Sunday, May 31, 2009

Bad management is bad management... bad history is bad history

Economist Dean Baker points out that the Washington Post is scapegoating workers again...

Do You Hate Unions and Working Class People? You Can Write for the Washington Post. No Knowledge Necessary!

The Washington Post showed yet again why it is known as "Fox on 15th Street." It ran a column today that blamed the United Auto Workers for the bankruptcy of Chrysler and GM. So what if Toyota has managed to profitably run a plant in California represented by the UAW for more than two decades? So what if wages of unionized autoworkers in profitable car companies in Europe and Japan are the same or higher than in the United States? So what if the proximate cause of the bankruptcy was incompetent economic management in Washington and an explosion of incompetence and greed on Wall Street?

At the Washington Post, the line is blame the unionized auto workers -- after all, they earn $57,000 a year. Except of course by the calculation in this column. Richard K. Bank, a man with no obvious qualification other than his dislike of unions told Post readers that the G.M., Ford, and Chrysler have labor costs of close to $110 an hour. The would come to $220,000 a year for a full-time worker. Of course, this has no basis in reality, but it helps advance the anti-union case, so it's good enough to get in the Washington Post.

Its also useful to point out that Toyota has had a huge amount of protectionism thrown their way by the government of Japan for them to become competative to begin with, as noted by Ha-Joon Chang in his book Bad Samaritans:

Once upon a time, the leading car maker of a developing country exported its first passenger cars to the US.  Up to that day, the little company had only made shoddy products--poor copies of quality items made by richer countries.  The car was nothing too sophisticated--just a cheap subcompact (one could have called it 'four wheels and an ashtray').  But it was a big moment for the country and its exporters felt proud.

Unfortunately, the product failed.  Most thought the little car looked lousy and savvy buyers were reluctant to spend serious money on a family car that came from a place where only second-rate products were made.  The car had to be withdrawn from the US market.  This disaster led to a major debate among the country's citizens.

Many argued that the company should have stuck to its original business of making simple textile machinery.  After all, the country's biggest export item was silk.  If the company should have stuck to its original business of making simple textile machinery.  After all, the country's biggest export was silk.  If the company could not make good cars after 25 years of trying, there was no future for it.  The government had given the car maker every opportunity to succeed.  It had ensured high profits for it at home through high tariffs and draconian controls on foreign investment in the car industry.  Fewer than ten years ago, it even gave public money to save the company from imminent bankruptcy.  So, the critics argued, foreign cars should now be let in freely and foreign car makers, who had been kicked out 20 year before, allowed to set up shop again.

Others disagreed.  They argued that no country had got anywhere without developing 'serious' industries like automobile production.  They just needed more time to make cars that appealed to everyone.

The year was 1958 and the country was, in fact, Japan.  The company was Toyota, and the car was called the Toyopet.  Toyota started out as a manufacturer of textile machinery (Toyoda Automatic Loom) and moved into car production in 1933  The Japanses government kicked out General Motors and Ford in 1939 and bailed out Toyota with money from the central bank (Bank of Japan) in 1949. Today, Japanese cars are considered as 'natural' as Scottish salmon or French wine, but fewer than 50 years ago, most people, including many Japanses, thought the Japanese car industry simply shoud not exist.  (p19-20)

The biggest problem I have with "leave it to the market" types is they lack an examples of major industrialized nations that have used the hands off approach that they hold in such high regard. There is a reason why we aren't still exploiting our comparative advantage in the fur trade--and personally i'm glad about that. Small Government "Capitalism" isn't viable because its not going to happen in modern industrialised nations--in fact its not even how we industrialized to begin with.  Many of them pine away to live in the agrarian economies of yore--which is a personal preference; or use theoretical arguments that are logically coherent in the abstract--which is fine for the Ivory Tower of academia.

But what matters is the real world, hard working Americans deserve an economy that works for them; our entrepreneurs deserve an economy that empowers them.  We need to be competing with the other industrialised nations of the world, we need to be focused on the future--using revisionist histories and academic theories isn't the way to create a strong, dynamic, competitive economy.

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Saturday, May 30, 2009

Climate Change Hits Poor Hardest in U.S.

A new study finds that the poor will be disproportionally affected by global warming, even in the U.S

Climate change is disproportionately affecting the poor and minorities in the United States - a "climate gap" that will grow in coming decades unless policymakers intervene, according to a University of California study.

Everyone, the researchers say, is already starting to feel the effects of a warming planet, via heat waves, increased air pollution, drought, or more intense storms. But the impacts - on health, economics, and overall quality of life - are far more acute on society's disadvantaged, the researchers found.

"Climate change does not affect everyone equally in the United States," said Rachel Morello-Frosch, associate professor at the School of Public Health at the University of California, Berkeley and lead author of The Climate Gap. "People of color and the poor will be hurt the most - unless elected officials and other policymakers intervene."

Watching this unfold is akin to watching a movie where disparate and seemingly unrelated storylines converge to denouement that is "decidedly tragic," the researchers wrote.

For instance, the report finds that African Americans living in Los Angeles are almost twice as likely to die as other Los Angelenos during a heat wave. Segregated in the inner city, they're more susceptible to the "heat island" effect, where temperatures are magnified by concrete and asphalt. Yet they're less likely to have access to air conditioning or cars.

Similarly, Latinos make up 77 percent of California's agricultural workforce and will likely see economic hardship as climate change reworks the state's highest-value farm products. The dairy industry brings in $3.8 billion of California's $30 billion agriculture income; grapes account for $3.2 billion. Yet climatic troubles are expected to decrease dairy production between 7 percent and 22 percent by century's end, while grapes will have trouble ripening, substantially reducing their value.

Other impacts, according to the researchers: Households in the lowest income bracket spend twice the proportion of their income on electricity than those in the highest income bracket. Any policy that increases the cost of energy will hurt the poor the most.

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Market Watch Commentary: More people are satisfied in heavily tariffed nations

The happiest taxes on earth

The Organization for Economic Cooperation and Development says people in Denmark, Finland and the Netherlands are the most content with their lives. The three ranked first, second and third, respectively, in the OECD's rankings of "life satisfaction," or happiness.

There are myriad reasons, of course, for happiness: health, welfare, prosperity, leisure time, strong family, social connections and so on. But there is another common denominator among this group of happy people: taxes.

Northern Europeans pay some of the highest taxes in the world. Danes pay about two-thirds of their income in taxes. Why be so happy about that? It all comes down to what you get in return.

The Encyclopedia of the Nations notes that Denmark was one of the first countries in the world to establish efficient social services with the introduction of relief for the sick, unemployed and aged.

It says social welfare programs include health insurance, health and hospital services, insurance for occupational injuries, unemployment insurance and employment exchange services. There's also old age and disability pensions, rehabilitation and nursing homes, family welfare subsidies, general public welfare and payments for military accidents. Moreover, maternity benefits are payable up to 52 weeks.

Simply, you pay for what you get. Taxes in the U.S. have taken on a pejorative association because, well, we are never really quite sure of what we get in return for paying them, other than the world's biggest military.

Healthcare and other such social services aren't built into our system. That means we have to worry more about paying for things ourselves. Worrying doesn't equate to happiness.

The U.S. ranked 11th on the OECD list. In addition to the top three, we were beat out by Sweden, Belgium, Canada, Australia, New Zealand, Switzerland and Norway. To be sure, we were ahead of France, Great Britain, Japan and China, among many others. But we can do better.

With the highest gross domestic product in the world, we are the richest country. On a per capita basis, though, we don't even make the top 10. The U.S. ranks 15th in this category, according to the International Monetary Fund.

