Trump Claims US Has the Highest Corporate Tax Rate

Katherine Krueger covered the Trump economic address noting his lack of honesty. I should say nice job but there was one item that troubled me:

According to Trump, the U.S. has the highest business tax rate among the major industrialized nations of the world at 35 percent, which under his plan would be slashed to no more than 15 percent. Although the country has the third-highest top marginal corporate income tax rate in the world (and the highest among the industrialized nations), the reality is that the money collected is cut significantly by things like tax credits and offshore tax havens. In 2010, the average effective federal tax rate paid by large, profitable corporations was just 12.6 percent, according to the Government Accountability Office.

She is right about how the statutory tax rate in the US overstates the effective rate for many US based multinationals but let’s check her source that alleges two other nations have higher tax rates:

The United States has the third highest general top marginal corporate income tax rate in the world at 39 percent, which is the same as Puerto Rico and is exceeded only by Chad and the United Arab Emirates…the U.S.’s corporate tax rate of 39 percent is the third highest in the world, tied with Puerto Rico and lower only than the United Arab Emirates and Chad, which have rates of 55 and 40 percent, respectively.

The alleged 39 percent rate for U.S. companies again is a statutory rate that many companies do not really face as she has noted. The tax rate in the United Arab Emirates is often zero for companies that are not in the business of extracting oil out of the ground. This 55% rate is actually a surcharge on oil profits. Other nations with lower tax rates than we have also have high surcharges on oil profits. So OK – the statutory rate for profits in Chad is higher than this alleged 39%. Of course the effective tax rate for US based multinationals is often nowhere near 40%. Trump could advocate enforcing transfer pricing if he were serious about raising taxes from the rich but I guess his small government economic advisers have convinced him of the “wisdom” of that Laugher Curve.

How Much Did We Own Iran?

The Wall Street Journal got the right wing all excited with some phony suggestion that we sent $400 million in hostage money to Iran. Of course the real story is clear:

Ryan, Trump, and other critics have the facts wrong. The Wall Street Journal story is actually describing a payment that President Obama announced back in January. What’s more, the payment was the result of a 35-year case in international court — and had nothing to do with any "hostage" payments.

Iran was actually seeking $10 billion to settle this matter. Let’s do a little mini-analysis. Suppose you borrowed $400 million in 1979 and did not settle matters until 37 years later. Over the course of this period of time, the general price index has increased by a factor of 3.5. So $400 million back in 1979 would be $1.4 billion today. And of course this calculation assumes you pay zero real interest. While that may be near the real interest rate today – real interest rates back in the early 1980’s were very high. So what should we assume is the appropriate real interest rate for our exercise? If we assume 2 percent, then in real terms the principle should be about 2.1 times higher. So we likely should be paying Iran $2.9 billion. Of course the Republicans likely have a different view as they don’t mind cutting those Social Security benefits we were promised during the 1983 Reagan reforms in order to give tax cuts for rich people. So why not default on our international obligations. Call this Trump Financing.

Washington Post Leaves Out a Detail

The Washington Post story on the Melania Trump visa mystery presents the following narrative:

Q: But the nude photographs were taken in New York City in 1995? 

A: Correct. The photographs originally appeared in the French magazine Max and were published again in the New York Post last weekend. Marc Dolisi, chief editor of Max at the time, told The Washington Post that the pictures appeared in the February 1996 edition of the magazine and had been shot in November or December of 1995. Jarl Ale de Basseville, the photographer, said the shoot was conducted in New York. 

Q: How can the discrepancy be explained? 

A: Only Melania Trump can explain the discrepancy, which was first reported by Politico. The campaign has not responded to questions asking how those photos could be shot in 1995 if Melania Trump arrived in 1996. 

Q: So does that mean Melania Trump was in the United States illegally in 1995? 

A: It’s not clear. Dolisi and de Basseville both told The Washington Post that Melania Trump was not compensated for the Max magazine photo shoot. She was a relatively unknown model at the time. Taking part in magazine photo spreads for free is common for models at that level because the exposure can help them secure commercial work. 

Q: Why is it important that Trump was not paid? 

A: Without pay, she could have been here legally on a visitor’s visa. Foreigners coming to the United States for brief stays can obtain B1 or B2 visitor’s visas allowing them to stay in the United States as either a tourist or a business visitor attending a meeting or other work event. It is, however, illegal to work in the United States on a visitor’s visa; that kind of illegal work has tripped up many other people who wish to legally immigrate to the United States. People applying for or holding a visitor’s visa are asked both at an embassy or consulate abroad and at the port of entry upon arrival whether they intend to work. If they come to the United States planning to work and claim otherwise, that’s immigration fraud. 

