Category: Economy

Cross posted from The Stars Hollow Gazette

Writing for his New York Times blog, Conscience of a Liberal, Nobel Prize winning economics professor Paul Krugman makes two salient observation about President Barack Obama’s proposal to raise the minimum wage from the current $7.25 per hour to $9.00 per hour indexed to inflation. His first observation is the political “trap” for Republicans leaders who are opposed, even though a vast majority of voters support a wage increase (pdf) and that includes a string majority of Republican women but not men. Prof Krugman notes that while Republicans want you to believe that they are concerned workers might lose their jobs, he gives two examples of why this faux sincerity “won’t wash”:

1. The truth is that top Republicans have so little regard for ordinary workers that they can’t even manage to pretend otherwise. Case in point: on the last Labor Day, Eric Cantor declared,

   “Today, we celebrate those who have taken a risk, worked hard, built a business and earned their own success”.

Yep: even on Labor Day, Cantor had nothing positive to say about workers, just praise for their bosses.

2. Consider a working couple with two children, earning the current minimum wage. How much federal income tax do they pay? If I’m doing the math right, the answer is, none – they get a refund. (They pay plenty of payroll taxes, sales taxes, etc., but that isn’t supposed to count). In the minds of Republicans, this makes them lucky duckies, members of the 47 percent, part of what’s wrong with America. The GOP just can’t credibly claim to suddenly be deeply concerned about their job prospects.

Prof. Krugman’s second observation is about the economics of raising the minimum wage:

First, as John Schmitt (pdf) documents at length, there just isn’t any evidence that raising the minimum wage near current levels would reduce employment. And this is a really solid result, because there have been a lot of studies. We can argue about exactly why the simple Econ 101 story doesn’t seem to work, but it clearly doesn’t – which means that the supposed cost in terms of employment from seeking to raise low-wage workers’ earnings is a myth.

Second – and this is news to me – the usual notion that minimum wages and the Earned Income Tax Credit are competing ways to help low-wage workers is wrong. On the contrary, raising the minimum wage is a way to make the EITC work better, ensuring that its benefits go to workers rather than getting shared with employers. This actually is Econ 101, but done right: given a second-best world in which you use imperfect tools to help deserving workers, two tools together can produce a better outcome than either one on its own.

As usual, if you want comprehensive, in depth discussion without the political talking points and invective, at the same time presenting both sides, Chris Hayes and his guests on Up with Chris Hayes this past Saturday provided just that. Joining Chris to discuss the president’s proposal to raise the minimum wage were by Arindrajit Dube, assistant professor of economics at University of Massachusetts-Amherst; Lew Prince, owner of Vintage Vinyl, Inc. a small business in St. Louis, Missouri; Jennifer Sevilla Korn, executive director of the Hispanic Leadership Network; and Tsedeye Geeresslasse, staff attorney of the National Employment Law Project.

Republicans and business groups have lined up in opposition to a minimum wage increase, and in doing so, they’ve repeated a talking point that has been common in Washington for decades: that an increase in the minimum wage would lead to reductions in employment. As it turns out, there’s a growing body of empirical evidence that indicates that minimum wage increases, within a certain range, have no negative impact on employment, and may actually boost worker productivity and consumer demand, providing a much-needed stimulus to the economy.

Since the stolen election of 2000, a cyclonic lot of crazy stuff has been whirling above the surface that previously managed to stay largely submerged in public political consciousness.  Among the eye-openers beyond Bush v. Gore were, of course, the 9/11 anomaly, the attacks on Afghanistan and Iraq, and the seemingly arbitrary and endless global war on terror more generally; the looming national security state and the steady erosion of Constitutional and international law; the general feeling that enlightenment has given way to endarkenment; free-ranging corporate malfeasance and immunity; the bursting of various financial bubbles resulting in a generalized, global economic implosion, resulting in turn in massive corporate bailouts and profits, ballooning deficits, joblessness and austerity measures for the masses; an increase in global civil unrest and pushback, including the Arab Spring, the Occupy movement, and anonymous cyber-resistance; rather massive ecological catastrophes and an increasingly alarming pace of numerous climate change indices, including Hurricane Katrina and multiple other extreme weather events; and such an abject failure of the media to report on these developments with any effort approaching due diligence that one not only suspects willful dereliction, but active collusion with various malefactors.  