Denmark -- maybe because they are happy -- ranked fifth. Other, more "satisfied" countries also earn more on an individual income basis. Oh yes, and the average workweek in Scandinavian countries is less than the U.S.'s

We need to take better care of ourselves.

It may not just be taxes, of course, that lead to happiness. There are other factors to consider. But better social services and less worry about having to pay for things such as medical bills, retirement and education do help with the happiness factor.

Yet, we are so dead set against paying more taxes that it's even spawning nationwide protests. Tea party, anyone?

Maybe it's time that we looked at taxes differently. We have to pay them anyway. So they might as well make us happy. If Northern Europe is any benchmark, the more we'd pay the happier we just may be.

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Mark Thoma:

In my heart of hearts, I'm pretty libertarian. I really don't want government looking over my shoulder and telling me what I can and cannot do.

Where I part with many libertarians - perhaps due to my background - is in the idea that government is almost always at odds with liberty. In my case, government played a key role in providing me with opportunity - education is one example, without tuition of $100 per semester at a state school, I probably would not have gone to college - but the opportunities government provided me go beyond education (and also see the examples given in the article for women and minorities).

Governments also need to intervene to prevent monopoly and political power from building up. Without such interventions, power will tend to concentrate and we will likely be exploited in one way or another, so government needs to ensure that our opportunity to enter a particular business - that our economic opportunities generally - are not limited by these factors.

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Powell wing vs. Limbaugh wing of the GOP

Jay Bookman:

Listen to the debate between the Powell wing and the Limbaugh wing of the GOP, for example, and you hear eerily familiar rhetoric and all-too-familiar modes of attack. Once again, you see the same insistence on loyalty to the group, and the same discomfort with dissent or difference.

Instead of claiming that liberals aren’t real Americans, the conservatives claim that moderates aren’t real Republicans. Moderates are described as traitors to the party and the cause, and they are told, in effect, to love the party or leave it. As RNC Chairman Michael Steele said recently, moderates are welcome in the party, but only if they accept the fact they’ll have no influence.

“Understand that when you come into someone’s house, you’re not looking to change it,” he said. “You come in because that’s the place you want to be.”

Over at, Erick Erickson offers an interesting variation on the theme, and in fact takes it to a whole ‘nother level. He equates the disloyalty of Republicans who dare to criticize party leaders such as Rush Limbaugh to the disloyalty shown by Peter to Jesus in the Garden of Gethsemane.

Yes, he really does.

“Peter denied Christ three times,” Erickson writes. “Our goal should be to not deny Christ and also to not deny the valuable members of our own movement.”

I acknowledge that’s an extreme example. I acknowledge as well that such attitudes are found among liberals as well, if to a lesser degree. Overall, however, the conservative emphasis on group loyalty and the liberal acceptance of dissent help to define the two camps at least as clearly as their positions on taxes or regulation.

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"I'm Philosophically opposed to regulations that are harmful to the economy..."

As a general rule, it is probably reasonable to assume that most people are philosophically opposed to regulations that they perceive to be harmful to the economy. The differences arise over which measures they perceive, or claim to perceive, as being harmful.

--Dean Baker

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Friday, May 29, 2009

Wikipedia Bans Scientologists

Wikipedia Bans Scientologists

The longest-running arbitration in Wikpedia history has come to a close, and it’s bad news for the Church of Scientology. Based on a 10-0 vote (with one abstaining) from the Arbitration committee, there is now a ban on Wikipedia contributions from all IP addresses owned or operated by the Church of Scientology. Though Wikipedia frequently bans individual users, this is the first time that such a high-profile organization has gotten the boot for trying to use the site to push its own agenda. Apparently the committee was especially concerned that the press coverage of the pro-Scientology editing of related articles would damage Wikipedia’s reputation for neutrality.

A former member of the Church of Scientology’s Office of Special Affairs (responsible “for directing and coordinating all legal matters affecting the Church”) told the Register about the organized efforts to remove criticism of Scientology from the Internet: “The guys I worked with posted every day all day. It was like a machine. I worked with someone who used five separate computers, five separate anonymous identities… to refute any facts from the internet about the Church of Scientology.”

Wikipedia has also previously barred those pushing anti-Scientology propoganda from editing Scientology-specific pages.

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Health Care Crisis---Lost Productivity Costs States $124 billion to $248 billion

It may seem like now is the wrong time for the United States to fix our broken health system. It’s true that we are still dealing with the recent financial crisis and the continuing economic downturn. But health reform is actually exactly what we need to help get the American economy back on its feet.

Our analysis shows that the broken health care system will cost us between $124 billion and $248 billion in lost productivity this year alone due to the almost 52 million uninsured Americans who live shorter lives and have poorer health. In fact an analysis by the Institute of Medicine found that, “the estimated benefits across society in healthy years of life gained by providing health insurance coverage are likely greater than the additional social costs of providing coverage to those who now lack it.”

These findings are based on a 2008 analysis by the New America Foundation, which found that the national economic cost from lost productivity in 2007 was between $104 billion and $207 billion. Economic costs from lost productivity have increased by about 20 percent during the two years since the New America Foundation conducted its analysis. The low bound of this estimate represents just the cost from uninsured Americans’ shorter lifespan. The high bound represents both the cost of shortened lifespan and the loss of productivity due to the reduced health of the uninsured.

The cost of doing nothing in our current system is clearly too high. We must reform the health care system to build a stronger economy moving forward.

Capitalism works because of competition in the marketplace. Americans deserve the right to choose their own healthcare. Do something about it.

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The hardest 571 votes I ever worked for...

The funnest as well.

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The Trucks won't load themselves...

Headed to work... here are some quotes to start your day.

Our an omen of our destiny, and the more integrity we have and keep, the simpler and nobler that destiny is likely to be.                                                   --George Santayana (1863 - 1952), "The German Mind: A Philosophical Diagnosis"

Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved.            -- Helen Keller (1880 - 1968)


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Economics or Climate Change a blog about economics and finance, mostly — Stern, Sachs, and Stiglitz on the Economics of Climate Change:

And then came the barrage of very good reasons why it makes sense to spend money today for the benefit of future generations. First, from Stern: climate change is a stock-and-flow problem. We need to decrease the flow of carbon into the atmosphere now, in order to reduce the stock of carbon in the atmosphere in future. Once it's there, you can't take it out – in any case, it would be utter foolishness to assume that we might be able to do so at some point in the future. So climate change is irreversible. Once coral reefs die, glaciers melt, and cities drown, they're gone forever, and no amount of future wealth can make up for that....

[T]hink of the world as being made up of two types of capital – physical capital and environmental capital. Since the Industrial Revolution, we've been growing our physical capital at the expense of running down our environmental capital. As a result... we value our environment much more highly now, in real dollar terms, than we did a couple of generations ago. If we continue to grow our physical capital at the expense of our environmental capital, that exchange rate will continue to rise... we'll find that the cost of that wealth, in terms of spent environmental capital, will be seen to have been excessive. Environmental capital might be expensive now, but it will also never again be cheaper than it is today....

Sachs had another take. There's no reason, he said, that spending $400 billion now means that we should reduce our consumption by $400 billion.... "The future would rather have abatement capital than non-abatement capital," he said, adding that you can finance expenditure out of savings rather than consumption through the application of fiscal policy. "We are stewards of the future," said Sachs – future generations aren't around to speak to us, so we have to act on their behalf. "And they want less capital and a better climate."

Then Stiglitz stepped in, to introduce the distinction between social return and financial return. Not everything, he said, could be measured with GDP-per-capita figures.

