The US will soon be the number one energy producer, but is it worth it?

http://online.wsj.com/news/articles/SB10001424052702303492504579111360245276476

This is mostly driven by fracking and the growing global demand for energy keeping fracking economical. I am not insinuating causation here, but it's probably not coincidence that the top energy producing nations are all corrupt, repressive, wealth imbalanced, polluted, and economically dysfunctional outside of the energy sector. Therefore, I am not sure we should want the US to go down the same path. The notable exceptions are Canada and Norway, but they benefit from strong public institutions and more balanced economies. In our post-Citizens United, underfunded-EPA, too-big-to-fail corporate reality, I just hope we don't resemble Nigeria or Russia too much. 

We've already discussed all the potential reasons that fracking is an environmental risk, but what about the economic upside? Some in the industry would claim that the fracking boom vaulted the US out of recession. It's undeniable that more jobs, corporate profits, and taxes were generated, but enough to have a material overall GDP impact? Business Insider and W Post are not sure (see below). The boom has triggered the market price of gas and electricity to go down a lot, but energy is a small fraction of modern industrial costs (compared to labor and raw materials), so it's not like the lower prices led to much higher profits or cheaper products for consumers. Also, the oil & gas industry is fairly automated with low labor participation relative to capital investment. So there weren't that many new jobs created, and even in drill-baby-drill Texas, only 6.5% of jobs are in energy (and 1% nationally). So even if the industry doubles in size (and you believe the API's claim that for every 1 new petro-job created, 2.7 other indirect jobs are too), it's not enough to make up for the 7M-plus jobs lost during the Great R. But what about GDP growth? Well, oil & gas is only 2.5% of our economy (it's a commodity after all), and of the 7.6% GDP growth the US experienced since 2009, only 0.6% can be attributed to the "energy boom" according to Capital Economics. 

Therefore, is all the environmental risk worth these meager benefits? As we've discussed before, just because it is economically justified at present to do something doesn't mean it's the best available course of action long-term. And in many cases, once we commit down a path, we can't undo it later. We can always drill in the future after more testing is done and if national needs dictate. But if we drill now (chasing short-term bucks and jobs, however small), we can never revert to "the way it used to be" if we discover that we made a mistake. 

http://www.businessinsider.com/the-shale-boom-economy-is-overrated-2013-5?op=1

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/23/the-oil-and-gas-boom-has-had-a-surprisingly-small-impact-on-the-u-s-economy/

How technology is affecting the American Dream

We talked about most of this already but it's a good take on the issue: http://techcrunch.com/2013/06/01/after-your-job-is-gone/

Also another take on the elites vs. rest idea (even Jay-Z, Obama, and Oprah are not spared!) - the author Packer was on Real Time tonight: http://www.nytimes.com/2013/05/29/books/the-unwinding-by-george-packer.html?pagewanted=all

An aside: L is right that Maher is an idiot and a psycho when it comes to security issues and Islam-bashing. He rightly trashes the 2nd Amend. yet proudly owns guns because "the other crazies are armed". He claims to be a true Libertarian, but supports all sorts of liberty-reducing actions that ostensibly prevent terrorism. It's funny... self-respect and humility often make us better people. But self-preservation and self-love make us pricks. No one wants or needs to die, but the world doesn't need us either.

I guess America's Great Society of the '60s and '90s socialism in Europe were the exception and not the rule. As the author said, most of the modern world resembles the pre-French Revolution "nobles and serfs" model. But it's sad because our generation in the US was brought up to believe that the Great Society was our birthright and if anything, we would make it even better in our lifetimes. Of course things weren't all rosy in the past (bigotry, ignorance, Cold War, etc.), but it's amazing that America of that time period had low unemployment, low wealth inequality, ample gov't services, and low deficits.

Now the opposite is true, though our employment situation is much better than Europe's... and their society may be unraveling faster than ours.

http://www.economist.com/news/leaders/21578386-euro-zone-desperately-need-boost-no-news-bad-news-sleepwalkers

But that is a little deceiving, because while US unemployment is down to like 7.5% now (much higher for young people though), the quality and security of most American jobs are not great, the social safety net is about depleted, and many are not counted as unemployed because they have taken the disability route instead (as we've discussed), or have just become the "permanent, uncounted, unhirables".

The change coincides with the rise of Si Valley, hyper-finance, and globalization. We can't be sure what caused what, but similar things happened during the Guilded Age, fueled by the tech bubble of the time - railroad, electricity, telco, etc. that Wall St. ate up. I guess disruptive tech always creates new winners and losers, but usually doesn't rewrite the labor map. Our new tech industry seems more extreme: highly paid jobs with specialized skills that are not accessible to the mainstream, emphasis on quick ROI rather than long term sustainable growth, and "virtual" products that create a ton of wealth for some but not many new jobs (or in fact replace old jobs). That could be called "progress", but the effects appear to be socially unjust too.

 Also here is a great interview on the issue with Moyers and Richard Wolff:

http://billmoyers.com/segment/richard-wolff-on-fighting-for-economic-justice-and-fair-wages/

European austerity has been an utter failure

http://www.npr.org/2013/05/31/187459762/e-u-eases-some-austerity-measures

NPR interviewed an economist from the AEI, and even he couldn't deny that European austerity hurt growth and what they needed instead was Keynesian stimulus.

This is no big news to those who have been following this issue, but it's good to see almost universal agreement that austerity was the main driver of Europe's double-dip and likely deeper current recession. Only head-in-the-sand EU officials are saying that austerity was necessary to "stabilize the financial markets" and give investors confidence to buy PIIGS bonds. But that is insincere, as it was likely the ECB's concurrent quantitative easing measures and "whatever it takes" declaration (after years of indecision and deliberation) that calmed the markets.

What is more tragic is a "lost generation" of productive young people in Europe who can't get work. They are talented and motivated, but austerity and other factors are literally ruining their futures. Honestly I am amazed we haven't seen a flood of European refugees (I guess it shows how much they love their homelands and families, and maybe how unwelcoming foreign immigration policies are). Some have taken menial jobs in Germany or other places within the EU with lower unemployment. But their extended exposure to these economic woes will likely have major health, psychological, and familial consequences. All because some old, rich fuckos in Berlin and Brussels hate debt and inflation. Well no one likes those things, but they are lesser evils than a lost generation.

I really hope that the EU example deters US conservatives from pushing hard for austerity here. But those folks don't exactly have great working relationships with data and reality, so we can't be sure. If they want austerity so bad, start with the defense industry and tax Wall Street more.

David Stockman on the debt, Fed, etc.

http://www.kqed.org/a/forum/R201304111000

http://www.huffingtonpost.com/2013/04/07/paul-krugman-david-stockman_n_3033003.html

I don't know much about Stockman's history, but he was Regan's budget director so that is a hit to credibility. And then when he had a "falling out" with Ronnie over tax cuts and spending, he went to Wall Street (whom he blames a lot for the Great Recession in his recent book). So that is strike two. But he did become disenchanted with Wall Street, then sobered up, and is trying to be Paul Revere about our political and economic woes.

We have heard most of his arguments before, but he approaches it as a conservative who is trying to save "real" capitalism from the forces of corruption.

Some points that I found especially interesting:

-Neither Obama or the GOP dare to challenge the military industrial complex, even with all the discussion about debt worries. Maybe the sequester was the best thing for us on the military end (but not on the public services and investments side). So many Americans are now dependent and suckling on the teat of defense (quite a mental image!), defense is "too big to fail" and they claim that any cuts will cause us to slide back into recession. And many politicians are OK with that because their re-elections hinge on defense jobs and contracts in their states. And we get basically zero ROI on most defense spending - they are just cash outlays that go poof. I guess the same can be said about food stamps, but that program is a grain of sand compared to defense. I am all for spending on infrastructure and *smart* research that will actually give us positive ROI.

-The Fed's monetary policies from Greenspan to today have been disastrous. The super-low interest rates did not ease borrowing or promote growth, but only allowed Wall Street to lever up and make more profits during bubble cycles. And for the retirees and others who "did it right" and saved responsibly all their lives - their fixed income reserves are producing nearly zero returns to live off of now.

-Stockman thinks that the Social Security Trust Fund is raided and just a confetti IOU. I have heard various assessments, so I am not sure what to believe - Is Social Security OK? One thing is clear - wealthy retirees should not be getting SS benefits, even if they paid a lot into the system for decades. It makes no sense to burden younger, productive, debt-laden working people with large payroll taxes to subsidize older, richer, secure folks who don't need more security. But you have the AARP out there, so that's that.