It’s no wonder that 99% of political dialogue is distracted and cannot focus on the major critical factors of our spiraling crises, which happen to be more inter-related than your average kissing cousins.  Rather than getting deep into the weeds on any particular topic, it’s worthwhile to zoom out and look at the main populations of events and drivers of these spiraling crises as they are subsumed under a master narrative of carrying capacity, a subject that approaches the brink of taboo in political (but not biological) discussions, insofar as it challenges the main religious orthodoxy of our time, namely, unlimited growth.  Let’s see if we can begin by accurately describing our situation in broad, simple strokes.  Part 1 (this essay) aims to provide the relevant background narrative for subsequent discussion.          

These first two graphs, which are virtually identical, show human energy use (top graph) and human population growth (bottom graph) over the past 12 thousands years or so.  Several things should jump out immediately beyond their near identity.  First, they are both wildly anomalous spikes in the historical record, one-time, vertical explosions of activity happening simultaneously.  Before knowing anything else, the very shape of the functions are cause for serious doubts about the sustainability of these trajectories.    

When plotted against one another during the explosive phase, the nearly perfect identity between energy use and human population is confirmed.

Because “behaviorally modern” humans have been around for at least 70,000 years, it would seem this sudden vertical trajectory did not happen because of some sudden evolutionary innovation of the past several hundred years.  Rather, these two simultaneous trajectories are consistent with energy being perhaps “the” rate-limiting factor of reproductive success, and humans fell into the Mother Lode, leaving other large mammals in their proverbial dust.  

Alternatively, it is possible that an accumulation of post-agricultural/post-division of labor and expertise cultural knowledge reached a critical mass whereby civilization (and population) suddenly bifurcated into an entirely new mode that would have happened independently of energy use.  The arguments are not exclusive, but the key experiment would be to remove the energy (a “before-after-before” experiment) to see if the large-brained mammals could maintain anything resembling their current numbers and technological complexity in the absence of energy.

That natural experiment is, in fact, underway, and while the design is adventitious and imperfect, it should provide definitive results.

Cross posted from The Stars Hollow Gazette

What Atrios said: Republicans Don’t Care About Cutting Social Security

The big flaw in the premise of the grand bargain is that Obama is asking them to give away their precious by increasing taxes on the rich in exchange for something they don’t care much about. Cutting taxes for rich people is their whole purpose. Cutting Social Security? Well, if they can use Social Security cuts to cut taxes for rich people, sure. But cutting Social Security in order to increase taxes on rich people? Really not interested.

401Ks are a disaster

We need an across the board increase in Social Security retirement benefits of 20% or more. We need it to happen right now, even if that means raising taxes on high incomes or removing the salary cap in Social Security taxes.

Over the past few decades, employees fortunate enough to have employer-based retirement benefits have been shifted from defined benefit plans to defined contribution plans. We are now seeing the results of that grand experiment, and they are frightening. Recent and near-retirees, the first major cohort of the 401(k) era, do not have nearly enough in retirement savings to even come close to maintaining their current lifestyles.

Frankly, that’s an optimistic way of putting it. Let me be alarmist for a moment, because the fact is the numbers are truly alarming. We should be worried that large numbers of people nearing retirement will be unable to keep their homes or continue to pay

Economics and law professor at the University of Missouri, Kansas City, William K. Black joined Paul Jay, senior editor at The Real News Network to discuss President Barack Obama’s State of the Union address and his economic proposals.

Cross posted from The Stars Hollow Gazette

After his exclusive interview with MSNBC’s Chris Hayes, host of Up with Chris Hayes, Nobel Prize winning economist and New York Times columnist/blogger, Dr. Paul Krugman (@NYTimeskrugman) joins Chris and his panel guests Dean Baker (@DeanBaker13), co-director Center for Economic & Policy Research and author; Alexis Goldstein (@alexisgoldstein), a former vice president of information technology at Merrill Lynch and Deutsche Bank, now an Occupy Wall Street activist; and Heather McGhee (@hmcghee), vice-president of Demos. Enjoy the lively and informed discussion about the self imposed sequester crisis, global austerity and the role of inequality in the recovery.

Cross posted from The Stars Hollow Gazette

The US economy is stagnating and all that our elected officials are fixated on is reducing the deficit and debt with more spending cuts at a time when the government should be investing in this country to help produce jobs. Nobel Prize winning economist and New York Times columnist/blogger, Dr. Paul Krugman has explained that austerity measures in this sluggish economy will only further the pain with more job losses and increase the likely hood of a second recession.