And finally, my own answer to my own question, which is that the $400 billion cost will not be borne by all present citizens equally – it will be borne much more by the rich, who are the major consumers of energy. If you compare the wealth of the rich today to the wealth of future generations in general tomorrow, then the increase looks much smaller.

Brad Delong digs in more...

What Environment Do We Owe Our Descendents?

Jason Furman says that the best thing he has seen on this is Marty Weitzman (2007), "The Stern Review of the Economics of Global Climate Change," forthcoming in the Journal of Economic Literature I agree: Weitzman's paper is superb. My only disagreement is that Weitzman seems a little too agnostic in the arguments he derives from his observation that:

something fundamental is amiss in the paradigm framework for pricing assets and deriving the rates of return that we are relying upon to produce discount rates for evaluating new investment opportunities...

I think we are pretty certain why the configuration of asset prices does not match our economists' intuitions about what asset prices should be in a world of well-functioning markets given our estimates of preferences and technologies. It doesn't match because our financial markets are not well-functioning. They do a lousy job of mobilizing the risk-bearing capacity of society. And they appear to be profoundly myopic in the sense that average opinion has a hard time peering into the future when calculating what average opinion expects average opinion to be. As I result, I think, we shouldn't be surprised that there are asset pricing puzzles out there (see And we shouldn't take those puzzles to disable our ability to think long-term aboutr issues like global warming.

On the other hand, this from Weitzman seems to me to be completely right:

To its great credit the Review supports very strongly the politically-unpalatable idea, which no politician planning to remain in office anywhere wants to hear, that the world needs desperately to start confronting the expensive reality that burning carbon has a significant externality cost that ought to be taken into account by being charged full freight for doing it. (This should have been, but of course was not, the most central "inconvenient truth" of all in Al Gore's tale about inconvenient climate-change truths.) As the Review puts it,"ìestablishing a carbon price, through tax, trading, or regulation, is an essential foundation for climate-change policy." One can only wish that U.S. political leaders might have the wisdom to understand and the courage to act upon the breathtakingly-simple vision that a carbon price reflecting social costs (whether imposed directly through taxes or indirectly via tradable permits) could do much more to unleash the decentralized power of greedy, self seeking, capitalistic American inventive genius on the problem of developing economically-efficient carbon-avoiding alternative technologies than all of the command-and- control schemes and patchwork subsidies making the rounds in Washington these days...


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Thursday, May 28, 2009

Cap-and-Trade Cost Inflation puff up the impact of a cap-and-trade program on the average family's energy costs.

Leading Republicans are claiming that President Obama's proposal to curb greenhouse gas emissions would cost households as much as $3,100 per year. The Republican National Committee calls it a "massive national energy tax." But the $3,100 figure is a misrepresentation of both Obama's proposal and the study from which the number is derived.

Republicans say they base their figure on a study from the Massachusetts Institute of Technology. But one of the authors says that the GOP's use of the study is "simplistic and misleading" and that it ignores key provisions designed to cushion the impact on consumers. The author puts the true added cost of a cap-and-trade system at closer to $800 a year.

Obama himself once said energy costs would "skyrocket" under his plan, but the GOP's partisan claim of a $3,100 per household cost increase is far higher than figures produced by other studies. The Environmental Protection Agency estimates the average cost per household to be between $98 and $140 per year, based on the Democratic cap-and-trade bill working its way through the House. Even the conservative, pro-Republican Heritage Foundation figures the average family would see its energy bill increase by $1,500 a year, less than half what the GOP claims. A Congressional Budget Office expert recently estimated the cost per household at an average of $1,600 a year, but that figure doesn't account for energy rebates Obama has proposed giving to consumers. If the government did use revenue from cap and trade "to pay an equal lump-sum rebate to every household," the CBO expert said, "lower-income households could be better off."

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DFA Health Care Reform urgent action

From the Inbox

This Sunday, following Meet the Press, a 30-minute "infomercial" attacking a public healthcare option is set to air on NBC. The ad is the work of disgraced former hospital CEO Rick Scott and his group "Conservatives for Patients' Rights."

Rick Scott has a track record of deceit.

Scott's previous ads contained blatantly false statements and misleading excerpts of interviews with healthcare professionals. If Scott's 30-minute "documentary" contains falsehoods, NBC could be liable for an FCC violation and serious fines. Furthermore, Meet the Press needs to know that their credibility is being used by Rick Scott, and will be tarnished by the association to these swiftboat style attacks.

Lawyers from the Service Employees International Union have sent a letter to NBC demanding they don't run the ad. It is up to us to back them up with the voices of thousands of viewers demanding action.


DFA and our partners are not the only organizations raising serious questions about Rick Scott and Conservatives for Patients Right's credibility. The highly-respected website Factcheck-org, run by the non-partisan Annenberg Public Policy Center of the University of Pennsylvania, has labeled Scott's prior advertisement as "very misleading."

CPR's weak rebuttal to these criticisms should have given NBC pause before agreeing to air the latest iteration of these advertisements in the full "documentary".  Essentially, CPR's rebuttal conceded that it is painting a scenario that has not been proposed by President Obama or Democratic Congressional leaders and, indeed, Factcheck-org labeled CPR's response as "nonsense."

Based on Rick Scott and Conservatives for Patient Rights records, this 30-minute fake "documentary" will be false, deceitful, and filled with distortions. It is up to us to stop NBC from running the ad.


As a back-up, if we don't succeed in stopping NBC from showing the fake "documentary," we've joined with other healthcare reform advocates and organizations to shoot a 1 minute rebuttal ad featuring Governor Howard Dean, M.D. to run immediately afterwards.

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Opec banks on end of recession to drive oil prices

Opec oil ministers appear ready to sit back and let a recovering world economy lift crude prices instead of trying to bolster them by cutting back production.

A meeting of the 12-nation oil producing cartel in Vienna still has to make a formal decision on Thursday on whether to keep output steady or turn down the spigots -- a move normally taken in times like these where the world is oversupplied and demand is anaemic.

But there was little drama ahead of the meeting, with most oil ministers saying they expected the status quo to remain unchanged.

Even Oil Minister Golam Hossen Nozari of Iran -- one of Opec's price hawks -- said on Wednesday he expected Opec to keep output at present levels.

This sentiment appeared due to optimism that the United States -- the world's largest oil consumer -- is gradually emerging from a severe recession. Oil investors took heart from Tuesday's report from private research group the Conference Board that showed US consumer confidence in May soared to its highest level since last September.

A barrel of crude already fetches more than $60 compared to levels near $30 just four months ago. And that spike has come despite continued anaemic worldwide demand and gloomy future forecasts.

Benchmark crude for July delivery rose $1 to settle at $63,45 a barrel on the New York Mercantile Exchange. Prices haven't been that high since early November. Saudi Oil Minister Ali Naimi on Wednesday suggested greater demand later this year would come only from Asia, with the US and Europe continuing to lag.

Instead of being powered by demand, analysts say oil prices have risen because of international stock markets. But although stocks normally rise six to nine months before the actual economy starts growing again, a series of economic reports have recently suggested that the recession is bottoming out, if not yet ending.

About 74% of the forecasters in a survey by the National Association for Business Economics in the US expect the recession, which started in December 2007, to end in the third quarter. Another 19% predict the turning point will come in the final three months of this year and the remaining 7% believe the recession will end in the first quarter of 2010.



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Obama and rule of law...