It is unclear, however, if she got any other kind of compensation during her 1995 stay, such as airfare and lodging.

This seems to be a fairly comprehensive account except for one detail.  Count Jarl Ale de Basseville or Alexandre de Basseville pleaded guilty in 2007 to conspiracy to commit money laundering and conspiracy to distribute MDMA ("Ecstasy") and was sentenced to 240 months in prison and ordered to forfeit $528,500. Not exactly what one would consider a credible reference regarding the legitimacy of one's visa status.

"Taking part in magazine photo spreads for free is common for models at that level because the exposure can help them secure commercial work." Can we get a second opinion on that?

Coincidentally, one of the prosecutors for the drug and money laundering case was named Trump -- James L. Trump:

DEA to Drug Ring with Hollywood Ties: "That's a Wrap"

Swiss and L.A.-based companies involved in drug and weapons trafficking 

(WASHINGTON, D.C.) - The Drug Enforcement Administration (DEA) today announced the successful results of Operation Director's Cut, a two-year investigation involving an international ecstasy and weapons trafficking organization with Hollywood connections.

Seven arrests took place in the case, including those of Limelight Films, Inc. Chief Executive Officer Bruno D'Esclavelles of Los Angeles, Chief Financial Officer David Liberman, and three other associates. Also arrested was Alexandre De Basseville of Switzerland and Los Angeles. De Basseville is an executive board member of ADB Swiss S.A., a Swiss-based financial, business, and consulting service that owns the L.A.- based Limelight Films, Inc. Various media outlets have reported that De Basseville is engaged to Kiera Chaplin, granddaughter of the legendary film actor Charlie Chaplin. According to the Limelight Films, Inc. website Kiera Chaplin serves as an executive. De Basseville and D'Esclavelles were arrested in Arlington, Virginia and charged with conspiracy to distribute MDMA (ecstasy). Liberman was charged with conspiring to launder money. 

"The men we arrested have laundered hundreds of thousands of dollars -- money used to further their drug and weapons trade to endanger our neighborhoods and bleed our communities," said DEA Administrator Karen P. Tandy. "This operation demonstrates once again the poisoning influence of drug money, and the greed that causes some people to hurt the lives of the many." 

According to criminal complaints filed in federal court, Alexandre De Basseville met repeatedly with undercover agents over the past two years, posing as international drug traffickers. De Basseville offered to launder drug proceeds, supply weapons and broker ecstacy deals for the undercover agents. The agents met with De Basseville and several of his associates, including the other six individuals charged, in various locations, including Arlington, Virginia; Miami, Florida; Los Angeles, California; Amsterdam; the Netherlands; and Geneva, Switzerland. On two occasions, De Basseville and D'Esclavelles took cash, totaling $300,000, which they believed to be drug proceeds, and laundered it for the undercover agents using their Los Angeles business, Limelight Films, Inc. 

In February 2006, de Basseville and d'Esclavelles arranged for the sale of ecstasy from the Netherlands by Thomas Frischknecht to an undercover agent. Frischknecht sent the agent a package containing 10,000 pills, which the agent received in Arlington, Virginia. Thereafter, de Basseville, d'Esclavelles and Frischknecht agreed to sell the agent 500,000  pills in the Netherlands. Frischknecht was arrested in the Netherlands as the undercover agent negotiated for the delivery of 500,000 ecstasy pills. 

Thomas Frischknecht, age 26, of Switzerland, was arrested in Amsterdam, the Netherlands, and charged with conspiracy to import ecstasy. Authorities also arrested Fabian Pruvot, age 37, Andre Prikazhikov, age 31, and Brian Delansky, age 33, all of Los Angeles, California. Pruvot and Liberman were charged with conspiracy to launder money. Prikazhikov and Delansky were charged with conspiracy to possess firearms in furtherance of drug trafficking. 

This case was investigated by the Drug Enforcement Administration; the Federal Bureau of Investigation; the Internal Revenue Service; the Bureau of Alcohol, Tobacco, Firearms and Explosives; Immigration and Customs Enforcement; Customs Border Patrol; Arlington County Police Department, Metropolitan (D.C.) Police Department. The United States Attorney's Office also received considerable assistance from law enforcement authorities in the Netherlands and Switzerland. The case is an OCDETF (Organized Crime Drug Enforcement Task Force) investigation. The prosecution of the case is being handled by Assistant United States Attorneys James L. Trump and Steven D. Mellin and Special Assistant United States Attorney Daniel Grooms.