MSNBC’s Chris Hayes, host of Up with Chris Hayes, sat down with Dr. Krugman for a fascinating one on one conversation about the president’s latest bid to delay the looming sequester cuts and why there is a difference between “Macro-economics 101” and what policy makers in DC are talking about. They also discuss the banking crisis and the continued divergence between profits and wages.

Cross posted from The Stars Hollow Gazette

President Barack Obama told Democratic delegates and congressional members meeting at the annual House Democratic retreat at Lansdowne Resort in Virginia that the he wants a “big budget deal”

President Barack Obama said he wants to reach a “big deal” on the budget that will cut the nation’s deficit without slashing spending on education and research that is needed to ensure future growth.

Obama said negotiations with congressional Republicans over avoiding the $1.2 trillion in automatic, across-the-board spending reductions set to begin March 1 shouldn’t push aside the effort for a broader plan to cut government debt.

While the president stood firm against “government by crisis” and the need for more revenue in any future deficit reduction deal, and much like the Republicans, who keep saying that they will close loop holes in the tax code but not which ones, there have been few details in how that deal would be accomplished. Nobel Prize winning economist points out that any reduction in government spending at this time would “destroys jobs and causes the economy to shrink”

This really isn’t a debatable proposition at this point. The contractionary effects of fiscal austerity have been demonstrated by study after study and overwhelmingly confirmed by recent experience – for example, by the severe and continuing slump in Ireland, which was for a while touted as a shining example of responsible policy, or by the way the Cameron government’s turn to austerity derailed recovery in Britain. [..]

But aren’t we facing a fiscal crisis? No, not at all. The federal government can borrow more cheaply than at almost any point in history, and medium-term forecasts, like the 10-year projections released Tuesday by the Congressional Budget Office, are distinctly not alarming. Yes, there’s a long-term fiscal problem, but it’s not urgent that we resolve that long-term problem right now. The alleged fiscal crisis exists only in the minds of Beltway insiders.

(my emphasis)

Prof. Krugman discussed with MSNBC’s The Last Word host, Lawrence O’Donnell the consequences of such a deal at this time would mean and what the government should be doing to restart the economy.

Cross posted from The Stars Hollow Gazette

The U.S. economy contracted slightly in the fourth quarter of last year, shrinking by 0.1 percent. The main factor that is being blamed is cuts in government spending. The report, as Pat Garofalo at Think Progress notes, might have been worse but if the House Republicans let the sequester kick in, as they seem want to do, the US economy is in for another deeper dip:

According to Macroeconomic Advisers, the sequester will knock 0.7 percent off of GDP growth this year. The Bipartisan Policy Center estimates that the sequester will kill one million jobs. [..]

Of course, scrapping the sequester – which includes equal cuts from defense spending and non-defense discretionary spending – does not mean the government simply has to plow that money back into the Pentagon. Domestic spending is headed toward historic lows. The country has a huge infrastructure gap that needs to be filled. And the American Jobs Act, which Republicans filibustered, would have significantly boosted growth according to several independent analyses.

Journalist and author, David Cay Johnston, a specialist in economics and tax issues, discusses why the Republicans keep pushing spending cuts.

Meanwhile, as Suzie Madrak at Crooks and Liars observed, hell may have just froze over at the conservative think tank, American Enterprise Institute where conservative economist John H. Mankin just told the deficit hawks, in so many words, to “shut up about austerity”.

Japan’s lessons for America’s budget warriors

by  John H. Makin, American Enterprise Institute

Lessons for the United States

Congress, take note. Although American deficits do need to be reduced and debt accumulation does need to be slowed and eventually reversed, cries of imminent disaster from “unsustainable” deficits and a supposed bond market collapse will not accomplish this goal. Persistently rising bond prices in Japan and the United States have undercut the “sky-is-falling” rationale for deficit reduction. [..]

If fiscal austerity is applied too rapidly, US growth will drop and the debt-to-GDP ratio will rise, boosting the nation’s debt burden. If the Fed tries to stem the rise with too much money printing, inflation could rise and drive up interest rates, exacerbating the US debt burden. [..]