Clearly our financial and monetary woes are not a Democrat or Republican problem. They are an American problem (to borrow an Obam-ism). Both parties are now in love with irrational tax cuts and loopholes as the best way to bribe voters (especially rich voters). Both parties think that we need to spend as much on defense as the Pentagon asks for (like asking your kid the open ended question "What do you want for Xmas?" and being surprised when they say "Unicorn!!"), even though our military is built to fight threats that do no exist. Also, a moral hazard associated with a bloated military is the fact that we may feel more inclined to use it because we paid for it. If we had a scaled-down military on par with Scandinavia and such, then it would have been obvious that we couldn't occupy Afghanistan or Iraq. In that case, we would have devised more feasible, economical solutions to fight terrorism. And probably they would have been just as effective if not more so.

--------

I think Stockman is basically wrong. If you're concerned about the long-term health of the nation, what you need to be worried about is getting us out of this recession and repairing the damage done. There was a recent paper looking at the job health of the long-term unemployed, and the basic answer is that being out of work for 6+ months doesn't just mean you lose that time. It impacts you essentially for the rest of your career. There's an understandable stigma about hiring people who've been out of work for long periods, which makes it harder to get back into the workforce, when you come back it's at a lower role, etc. This is a big deal for recent college grads as well: young people who graduated in the last 3-5 years have been screwed, big-time, by our economy, and may never get back on track. This idea that reducing the deficit is "for the benefit of young people" is shenanigans.

On Social Security …

Legally, the Social Security Trust Fund is a separate organization from the federal government. It has its own dedicated revenue (payroll tax) and expenses. For a long time it ran a surplus, bringing in more revenue than it paid out. It invested that surplus prudently, in the world's safest and most liquid asset class: US Treasury Bonds. Anyone who calls a US Treasury Bond an IOU, like we're talking about a 10-year old's lemonade stand borrowing money for sugar, is deeply misinformed or trying to scam you. These are the highest-quality assets in the world.

Now, it's possible that the US government could choose to default on those bonds, causing Social Security to lose its trust fund. But a default on US Treasuries would be catastrophic. The debt ceiling threat was over a short-term, technical default, with every understanding that the debt would eventually be paid, and even that roiled financial markets. A decision to default on the US debt would, with very little hyperbole, end the world financial system. Every bank, hedge fund, money market fund, etc, would be insolvent.

Moreover, the folks who talk about Treasuries as IOUs describe this as being specific to Social Security, so now you're talking about a selective default on just the debt held by the Social Security Trust Fund. That is, the government (I think it's under Sec-Treasury, so executive branch) would have to decide to default only on debt to US seniors, while continuing to pay the Treasuries owned by China, by investment banks, etc. Can you imagine the political fallout, from deciding to stiff just seniors? That President's political party would likely become a swear word (if seniors swore).

Social Security has money to pay all projected benefits through 2037, at which point the oldest of the boomers would be 92. Beyond that, it's projected to be able to pay 80% of projected benefits through the end of the CBO's 75 year scoring window (nevermind that a 75 year economic projection is usually shenanigans - imagine someone in 1938 projecting US revenue in 2013). By law it cannot impact the US debt when it runs out of money. Now, Congress could decide to make up the shortfall out of general spending, but that's a choice they'd have to make (and political coalition they'd have to build).

Social Security is fine. If you want to talk about long-term US government debt problems, it's basically a story of rising healthcare costs.

--------

Yeah I find that narrative more believable and realistic than what the typical conservatives are claiming. As you said, there is no political or legal way that the US gov't could default just on Treasuries held by SS and keep its commitments to the other holders. That is good to know that SS is independent of the debt.

But I think Stockman's other point was regarding working people and the payroll tax that funds SS. It is the largest single tax item the typical young-to-mid career American has to pay, and does reduce purchasing power and ability to save/invest. Personally, I don't think that anyone with a household net worth of like >$500K (excluding primary residence and trusts) at age 65 should get any SS benefits unless they encounter severe financial distress later. They paid into the system, but now others need it more and they will probably be fine. Call it patriotic sacrifice. That way the "truly poor" seniors can get increased benefits (SS has fallen behind on COLA adjustments, and most seniors can't live "securely" on $1,100/month minus garnishing for Medicare premiums). The wealthy seniors will be OK, the poorer seniors will be more secure (lowering the burden of care on their progeny too), and the working people will have lower payroll taxes - which should stimulate growth. 

Also agreed that pretty much the entire conservative agenda isn't designed to help future generations and often screws them, so I doubt their debt ideas are so forward thinking. 

--------

The problem with means testing is that it doesn't really save much money, unless you set the threshold very low. SS benefits cap out pretty quick, so cutting off benefits for the top 1% only saves you 1-1.5% of the benefits.

The "is it Boomers" question is actually pretty interesting. It's always fun asking people why we're just talking about SS running out of money now, when the Baby Boom would have been obvious to anyone in a maternity ward starting about 1946 (the standard answer is "government can't get anything done"). But actually back in the 80s we solved the SS-demographic problem. Reagan convened a blue-ribbon council with a big complicated name, which most people knew as the Greenspan Commission after its head (before his Fed days). They were supposed to figure out how to make SS handle the baby boom demographic shift, they recommended a payroll tax increase, their recommendations were accepted, and the problem was solved. Say what you will about Greenspan, but the dude can do math.

So why do we have this problem? The liberal answer is that it has to do with income inequality. Through the 1970s, GDP growth was broadly shared; post-80s most of the growth happened at the top of the income spectrum. This impacts SS because it means that in Greenspan's projections, GDP growth would occur for people below the SS payroll tax cap, and get taxed. In fact, the additional income happened above the cap, so it didn't get taxed. I don't know what the conservative explanation is.

-------

Pardon my means testing ignorance. LOL the conservative explanation is "blame the liberals and takers". In a sense they are right, but they have the wrong takers. 

“When [Social Security] was developed, 50 percent of seniors lived in poverty. Today, poverty among seniors is too high, but that number is ten percent. Social Security has done exactly what it was designed to do!” - Bernie Sanders

If it's the case that only 10% of seniors are poor these days, then means testing should save a lot more, right?

http://thinkprogress.org/economy/2011/08/25/304387/bernie-sanders-introduces-bill-to-lift-the-payroll-tax-cap-ensuring-full-social-security-funding-for-nearly-75-years/?mobile=nc

As you said, raise or do away with the cap to get the system more in line with Greenspan's projections. In 2012, 4.2% of a worker's first $110K of wages went to FICA taxes. Let's say the avg. salary of the top 5% of workers is $250K (that may not be very accurate, but the 95th percentile of wages was $100K in 2006) and the US labor force is 150M. At a 4.2% payroll tax rate and a $110K cap, we are missing out on $44.1B per year. Total SS+Medicare revenue to the gov't was $800B in 2011. Subtracting Medicare and employer contributions, the employee portion of SS revenue is about $268B (SS is about 2/3 of the $800B, and employer-employee split is about 50/50). So lifting the wage cap would make SS employee revenue increase 16%.

The tax is very unprogressive. I would rather have employers and employees contribute only 1 or 2% of their first $40K of wages towards SS, and then the % grows above that like income taxes. 4% for $40-100K, 10% from $100-200K, 20% above that. Not that harsh IMO, but of course it is not going to happen. A worker pays AT MOST $7K to SS in a year. That is ludicrous for people making $200K+. The wage cap has gone up about 3-5% yearly (it was static during the recession), yet income for the top 1% have growth a lot more than 3-5% per annum. It doesn't make sense to economically burden the most productive members of society to subsidize the elderly who often have higher net worth. If you let the younger generations prosper, they won't need to depend on SS as much in the future. But as J said, the much bigger problem is Medicare. I also would advocate a progressive Medicare tax and much reduced benefits for seniors in higher wealth brackets (Obama is proposing this I think, but I'm sure it's meager).

http://en.wikipedia.org/wiki/Social_Security_Wage_Base
http://www.financialsense.com/contributors/michael-shedlock/top-one-percent-received-income-gains-during-recovery
http://www.heritage.org/federalbudget/federal-revenue-sources (never thought I'd reference these guys!)
http://www.ehow.com/how_4736068_calculate-payroll-taxes.html

Disability coverage masks US labor force problems

http://apps.npr.org/unfit-for-work/

Starting with the Bush I recession in 1990, the numbers of Americans on disability rolls has surged. The Great Recession has further accelerated the trend. Now disability spending > (food stamps + welfare combined), with 14M Americans participating (9% of the labor force).