"This struggle about the legal restriction of the hours of labor...

...raged the more fiercely since, apart from frightened avarice, it told indeed upon the great contest between the blind rule of the supply and demand laws which form the political economy of the middle class, and social production controlled by social foresight, which forms the political economy of the working class." --Karl Marx, Inaugural Address of the International Working Men’s Association

Wealth And Power: Does One Necessarily Lead To The Other?: The Curious Case Of Flanders

While wealth and power are usually highly correlated, with each feeding into the other positively most of the time, it is not always the case.  Curious are cases where there has been substantial economic wealth, but no  great power.  One example of this is Flanders, the northwestern part of Belgium, currently the most densely populated part of Europe, as it has been for many centuries, although the data becomes weak and unreliable as one goes further back in time.  Furthermore, it has often been an economic leader in Europe, and when not  an outright leader such as in the High Middle Ages, it has always been near the top in per capita real income, not a Malthusian disaster.  Yet it has never been the center of a great political power, essentially always ultimately ruled by outsiders, even though nearly always those outsiders were poorer than the Flemish.

The historian Fernand Braudel was a great student of Johan Heinrich von Thunen, author in 1826 of The 1State, in which land use patterns appeared as rings around a central place, the main market location for all that is produced on the homogeneous plane of his estate and his broader speculations.  Braudel ties these economic rings to population density, and saw Flanders at the center for centuries of the Europe-wide pattern of such rings, with income falling with population density as one moved out from that central place in Flanders.

Much economic theory says that if an area can avoid a Malthusian disaster or drag, density of population can be a positive for economic growth for multiple reasons, including such things as endogenous technological change and reduced transportation costs leading to agglomeration economies.  Flanders may have been one of the first parts of the Roman Empire to replace slavery with serfdom, and then it was one of the first places to move beyond serfdom.  The first industrial strike in the world happened in a textile mill in Douai in 1245.  Canals were being built as early as a thousand years ago around Bruges/Brugge, with the flat and wet land seeing many built since then. Bruges was one of  the largest cities in Europe in the 1200s, limited at its river silted up, with textile  manufacturing Ghent the third largest after Constantinople and Paris in the 1300s.  World-powerful Hapsburg Holy Roman emperor, Charles V, was born in Ghent in the late1400s, but he chose to rule from other cities.   While he spoke Flemish/Dutch to his mother, he is reported to have said, " I speak Spanish to God, French to men, Italian to women, and German to  my horse."  The latter may reflect his battling with the Protestant Reformation among Germans, which started during his reign.

Flanders and Tuscany co-led the mercantile capitalist revolution in the 1300s, and traded intensely with each other, even as they also  saw a major development of art.  However, neither dominated other territories, despite their high real per capita income and cultural activities, with the Renaissance coming out of Tuscany thereafter.

Then Ghent and other parts of Belgium would be the first places on the European continent to follow Britain and introduce the industrial revolutions.  Per capita income in Flanders remains high today, if not at the very highest levels in Europe.

I really do not have an explanation why such a region that was for centuries a leading economic powerhouse in Europe never dominated or ruled others.  One issue, which one can see in some other places such as Lower Egypt, is that its wealth attracted outsiders to conquer it to obtain its income and riches, starting with the Romans and then the Franks, who may have made the best shot at making it a conquering territory, even as they moved their capital to Paris (the Flemish language as spoken in Bruges is probably the closest thing to Old Frankish spoken anywhere  now, and is viewed by linguists as the oldest form of Dutch).  While there was always a Count in Flanders, he was almost always subject to somebody else, the Romans or Holy Romans and later the Burgundians  with more outside Holy Romans, even when the  Holy Roman came from there as in the case of  Charles V.

Later on one can attribute their inability to rule themselves due to Catholic-Protestant religious conflicts and wars, with this split the key to the split between Catholic Belgium and Protestant Holland. In any case, the Spanish and then the Austrians got in to running Flanders.  They have now achieved regional autonomy within modern Belgium, but they are very far from ruling anybody else, even as they remain the most densely populated part of Europe with a very high per capita income.