Congress and the president need to avoid excessive austerity with respect to changes in fiscal policy this year. Over the past four years, on average, the fiscal boost applied to the American economy has been worth about 3 percent of GDP. This year, with tax increases and sequestration, fiscal drag will be about 1.5 percent of GDP. [..]

The lessons from Europe and Japan are that austerity, per se, is not the way to move to a sustainable fiscal stance. Rather, the US economy needs a combination of tax reform to boost growth and legislation enacted now to stabilize the future growth of outlays on entitlement programs.

Economist Paul Krugman, at his NYT blog, Conscience of a Liberal, talks about “incestuous amplification” which happens when “a closed group of people repeat the same things to each other – and when accepting the group’s preconceptions itself becomes a necessary ticket to being in the in-group“.

Which brings me to the fiscal debate, characterized by the particular form of incestuous amplification Greg Sargent calls the Beltway Deficit Feedback Loop. I’ve already blogged about my Morning Joe appearance and Scarborough’s reaction, which was to insist that almost no mainstream economists share my view that deficit fear is vastly overblown. As Joe Weisenthal points out, the reality is that among those who have expressed views very similar to mine are the chief economist of Goldman Sachs; the former Treasury secretary and head of the National Economic Council; the former deputy chairman of the Federal Reserve; and the economics editor of the Financial Times. The point isn’t that these people are necessarily right (although they are), it is that Scarborough’s attempt at argument through authority is easily refuted by even a casual stroll through recent economic punditry.

Will AEI’s resident economics scholar, John Mankin’s warnings be heeded? Or will the “incestuous amplification” continue?

Cross posted from The Stars Hollow Gazette

Pres. Barack Obama nominated former US Attorney of the Southern District of New York, Mary Jo White, to head the troubled Securities and Exchange Commission. The announcement comes a day after the damning PBS Fraontline expose of the Department of Justice’s failure to prosecute bank fraud and the resignation of Lanny Breuer, the head of the DOJ criminal division. Ms. White certainly has a fine reputation of being a tough prosecutor during her tenure as US Attorney, she managed something Rudi Guiliani failed to do, finally putting notorious mobster John “The Teflon Don” Gotti behind bars. However, in the 10 years since she left that office, Ms. White has worked diligently to protect the heads of the “Too Big To Fail” banks. In his Salon article, David Sirota called her a “Wall Street enabler” and goes on to enumerate the evidence:

Matt Taibbi, Rolling Stone contributing editor, in his article “Why Isn’t Wall Street in Jail,” recounts how during her tenure as head of litigation at the New York law firm Debevoise & Plimpton, Ms. White defended some very high profile bankers and played a key role in the “squelching of then-SEC investigator Gary Aguirre’s investigation into an insider trading incident involving future Morgan Stanley CEO John Mack”

   The deal looked like a classic case of insider trading. But in the summer of 2005, when Aguirre told his boss he planned to interview Mack, things started getting weird. His boss told him the case wasn’t likely to fly, explaining that Mack had “powerful political connections.”…

   Aguirre also started to feel pressure from Morgan Stanley, which was in the process of trying to rehire Mack as CEO … It didn’t take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm’s lawyers, Mary Jo White, was on the phone with the SEC’s director of enforcement…

   Pause for a minute to take this in. Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive – not handcuff the guy or impound his yacht, mind you, just talk to him. In the course of doing so, he finds out that his target’s firm is being represented…by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC’s enforcement division…

   Aguirre didn’t stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued.

In February of 2012 on a panel at a New York University School of Law even, Ms White expressed her doubts about whether banks had committed crimes ahead of the financial crisis stating that care should be taken to “distinguish what is actually criminal and what is just mistaken behavior, what is even reckless risk-taking, and not bow to the frenzy.”

Another point of conflict is Ms. White’s husband. Yves Smith at naked capitalism notes that “John White, who headed the SEC’s corporate finance section under Chris Cox and was heavily involved in detailed Sarbanes Oxley rulemaking, and now that he is back at Cravath, has been lobbying against regulation.”

Nor does Ms. White have a background in finance or the “inner workings of the trading system:”

Although she has represented many executives accused of financial crimes, White is not an expert on the inner workings of trading systems, a lack of knowledge that may not serve her well as the SEC struggles to keep up with rapid changes in increasingly complex financial markets.