Of course some people are truly disabled and need public assistance to survive, but many others suffer from the same "ailments" that working people have. I am not saying that these people are lazy "takers", and in fact there is a higher prevalence in southern Red states (and of course is correlated with education levels and local economic conditions). And that is kind of the point - due to structural changes in the US economy and labor force, tens of millions of Americans are now effectively unhirable in the 21st Century. Often they come from blue-collar non-desk jobs that are more physical, so it is likely that they have various pains and elements. So it is easy for a physician to approve many of them for disability. But the problem is that once they are approved and on the rolls, there is next to zero incentive for them to find a job and go through the effort of retraining. It's not like welfare and unemployment with a finite time span of benefits. And speaking of welfare - that is a driver too. "Reforms" under Clinton and Newt effectively shifted people on welfare to other programs such as disability, so it didn't really save the country much money or motivate the labor force. Probably America would get more bang for its buck if it invested in worker transition and retraining programs rather than just hide/relegate these people to the disability space (the US spends about $260B/year on the 2 major disability programs). I am not advocating kicking legitimate people off these programs, but I think it behooves us to at least perform a cost and impact analysis, and propose improvements/alternatives. Disability is just a band-aid to mask our larger labor and health care problems.

There is even a cottage industry now ("disability industrial complex") to advise and help people to get approved for disability - similar to the folks who help kids get into college or help immigrants get their green cards (one firm took in $70M in fees in 2012 alone). And some families may now see their kids as "cash cows" too, by enrolling them and collecting additional benefits. The number of kids on disability has grown 4X since 1990. Clearly medicine has improved since then, and doctors are better able to diagnose disabilities, but it is pretty much impossible to attribute that huge rise to actual increases in disability diagnoses and incidence.

Generational warfare during the recession

http://www.thedailybeast.com/newsweek/2012/06/24/david-frum-on-how-we-need-to-learn-to-say-no-to-the-elderly.html

The long slump has revealed the preferences of the aging polities of the Western world. [Economics blogger Steve Randy Waldman:] “Their overwhelming priority is to protect the purchasing power of incumbent creditors. That’s it. That’s everything. All other considerations are secondary”—-including economic recovery.

We could jump-start the economy with a massive jolt of monetary and fiscal stimulus, but such a policy would risk inflation and pose a threat to retirement savings. So we don’t do it. We could borrow money to finance infrastructure programs that would set people to work now and enrich society over the long haul—but that borrowing would have to be serviced by taxes to which older Americans fiercely object. So we don’t do that either. - D Frum

Modern politics are so insane that now I'm quoting David Frum! Well, at least guys like Frum, Brooks, and other sane conservatives from the "Buckley school" (http://www.kqed.org/a/forum/R201206131000) are trying to pull the GOP back from the brink. In this article, Frum describes how the 1-vs-99 percent conflict is also a generational conflict, since older folks tend to have more assets per capita, and tend to vote more often than the young.

It's humorous that some deficit hawk conservative politicians claim that we need to balance the budget now so we don't saddle future generations with terrible debt. Well if they cared so much about the kids, then why are they cutting gov. spending that would directly benefit kids now and in the future (infrastructure, education, etc.). And in the meantime, they're cutting taxes to the rich (who are mostly old people + the nerds in Si Valley) and expanding or maintaining unsustainable Medicare spending (the Bush Era Rx drug expansion, with its lack of price bargaining, has cost America more than all the wars on terror combined). Old fogies are now more libertarian-leaning and opposed to an activist gov. compared to when they were younger hippies. Well that's understandable - they made their dough and now they want to be left alone to enjoy it, unless the activist policies benefit them of course.

The Fed was created to have a dual mandate: keep inflation AND unemployment at reasonably low levels. Now it's just concerned with inflation and protecting the value of capital (and who controls the capital?). Most non-ideologues with half a brain realize that we can't "cut our way to prosperity". Even with major budgetary restructuring, spending cuts during a recession will hurt a lot more now vs. what they may help in the future. You have to spend, and gradually throttle back and pay it down when you're enjoying more robust growth. So for the conservatives to focus on debt without addressing lack of growth is like the doctor working on your acne but ignoring your tumor. When their "cut the debt AND give rich tax breaks" argument fails, then the GOP turn to the "roll back job-killing regulations" line. There is some truth that inconsistent and irrationally complex US regs can be a business hurdle, but I think smarter regs are the answer vs. no regs. Plenty of thinking conservatives support that view.

But going back to the generational war and inflation... one side-effect of Keynsian spending is that inflation will rise. It's an economic maxim. That means that savings and other assets will lose a little value. And rich old savers don't like that (aww, their $100M net worth is now worth $99M, shucks). They'd rather force the young to suffer in order to protect their coin. And it's not like we're talking about pre-Nazi Germany or Zimbabwe here. Inflation in the US is at historic lows and very stable vs. most of the world. Everyone is flocking to buy dollars and US Treasuries. A few points rise won't kill us in order to stimulate growth, and in fact may have a few side benefits: makes our debts cheaper to pay off and our exports more attractive, for example. Like most of economics, a rise in a certain metric always has both pros and cons.

The Millennials could be the first US generation with a bleaker future (on average) than their predecessors, with the "American Dream" out of reach to more of them. Their parents and grandparents (Boomers and Gen X) should be ashamed of themselves for putting their progeny in such a situation. I've already posted about the pains that unemployment causes on a recent graduate's psyche and lifetime earning potential (http://www.blogger.com/blogger.g?blogID=795070259362236467#editor/target=post;postID=5441080136358967453), and with rising student debt (this is a great interview that I'll discuss soon: http://www.npr.org/2012/06/26/155766786/whats-driving-college-costs-higher) and leaner workforces, it's even worse now. Of course the fogies would say that it's their own damn fault (lazy, spoiled punks!). Well as J previous wrote, if it's even true, who raised them to act like that? I tend to dislike kids for other reasons, but some stats suggest that Millennials are more eco-conscious, law-abiding, and volunteer more often than any other generation. So they're not just a bunch of pot-heads waiting for their inheritance (well, maybe some are). They want to work and contribute, but the fogies are making that really hard, and all the while expecting the young to support them (despite having less wealth).

As political scientists Theda Skocpol and Vanessa Williamson found in their study The Tea Party and the Remaking of Republican Conservatism, the general anti-government attitude of today’s retirees is heavily seasoned with mistrust and dislike of today’s youth. “[Y]oung people feature prominently in stories Tea Partiers tell about undeserving freeloaders.” They don’t exempt their own children—in fact, it is often their own children and grandchildren toward whom they direct their angriest scorn. As one elderly activist quoted by Skocpol and Williamson puts his generational irritation: “My grandson, he’s fourteen, and he asked me: ‘Why should I work, why can’t I just get free money?’” (A comedian’s riposte: “The Tea Party is God’s judgment on us for teaching our parents how to use the Internet.”) - D Frum

Important tenets of conservatism is self-responsibility and earning what you get. I guess that's why many of them are so against welfare and other "handouts". They see success in a context vacuum; everyone can be a self-made man, and if you fall short it's your own fault so don't cry for help. Well if that's true, then why are the most successful Westerners today more often the children of powerful, educated, and rich people? Why do guys like Donald Trump get to keep failing and get more chances (and handouts)? I can spare you the rhetoric, you know it's not an even playing field out there. It's like the Yankees mocking the A's for not winning enough. But I can see where some of them are coming from. The fogies worked their asses off and now want to enjoy their retirements, as their predecessors and their values said they deserved to. But at what cost? It's not the 1950's anymore. Will they protect their twilight years at the expense of millions of future Americans - not just the Millennials but many generations after them? Because I assure you that our mistakes from this botched recovery will burden America for at least the next half-century. And it's not like every fogie is rich. My wife and I often comment about the haggard elderly people in SF rummaging through trash cans to find recyclables. Those folks deserve a social safety net, but why should George Bush Sr. get gov. benefits? Even if he is an ex-president, that doesn't mean he deserves to be a burden on the nation when he's already self-sufficient.

In nature, organisms exist purely to produce the next generation, and protect them until they are strong enough to flourish on their own. In fact, after some species procreate, they die. They have fulfilled their biological purpose, and return their matter to the earth for others to use. Of course I am not advocating elderly euthanasia here, but there is some logic into the old helping the young. Because ultimately there is more to gain from that. Think of Shell Silverstein's famous "The Giving Tree". That story still makes me cry. What if the tree complained all day and nagged the boy/man to keep giving it better fertilizer? It's not right. Maybe in our modern economy it's a bit different, with old people running gov. and industry. So their brains are still needed for society. But the innovation and energy are coming from the young, and I don't think old people are the only ones qualified to lead. So kids should be given the majority of resources, because the future of our civilization depends on their success. And they will do the same for their kids when they age. There should be no higher duty and privilege for a parent to sacrifice for his or her young (within reason of course, and I don't mean buying them a Mustang for their 16th birthday). But unfortunately, our culture places a higher premium on personal legacy, hedonism, and the good-and-bad tradition of filial piety in some cultures. So the old would rather have the young serve them, maximize their imprint on the world, and enjoy life rather than sacrificing for the progeny, which should be hard-wired in our DNA.