Reality Check

by Chris Dashiell

Mr. President, “indefinite” or “preventive” detention is not compatible with the rule of law. Merely saying that it is does not make it so. A person cannot lawfully be detained without charges. To do so is in essence an act of unchecked executive power. Even if the Congress were to authorize such detention, it would violate our principles as a nation. Human rights are not privileges bestowed by the government, at the whim of whatever individuals are “in charge.” If we were founded upon trust in the benevolence of authority, we would not need a Constitution. In that case, a king would suffice for us. It is of no account whether the people trust you as a leader more than they trusted your predecessor, when there is no safeguard against abuse of power. A benevolent ruler may always be succeeded by a tyrant. The concept of inalienable rights was established precisely for this reason.

You talk about detainees at Guantanamo who cannot be prosecuted yet who pose a clear danger to the American people. This is double talk. If they have committed crimes, they can and should be prosecuted. To say that they cannot be prosecuted is to say that you have no case. It creates a system of perpetual imprisonment without due process. If the executive has the power to determine that someone poses a danger to the American people, and yet not have a case, that means that the executive’s power is unchecked by the rule of law. There is nothing to prevent a President from declaring that his administration’s domestic political enemies pose a security threat. As far as I can tell, the only safeguard you are offering against this untrammeled power is trust in your character. Even if I were to accept this as a valid safeguard (which I don’t, since I retain a healthy mistrust of all politicians who claim special powers not stipulated in our Constitution), it would still not protect us from the ambitions of a future untrustworthy President.

There is nothing to prevent the “indefinite” detention of a U.S. citizen deemed to be “dangerous” by the White House. In fact, this was already done in the case of Jose Padilla. The supposed guilt of a suspect has been used over and over as a justification for the violation of our Constitution. There is nothing in what you have said that bars that practice from continuing.

This is supposed to be a nation of laws, and not of men. The fact that you are turning from some of the flagrant abuses of the Bush administration does not give you permission to continue using such spurious claims of executive power in your current administration. I regret to say that I will be unable to vote for you again if you continue to adhere to this line. No, I will not vote for your Republican opponents, who openly advocate lawlessness. But I can stay home on election day. There are certain things that I cannot in good conscience tolerate. The fundamental principles of our republic, including the ancient and venerable writ of habeas corpus, and the 6th Amendment to the Bill of Rights, are not negotiable. I know that I am not the only one who feels the way. To take supporters like us for granted, as if our votes belong to you, could be a serious mistake. I urge you to follow your profession of faith in the Constitution, in actions as well as words. Otherwise I must vigorously oppose you. And I will not be alone.

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Instant Run-Off Voting...

FairVote Editorializes on IRV for Primaries in The State

Our boss Rob Richie and South Carolina State Rep. Bill Herbkersman co-authored an op-ed in today’s The State on the plunge that turnout numbers can take when a primary election requires a separate runoff, and how instant runoff voting can nip that problem in the bud. A taste:

In the 11 runoff races held on June 24, nine saw voter turnout plunge by 16 percent or more. The low point was the race for the Democratic nomination in the 4th District U.S. House seat, in which 48 percent fewer voters came to the polls the second time around: The winner actually earned far fewer votes than he earned in the first round.

There’s real value in requiring nominees to prove that they have majority support in their party. But there’s something wrong when turnout plunges so sharply, and taxpayers have to foot the bill, which the State Election Commission estimated at roughly $650,000 in South Carolina last year.

It doesn’t have to be this way. We’re in the 21st century, and South Carolina can replace its traditional approach to majority elections with instant runoff voting.

How does IRV work its primary magic? Read the entire piece to find out.

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Keynes right/wrong--why it matters?

Why Keynes was right and wrong, and why it matters - Roger Farmer

Where does this leave us? Keynes was right about three key points. 1) High unemployment can persist forever because the market is not self-correcting. 2) Confidence matters. 3) Government can and should intervene to fix things. But the orthodox Keynesians are wrong: fiscal policy cannot provide a permanent fix to the problem of high unemployment. We need a new approach that directly attacks a lack of confidence in the asset markets by putting a floor and a ceiling on the value of the stock market through direct central bank intervention.

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Economist Alan Blinder takes on dysfunctional incentives

Crazy Compensation and the Crisis, by Alan Blinder, Commentary, WSJ

Take a typical trader at a bank, investment bank, hedge fund or whatever. ... Unfortunately, their compensation schemes ... offer.. them the following sort of go-for-broke incentives when they place financial bets: Heads, you become richer than Croesus; tails, you get no bonus, receive instead about four times the national average salary, and may (or may not) have to look for a new job. ...

[L]et's consider the incentives facing the CEO and other top executives... For them, it's often: Heads, you become richer than Croesus ever imagined; tails, you receive a golden parachute that still leaves you richer than Croesus. So they want to flip those big coins, too.

From the point of view of the companies' shareholders -- the people who provide the OPM -- this is madness. ... Traders and managers both want to flip more coins -- and at higher stakes -- than shareholders would if they had any control, which they don't.

The source of the problem is really quite simple: Give smart people go-for-broke incentives and they will go for broke. Duh.

Amazingly, despite the devastating losses, these perverse pay incentives remain the rule on Wall Street today, though exceptions are growing. ... These wacky compensation schemes have puzzled me for nearly 20 years. ... But the issue could be considered an intellectual puzzle until the bottom fell out. ... after an orgy of irresponsible risk taking... [T]he consequences for the real economy have been devastating. ...

What to do? It is tempting to conclude that the U.S. (and other) governments should regulate compensation practices.... But the ... executives, lawyers and accountants who design compensation systems are imaginative, skilled and definitely not disinterested. Congress and government bureaucrats won't beat them at this game.

Rather, fixing compensation should be the responsibility of corporate boards of directors and, in particular, of their compensation committees. These boards, ... are supposed to represent the interests of stockholders, not those of managers. ... The unhappy (but common) combination of coziness and drowsiness in corporate boardrooms must end. ... For example, top executives could be paid mainly in restricted stock that vests at a later date, and traders could have their winnings deposited into an account from which subsequent losses would be deducted.

Comprehensive reform of the financial system will probably take years. The problems are many and complex, and the government's to-do list is not only long but also a political minefield. Yet fixing compensation incentives does not require any government action. It can be done by financial companies, tomorrow. Too bad they didn't do it yesterday.

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Cuts to State Parks in GA

Widespread Cuts to State Parks


As summer tourism gears up, expect higher fees and fewer services at Georgia's parks and historic sites. 12 percent of employees will lose their jobs, most of those left will be furloughed, five parks will limit access, and 12 historic sites will cut operational days. The state Department of Natural Resources is making the cuts to cope with a nearly 39 percent reduction in state appropriations and a 24 percent projected loss of revenue.

(Associated Press)

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Focus on your intended project...

 A tricky thing in philosophy is not to toss out some bone that is not really essential to the argument, that people will then pick up and worry, at the expense of the intended project.    --Anderson Brown

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Franch vs. American Market systems...

France's Oft-Derided Largess Insulates Many From Slump

For Beaufranqui and millions of other French people dependent on tax-financed largess, this country's cozy social protections, vast numbers of bureaucrats and unhesitating government intervention have proved to be a shelter from want in these hard economic times.

Denounced for decades as a millstone preventing growth and competitiveness, particularly by free-market advocates in the United States, the French government's dominant role in economic activity has suddenly found new favor at home and grudging respect abroad.

The crisis has landed hard in France, just as it has elsewhere. European Union specialists estimated last week that the number of unemployed is likely to rise to more than 3 million by next year as factories close. But the French economy is expected to shrink by just 3 percent, markedly less than in Britain or Italy, largely because of the country's traditionally high level of government spending, they added.