Barkley Rosser

The Meredith McIver Scam -- Why it matters

"Meredith McIver" is allegedly a public speaker who apparently is too timid to speak to the public.  Whether she existed or not was briefly the subject of speculation a week ago when a letter was produced by the Trump campaign in which she took the blame for plagiarism in Melania Trump's convention speech.

Once it was established that there actually, apparently is (or was) a Meredith McIver, the whole plagiarism flap -- with its denials and fabrications -- was sent to the memory hole for shredding and incineration.

"It was all a joke." or some minion in the bowels of The Trump Organization "took responsibility" [without, of course, having to, you know, take any responsibility]

One of the mainstays of the Trump campaign -- and of the right-wing propaganda wurlitzer in general -- is the devaluation of truth. This is not simply a matter of saying things that aren't true for political advantage. It is an enduring strategy of demonstrating the futility of standards of truth, rightness and truthfulness because they realize that communicative rationality is not their friend.

It is not enough for them to "get away" with a falsehood. The point is to show that the truth does not matter. This is not mere dishonesty. It is an assault on the idea that there is any criteria for distinguishing between truth and falsehood.

Outsourcing Watergate

Today’s Big News:

Donald J. Trump said Wednesday that he hoped Russia had hacked Hillary Clinton’s email, essentially encouraging an adversarial foreign power to cyberspy on a secretary of state’s correspondence.

People are comparing this to Watergate:

There were 5 burglars arrested on June 17, 1972 at the Watergate offices of the Democratic National Committee.

James McCord plus 4 men from Miami. I guess one could say Nixon had the dignity of hiring domestic workers. But a lot of Republicans favor free trade and outsourcing when foreigners have a comparative advantage. So maybe when they stop claim Trump was only clowning around, they will give him credit for moving away from his protectionist stance.

Goering And Schauble In Berlin

Germany today is a parliamentary democracy.  However, within the Eurozone some find that Germany exercises power over macroeconomic policy by other nations also in it that reminds them of an earlier more authoritarian Germany that dominated their policies, with such views especially strongly held in Greece since that nation's last crisis. German Finance Minister, Wolfgang Schauble, has been accused particularly accused of exercising such power in budgetary policymaking and enforcing an austerity policy on the nations in the Eurozone that has exacerbated recessionary tendencies within the Eurozone, especially for nations with heavy debt burdens such as Greece.

There is a curious irony in the accusations made against Schauble in particular.  He sits in the same office and even at the same desk in an ugly grey building in Berlin that Nazi Air Marshall Hermann
Goering used after 1936 when the construction of this ugly structure was completed by the Nazis.  Somehow this structure survived allied bombing in World War II, after which it was located in the Soviet zone adjacent to where the Berlin Wall would later be located.  It was where in 1949 the former East German Democratic Republic was declared and from where it was ruled.

There is neither a swastika nor a hammer and sickle hanging today behind where Schauble sits in Goering's old office, but it is widely claimed that the desk there is still the one used by Goering.

Barkley Rosser

The Road to Trumpdom

I always Google my headline ideas to try to avoid the appearance of plagiarism. I was thinking of the title for this post as I was looking at a cartoon adaptation of Hayek's The Road to Serfdom, originally published by Look magazine in 1945 and subsequently distributed in the 1950s as a pamphlet by the General Motors Corporation. As Ned O'Gorman explained,

"The Look version departed far enough from Hayek's original text that it hardly merited the same title. Nevertheless it did present the outlines of a popularized version of the neoliberal account of legitimation crisis that Hayek articulated."

Dick Meyer's very fine essay The road to Trumpdom: The backstory of the biggest character in politics takes its cue from a Hayek quotation,  "As is so often true, the nature of our civilization has been seen more clearly by its enemies than by most of its friends." Meyer traces the Republican dysfunction to the elevation of the primaries in American presidential politics, the reality TV show vulgarity and celebrity-adulation of American popular culture and ultimately to the long-term decline, since the 1960s, of Americans' trust in government.

Meyer's essay concludes with the decline in trust but doesn't elaborate on the reasons for it. Of course, this has been a well-worn topic, with contributions ranging from Jurgen Habermas's thesis of Legitimation Crisis to Michel Crozier. Samuel P Huntington and Joji Watanuki's diagnosis of an "excess of democracy."

My own view hearkens back to the nominal success of the O,E,C,D, growth target and its substantive failure. Under pressure from the U.S., the newly fledged institution adopted a target of 50% during the 1960s. Inadvertently, they exceeded this target by around 5%. I say "inadvertently" because when they adopted the target in 1961 they really had no idea what it meant. It just seemed like a good idea at the time.