Look at Fukushima (http://www.bbc.co.uk/news/world-asia-pacific-13598607). Some old people volunteered to face the radiation to help fix the reactor leak. They didn't force young people to do it, which is the exact opposite of what Americans would do (the old rich assholes send the young to die in their pointless wars), but then again Japan is a lot more of a communal culture. In Japan there are problems with elderly neglect and uprising too, but that is a different matter (http://www.blogger.com/blogger.g?blogID=795070259362236467#editor/target=post;postID=2222532001653943345).

------

A couple minor quibbles:

 - The top 1% isn't old people and Silicon Valley.  It's predominantly corporate executives and non-executive finance workers, plus a smattering of lawyers, doctors etc.  Silicon Valley engineers are well-paid, but it's 100-200k, not the 400k+ it takes to make the top 1%.  Moreover, they're not socially connected to the corporate and financial elite that we're generally talking about when we discuss "the 1%."

 - It's not an economic maxim that a side effect of government spending is that inflation will rise.  That's true outside of a liquidity trap, because the additional g't spending will compete for resources that are in use, driving up the price.  But in a liquidity trap (where the real interest rate at which the market clears would require a nominal interest rate below 0%), many of those resources are idle.  Government spending that uses those otherwise-idle resources doesn't necessarily create inflation.  This is a deeply non-intuitive but important result.  It's also the reason that the tripling of the monetary base over the last few years has occurred without creating inflation (to the deep surprise and disappointment of the commentators on the right who've been predicting hyperinflation for the last couple years).

More broadly, I don't think old-vs-young is the right division along which to analyze America's current set of problems.  There is a fault line there, where there are differing interests and opinions, but it's not the main one anymore than the everybody-vs-public-sector-unions division, or even the left-vs-right division.  The right division is insider-vs-outsider - roughly approximated by the 99-vs-1-percent division, though obviously there are folks in the 1% by income who are not what we'd consider policy-influencing elites contributing to our current situation (LeBron James makes a ton of money, and is responsible for a lot of shit, but he's not responsible for our economic policy).  It's that elite, insular group of policy-makers, lobbyists, financial and corporate executives, the high social circles in DC and NYC, the incumbents, vs the rest of us.

These other divisions are certainly real.  And they're made worse by our economic situation.  Human psychology is such that losses count for more than equally-sized gains, so people are much less acrimonious when dividing up the new parts of an increasing pie than they are in apportioning losses from a shrinking pie.  The result is that when we have economic pain to apportion, those divisions of old-vs-young and left-vs-right and so on become a lot more acrimonious.

But they're not the cause of our current problems.  The cause is best understood along that insider-vs-outsider division.

 

------

Well what I meant about the 1% is that those financial execs and other professionals tend to be over 50. I don't have data on it, but I would guess that their voting behavior is closer to that of the non-poor elderly than that of the young. For the Si Valley comment, it was mostly a joke aimed at the founding execs like Brin and Zuck (and the VC, PE moguls of the Valley). Connections to big finance are not really necessary - their net worth puts them at the 1% (maybe not their base salary but their total net worth) because big finance wanted a piece of their businesses. Come on, I wouldn't hate on the noble, lowly, public-good-serving engineer with his stock options and Porsche. :)

Good point about inflation; sorry I didn't expand on that point that there needs to be crowding out and scarcity for prices to rise from G spending. As you said, when resources are idle (as they are during the recession), it's almost a no-brainer to spend to utilize those resources (and laborers), even if there isn't market demand for their output. At least they won't be languishing in the unemployment line depressed and frustrated.

I agree about the insiders vs. outsiders distinction as the most critical one. I just thought Frum's piece was interesting, and describes an angle of the situation that we don't often discuss (especially coming from the right). The old-vs.-young thing may not directly apply to policy and power, but more like social-cultural roles and priorities. 

------

Ah, ok.  I've long considered the old-vs-young issue to be a fairly standard trope of the right - my mother's pretty far right, and I've been hearing about it from her for most of two decades.

My suggestion on reframing it as insiders-vs-outsiders is to suggest that as the richest country humanity has ever known, we have the ability to support both old and young.  What we don't have the ability to do, apparently, is to support both old and young while also supporting fraud, looting and widespread criminality among the elite.  "Old-vs-young fighting over a shrinking pie" is only a reasonable way to look at it if you ignore the big chunk of pie the elite has stuffed under their shirt and is pretending doesn't exist.

-------

It seems to me that alot of these divisions (young v. old, black v. white, left v. right, labor v. business) are creations to keep us divided mentally  to keep us from thinking past the current paradigm.

I like your insiders v. outsider comparison.  That's the closest I've seen.  Unfortunately, so many outsiders think they'er insiders and therefore will demonize or denigrate the outisiders as 'others'.

the young v. old prevents alot of people from seeing that the 'young ones' in the streets are there fighting for them, too.  they're not fighting against them, but the framework established keeps those older, disgruntled ones from joining ranks (like they are in greece). 

I think the issue is that many of us out here don't understand the issues.  These divisions are tools used to prevent the general population from understanding those issues. They are angry, sick of being ripped off and tired from overwork, just as the ones who've taken to the streets.  But, they're told over and over again that the ones on the street are whiners and complainers, young lazy blah de blahs... 'not you's'.  Therefore they become the target of your disdain and not the ones who are working you to death, robbing you blind, etc. etc.

Until the 99 in this country sees that we are truly 99 to 1, the 1 will continue to utilize the media techno fog machine to keep us blaming each other while they pick our pockets clean.

-------

Thanks for the comments you two. I agree - why do the old see the young as a threat? The old made the young, and the young are Americans, so it's not like we are foreign invaders. Unless there is some weird psych-stuff going on regarding self-resentment and whatnot (Frum's comment that the old hate their own grandkids even more than stranger kids), I don't get it. Those without large savings literally depend on the young for survival. They don't have to be all humble and grateful, but at least don't talk so much shit. We're not going to send them to the death panels, and it's the Tea Party that wants to cut or privatize the Social Security "Ponzi scheme". I guess it's part of that conservative suburban paranoia, "bowling alone" syndrome? Especially in America, inter-generational communities are not as common (though they are getting more so due to the recession). The young keep to themselves unless they need grandma to babysit, and the old keep to themselves at FL and Palm Springs golf communities. I guess it's like the GOP and Dems in DC not socializing after work anymore, and now cooperating less on the job.

As L said, we don't make the effort to get to know the other side, we don't empathize, and it's easy to just feel hostility for the unknown, even if they share our last name. Humans are susceptible to groupthink and mob mentality, but don't draw the lines as young-vs-old, black-vs-white cliches, but instead fair, sharing people vs. greedy assholes, or sensible open-minded folks vs. ignorant, intolerant zealots? At least then it's not on demographic lines (too tribal and crude), but on behavioral and personal choice lines. In the sensible group, you will get young, old, rich, poor, black, and white together. They will interact, exchange ideas, and get stronger. Maybe then the old will see that the young have a lot in common and are fighting for them too, as L said. And the real enemy are those who have everything, want more, and pit the rest of us against each other to fight for the scraps.

J: curious to hear what some of your mom's thoughts are about the generational divide. I figure I could guess some of them. Don't worry, believe it or not I was partially raised by a grumpy Tea Party old white lady (whom I love very much - the only ultra-rightie I will ever love haha), so I've heard it all. Maybe the old also blame the young (and the illegals, and the Muslims, and the liberals, etc...) for what they feel is the decline of America and its values? I guess there was always some of that with the Swing Kids, hippies, and punks of the past, but now it seems like nastier scapegoating. Before they just hated our music, now they hate everything about us. They blame the young (even though we have no power or money) because it's easier than looking in the mirror. But do the old really think that their demographic is best suited to right the ship now, in 2012?  To me, it's just depressing that the old prefer to idolize and trust a Romney or Palin rather than try to empathize and help our a poor single mother trying to raise her kids and get an education, who never did anyone any harm.

Also, isn't insider vs. outsider a fairly traditional paradigm as well? Monarchies, Catholic Church, Guilded Age, etc. were all manifestations of basically the same struggle. I guess modern plutocratic America is the first time in a democracy where insider power is so concentrated and has so thoroughly bought the political process without using force. America's income inequality metrics are bad and about the same as China's, yet our political and economic systems are vastly different. 