More significant in human terms, broad sectors of the population -- bureaucrats, retirees, teachers and the millions of others whose livelihood depends directly or indirectly on public outlays -- find themselves surrounded by a government cushion. The effects are easy to see: As the crisis grew and began to obsess French officialdom in Paris, for instance, Alpine ski resorts reported full bookings for the winter and spring seasons.

Unfortunately in this country we have a lot of talking heads on TV and Ivory Tower intellectuals perpetuating to people the myth that socialism is on its way.  As CATO points out, Socialism doesn't exist--"Socialism is dead even in Moscow and Beijing."  All industrialised nations use some form of the market economy.  They just make different political choices as to what they prioritize.

In France they prioritize the quality of life for its citizens.  In the United State's we've prioritized lower taxes on those who benefit the most from the Government.  These are political rather than economic decisions.  A lot of people I talk to on the ground here in Henry prefer the European model of capitalism and want a healthy debate on this question.  This is hard to do with so much propaganda flying around on Fox news et. al.

A lot of people say that Obama is doing something drastic and unheard of and they long for the past before he brought socialism to this country.  But they cite examples in their lives from the past--back when there were higher taxes, more protectionism, and more unions.  These contradict each other and show that the debate in this country is based around a poor understanding of the facts and history. 

Longing for the days of freewheeling entrepreneurship that never existed is not an argument that has validity.

The terms we must maneuver within are those of industrial capitalism.  We must accept the facts about what capitalism is and what it isn't.  Capitalism has and always will be intertwined in government intervention in the economy.  As Edmund Phelps recently noted in the Financial Times:

In countries operating a largely capitalist system, there does not appear to be a wide understanding among its actors and overseers of either its advantages or its hazards. Ignorance of what it can contribute has in the past led some countries to throw out the system or clip its wings. Ignor­ance of the hazards has made imprudence in markets and policy neglect all the more likely. Regaining a well-functioning capitalism will require re-education and deep reform.

Capitalism is not the “free market” or laisser faire – a system of zero government “plus the constable”. Capitalist systems function less well without state protection of investors, lenders and companies against monopoly, deception and fraud. These systems may lack the requisite political support and cause social stresses without subsidies to stimulate inclusion of the less advantaged in society’s formal business economy. Last, a huge social insurance system, with resulting high taxes, low take-home pay and low wealth, may not hurt capitalism.

In essence, capitalist systems are a mechanism by which economies may generate growth in knowledge – with much uncertainty in the process, owing to the incompleteness of knowledge. Growth in knowledge leads to income growth and job satisfaction; uncertainty makes the economy prone to sudden swings

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By Mark Thoma on Regulation

"Credit Crisis Cassandra"

I have argued that the attitudes toward regulation were the biggest problem in creating this crisis, and this article reinforces that view. The people in charge of the regulatory agencies were convinced that unregulated markets were self-correcting, and that regulation was not needed and would more likely do harm than good. As this shows, no amount of convincing from people who weren't as smart as the smartest guys in the room was going to change that. The question for me is whether those in charge now, Summers for example, have learned their lesson and the humility to be derived from it, or whether they will be defensive of their own role to the extent that it affects the type of regulation they can support. I'd very much like to believe they have learned their lesson, though humility seems to be lacking, but watching Summers and others argue that the private sector and the market is preferable to temporary government takeover of banks (i.e. his and the administration's opposition to temporary nationalization),  - the continued faith that the market always knows best - makes me wonder if they have.

One more note on Summers. I wasn't in favor of him when he was picked to be part of the administration because I thought he carried far too much political baggage. If he has value, it is not as a spokesperson for the administration. But again and again I heard that he was the only one smart enough to do this job. I don't believe that and never will, but if it's true, fine, put him in an office somewhere, let him be smart and helpful, but above all keep him out of the public eye. He does not help as a spokesman for the administration, he hurts the cause every time he opens his mouth. At first it seemed like he was going to be the key spokesperson on financial matters and as I said, I thought that was a mistake. But lately I haven't heard much from him, most of his work appears to be behind the scenes, and as far as I'm concerned, that's a very good development in terms of the public presentation of the administration's views

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Health Care border crossing...

Nearly 1 million Californians seek medical care in Mexico annually

Health services sought equally by Mexican, non-Mexican residents

Driven by rising health care costs at home, nearly 1 million Californians cross the border each year to seek medical care in Mexico, according a new paper by UCLA researchers and colleagues published today in the journal Medical Care.

An estimated 952,000 California adults sought medical, dental or prescription services in Mexico annually, and of these, 488,000 were Mexican immigrants, according to the research paper, "Heading South: Why Mexican Immigrants in California Seek Health Services in Mexico."

The paper is the first large-scale population-based research ever published on U.S. residents who travel to Mexico for health services. It is based on an analysis of 2001 data from the California Health Interview Survey (CHIS), the nation's largest state health survey.

"What the research shows is that many Californians, especially Mexican immigrants, go to Mexico for health services," said lead author Steven P. Wallace, associate director of the UCLA Center for Health Policy Research, which conducts CHIS. "We already know that immigrants use less health care overall than people born in the U.S. Heading south of the border further reduces the demand on U.S. facilities."

Cost and lack of insurance were primary reasons both Mexican and non-Mexican U.S. residents sought health services across the border.

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Clinton on his role in crisis

Bill Clinton: I Should Have Raised More Hell About Derivatives Being Unregulated

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Recent economic news...

Doug Henwood:

Mostly a mixed bag of economic news lately. 

First-time claims for unemployment insurance fell by 12,000 last week, but the count of those continuing to draw benefits, which comes with a week’s delay, rose by 75,000. This continues the pattern we’ve been seeing recently, which suggests that the pace of job loss continues to slow, but hiring has yet to pick up.

In other labor market news, it’s not often appreciated how the monthly job gain or loss figures are merely the rather placid-seeming surface of a very turbulent underlying reality. That is, the monthly gain or loss of a few hundred thousand si the product of millions of job gains and losses. The Bureau of Labor Statistics surveys this every quarter. Early in the week, we learned that in the third quarter, there were 6.8 million new jobs created and 7.7 million destroyed, for a loss of over 900,000. That net loss was the product of over 14 million gross gains an losses—a furious pace of turnover, though actually rather modest by historical standards.. Though there was little change from the previous quarter in the number of jobs destroyed, there was a 400,000 decrease in the number created. It’s reassuring that the rate of job loss didn’t accelerate, but the rate of hiring has to pick up if the job market is ever going to recover.

Leading indexes—indicators that have a pretty good record in calling turns in the economy three to six months out—continue to report some cheering news, though. The Economic Cycles Research Institute’s weekly index rose last week for the fifth consecutive week, and it’s now 3% higher than where it was six months ago. That may not sound like much, but we haven’t seen anything that good in almost three years. The less sensitive, though still highly respectable, monthly leading index from the Conference Board rose 1% from March to April, its best showing since the economy took a turn for the worse last fall. So, this gives us reason to hope that not only has the economic slide slowed down, but we might even start seeing some positive numbers in the fall. 

A money manager from BlackRock was quoted by Bloomberg—the financial wire service, not New York City’s mayor—the other day saying that “We need good numbers as opposed to less-bad numbers.” Exactly. We’ve been getting the less bad; let’s hope some better ones are on the way.

That aside, I’m sticking to my prediction that the job market will be the last to get the good news, should we start seeing some of that in a few months. My guess is that the unemployment rate will top out slightly north of 10%, and we’re going to lose something like another 2 million jobs. Then the job market will start turning around, though slowly. Perhaps very slowly.