In the meanwhile, all sorts of social, environmental, political and financial difficulties emerged that GNP growth was obviously not solving -- some of them growth was exacerbating. And then the decade of the 1970s failed to repeat the economic growth "success" of the 1960s. Economic growth, it turned out, was not the promised panacea. On the other hand, lack of economic growth just made things worse.

Here is were the cartoon version of The Road to Serfdom comes into its own. "The 'Planners' promise Utopia..." is the title of panel 3 "...but they can't agree on ONE Utopia" concludes panel 4.

In the comic book Hayek, this lack of consensus immediately leads to an impasse that can only be resolved by a strongman. In real life, the lack of consensus about concrete Utopias was resolved by targeting economic growth. A rising tide would lift ALL boats. "Everybody will be happier that way," as Henry Wallich later reaffirmed, because:

Growth is a substitute for equality of income. So long as there is growth, there is hope, and that makes large income differentials tolerable. The environment will also be better taken care of if the economy grows. Nothing could cut more dangerously into the resources that must be devoted to the Great Cleanup than an attempt to limit resources available for consumption. 

Well, growth has turned out not to be a "substitute for equality of income." Most growth for three or four decades has gone to those at the top and large income differentials have just gotten larger and larger and larger -- not more tolerable. The expanded resources have not been devoted to "the Great Cleanup" -- a not insignificant amount has been devoted to denying the necessity for any cleanup whatsoever. The environment is a hoax.

The latter view is understandable in that the "planners" have taken over the environment with much the same rhetoric that they invested in economic growth. "Green Growth" is predicated on exactly the same growth paradigm. Immigration enlarges the size of the pie -- there is not a fixed amount of work to be done, don't you know -- without doing much for the slice that goes to those who aren't at the top.

Which brings us to the nomination of Donald J. Trump.

The Great Growth Target Leak of 1961

In Doctor Strangelove, General Ripper explains to Captain Mandrake why Clemenceau's dictum on war is now obsolete:

He said war was too important to be left to the generals. When he said that, 50 years ago, he might have been right. But today, war is too important to be left to politicians. They have neither the time, the training, nor the inclination for strategic thought. 

Oddly enough, it was not generals who were at the forefront of strategic thinking but academics like Henry Kissinger, Herman Kahn, Thomas Schelling and Daniel Ellsberg. Meanwhile, liberal politicians had concluded that the economy was too important to be left to the economists -- let alone to the unscripted dealings of consumers and producers. Soon after Kennedy's inauguration, signs appeared in the Commerce Department asking, "What have you done for growth today?"  [implicitly: ask not what growth can do for you...]

The American proposal of a coordinated decade growth target for the countries in the newly formed Organization for Economic Coordination and Development was controversial. The Secretary-General of the OECD, Thorkil Kristensen, the British, Canadian and Belgian delegations were skeptical. There had even been doubt raised in the U.S. Treasury Department about "the focus on GNP as a measure for progress and the propaganda value of a target below an unrealistic average growth rate of 5 percent annually" (Schmelzer, p. 175).

Nevertheless, the U.S. delegation was determined to announce an OECD growth target as a riposte to the Soviet Party Congress's grandiose plans announced for 1970 and 1980. Somehow the proposal and opposition to it were leaked to the press. The Americans were widely suspected. As Matthias Schmelzer details The Hegemony of Growth (2016), the leak changed "the entire dynamic of this discussion":

The entire dynamic of this discussion suddenly changed when OECD bureaucrats and delegates learned that immediately before the MCM [ministerial meeting] the US proposal to set a growth target had leaked to the press. First in the New York Times and then around the world, newspapers were analyzing the viability and hidden motives of the target and reported on the different views on the proposal among OECD member countries. In all articles the initiative was interpreted as a direct response to Khrushchev’s announcements, an allegation the US delegation denied. The press was generally skeptical, in particular in Europe, and argued that the proposal was unrealistic. Characteristically, the German business daily Handelsblatt stated that member states did “not at all command the necessary economic policy instruments to force onto their industry and agriculture a specific growth rate.” Furthermore, there was some fundamental critique. For example, John Allen complained in the Christian Science Monitor that the growth target set by the OECD could not be achieved because the US had “grown nearest the top of the tree.” Arguing that the richest nations have “the ‘worst’ growth rates” and that for America and Britain growth rates were bound to decline, he stated: “The United States already has run a race and won. It does not have to accept the challenge to the same race over again, against a fresh runner.” Instead, the US should focus on improving the quality of education and housing, on alleviating poverty, and aim “to lift the underdeveloped countries up to Western standards.” Irrespective of these more nuanced critiques, the prior leak of the US plans put immense pressure on OECD ministers. Although it was not stated explicitly in the debates, at least the German delegation seems to have interpreted the leak as an intentional act of the US delegation to get agreement on its “propagandistic” target. At the meeting the German Economics Minister Ludwig Erhard accordingly complained that it was “improper that Ministers should read in the newspapers of the previous day and the day before what they were to decide that day.” 