Whom to blame for the Greek crisis: lazy Greeks or greedy Goldman?

http://www.gregpalast.com/lazy-ouzo-swilling-olive-pit-spitting-greeksor-how-goldman-sacked-greece/

It is very ignorant and bigoted for people to knee-jerk blame the Greek crisis on the Greek people. If Greeks were somehow predisposed to be lazy, foolish, and profligate, then this crisis would have happened much earlier, and more often, to them. I don't know Greek economic history, but I doubt that is the case (and probably the boom-bust cycle has been worse on the average American since 1900). On the other hand, Argentina had a recent debt crisis, and now they are prospering (amazingly, mostly due to soybean exports to China). Industrial titans like Japan and Korea did too (and Japan still hasn't come out of its funk) - do we think of them as lazy? Despite our assumptions, even the US has defaulted in the past. Check out the below list of sovereign defaults over history - in fact the Greeks are far from being the worst culprits. It's ironic that France-Germany (who now tsk-tsk Greece as they hold the EU purse-strings) have had more defaults than Greece, probably due to their higher propensities to wage war.

http://en.wikipedia.org/wiki/Sovereign_default

The common denominators in recent sovereign debt crises were deregulation (as a part of overall lax gov't oversight and risky growth) plus greedy-as-hell foreign investment banks. The average honest people had nothing to do with it, just like the US subprime crisis. Sure they were complicit in it and didn't have the foresight to stop it, but neither did most PhD economists, gov't ministers, and big-time investors, until it was too late. Blaming the common people is a shameful cop-out, like blaming the victims of Katrina. The ordinary Greeks will suffer unfairly and terribly from the proposed austerity measures, paying for the sins of their leaders and offering their pound of flesh to satisfy the foreign banks' bottom lines. And as we well know by now, austerity is just about the worst thing you can impose on a fragile, recessionary economy - unless you just want to restructure (read: blow up the system) and start anew with a leaner model.

Markets are getting saturated, and it's harder for these big banks to exploit inefficiencies and reap easy profits from "traditional investing", since it's become more transparent, computerized, and global. So they had to "innovate" and get into new markets like pay-day loans, student, and sovereign debt. Now aggregate student debt in the US is even larger than credit card debt! Sharks like Goldman don't ignore such untapped opportunities. For sovereign debt, the Greek crisis is only news because the risk got spread to so many key players (via CDS's) that it is threatening the EU and global economy. But "vulture funds" (and even USAID) have been raping the Third World for years, and some still are with impunity. It's really sick, and the short-sellers are making it even harder to rescue distressed nations.

http://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man
http://en.wikipedia.org/wiki/Vulture_funds

Also, here is an interview of Michael Lewis' new book about the Greek crisis and the "new Third World" emerging:

http://www.npr.org/2011/10/04/140948138/how-the-financial-crisis-created-a-new-third-world

---------

Definitely not to defend Goldman Sachs in this case (they are pretty much guilty as charged), but Greece has spent about 50% of the time since 1800 in a state of default (i.e. not repaying its debts in full). That number puts it about in banana republic territory: http://blogs.reuters.com/the-deep-end/2011/05/12/why-a-greek-default-wouldnt-be-news/

I think what this global crisis has taught us is that financial "innovation" and deregulation has allowed previously self-contained types of problems (locally overvalued housing markets, sovereign defaults of small states) to spread like wildfire as banks that would have previously had no exposure to these events are now hopelessly intertwined (and are often the same as!) with over-leveraged players making all-in bets on the outcomes of these seemingly minor economic events.

---------

 To add to that the link that shows the US and many other western nations defaulting was based from a paper on domestic debt.  The unique thing here is the interconnectedness of Greece's, and really, the worlds debt.  No first world nation has defaulted on its debt since about WW1 and they reduced their domestic debt.

additionally...

http://en.wikipedia.org/wiki/Economy_of_Greece#Eurozone_entry
http://en.wikipedia.org/wiki/Economy_of_Greece#Taxation_and_tax_evasion

from the tax evasion link...in 2005 it was estimated that evasion was at 49%.  2012 tax revenue is expected to be 52.7 billion.  Their predicted debt in 2012 will be ~ 350 billion.  So...if there evasion is in the range of 40-50% we are talking about their annually losing the ability to pay off 10% or more of their TOTAL debt.  This is based ONLY on tax evasion.  They are certainly not lazy but they are apparently unwilling to personally pay for the government benefits they are rioting in the streets to keep. 

---------

 More from here: http://www.theatlantic.com/international/archive/2011/11/the-only-leader-who-understood-greeces-real-problem-is-resigning/248018/

I think M (and the article above) are basically right, that there is a broken social compact between the people and the state. I think the reasons are more complex than the article states - Greece has been beset by a long history of conflict between the extreme left and the extreme right (and foreign intervention on top of it), so there is probably less unity-we are all in this together and more of we don't trust the government/other side than in most other European countries.

However, Greece and other countries have been down this road before (see T's account of the history of sovereign defaults) - getting Greece back to sustainable debt levels requires writing off about the same amount of debt the US had to write off for the S&L scandal 20 years ago (some $100 billion dollars) - not chump change in the slightest but it should be digestible to the world financial system.

 The problem is that this time, the banks that hold the debt are so undercapitalized that writing off the debt might mean that they fail, and if BNP Paribas or some other major Euro bank were to fail, that might be the start of Lehman: Euro Edition. It's a typical story in this financial crises - banks getting bigger that their failure would be a systemic risk, yet at the same time they got bigger, they grew more heavily leveraged and *less* capitalized.

So now the question is who pays. Greece, as amply noted, can't pay it's current debt load even if it implemented the Euro Central Bank's dream austerity package. The Euro banks that hold most of the Greek notes can't afford to pay by writing off the debts. The French and German taxpayers, probably the only ones that can really afford to put up the money to cover Greek debt, definitely don't want to pay. No one can force any of the other parties to actually pay, so you have this continual kicking of the can down the road as each party slowly accepts bits of responsibility for taking the hit.

The blame here, as with the case of most of the financial crisis, is largely diffuse. Of course the Greeks shouldn't have been so profligate in their spending, but who's the bigger sucker - the irresponsible spender or the fool that lent him the money? The banks shoulder a lot of the blame, as they should be secure enough to suffer the (relatively) modest kind of hit that this default brings on. On the other hand, it's tough for a bank to be capitalized enough to survive a major world financial crisis and then a major developed European economy lying for years about its credit worthiness (i.e. Greece was lying about its debt levels for years).

Mostly, though, I think this is an indictment of the political failings of the EU as an institution. The S&L crisis forced the US taxpayer to intervene and eat a lot of bad debts, but the US did it and the financial system survived. The buck has to stop somewhere and now that the disaster has occurred you need resolute leadership that can save the system first and sort out who to prosecute/blame later. The EU lacks this, and hence why you have a major run on the other PIIGS, as investors are getting nervous that if the EU can't deal with the relatively small case of Greece, if Italy or Spain were to get in trouble you really would get a major financial meltdown in Europe.

---------

Thanks, Gents. I agree that Greece isn't a model of fiscal responsibility, but the mistake was the EC's lack of due diligence before granting them EU membership. The guy who bets on the Clippers to win the championship doesn't get to blame the Clippers when they predictably fall short. Not that I'm accusing you of this, but blanket blame of "the Greek people" is ridiculous (and much more negative media coverage of Greek rioters vs. their stupid creditors is a form of implicit blame I think). Sure the Greeks don't have the reputation of being efficiency freaks like the Germans or workaholics like Americans/Koreans, but they are not a bunch of freeloaders on welfare either. And even if they were, that shouldn't be enough to compromise the entire EU and send global markets reeling at the mention of a referendum vote. 

http://finance.yahoo.com/blogs/daily-ticker/tax-cheats-cost-uncle-sam-3-trillion-cost-173224779.html

Yes, tax evasion is a problem - and it is a problem in many stronger economies besides Greece. Tax evasion in the US (mostly by businesses and the rich of course) costs us about $3T/year. And that is on top of the very generous and misplaced tax deductions and other perks that are 100% legal. US federal tax revenue in recent history is about 20% GDP, so if US GDP was $14.7T in 2010, that means we collected about $2.94T in taxes. So America's evasion % is similar to that of Greece! Bottom line, people will pay less if they can get away with it. Poorly structured tax laws and incentive programs have led to the behavior we're witnessing, either in the US or Greece. And like here, the majority of the Greek evasions is from the upper class parking their earnings in Swiss banks and whatnot. The people rioting in the streets are not the big culprits. So for sure, Greece is getting assaulted from outside creditors now, but their own elites have been screwing them for decades, with their dysfunctional gov't complicit most of the time. But no one held a gun to Soc Gen's head to make them loan Greece money (just like Countrywide approving a $400K mortgage to a part-time janitor). They should have known better, but the incentives and controls were all out of whack.