Speaking of BlackRock, as I did just a moment ago, all the government’s efforts to rescue the financial system still have a bad odor about them. There’s the problem that I’ve pointed to many times that the government has hired advisors like BlackRock on how to handle toxic assets—at the same time that firms like BlackRock and their clients own very similar toxic assets. The polite way the New York Times, which I feel a little guilty about making fun of given its dwindling life expectancy, would describe this relationship as “raising questions.” It doesn’t really raise questions—it screams profound conflict of interest. But if there’s ever doubt about the class nature of the state, especially its executive branch, moments like these clarify things immensely. No, the relationship doesn’t raise questions. It answers them, if anyone’s asking.

But we’ve been there before. In the realm of new news, it’s looking like the FDIC is selling off banks to the usual gang of sharpies at fire sale prices. (And in what follows, I should say I’m drawing on a piece by Robert Cyran on the financial website One problem is that the FDIC is underfinanced and overworked. It’s being called on to fund high-profile bailouts of name-brand banks, as well as more routine rescues of institutions no one within a 50 mile radius of their headquarters is likely to have heard of. An example of the first was the January sale of IndyMac to a consortium of private equity, or PE, firms. And now it’s selling Florida’s BankUnited to a PE syndicate including such stars of the field as Wilbur Ross, Carlyle Group, Blackstone, and Centerbridge. 

(A quick parenthetical definition of private equity: PE funds are large pools of capital contributed by big institutions and rich individuals, devoted mainly to taking over companies, cutting costs, taking out as much cash as they can get away with, and ultimately selling the firms off to someone else, like another company or to public stock investors. They’re supposed to “unlock hidden value” or some such, but mostly they seem like asset strippers crossed with alchemists. The managers of PE firms make lots of money for themselves; it’s not clear how much they make for their outside investors.)

The terms of the BankUnited sale are very favorable to the PE firms. They’ll get almost $13 billion in troubled assets for just $900 million. And the FDIC will assume almost $5 billion in the bank’s losses. Most of the bank’s assets are in wretched subprime loans in South Florida, some of the most toxic assets of all. Still, it looks like the PE guys are buying the assets for less than 30 cents on the dollar, with not all that much downside risk. Yes, the FDIC is very short of funds. But, really, this is not the way to turn the page on the Second Gilded Age. It’s to write a new chapter—in a different style from what went before, but with the narrative still distinctly recognizable.

And there’s more. A Bloomberg analysis—again, the news service, not the billionaire mayor—shows that the banks that are looking to buy their way out of the Troubled Assets Relief Program, so they can get out from those onerous pay restrictions and all that public scrutiny, may do so at very favorable prices, if the first such transaction is any kind of model. When the government provided the TARP funds, it did so by buying warrants on the banks. (Warrants are rights to buy stock at some time in the future. If the stock’s price rose, the gov could have made some money as the value of the warrants rose in tandem. But warrants grant no voting rights, which is what the gov wanted. Fear of nationalization, you know.) To get out of the TARP, it has to buy back that stock, with the approval of the Treasury. Old National Bancorp, an Indiana institution, gave the Treasury $1.2 million to buy back its stock. Private analyses suggest that the price should have been five times higher, based on standard, first-year MBA financial formulas. If that sort of pricing prevails for other banks interested in freeing themselves of The Man, the gov will be shortchanged by about $10 billion, according to Bloomberg. That would give the banks about 80% of the profits the Treasury could have claimed, should this kind of pricing be a model. There’s no reason for this at all except kindness to the banks. None.

Raises questions, eh?

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Wednesday, May 27, 2009

Competition is competition is competition...

The Health Care debate is a very useful example of how conservatives claim to love markets but when it comes down to it truly don't.  Actually from their Ivory Towers they don't like governments and long for the days before the industrial revolution--which is fine, and some of their points to this effect are valid as academic questions,logically consistent, as they opine romantically about some far off utopia. 
But theory and the real world are two different things.  And when it comes down to it abstract reasoning doesn't matter.  What matters are the struggles, challenges, strengths, and humanity of everyday people living their lives.  One of my coworkers always says to me... "I load trucks, no book or idea is going to get that truck loaded and those packages to folks who paid me to get them there safely and quickly.  And no idea is going to feed my kid or pay for me to go to the doctor.  But if it helps improve the quality of my life then its okay in my book"
And he's right.
UPS could sit around and complain if Fed Ex had some way of providing cheaper services that more people want--making Fed Ex a more competitive firm than UPS.  Or UPS can compete in the market finding ways to cut costs, provide better more efficient service, and win customers through a job well done. 
When it comes to health care the private sector is terrified of actually having to face competition.  Because of this fear of not being able to provide services that people will want to buy they have turned to lots of straw man arguments and clever chess moves to try and protect them from the marketplace. 
We have two choices we can protect excessive profits from inefficient bureaucracies that have created the health care crisis and are doing a terrible job of it compare to the rest of the world... or we can prioritize our long term fiscal health, and the quality of life of our citizens before we start to worry about jet-set CEO's.
I side with hard working citizens who deserve a choice.  I don't think protecting private companies from some good old fashion competition is bad, scary, or the end of the world.  Actually for many it will be the thing that keeps them in this world.  If my best friend had the medication she needed for her untreated psychiatric disorder she'd be alive.  She was brilliant so she'd be doing something that would have been of great use to our society and our economic productivity.
If the public Medicare-like option is as terrible as ideologues, ivory tower types, and private industry says it is then people won't choose to turn towards to public plan.  N one is going to make people use the public option.  The point is to provide it as one more choice for people to look at, to see if its services, prices, and options fit their needs.  No one is arguing to get rid of private insurance--we're arguing that market competition works.  It doesn't matter why the government can do it better and cheaper... and for some it won't be better as they are happy with their private plan... what matters is that competition creates incentives for private companies to lower costs, become more competative, more effiecient, and provide better services.
Take two examples...
Look at the medicare advantage program...  where private insurance companies whom we allow to provide medicare services spend more than traditional fee-for-services.  The private sector likes to claim they do it better, but its just not so.
Look at the prescription drug benefit plan that Bush push through--where the government isn't allow to use its purchasing power to lower costs.  Meaning we have to spend more tax payer dollars so that private drug manufactures get more profits flowing to them.  Imagine a law that made it illegal for walmart to use its purchasing power because it was unfair to Target?  Thats the argument being made by folks who claim to love markets--but  happen to forget their "principles" when private profits are at stake...


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Remember its the health care crisis that is the long term drag on the budget...

  via Mankiw

I've posted many items on this in the past...

From economist Mark Thoma

From economist Robert Reich

Also see Obama is not the problem... underfunded government and a heath care crisis are...

Depite valient ideological efforts by ivory tower types who put political philosophy before facts on the ground... gravity is stilll 9.8 m/s ^2 and health care reform is the only solution for long term fiscal problems--that and not passing more tax cuts we are matching with spending cuts...

We need to allow citizens to chose a public option.  Those of us who believe in market competition need to be working inform the public on why purchasing power and the freedom for individuals to chose a plan that works for them and their families needs is vital to reforming health care.

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Mankiw on Obama Cap and Trade...

Then and Now

From a Obama-Biden campaign position paper:
Barack Obama and Joe Biden’s cap-and-trade system will require all pollution credits to be auctioned. A 100 percent auction ensures that all large corporate polluters pay for every ton of emissions they release, rather than giving these emission rights away for free to coal and oil companies.
From today's newspaper:
Under the House bill, only 15% of the emission permits will be auctioned initially. The rest of the permits will be given away -- 2% to oil refiners, 5% to free-standing "merchant" coal plants, 9% to regulated natural-gas distributors, and so on.
So, Mr President, the bill now being considered in Congress is in direct contradiction to your campaign pledge. Will you now please stand up for principle and issue a veto threat?