It is interesting to note that within all the extensive discussions among OECD experts and the key economists from member countries, the idea that a distinction could be made between absolute and relative growth numbers, between the size of an increase of the economy and the rate of increase, had not been brought up. Although no one expected the US and Britain to grow at the same rate as Italy or Japan due to the possibilities for catch-up, the shared assumption was that given the right policies growth rates could be stabilized between 4 and 5 percent annually for all countries, irrespective how rich they were and how large their economies had already grown. The growth rate dominated economic policy debates in the 1960s, exponentiality was the implicit ideal, not linearity.

So that is how co-ordinated growth targeting first leapt onto the world stage -- as a panacea propaganda stunt without the technical know-how for accurate forecasting, targeting or policy selection to meet the targets. By happenstance, the OECD countries came close to meeting their joint 1960s growth target. The econometric analysis and policy prescriptions came as an afterthought.

In terms of enshrining the hegemony of economic growth as a policy imperative, the OECD growth targeting has to be judged a success. What that means in terms of global financial stability, the demise of the Bretton Woods system, environmental and social impacts is another question. But what struck me as I was reading Schmelzer's documentary account the 1961 decision is how much the concept of greenhouse gas emissions reduction targeting mimics the American proposal for economic growth targeting. This is not a good sign.

Trump v. the Wall Street Journal on Virginian Employment

If I told you that Trump lies a lot – you might laugh that we all know that. But it is interesting when even the Wall Street Journal is refuting the latest from the Trump campaign. As soon as Hillary Clinton picked Tim Kaine as his running mate, Team Trump decided to rehash how employment growth has been awesome in Indiana (since Mike Pence governed that state) while employment in Virginia has somehow tanked. Of course Indiana employment has grown only 2.6% since December 2007 while Virginia grow by 3.6% over this period. Trump is fact challenged as this WSJ blog also notes:

While governor, Virginia’s economy outperformed the U.S. in several key measures…When the U.S. economy fell into recession in 2008 and 2009, Virginia’s economy still managed to expand, albeit slightly. The state’s economy grew 0.1% in 2008, versus a 0.3% decline for the U.S., and advanced 0.5% in 2009, when the U.S. economy contracted 2.8%...When Mr. Kaine took office in January 2006, Virginia’s unemployment rate was 1.5 percentage points below the national level. When he left office, the state’s rate was 2.4 percentage points below the U.S. rate…Employment in Virginia grew robustly during Mr. Kaine’s first two-and-half years as governor, expanding 4% between January 2006 and July 2008. Employment fell sharply during his remaining time in office, but never sank below the level he inherited. Conversely, total U.S. employment only recovered to the January 2006 level in late 2012.

Since 2007, employment growth nationwide has been very modest and employment growth for Virginia has been about the same. Indiana on the other hand has seen awful employment growth over this period. But do not expect Donald Trump to tell you the truth about this or anything else.

The Banana Republicanization Of America

The Republican national convention has now ended, and it marks another major move in the descent of  America to becoming a becoming a banana republic, setting by far a record for failing to approve presidential judicial appointments, little outcry from the public.  It also has included for the first time a member of Congress yelling "you lie" during a State of the Union speech (which was a false charge, to boot).

Now we are going to become like Russia and Turkey and authoritarian corrupt nations where the winner of a presidential election throw his opponents in jail or worse.  It is not just that this is the first US convention where  there has been a call to jail the main opponent, but the favorite chant of the has been that: "Lock her up!"  And then we had the one who wants her shot.

To make this all worse, she is not even guilty of what they claim are her crimes, and speakers told repeated lies about it.  This is a very new low.

Barkley Rosser

The Rise of Zero-Sum Economics and What if There Just Aren’t Enough Jobs to Go Around?