“The problem with the SEC is that they don’t seem to have a grip on” high-frequency trading and other major issues affecting modern financial markets, said Joe Saluzzi, co-head of equity trading at independent brokerage Themis Trading and a frequent critic of high-speed trading. “We’re concerned about cleaning up the market, and we need the SEC to take the lead here.”

Her background puts to question how aggressively White might prosecute financial fraud and enforce new rules under the Dodd-Frank financial reform law — most of which have not yet been adopted by the SEC.

Matt Taibbi recounts a conversation he had with a head fund manager regarding Ms. White’s:

His point about White is simple and it makes a lot of sense. She may very well at one time have been a tough prosecutor. But she dropped out and made the move a lot of regulators make – leaving government to make bucketloads of money working for the people she used to police. “That move, being a tough prosecutor, then going to work defending scumbags, you can only make that move once,” was his point. “You can’t go back again, you know what I mean?”

Think about it: how do you go back and sit in S.E.C.’s top spot after all of those years earning millions as a partner for a firm that represented Morgan Stanley, Bank of America, Goldman, Sachs, Deutsche, Chase, and AIG, among others? Think that fact that his firm has retained her firm has anything to do with Jamie Dimon coming out and saying that White is the “perfect choice” to run the S.E.C.? Think of all the things she knows but can’t act upon. Could she really turn around and target Morgan Stanley after being their lawyer for all those years?

Ms. White is not only another example of the government’s revolving door from public service to private practice back to public service but of Pres. Obama’s signal to Wall Street that they are safe to continue with business as usual. Mary Jo White is the fox in the hen house.  

Cross posted from The Stars Hollow Gazette

In his speech to Republican Party official in Charlotte, NC, Gov. Bobby Jindal said that

“the GOP must stop being the party of stupid.” The problem there is that actions, including Gov. Jindal’s, just reinforce how stupid the GOP is, especially when it comes to the economy.

Bad news for Jindal: Florida, Texas rely heavily on property and biz taxes

by Tyler Bridges, The Lens

As he seeks to eliminate the state’s income tax, Gov. Bobby Jindal has cast a covetous eye both west and east. The tax systems in Florida and Texas should serve as a model for Louisiana’s, the governor believes.

Neither state has an income tax, he notes, and both have reputations as hospitable to business investment.

But to make Louisiana look more like Florida and Texas, Jindal’s plan would have to include two significant elements that he dislikes: taxes on business and higher property taxes. [..]

“Most states have a three-legged stool for raising revenue,” said Jim Richardson, a Louisiana State University economist who co-chaired PAR’s tax study. “Texas and Florida have two legs – sales and property – since they don’t have an income tax.” Under the Jindal plan, “Louisiana would have a one-and-a-half-legged stool – sales taxes and some local property taxes.” [..]

In an interview with MSNBC’s Rachel Maddow, Nobel Prize winning economist, Paul Krugman said it would raise the taxes on every tax dollar the poor make going against “the Republican argument that high marginal tax rates discourage work“.

“In our system, the highest marginal tax rates — the biggest disincentives to work in our system — are not for the rich. They are for lower-income workers who are in that range where if you earn a little bit more you start to lose benefits, you start to lose Medicaid, you lose housing subsidies,” the Nobel Prize-winning economist said. “This is going to raise taxes precisely on the people who actually have the biggest disincentives to work. So it’s actually, even from that old supply-side incentive thing, this is going in the wrong direction.”

In his Monday New York Times column, Prof. Krugman called the Republicans “Makers, Takers, Fakers”

Like the new acknowledgment that the perception of being the party of the rich is a problem, this represents a departure for the G.O.P. – but in the opposite direction. In the past, Republicans would justify tax cuts for the rich either by claiming that they would pay for themselves or by claiming that they could make up for lost revenue by cutting wasteful spending. But what we’re seeing now is open, explicit reverse Robin Hoodism: taking from ordinary families and giving to the rich. That is, even as Republicans look for a way to sound more sympathetic and less extreme, their actual policies are taking another sharp right turn.

Despite the lessons of the 2012 election, the Republicans, in states that are not checked by Democrats, are pushing tax policies that punish the poor and the middle class and benefit the wealthy.

Cross posted from The Stars Hollow Gazette

Unbeknownst to most of the legislators and public, tucked very neatly in section 632 (pdf) of the “fiscal cliff” bill, was provision that gave the world’s largest biotechnology firm, Amgen, a drug maker that sells a variety of medications, a half billion dollar gift that allows the company to evade Medicare cost-cutting controls by delaying price restraints on a class of drugs used by kidney dialysis patients for two years. Meanwhile in December, Amgen had been fined  $762 million in civil and criminal penalties for illegal marketing of one of its other drugs. This pricing break would wipe out two thirds of those fines.

