckman notes is that when Team Romney member Kevin Hassett was forced to defend the revenue neutral proposition he had to basically admit you cannot do that without abandoning the reduction in tax rates for the well to do. But I think there is another fatal flaw in Matt’s defense of lower tax rates on capital income. Let me start with Matt’s example:

You imagine two prosperous but not outrageously so working people living somewhere—two doctors, say, living in nearby small towns. They're both pulling in incomes in the low six figures.

OK – now let’s give the microphone to Dean Baker who was discussing a similar argument by Dylan Matthews:

Matthews rests his case on some arguments in the literature concerning scenarios in which we both look to an infinite future horizon and we have identically situated individuals, meaning that we all have the same wealth and the same opportunity to gain income. When these assumptions are relaxed, the case for preferential treatment of capital income becomes considerably weaker, as argued in a recent Journal of Economic Perspectives article by Peter Diamond and Emmanuel Saez … If we have some individuals who inherit immense wealth so that they can live entirely off their capital income and other individuals who must work for their income, a policy that subjects capital income tax to a lower rate of taxation than labor income means that we are taxing the rich at a lower rate than the middle class and poor. It is difficult to see how this is either efficient (we are giving disincentives to work for middle class people as a result of a higher than necessary tax rate) or fair. Furthermore, as a result of having a lower tax rate on capital income than labor income we are giving people an incentive to game the tax code by concealing labor income as capital income. While most workers may not have much opportunity to play such games, higher end workers, such as doctors or lawyers with their own practices would have ample opportunities for such gaming. This is both unfair and leads to a waste of resources as these people employ accountants to rig their books.

Team Romney can pretend all they want that we all have similar endowments of initial resources and that any change in the tax code will somehow magically be paid for by offsetting fiscal restraint, but actual policy decisions must be made in the real world where things are not nearly as magical.

"How not to go about understanding peasant societies..." (or any society for that matter)

In his study of anthropology journal citations, "Anthropology Journals: What They Cite and What Cites Them," published in Current Anthropology in 1984, Eugene Garfield of the Institute for Scientific Information ranked George Foster's "Peasant Society and the Image of Limited Good" (1965) as the second most cited article -- with 207 citations between 1966 and 1982 (see "Table 6"). As Garfield explained, "this paper discusses the cognitive orientation of peasants. It explains how their social premises and assumptions may prevent rapid economic development in peasant societies." The period from 1966 to 1982 was no doubt the paper's heyday but the latest Social Sciences Citation Index count for it is 370 citations, albeit presumably not all in anthropology core journals.

In one of the several commentaries following Garfield's analysis, Peter Hinton pointed out that Garfield's admirable restraint in interpreting the data "leaves open -- as it must -- the question of the meaning of citation patterns and sounds a timely warning that frequent citation does not necessarily indicate 'dominance' or influence. Foster's paper, one of the most cited pieces in Garfield's analysis, is a case in point. It is ironic that this paper, in which Foster develops the idea of 'limited good' to account for alleged peasant reluctance to accept new ideas, is frequently cited as an example of how not to go about understanding peasant societies." Here is how Foster explained his model:

By "Image of Limited Good" I mean that broad areas of peasant behavior are patterned in such fashion as to suggest that peasants view their social, economic, and natural universes -- their total environment -- as one in which all of the desired things in life such as land, wealth, health, friendship and love, manliness and honor, respect and status, power and influence, security and safety, exist in finite quantity and are always in short supply, as far as the peasant is concerned. Not only do these and all other "good things" exist in finite and limited quantities, but in addition there is no way directly within peasant power to increase the available quantities. It is as if the obvious fact of land shortage in a densely populated area applied to all other desired things: not enough to go around. "Good," like land, is seen as inherent in nature, there to be divided and redivided, if necessary, but not to be augmented.

In short, Foster's paper adopts the lump-of-labor fallacy claim and extends it to non-economic spheres of life. Actually, I would rate Foster's explanation of his image of limited good as more scholarly than any explanation of the lump-of-labor fallacy I have encountered. It is more conscientiously qualified and observational data are presented as supporting evidence. Nevertheless, as Hinton's commentary suggested, the model has been controversial, to say the least. In a 1975 article offering an alternative explanation for Foster's field observations, James R. Gregory summarized the critical reaction to Foster's article to that date. I have previously posted Gregory's summary in "Trickster Makes This Lump". As I mentioned there, I can find absolutely no evidence of disciplinary 'cross-pollination' where economists recognize the image as their own fallacy claim or anthropologists note the fallacy claim as the image's progenitor.