"[Greeks] are apparently unwilling to personally pay for the government benefits they are rioting in the streets to keep." Maybe true, but they are definitely not the only ones. Again, if the rich paid "their fair share", a lot of these problems wouldn't be as severe. But the elites and big financial institutions pushed gov't around and ultimately got their way at the expense of "the 99%". Like the Colonial Era, I find it so maddening that the big powers (used to be empires, now are financial institutions) are engaged in this global rivalry, where they don't care how many nations and peoples they destroy just to win the game. An honest Greek won't be able to retire in security, or a disabled American won't be able to get a caretaker, just because some asshole banker met his insane quarterly returns target and expects his big bonus.

Here's a Stanford study ranking nations for sov. fiscal responsibility:

http://www.scribd.com/doc/52927424/Sovereign-Fiscal-Responsibility-Index-2011

Greece is #34 of the 34 OECD+BRIC nations analyzed, while the US is #28 (if we fully implement the Fiscal Commission's debt reduction plans, we'll jump to #8 according to them). The best nations are AUS, NZ, EST, SWE, CHINA, and LUX. But those nations are not like fundamentally more budget-savvy or anything. Some of it was lucky timing. AUS, NZ, and EST all had fiscal issues a decade or two ago during a worldwide growth economy, so they restructured during generally fat years (when we didn't have a shortage of credit, capitalized banks, and economic confidence) and are now better positioned to weather the current storm. CHINA is a singular case protected by surplus from their exports. LUX is just a small, rich country filled with rich people, so they don't need much gov't spending. SWE has very high tax rates and is one of the most high-functioning societies in history. Turn back the clock and give Greece some of these favorable conditions, and maybe we'd have a much different result. And in a couple decades, this list is probably going to look very different.

But like A said, if tiny Greece is causing this much disruption to the EU, I wonder how they will handle the rest of PIIGS and their almost certain default issues in the near future. Or maybe if we're glass-half-full types, the lessons the EU learned from the Greece crisis (assuming a positive outcome) will allow them to better handle the future ones? But I worry that after the US S&L crisis, the financial players and their gov't minions took notice, and then set about to do everything they could to avoid a repeat. Their behavior only grew riskier, but now they have structurally insulated themselves from punishment (either legal or financial), in general.

Battle of the billionaires

http://news.yahoo.com/warren-buffett-defends-proposal-tax-super-rich-191916203.html

It's cool when the rich go to war against each other, though of course I'm rooting for the smart one who doesn't hack cell phones of victims' families. The Economist agreed with Buffett that the US tax code needs to be fundamentally reformed by ending most deductions (that mostly benefit the rich) and taxing cap. gains heavier than wages. That way real labor and productivity won't be penalized, but speculation and excessive trading will (that benefits few and may put the entire economy at risk). Can anyone give me a cogent argument why hedge fund managers' compensation (not their own investments, but pay from their firm) deserves to be considered cap. gains? Bush-enomics. It's probably true that taxing the rich won't help our deficit situation much, but it signals a strong message to the market so the dysfunctional incentives structure still widespread in Wall St. and upper America may change.

It's interesting how quickly the rich mobilize their media and political minions the minute anyone of import barely raises the issue of tax hikes. That reveals their defensiveness/awareness of the preferential treatment they're getting, and how they know it's a scam that can't last, no matter how gullible they think we are.

http://www.economist.com/blogs/freeexchange/2011/09/budget-politics

Solyndra bankruptcy

http://www.forbes.com/sites/toddwoody/2011/08/31/what-solyndras-bankruptcy-means-for-silicon-valley-solar-startups/


http://www.kqed.org/a/forum/R201109020900



This is a terrible sign for US cleantech and manufacturing just as US jobs reports are quite bleak. Solyndra was the poster-child of green start-ups. They got over $1B in private VC funding, $535M of guaranteed loans from the DOE as part of the Stimulus Plan (the first private firm to get a DOE loan), and even a visit from President Obama as part of his campaign to push for a cleantech-fueled economic recovery. Obviously the GOP are jumping all over this, citing this example as proof that Obama is clueless about economics and jobs: http://www.sfgate.com/cgi-bin/blogs/nov05election/detail?entry_id=96638.



Solyndra was so confident about its business prospects that it rapidly grew to 1,100 workers and set up a huge $700M plant in Fremont (yes, expensive-as-hell Fremont) to manufacture thin-film cylindrical PV panels. The writing was on the wall, but it was still a big shock that the firm declared Ch. 11 recently and laid off its entire workforce. So why did it happen? Is solar just a flop? Well, Solyndra's competitive advantage was using cheaper but less efficient thin-film technology at a time when silicon PV panels (the industry standard) were fairly expensive and China's solar sector was tiny and unproven. But since the 2008 downturn, China launched huge in capital investment projects, including building up a solar manufacturing industry from stractch that quickly became the largest in the world. The global price of silicon plummetted (demand declined due to the recession and supply increased due to development in China), wiping out Solyndra's advantage. The 70% price drop is great for global clean energy, but not for US manufacturers.



http://www.greentechmedia.com/articles/read/contract-silicon-prices-fall-50-close-to-spot-price/



So China was already subsidizing its solar manufacturing sector (basically free land, credit, and labor) to undercut the market, and now it's priciest input just got cheaper. So Solyndra was pretty much screwed, even if it had the best technology (2 other Bay Area solar firms also recently folded). But maybe we should learn from this example that cleantech firms shouldn't try to win through cost leadership. China will own us there every time. Our businesses have to utilize sophisticated technologies, innovative product development, and strategies so that China can't easily copy and undercut us (think Apple). Sure let's outsource the cheap, easy stuff like manufacturing and logistics, but we can't beat China on their terms - especially when their gov't isn't paralyzed with debt and partisanship, and they are 100% behind rapid high-tech and economic growth.



So what do we do now? The libertarians say this validates their views that gov't shouldn't be in the VC business. Maybe Obama's people were so awestruck by "the green panacea," that they didn't perform due diligence on Solyndra's prospects in a recession and vs. Chinese competition. But plenty of savvy private sector investors (such as Richard Branson and the Waltons) also threw money at Solyndra and got hosed (and that was during a time when VC money was pretty tight, before the exuberance over Facebook and such). Some big-gov't folks would say to not change course because Washington funded the interstate highway program, Internet, and GPS, and all those radically changed history and exponentially increased economic growth. True, but how about all the projects Uncle Sam funded that were utter failures, that we don't know about? Like usual, I guess the prudent course is some sort of middle ground. Gov't involvement but vetted as well as possible to avoid pork and boondoggles. The problem is, China is bankrolling ventures big time, and they can afford to have a 5% success rate and still gain market share on us. We can't afford to be wrong as much, especially with so much political resistance to cleantech and gov't spending now.



Another challenge is the industry itself. Highways and the early Internet are fairly straightforward concepts to develop, just plan and do it. But no one knows which horse to pick in cleantech. I suppose it would be wisest to diversify and place many small bets, but then no single industry will get to economies of scale quickly. Imagine if the gov't had to pick a search engine to back in the dot-com days. So now we have geothermal, wind, solar, biofuels, and fuel cells, with several variants of each. The gov't doesn't have the expertise and resources to properly evaluate all these options. The private sector doesn't have all the answers either. For example, one of the big Mojave Desert solar farms just decided to retool its entire setup from mirrors (focusing solar energy to heat water and spin a turbine) to conventional Si PV panels, since the global price dropped. Conditions are changing so fast that firms need the flexibility and investor patience to be able to adapt, if possible. But with Washington dithering and private credit still tight, we are only falling further and further behind. Good times.

More on taxes and unemployment

Well, the WSJ is totally correct that extending unemployment will keep official unemployment higher than cutting it, but for a far more cynical reason.  We use U3 unemployment as the measure of official unemployment, and to qualify as unemployed under U3 a person has to be actively searching for a job.  There are plenty of folks who are only nominally looking for jobs: doing it because it's a requirement to collect the unemployment benefits.  If you cut the unemployment benefits, they'll no longer have a reason to search for a job, and they'll stop.  As soon as they cease looking for employment they cease to be counted in U3 unemployment.  Voila, lower official unemployment!

The fact that we use U3 unemployment as the measure of official unemployment fairly dramatically understates the actual labor slack in the economy.  Looking at a measure like U6 (which is U3 unemployment plus people who've stopped seeking work for economic reasons, people who would like a job but haven't looked recently, and people who are working part-time for economic reasons but want to work full-time), that measure of unemployment is up around 17%.  And the spread has increased.  3 years ago U3 was 4.7% and U6 was 8.5%.  Today it's 9.8% and 17.0%.  It's a lot easier to tell people they should care about austerity and so forth when you can claim unemployment is 9.8% than if you have to acknowledge it's at 17%.