The Wall Street Journal is generating an orgy of lump-of-labor headlines. Yesterday there was The Rise of Zero-Sum Economics by Greg Ip. Today, on the Real Time Economics blog there is What if There Just Aren’t Enough Jobs to Go Around?  by Anna Louie Sussman. The latter article is substantive, with a discussion of a study by Marshall Steinbaum and Mike Konczal. Ip's article is polemical claptrap objecting to the polemical claptrap of the Republicans and Democrats.

With his banal -- and fallacious -- supposition that the "opposite" of win-lose (zero-sum) is win-win, Greg Ip indicates that the sum of his understanding of game theory is zero. Actually, the interesting thing about non-zero-sum games is that they present the players with dilemmas, such as the prisoner's dilemma or Garrett Hardin's tragedy of the commons.

The Sandwichman discussed the polemical use and abuse of game theory terminology in a series of posts back in April under the collective heading of "Zero-Sum Foolery":

• Game Theory Gamesmanship
• Doomsday Climate Machine
• Forecast Factory
• Wage Prisoner's Dilemma
• Is the Road to Hell Paved with Pareto Improvements?

Pretending to refute the perception that there is "only so much work to go 'round" is a boilerplate canard that the Sandwichman tackled back in 2005. In theory, of course, there is no inherent limit to the amount of work to be done. How that actually plays out in practice, however, is another matter. It depends.

For two and a half centuries, propagandists have laboriously blurred the distinction between propositions and perceptions in order to demonstrate that those they disagree with are stupid. Some of the commenters on Sussman's article appear to have been indoctrinated to that well-worn refrain:

"Tired of the whiners about 'no jobs'. Slothful gluttonous slugs by no other name." 

"Sounds like a 'study' designed to reach the preconceived conclusion of progressives." 

"You can't believe something this silly.  That would imply that all consumer demands have been fulfilled, Nirvana is here.  Such utter nonsense."

The Republican National Convention Features Michelle Van Etten

Tiger Blood of the Daily Beast has an interesting scoop:

A multi-level marketer who peddles pseudoscience—and whose product is endorsed by America’s leading conspiracy theorist—is scheduled to speak in a primetime slot Wednesday at the Republican National Convention. Michelle Van Etten was presented by the RNC in a Sunday evening press release as a “small business owner” who “employs over 100,000 people.” That’s roughly 1.5 times the number of employees Apple employs in the United States, making it a highly unlikely claim. For such a supposedly large employer, she has flown under the radar—until the announcement of her speech at the convention, there was no record of her business work in the press. Van Etten is involved in selling products that claim to improve health and even fight cancer, all based on dubious science. And as you peel the story back, every single layer is fascinating: there’s Alex Jones hysteria, pyramid-scheme-style marketing, and questionable Clemson University research.

Products that improve one’s health based on dubious science takes me back to the Gero Vita scam:

Almon Glenn Braswell (1943-2006) sold pills and potions through the mail. He probably took in more money and more people than any similar marketer in U.S. history. This article details what he did, looks at connections he had with prominent politicians, and describes some of the actions law enforcement took against him…Some of the products may have had some effectiveness (though overpriced), but most were promoted with misleading claims. .. One reason for Braswell's commercial success was his association with health professionals whom he listed as advisors and/or authors of articles in his publications.

In short – his firm was selling snake oil. It also found a way of dodging taxes that drew criminal complaints from the IRS. And of course the political connections:

Braswell had connections to George W. Bush and George's brother Jeb Bush, when he was Governor of Florida. Braswell and his companies have donated a total of at least $220,000 to their campaigns and to the Republican Party

Trump and Van Etten / Bush and Braswell.

Leprechaun Economics and Big Pharma

John Fitzgerald offers a lot of insights on the Irish GDP accounting issue:

The so called “patent cliff”. Because the pharmaceutical sector accounts for a substantial share of Gross Value Added (GVA), developments in the statistical treatment of the sector can have a significant impact on the national accounts: for example, if patents on major drugs produced in Ireland run out…multinational enterprises have grown in importance. When they operate in countries outside their home location, the profits earned by those companies in the foreign destination properly belong to the shareholders in the company, rather than to the residents of the country in which the profits are generated. This drives a wedge between GDP and GNI/GNP as the profits, net of tax, are remitted to the shareholder.