Two solitudes. What does this total silence say about the compartmentalization of thought in academia over the last 47 years? What does the lively controversy in anthropology suggest about the teeth-gritting conformism and groupthink in economics? What does it say about the 'cognitive orientation' of economists? And who the fuck cares other than the unemployed 'peasants' that the economist-lords dismiss with a pseudo-mathematical shrug?

i-Side Multipliers for the Job Creators

Andy Kessler shows his ignorance of Keynesian economics and puts forth perhaps a new low in supply-side stupidity:

This myth—that you can just give money to the middle class and good things happen—is widely shared and is at the basis of a lot of government policy. And it is why the recovery is stuck between lack and luster. Let's go back. Henry Ford is popularly credited with inventing the middle class by doubling his workers' salaries to $5 per day in 1914. A multiplier for the economy, right? Wrong. The year before, Ford revolutionized manufacturing with the moving assembly line, slashing automobile build times to just 90 minutes from 14 hours. That's productivity. It allowed Ford to reduce the price over time of his Model T to $290 from $950. Demand took off because it was far cheaper than the cars made by his 88 competitors.

While I’ll grant that the Model T is not be an example of the Keynesian multiplier that most macroeconomist talk about. As far as explaining to Mr. Kessler how this economy is indeed suffering from a lack of demand - Martin Sullivan does the heavy lifting. So let me present Kessler’s other two examples of the i-Side multiplier:

Investor Peter Thiel put $500,000 into Facebook in August 2004, a company now worth $50 billion based on its prospects for transforming the media industry. What multiplier would you put on his investment? This month, after investing billions over the years on R&D, Apple released the iPhone 5. The company is worth $666 billion based on prospects that hundreds of millions of users will lower their cost of doing business with the latest iPhone and iPad mini and whatever else is coming. What is that multiplier?

Kessler is a hedge fund manager. Does he really think every R&D project has incredibly high returns? There are no losers? I would think a hedge fund manager would understate the need to present the expected return to R&D which most research in financial economics shows barely covers the additional systematic risk that investors undertake. If Mr. Kessler does not understand this – I have a suggestion for how you can get rich. Figure out which stocks Kessler is buying and then sell them short.

Presidential Candidate Who Refuses To Release Tax Returns Disses Those Not Paying Fed Income Tax

So, now we have it.  The secret tape of Romney speaking to a bunch of wealthy donors in which he says that those supporting Obama include a base of the 47% of "deadbeats" who pay on federal income tax, while he continues to refuse to release all but his most recent tax returns.  Needless to say, he forgot to mention that most of those people are paying fica, state sales taxes, and a lot of other taxes as well.  Indeed, when one looks at the total tax system of local, state, and federal, it is only barely progressive, and goes regressive at the very top end due to there being no increase in the amount of fica someone pays beyond a wage income a bit above $100,000, while even the poorest wage earner pays at the same rate.  Fica remains the largest tax paid by a strong majority of the population, but somehow Romney thinks those paying fica but not federal income tax are "deadbeats."

To keep things in perspective, the rich whiners who keep talking about only the federal income tax cite the large proportion of federal income tax the top 20% of earners pay, when one takes all taxes into account, they barely pay more than the share of income they earn, 61% to 59%.

Kudlow – QE is the Achilles Heel of the US Economy

Larry Kudlow explains why he thinks QE3 will hurt the economy by noting QE2 devalued the dollar. You see – inflation soared! OK – those of you who understand reality will ask – what inflation? And maybe we should remind Larry that dollar devaluation tends to increase net exports, which of course, tends to raise aggregate demand. I pity those who watch CNBC thinking they are gaining wisdom. Of course, Kudlow's graph left off earlier periods including the Bush years which were dominated by dollar devaluation. I don't recall him complaining about Bush's inflation. Then again, the dollar appreciated towards the end of Bush's second term. I trust Larry knows that was the beginning of the Great Recession.