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Government R&D in computer technology still paying off years later...

BlackBerry developer to add 200 jobs in Alpharetta

The company that developed the BlackBerry is planning to expand its Atlanta operation, a move that could bring 200 jobs to Alpharetta, according to the Atlanta Business Chronicle.

Research in Motion has apparently identified a 40-acre site near North Point Mall. Plans include high-tech jobs that will earn annual salaries of around $70,000, according to the Chronicle’s report. The Chronicle did not name its source.

RIM, based in Waterloo, Canada, has offices in North America, Europe and Asia, according to the company’s Web site.

The company did not reply to a request for information.

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One of the many reasons i'm a lucky man...

My wife is a very special person for putting up with a husband that comes home at 10:30pm.  And then has to listen to 8 different wake up alarm clocks (a cellphone in the other room is helpful...) for him to get up at 2am.
I'm a very lucky man... thats all i'm saying.

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Every one of us is like a man who sees things in a dream and thinks that he knows them perfectly and then wakes up to find that he knows nothing.   --Plato, Statesman

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Westmoreland votes against the FAA reauthorization...

FAA Reauthorization Act?  Really?

The FAA Reauthorization Act - Vote Passed (277-136, 20 Not Voting)

This bill authorizes $70 billion in Federal Aviation Administration funding through September 2012.

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Tuesday, May 26, 2009

The Liberal Media Conspiracy...

Gonna Pick A Fight

Usually when I pick a fight with libertarians, it centers on a single bone of contention - they are willing to tear the country apart over the merest slight against economic freedom, but get all squishy on issues of civil liberty.

But there's another topic where they at times stray past my patience - when they co-opt the elephant's stalking horse of the media is the root of all evil.

As long as you repeat the words of others, it doesn't matter how often you insist you are having a different conversation..

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Don't believe everything you read in the Newspaper...

Its an obvious truism but I just wanted to point out an example.
I'm still quoted in the Henry Daily Herald as saying that Henry County ranked 37th in the world for health care!
On a national level, Nichols said, problem areas needing to be addressed are health-care costs and the need for health-care reform. The national health-care issue is reflected at the local level, he said. "Here in Henry County, we rank 37th in the world when it comes to quality of health care," he said. "If we don't get control of health-care costs, we won't get control of the budget deficit."

I didn't start the statement with "here in henry"  I said "we" because she had moved us on to national politics.  I said we rank 37th in the world, which impact folks on the ground here in Henry.  I contacted them on Friday morning when I got home from work.  I got a call back late in the afternoon. 
It was an honest mistake, I know newspapers are already stretched thin as it is.  And I feel kind of bad for pointing it out, but i'm a blogger!  Its what i've been doing for a long time.  Actually its kind of funny when you read it because its really an incoherent statement.  What does it mean?  I dunno...
I'm going to write a letter to the editor to clarify my point.  But hopefully they'll correct the online version soon.
Anyways don't believe everything you read in the paper...
Here is the World Health Organization's study that I mentioned, The world health report 2000 - Health systems: improving performance

We were 37th for overall performance, in between Slovenia and Costa Rica.

For more on Health Care you can go to CBPP: Insuring All Americans: Critical to an Efficient, High Quality Health Care System

James A. Nichols IV
cell: (770) 312-6736

"Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan 'Press On' has solved and always will solve the problems of the human race."     ---Calvin Coolidge (1872 - 1933)

"I have come to the conclusion that politics are too serious a matter to be left to the politicians."    Charles De Gaulle (1890 - 1970)

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For the trucks they won't load themselves...

Headed to work...

I didn't get to this:

or this:

To start your day:

Adapt yourself to the things among which your lot has been cast and love sincerely the fellow creatures with whom destiny has ordained that you shall live.
Marcus Aurelius

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Letter to the Editor

I sent this to the AJC this morning... 

In the 5/24 article "Taxes fund $25M", Rep. John Lunsford says, “The only person who doesn’t have a damn lobbyist is the taxpayer.” This is a stunning example of the kind of Republican thinking that has created dysfunction under the Gold Dome.  The very job of a Representative is to advocate and "lobby" for their constituents.  We need to clean house and elect Representatives who don't require a lobbyist to tell them how to do their job.
Jim Nichols
Candidate, State House District 109
Stockbridge, GA

In response to this gem of an article... Taxes fund $25M in lobbyists salaries which by the by didn't quote a Democrat.

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Baker schools Ben Stein

Can You Find Twelve Errors in Ben Stein's Column?

People who get upset over the appearance of Ben Stein's columns in the Sunday NYT simply fail to understand their purpose. They are not to be treated as serious analysis of the economy or economic issues.

Rather, Stein's columns are meant to be treated like a puzzle. Readers are supposed to find all the various inaccurate statements and outright errors that appear in each column. They are like the game where two pictures are juxtaposed and the reader is supposed to find the twelve subtle differences between the pictures.

Let's see how many of the errors we can find in today's piece, which is supposedly reflecting backward from 2089 on the collapse of the U.S. economy:

1) The piece begins by asserting that the United States was "starting from an extremely strong economic and fiscal position in the year 2000."

Actually, those of us who can remember back to 2000 will recall that the economy was driven by a $10 trillion stock bubble that began to burst in March of 2000. The loss of this bubble wealth sent consumption downward. It also pushed down investment, which at least in the tech sector was directly financed by the crazy stock valuations of this era.

Furthermore, the country had a badly over-valued dollar which was leading to a large and growing trade deficit. Every year the deficit was reaching new records as a share of GDP.

So the assertion that the country was starting from a strong economic position is completely untrue.

2) Stein asserts that there was a: "public shaming of the leaders of the banking sector in front of Congressional committees — a sort of Great Cultural Revolution in America." In fact, most of the bankers responsible for promoting the housing bubble continue to be incredibly wealthy. While many no doubt found their appearances before Congress to be unpleasant (perhaps a bit like a TV reality show), they undoubtedly view it as a very small price to pay in order to keep their tens and hundreds of millions of wealth.

Furthermore, since Congress went ahead and gave the banks hundreds of billions of taxpayer dollars before and after these appearances, they were extremely well-paid for their troubles. The victims of the Cultural Revolution in China would have been delighted to be given a similar option. In fact, they probably would have preferred this option even if they did not have to fear persecution in the Cultural Revolution.

3) Stein asserts that: "there was a spectacular constriction of credit, despite the flooding of the economy with dollars." Actually people are borrowing plenty of money to refinance their mortgages. There has been a plunge in demand for new loans, but that is what happens in a recession.

The constriction of credit has been on the demand side. Households that have lost more than $6 trillion housing wealth are less able to borrow since they have no equity. Also, businesses that have seen their markets collapse due to the falloff in consumption are less anxious to borrow to expand.

4) Stein asserts that the constriction of lending might be due to fear of further public shaming by bank executives. There is no evidence anywhere that any bank is not making loans because the CEOs are worried that they will subsequently be shamed by Congress.

5) Stein asserts that banks' reluctance to make loans because of a fear of public shaming will lead to a long recession. In fact, the major cause of recession is the loss of the bubble wealth that had fueled the consumption boom of the last decade.

6) Stein asserts that: "the confidence that American lenders had in the rule of law, probably one of the main pillars of the economy, was demolished by government actions that invalidated some lenders’ long-held legal rights in favor of ad hoc attempts to please various political constituencies."