This undercover handout of taxpayer’s dollars during a so-called “fiscal crisis” was reported in depth by The New York Times investigative reporters, Eric Lipton and Kevin Sack, who also revealed the “architects” of this giveaway, Republican Minority Leader Mitch McConnell, Democratic Senator Max Baucus, chair of the Senate Finance Committee, and that committee’s ranking Republican, Orrin Hatch.

Amgen has deep financial and political ties to lawmakers like Senate Minority Leader Mitch McConnell, Republican of Kentucky, and Senators Max Baucus, Democrat of Montana, and Orrin G. Hatch, Republican of Utah, who hold heavy sway over Medicare payment policy as the leaders of the Finance Committee.

It also has worked hard to build close ties with the Obama administration, with its lobbyists showing up more than a dozen times since 2009 on logs of visits to the White House, although a company official said Saturday that it had not appealed to the administration during the debate over the fiscal legislation.

The measure flies in the face of attempts to curb the enormous expense of dialysis for the Medicare program by reversing incentives to over-prescribe medication. But that didn’t deter the “three amigos” from sneaking in the provision to their generous benefactor:

Amgen’s employees and political action committee have distributed nearly $5 million in contributions to political candidates and committees since 2007, including $67,750 to Mr. Baucus, the Finance Committee chairman, and $59,000 to Mr. Hatch, the committee’s ranking Republican. They gave an additional $73,000 to Mr. McConnell, some of it at a fund-raising event for him that it helped sponsor in December while the debate over the fiscal legislation was under way. More than $141,000 has also gone from Amgen employees to President Obama’s campaigns.

What distinguishes the company’s efforts in Washington is the diversity and intensity of its public policy campaigns. Amgen and its foundation have directed hundreds of thousands of dollars in charitable contributions to influential groups like the Congressional Black Caucus and to lesser-known groups like the Utah Families Foundation, which was founded by Mr. Hatch and brings the senator positive coverage in his state’s news media.

Amgen has sent large donations to Glacier PAC, sponsored by Mr. Baucus in Montana, and OrrinPAC, a political action committee controlled by Mr. Hatch in Utah.

Not surprisingly when the news of this giveaway hit the paper, it enraged a bipartisan group of legislators to repeal this section.

U.S. Rep. Peter Welch (D-Vt.) filed legislation this week to eliminate the exemption for a class of drugs, including Amgen’s Sensipar, that are used by kidney dialysis patients. [..]

“Amgen managed to get a $500-million paragraph in the fiscal-cliff bill and virtually no one in Congress was aware of it,” Welch said. “It’s a taxpayer ripoff and comes at a really bad time when we’re trying to control healthcare costs. Amgen should not be allowed to turn Medicare into a profit center.” [..]

Other co-sponsors of the bill seeking repeal include House Republican Richard Hanna of New York and two House Democrats, Jim Cooper of Tennessee and Bruce Braley of Iowa.

Rep. Welch sat down with Bill Moyers on Moyers & Company to discuss Amgen’s “sweetheart deal”

“When there is this back room dealing that comes at enormous expense to taxpayers and enormous benefit to a private, well-connected, for-profit company, we’ve got to call it out,” Welch tells Bill. “Those members of Congress who are concerned about the institution, about our lack of credibility, about the necessity of us doing things that are in the public good as opposed to private gain, we’ve got to call it out.”

Cross posted from The Stars Hollow Gazette

While we have been distracted by the irrational exuberance of a second term for Barack Obama, Benghazi (again) and gun control, the European Union has come around to the realization that there is a need to do something about the economy. On Tuesday the the EU approved a financial transaction tax (FTT) for eleven nations:

Eleven countries won the EU’s backing for a financial transaction tax (FTT), with Germany, France, Italy and Spain adding their names to eurozone neighbours Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia.

The UK, which already imposes a tax on share trades, could benefit from a shift in banking business if Germany and France tax foreign exchange or derivatives trading in Frankfurt and Paris.