Also, a pretty good graph of the effect of different kinds of economic stimulus, from Moody's a couple years ago when they were looking at this stuff the first time around: http://motherjones.com/files/legacy/news/feature/2009/01/bang-for-the-buck.jpg

--------

Very true, thanks J. Yeah U3 is a pretty limited metric and doesn't capture real labor market conditions. I don't know why more economists and politicians don't cite the U6 data - that should shock anyone that almost 1 out of 5 able-bodied people can't find work or can't find enough work. That's about 25.5M people, and many more if you include dependents. That is a critical mass for voting leverage. Well, the unemployment rate among white collar workers is quite a bit lower, and if they and the retired are doing most of the voting, well then we know what kind of economic policies we'll get.

"Managers and college grads still are more likely to be working than Americans overall. The unadjusted unemployment rate hit 8.5% in January, compared with 4.1% for management and professional workers and 3.8% for college graduates." (I'm assuming these %s are based on U3 from 2009).

http://www.jsonline.com/business/39650377.html

Haha, so all the tax cuts that the GOP loves (dividends/cap gains, Bush cuts, corporate cuts) deliver the least bang for buck, while all the spending they want to cut (food stamps, unemployment) are the best. When will America wake up to this? Good job to the GOP governors who refused stimulus money for infrastructure projects and such (and often those red states are the ones with the weakest economies and most crumbling infrastructure, like Gov. Jindal's Louisiana). Yeah it's totally ridiculous that companies get to report accelerated depreciation to the IRS but use more conservative depreciation measures for SEC filings. So they pay less tax and appear more profitable to shareholders?

http://www.npr.org/2010/12/09/131940665/Sen-Alexander-Tax-Deal-Will-Create-Jobs

NPR was interviewing #3 GOP Senator Alexander yesterday (who sits on the Appropriations, Budget, Health/Labor Cmtes. so he should understand this stuff) about the tax cut deal, and the host kept prodding him to explain why it's justified that high earners get a tax cut, and in fact a disproportionately expensive cut vs. lower earners (1/4 of the amount goes to the richest 1% of Americans). Instead of an intelligent response, he parroted the cliche "We are trying to create jobs and you don't raise taxes on anyone during a recession." Then why did they oppose Obama's stimuli, which included tax breaks for businesses that hire new workers? Isn't that better than giving every rich person money even if they don't preserve/create a single job?

He also stressed that this was not a tax cut, since the taxes are currently low but are scheduled to increase. So letting the cuts expire would actually be a tax hike (I guess if the Dems let the cuts expire, the GOP plans to blast them for "raising taxes"). But that is ridiculous logic. It was a temporary tax holiday all along (since Bush and the GOP in 2000 didn't have the votes to make it permanent); the regular tax rate is the higher one. That's like me taking a vacation from work, and when I return, I complain to my boss that he's increasing my hours! I guess Alexander realized that he couldn't give a good answer to the question, so might as well kill the conversation with some misdirection. He is a lawyer after all.

It's just sad to see Obama and Summers defending this tax cut BS so fervently, and to their fellow Dems to boot. I don't really blame Obama for his actions considering the circumstances, but stop trying to polish a turd. They are actually saying that if we extend the tax cuts, we'll certainly avoid a double-dip recession. I guess the GOP isn't the only party engaged in fear-mongering.

-------------

I think the attached chart pretty much lays out the answer to your question as to why there's such intense pressure to ditch the unemployment insurance and extend the Bush tax cuts for the wealthy. (as you might imagine, education and income are pretty highly correlated)

I was just reading a paper the other day about how much more pro-poor the US would be if elections were held on the weekends (most poor people can't get off time to go vote on weekdays like high-income people can). It's no surprise that the most conservative states often have the shortest voting hours and the most onerous voting registration requirements.

-------------

Thx, A. I wonder why community organizers don't try to mobilize the urban poor more during elections. Maybe since most cities vote liberal anyway, and minorities/lower income folks are more likely to be Dems, less of a need? I know there were allegations of people getting packed into buses from the ghetto and whisked to the polling stations, but I'm not sure if it was just propaganda, and also not sure if there's anything wrong with that.

As you said, our voting system is the most inaccessible of all modern, developed democracies. In France I believe the window to vote is several days if not weeks, India too (due to people living in remote areas maybe). In other nations voting occurs on weekends or national holidays. There is absolutely no damn reason to have an election on a work day, especially when the working poor can't get paid time off and may work 12 hours a day over multiple jobs. Plus in other nations there isn't so much red tape for registering. In many cases a voter can "register" (or whatever equivalent) on election day. Hell, even in Iraq the polls stay open Fri-Sun. But all those scenes of Americans waiting in lines all day to vote in inner-city areas is just unacceptable. Voting shouldn't be such a sacrifice, unless the system is designed to prevent those people from participating. Making voting nearly impossible for the lower class is one thing, but how do we control the influence of the rich in politics? The 1st Amend. seems to protect an individual, org, or corporation's "right" to basically contribute limitless cash to political causes, and the Supreme Court seemed to affirm that last year.

In Australia and Belgium (among others), voting is mandatory with small fines for absentees. Maybe that wouldn't fly here, but I know Arizona passed a bill to include a cash lottery as incentive to get people to the polls. We'll see how effective it will be. I wonder if even mail-in or online/phone voting would help the poor that much (Wikipedia says internet voting is already in place in the UK, France, and Switzerland, but I haven't been following that). Oregon, which has a fully mail-in voting system, is slightly better than the US average for turnout (US avg. for 2008 pres. election was 62%, OR was 67%).

http://www.slate.com/id/2108832/
http://en.wikipedia.org/wiki/Voter_turnout#International_differences
http://elections.gmu.edu/Turnout_2008G.html
http://www.nytimes.com/2006/07/17/us/17voter.html?ex=1310788800&en=9626060428eeb1ed&ei=5088

Robert Reich on the wealth gap and recession

Fresh Air had an interview with UC Berkeley professor and former Clinton labor secretary Robert Reich, who recently published "After Shock" about how vast wealth disparities contributed to the Great Crash/Depression and our current economic downturn.

http://www.npr.org/templates/story/story.php?storyId=130189031

The two years when the richest 1% of Americans controlled the most wealth in the US (~23% of all income) were 1928 and 2007. Coincidence? Reich argues that this wealth gap leads to recessions for two reasons: first, the middle class has less purchasing power and can't afford to keep up with standard of living gains (or rising costs of living partly due to Wall Street profit taking), so they resort to credit until it dries up, and then consumer spending just plummets. Second, the rich and those who control the factors of production are reaping huge earnings from financial and technological innovations, which encourages them to invest in more risky, speculative ventures. Obviously this is a recipe for problems. The wealth concentration before the Depression was partly due to the mechanization expansion of US industry at the turn of the century (Ford and Rockefeller types). New consumer goods like cars and radios became more affordable for the middle class, and credit flowed freely until the crash and the failure of 25% of US banks. During the New Deal and WWII, everyone was put to work for the war effort, and FDR enacted labor rights laws and social security, which helped the middle class recover and thrive.

During the Baby Boom, the richest 1% only controlled just 9% of America's wealth. I think they were still doing well, but the middle class was doing great, and there were more of them. But the OPEC embargo, rising unemployment, and stagflation in the 1970's eroded some of the gains. What partially prevented the recessions of the '70s through '90s from being longer was the entry of women into the workforce, and an expansion of the US work week (not by law, but by corporate edict). The US work week was ridiculously long (with only Sunday off) during our Industrial Revolution, then gradually shortened as we entered the Baby Boom, but started to lengthen again in the '70s, to the point when Americans now work much longer than Europeans and even longer than Japanese. This increased productivity and earning power, because back then they still paid for overtime and more workers were unionized. Though extra productivity only translated to so much extra disposable income as inflation and interest rates reached double-digits, so the middle class was pinched again and resorted to credit to make ends meet. During the Carter Era (though it got worse during the Reagan and Clinton years), the government enacted policies to promote a decades-long real estate boom fueled by tax breaks and credit (maybe with good intentions of raising living standards and making the American Dream more accessible, but was ultimately unsustainable). Financial deregulation also removed many Depression-era barriers to riskier speculation, so the construction industry and Wall Street fed off each other. The 1980's signaled another era of capitalist dominance, as computers, automation, globalization, and exotic finance gave them new powerful tools for the rich to grow their wealth, coupled by drastically lower taxes and gradual erosion of worker rights. The trend worsened into the 21st Century, and we know the rest.