This presumably refers to the auto industry bailouts in which speculators complained because the government did not give them as much money as they wanted. In fact, there is no issue of the rule of law here. The government decided to put money into G.M. and Chrysler in order to benefit the workers and the region. It has no obligation to also give additional money to bondholders.There is no reason to believe that the bondholders would have received more money on their bonds if the government had not intervened.

Those who care about the rule of law would not be upset by the government's actions in this case. Of course those who like to see money redistributed upward to wealthy speculators would be upset.

7 and 8) Stein claims that: "confidence was further eroded as the government embarked upon unprecedented “stimulus” moves costing trillions of dollars in the aggregate."

This one contains two errors. The size of the stimulus package was approximately $700 billion, once we remove the one-year fix to the Alternative Minimum Tax which is put in place every year. $700 billion is not "trillions."

The second error is the claim that confidence was eroded by the stimulus. Is there any business that canceled plans for new investment or adding workers because the government is repairing roads and helping state and local governments meet their budget shortfalls? That seems pretty unlikely.

9 and 10) Stein asserts that: "it is not clear upon what evidence the stimulus packages were based, because no one had ever been able to prove that taking money from taxpayers, and having the government spend it instead, would meaningfully enlarge the scale of economic activity."

Of course the theory of the stimulus is very clear to those who got through a first year intro econ class. The economy needs demand in a downturn. This can come from any source, but since consumers are unlikely to spend following the loss of trillions of dollars of stock and housing wealth and firms are unlikely to invest when demand is weak, the government is the only sector that can pick up the slack. This is a very clear theory that dates from Keynes.

Second, the government is not "taking money from taxpayers." The stimulus cuts taxes, it does not increase them. That is why it is leading to a larger deficit.

11) Stein asserts that: "the flood of liquidity into the economy had translated into unnerving inflation as sellers constantly anticipated higher prices, while labor demand remained soft as buyers resisted buying, especially durable goods."

Businesses don't raise prices when they see unchanged costs and weak demand. In econ 101 students are taught about supply and demand. If the basics of supply and demand are unchanged in a weak economy, any business that raises its prices because it thinks the Fed has printed too much money will soon find itself out of business. Stein can do stock pickers a great public service if he will identify any such business in future columns.

12) Stein asserts that: "environmental and other regulation made it impossible for executives to compete with the industry of countries that ignored such issues as the environment."

In fact, European countries already have stricter regulations in almost every area than any that are being considered by the Obama administration and the EU enjoys a trade surplus, so they obviously have no problems competing.

13) (Stein's bonus mistake, he only promised 12.) Stein concludes: "Foreign holders sold as quickly as they could. The dollar collapsed, and the yuan replaced it as a global reserve currency. The resulting hyperinflation in the United States and the accompanying collapse of the republic are by now known to every schoolchild..."

Actually, if China and other foreign countries stopped buying dollars their export market in the United States would collapse. Similarly, as the dollar fell, U.S. goods would suddenly become hyper-competitive in world markets, leading to a huge surge in exports. So, rather than leading to a collapse of the U.S. economy, a plunge in the dollar would lead to an explosion of manufacturing in the United States and would likely be the basis for a new era of prosperity.


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If ever there was something Unamerican

Georgia lawmaker wants to end 'birthright citizenship'
U.S. Rep. Nathan Deal, a Republican candidate for governor of Georgia, has proposed changing the long-standing federal policy that automatically grants citizenship to any baby born on U.S. soil, a move opposed by immigrant rights advocates.

Don't mess with my baby sisters citzenship status.  Actually, you know what, go ahead.  It'll help Democrats in the polls with independents.  Its just not a good idea to mess with my baby sister or you might end up with me registering voters in your district.  Thats all i'm saying... 

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Jim can't spell surprised...

Its 3am folks... you have to work with me on this...

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I can't really say i'm suprised....

Liberty University bans campus Democratic club

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High quality assests anyone? anywhere? sigh...

Fix global imbalances to avert future crises

Future history books, depending on where they are written, will take one of two approaches to assigning blame for the world’s current financial and economic crisis.

One approach will blame lax regulation, accommodating monetary policy, and inadequate savings in the US. The other, already being pushed by former and current US officials like Alan Greenspan and Ben Bernanke, will blame the immense pool of liquidity generated by high-savings countries in East Asia and the Middle East. All that liquidity, they will argue, had to go somewhere. Its logical destination was the country with the deepest financial markets, the US, where it raised asset prices to unsustainable heights.


Note the one thing on which members of both camps agree: the global savings imbalance – low savings in the US and high savings in China and other emerging markets – played a key role in the crisis by allowing Americans to live beyond their means. It encouraged financiers desperate to earn a return on abundant funds to put them to more speculative use. If there is a consensus on one issue, it is the impossibility of understanding the bubble and the crash without considering the role of global imbalances.


Preventing future crises similar to this one therefore requires resolving the problem of global imbalances. Here, the early signs are reassuring. American households are saving again. The US trade deficit has declined from $60bn a month to just $26bn, according to the most recent data. As a matter of simple arithmetic, we know that the rest of the world is running correspondingly smaller surpluses.

But once American households rebuild their retirement accounts, they may return to their profligate ways. Indeed, the Obama administration and the Federal Reserve are doing all they can to pump up US spending. The only reason the US trade deficit is falling is that the country remains in a severe recession, causing US imports and exports to collapse in parallel.


With recovery, both may recover to previous levels, and the 6%-of-GDP US external deficit will be back. In fact, there has been no change in relative prices or depreciation of the US dollar of a magnitude that would augur a permanent shift in trade and spending patterns.


Whether there is a permanent reduction in global imbalances will depend mainly on decisions taken outside the US, specifically in countries like China. One’s forecast of those decisions hinges, in turn, on why these other countries came to run such large surpluses in the first place.


One view is that their surpluses were a corollary of the policies favouring export-led growth that worked so well for so long. China’s leaders are understandably reluctant to abandon a tried-and-true model. They can’t restructure their economy instantaneously. They can’t move workers from painting children’s toys in Guangdong to building schools in western China overnight. They need time to build a social safety net capable of encouraging Chinese households to reduce their precautionary saving. If this view is correct, we can expect to see global imbalances re-emerge once the recession is over and to unwind only slowly thereafter.


The other view is that China contributed to global imbalances not through its merchandise exports, but through its capital exports. What China lacked was not demand for consumption goods, but a supply of high-quality financial assets. It found these in the US, mainly in the form  of Treasury and other government-backed securities, in turn pushing other investors into more speculative investments.

Recent events have not enhanced the stature of the US as a supplier of high-quality assets. And China, for its part, will continue to develop its financial markets and its capacity to generate high-quality financial assets internally. But doing so will take time. Meanwhile, the US still has the most liquid financial markets in the world. This interpretation again implies the re-emergence of global imbalances once the recession ends, and their very gradual unwinding thereafter.


One development that could change this forecast is if China comes to view investing in US financial assets as a money-losing proposition. US budget deficits as far as the eye can see might excite fear of losses on US Treasury bonds. A de facto policy of inflating away the debt might stoke such fears further. At that point, China would pull the plug, the dollar would crash, and the Fed would be forced to raise interest rates, plunging the US back into recession.


There are two hopes for avoiding this disastrous outcome. One is relying on Chinese goodwill to stabilise the US and world economies. The other is for the Obama administration and the Fed to provide details about how they will eliminate the budget deficit and avoid inflation once the recession ends. The second option is clearly preferable. After all, it is always better to control one’s own fate.

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