Let’s take three real world examples starting with Forest Laboratories:

Thirty million prescriptions were filed last year for the anti-depressant Lexapro, made by the U.S. pharmaceutical company Forest Labs. According to a story in Friday's Bloomberg Businessweek, most of the profits from that drug were transferred overseas, thus avoiding having to pay taxes in the United States. The news is shocking to Lexapro customers like Tyler Hurst, who buys the drug at a Phoenix pharmacy. "It does not say, 'The profits of this go outside the country,' anywhere," said Hurst as he looked at the drug bottle. "It is shady."

When the patent on Lexapro expired, these profits declined:

The makers of the popular antidepressant Lexapro (escitalopram) reported a net loss in sales resulting from expiration of the drug’s patent in March 2012. New York-based Forest Laboratories disclosed that it lost $153.6 million, or 58 cents per diluted share, in the fiscal quarter that ended in December 2012.Lexapro rose to popularity soon after its release in 2002, earning $13.8 billion for Forest Laboratories in the span of a decade. The antidepressant has routinely made up over half of Forest’s sales. It made almost $600 million in the quarter that ended in December 2011. Then, following the release of the generic version of escitalopram in March 2012, Lexapro’s sales plummeted 97 percent to $20.3 million in the third quarter ending in December 2012.

Lexapro was manufactured in Ireland for production costs near 25 percent of sales but sold to the U.S. at a transfer price near 70 percent, which left the U.S. distributor with low profits after selling expenses. The IRS did notice and argued that the transfer pricing should reflect only production costs plus a modest markup to cover the cost of capital on the Irish tangible assets. Clearly a lot of these profits before the expiration of the patent were due to intangible assets, which the IRS argued were U.S. owned. We see similar financials for medical device manufacturers such as Medtronic and Guidant. While I linked to the taxpayer’s petition to the Tax Court for the latter, let’s refrain from commenting on an ongoing litigation but rather note the Medtronic decision:

The U.S. Tax Court handed Medtronic Plc a victory in a $1.4 billion dispute with the Internal Revenue Service over how much of the medical device maker’s profits should be taxed by Puerto Rico and how much should face higher federal taxes instead…The case involved transfer pricing, or the rules that govern transactions between different arms of the same company. Corporations must make such transactions as if they were engaged in arm’s length deals between unrelated companies, and allocate income where it is earned, depending on which entity truly generates the profits. But those standards frequently lead to fact-intensive disputes with the IRS. In this case, the company and the government were arguing about the proper methods for determining how profits should be split between foreign and domestic operations.

Let’s put this in context with a simple example. Suppose that the U.S. parent sells $10 billion in products incurring $2 billion in selling costs, while the foreign (tax haven) manufacturer incurs $2 billion in production costs with overall profits being $6 billion. Let’s also assume that a distributor would be granted $500 in profits while a contract manufacturer would be granted another $500 million in profits. Transfer pricing geeks would say we have $5 billion in residual profits. The IRS thinks that the foreign manufacturer should pay a royalty equal to 50 percent of sales capturing all residual profits. The representatives for these highly profitable multinationals are arguing for royalty rates of only 20 percent of sales which would leave most of the profits with the tax haven even though the facts seems to be that all intangible assets were created in the U.S. Of course these profit margins pale in comparison to what Gilead receives on its new hit treatments:

A new investigative report finds that in the last two years Gilead Sciences has raked in billions in profits from exorbitantly priced hepatitis C medications that were developed with taxpayer dollars, and then shifted those profits to offshore tax havens where it dodges U.S. taxes….The report found Gilead’s sales and profits have soared since the drugs launched, while its tax rate has plummeted. Gilead’s worldwide revenues recently tripled—from $11.2 billion in 2013 to $32.6 billion in 2015. Corporate pre-tax profits soared even more: rising from $4.2 billion to $21.7 billion from 2013 to 2015, a five-fold increase. But, over the same period Gilead’s worldwide effective tax rate plummeted by 40%—dropping from 27.3% in 2013 to 16.4% in 2015.

This report accuses Gilead of tax dodging as it assumes the U.S. parent paid Pharmasset $11 billion for the phase II rights:

“For Gilead to give up effectively one-third of their value for an unproven asset still subject to significant ongoing clinical risk seems remarkable,” Porges, who is based in New York, wrote today in a research note. The company is “likely to be treated harshly by investors for apparently ‘top ticking’ the most visible asset in the market.”

This was a risky gamble that paid off. But my understanding is that the Irish affiliate purchased the phase II rights and then funded the remaining R&D. Regardless of who is right on the transfer pricing issue, the success of these Hepatitis C treatments represented a dramatic increase in value-added.