The levy, which could raise as much as €35bn (£29.3bn) a year for the 11 countries, is designed to prevent a repeat of the conditions that stoked the credit crunch by reining in investment banks. Following the decision, the European Commission will put forward a new proposal for the tax, which if agreed on by those states involved, would mean the levy could be introduced within months. Although critics say such a tax cannot work properly unless applied worldwide or at least across Europe, countries such as France are already banking on the extra income from next year.

Former Labor Secretary Robert Reich tweeted:

Despite past unsuccessful attempts to introduce a FTT, two Democratic representatives, Rep. Peter DeFazio (D-OR) and Sen. Tom Harkin (D-IA), will reintroduce the FTT which would raise an estimated $352 billion over the next decade by imposing a 0.03 percent tax on trades. That translates to 3 dollars on every $100 in trades. Critics have said that it will have a detrimental effect on economic growth, one of the bill’s sponsors have stated that has already been proven to be false:

“For 50 years we had a tax that was about seven times larger than this when the country was seeing the greatest growth in its history, post-World War II,” he said. “So we’ve proven this will not have a detrimental impact on growth. In fact, it perhaps is beneficial to growth. It’s not necessarily beneficial to salaries of hedge fund managers on Wall Street.”

Complaints that an FTT would encourage businesses to move elsewhere are countered by the facts that 52 financial executives, including several former heads of mega-banks JP Morgan and Goldman Sachs, endorsed the idea and forty countries around the world have already embraced a transactions tax.

Journalist Economist and author David Cay Johnston joined Ed Schultz on the The Ed Show what the FTT would mean for the American economy.

With the capitulation on filibuster reform and the feral children still running the asylum, there is little chance that something this sensible will even get out of committee. That is a very sad state of affairs for this country.

Correction: We received a very kind e-mail from Pulitzer Prize winning journalist David Cay Johnston noting that he is not an economist. He is a renowned investigative journalist who has written about economics and the US tax system.  

Cross posted from The Stars Hollow Gazette

After Pres. Barack Obama’s pick for Treasury Secretary confessed to a lack of financial expertise, you would have thought that the president’s choice for the number two spot would have been someone to fill that gap. Silly you. President Obama’s choice for Deputy Treasury Secretary is rumored to be Ruth Porat, who lobbied for Wall St. against regulation. This is her profile from Business Week:

Ms. Ruth Porat has been Chief Financial Officer and Executive Vice President of Morgan Stanley since January 2010. Ms. Porat served as the Global Head of the Financial Institutions Group at Morgan Stanley from September 2006 to December 2009 and also served as its Vice Chairman of Investment Banking from September 2003 to December 2009 and Chairman of the Financial Sponsors Group from July 2004 to September 2006. Throughout the recent financial crisis, she has been responsible for the Financial Sponsors Group ‘s coverage of financial institutions and governments globally, and she led the team advising the U.S. Treasury with respect to Fannie Mae and Freddie Mac. Ms. Porat began her career with Morgan Stanley in 1987 in the Mergers and Acquisition Department.

According to Forbes, Ms Porat is the most influential woman on Wall St.

The Sunlight Foundation reports that Ms Porat lobbied on behalf of Wall St., meeting with regulators about Dodd-Frank rules nine times:

* 2012-03-27: Met with the Federal Reserve to express concerns on bank capital rules

* 2012-04-30: Met with the Federal Reserve to claim surcharges for Too Big To Fail banks were not necessary. Later also said regulating derivatives would hurt liquidity.

* 2011-12-14: Met with the Federal Reserve to ask for more lenient disclosure requirements for Morgan Stanley

* 2010-10-28: Met with the Federal Reserve to push back on Volker Rule and for more flexibility on Proprietary Trading

* 2010-11-02: Met with Treasury on the CFPB (no disclosures on meeting’s purpose)

*  2011-02-01: Met with Treasury on Capital and Liquidity (no disclosures on meeting’s purpose)

* 2011-05-03: Met with Treasury on the Volker Rule (no disclosures on meeting’s purpose)

* 2011-07-07: Met with Treasury on Derivatives (no disclosures on meeting’s purpose)

* 2011-01-05: Met with FDIC on Volker Rule (no disclosures on meeting’s purpose)

h/t DSWright at FDL News Desk

Ms Porat is not what Obama’s critics meant when they complained about a lack of woman in influential positions in the cabinet. Really, Mr. President, a Wall St. lobbyist? Jamie Dimon must be so pleased.