Our economy is not dependent on the rich, but on the consumption of a secure and confident middle class. They may control a quarter of total wealth, but there are fewer of them, and they'd rather earn a "reasonable rate of return" than buy that 20th toaster. If the lower classes didn't matter, then why did Wall Street seek to exploit their buying power in the last decade through the expansion of subprime/payday loans and "no hassle" credit cards? I don't buy the contrary argument, though it is true that the rich pay a lot of taxes (that's the whole point, unless we are living in an undemocratic plutocracy, as some Citi analysts concluded in a leaked letter to their VIP clients: http://www.scribd.com/doc/6674234/Citigroup-Oct-16-2005-Plutonomy-Report-Part-1). But companies and the rich pay much less taxes than they should in fairness. Higher taxes don't have to hurt business as they allege, because hopefully the government would use that revenue on smart spending to spur growth of sustainable commerce (though their spending record is not great, but again it's partly due to policies favoring the rich and condoning waste).

The basic GDP equation is the sum of household consumption (C), investments (I), government spending (G), and net exports (NE). C is over 2/3 of our GDP, and the rich contribute a lot, but it's mostly powered by the sheer number of middle class families. So when the rich and the companies they lead enjoy preferential treatment, they take away from G (by paying less taxes, which leads to deficits) and really only help to increase I, but during recessions I loses value, so they'd rather hoard cash than lend or hire: http://abcnews.go.com/Business/hoarding-hiring-corporations-stockpile-mountain-cash/story?id=10250559. And when they do spend, they may choose overseas investments which aren't taxable and don't help US GDP (remember the IRS probe into UBS? http://www.usatoday.com/money/perfi/taxes/2008-06-30-irs-swiss-bank-ubs_N.htm). So in my (biased) view, they rich are a net drag on the economy and society. If the rich didn't exist, the rest of us would have more purchasing power to grow GDP, and the government would have a smaller deficit. Maybe we'd still consume frivolously and get into credit trouble, but at least wealth wouldn't be so concentrated, so our boats would rise and sink together.

[Former Fed Chairman Mariner] Eccles had nagging concerns that by tightening credit instead of easing it [during the Depression], he and other bankers were saving their banks at the expense of community — in "seeking individual salvation, we were contributing to collective ruin." ... Economists... sought to reassure the country that the market would correct itself automatically, and that the government's only responsibility was to balance the federal budget. Lower prices and interest rates, they said, would inevitably "lure 'natural new investments' by men who still had money and credit and whose revived activity would produce an upswing in the economy." Entrepreneurs would put their money into new technologies that would lead the way to prosperity. But Eccles wondered why anyone would invest when the economy was so severely disabled. Such investments, he reasoned, "take place in a climate of high prosperity, when the purchasing power of the masses increases their demands for a higher standard of living and enables them to purchase more than their bare wants. In the America of the thirties.... people hadn't enough purchasing power for even their barest needs."

Eccles knew Wall Street wanted a tight money supply and correspondingly high interest rates, but the Main Streets of America — the real economy — needed a loose money supply and low rates. Roosevelt agreed to support new legislation that would tip the scales toward Main Street. Eccles took over the Fed.

- Robert Reich

So isn't that grand: the rich help cause market crashes and recessions with their speculation and loose lending, then make recovery even harder by choking off credit to the middle class when it's critically needed (despite the government's best monetary policy efforts to lower borrowing rates and such). Then they skirt blame and say "natural investments" should spur growth even if commercial banks aren't lending (which is their whole purpose of existence). Even if interest rates are lower, so are costs and they're still making money aren't they? Most average Joes would be content with 5% during a recession, but not Wall Street.

What the JetBlue employee meltdown says about the US workplace and society

http://news.yahoo.com/s/theweek/20100811/cm_theweek/205934_1
http://www.kqed.org/a/forum/R201008110900

By now you've probably heard the buzz surrounding Steven Slater, the
veteran JetBlue flight attendant who was harassed by a passenger on a
flight and decided to say "F this job!" and illegally exited the plane
down an emergency chute, with beers in hand. Maybe he was living out
all our closet fantasies (and paid the price by going to jail, but
he'll get the book deal and TV circuit). I'm sure he would have
preferred to do his job (of 28 years) happily with others treating him
respectfully. Though what does that say about the state of the US
workplace and society if Slater is now celebrated as a folk hero for
breaking the law, possibly putting people in danger, and acting
against everything in his professional training? That customer must
have been an astronomical bitch because JetBlue FAs are some of the
best in the industry, and probably have very thick skins after years
of abuse and training. But honestly, I'm sure we all have a list of
people we'd like to curse out on the PA system, and many
jobs/customers that we'd like to stick it to.

I'll try to refrain from a cliched anti-society diatribe, but humor me
with this set-up. I know we tend to remember the "good ol' days" with
rose-colored lenses, but we probably weren't always this stressed out,
this nasty to each other, and work wasn't this horrible, was it? Some
things have changed since the last generation was young. We usually
don't have pensions anymore (and don't stay with 1-2 firms our whole
career), nor just one car/TV per household. Standard of living and
life expectancy have risen, but so have costs, while real wages
haven't kept up (unless you're a CEO, and in that case your wages have
ballooned). For many of us, the finer things in life are still
unaffordable without taking on dangerous debt, but we still try: total
US consumer debt is now in the trillions, our pre-recession savings
rate was negative, and savings is currently still worse than postwar
America. We have also segregated ourselves into many racially and
economically homogeneous suburban enclaves, and may not need to have
"real interactions" with strangers for days at a time (automate
everything, drive-thru everything, hurry up and be on your way).
Culturally, it's also strange now that it's accepted and almost
desirable to act like a spoiled good-for-nothing like Paris Hilton, a
cocksure idiot like Sarah Palin, or a pathologically ambitious a-hole
like The Donald. What happened to doing right by people and making an
honest buck? Sorry, I'm 30 and I sound 70.

When IBM envisioned the first computers, the designers hoped that they
would help humans by saving us time on repetitive, grunt work
calculations. But since the PC revolution, computers and mobile
electronics have only served to take time from us. Yes computers allow
us to be more productive, but now employers demand more of us (and
practically expect some workers to be on-call 24-7, plus some tech or
work-addicts even do it to themselves, checking their BlackBerries at
completely inappropriate times). An average, not even an excellent,
worker is now doing the jobs of 2-3 workers from 1960, and many
traditional US industries have vanished or relocated overseas. Gadgets
and the internet have allowed us to share ideas and access resources
like never before (for better or worse: tolerance of diversity has
increased, but so have all sorts of cyber-crimes), but also bleed us
of our precious free time (and money) with semi-pointless,
quasi-social distractions like Facebook. Families spend less time
together (maybe a good thing depending on the family), and even less
quality time. We may spend more time exhausted in front of a screen
than raising our kids.

Competition for quality education, jobs, government services, and
other basic living essentials has risen drastically. Workers are
spending more time in commute, more time in travel-heavy jobs, and
more time at work in general vs. the 1960s. The rich-poor gap has
increased, and more Americans are employed by corporations than ever
before. Executives and managers are under more pressure from
shareholders and others to cut costs, innovate, and find new ways to
boost productivity/efficiency, even at the cost of worker morale and
the law. Forget the work-life balance; for many people work is life,
which makes the personal pain of an unsatisfying job or losing a job
even harder to handle. The recession has only exacerbated these
tensions and problems.

All this creates an environment for people to treat each other badly,
and we have many pressures and incentives to do so. Our egos fall
victim to our competitive free-market culture, and we may equate
differences in wealth/achievement with differences in personal worth.
"I'm a big-shot doctor, so I can talk down to you, lowly flight
attendant! I paid my ticket and I can do whatever I want!" Worries and
threats are everywhere. Bad news on the 24-7 channels, bills coming
due, and everyone seems to try to take advantage of us, make us part
with our hard-earned money, or otherwise short-change us somehow.
Politicians are always in scandals, there is less public trust, and
therefore less trust and courtesy for each other. When anxiety is
high, we are not ourselves, or is that our true nature? We have less
time and more stress, so we're living on the edge with a shorter fuse,
and minor annoyances or injustices could cause us to blow up. And as
the many life annoyances wear us down each day, we have less patience
and energy to handle the big problems and confrontations with poise.
And it doesn't seem that this trend is going to reverse any time soon.
But no one wants to acknowledge the insanity of our predicament for
fear of appearing weak and unable to cope.

Maybe an airplane is a microcosm of our social condition. A bunch of
impatient, tense strangers, who would rather be somewhere else doing
something else, packed in an uncomfortable, artificial enclosure with
bad air. There are turbulence, crying kids, and terrorist threats, and
of course weather and technical delays. The only things keeping us all
from descending into chaos are watered-down cocktails, an LCD screen
in front of us, and Sully Sullenberger.