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Wealthiest pay higher taxes — with no substantial impact on economic growth

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As the political fight over raising taxes for high-income Americans fades away, so are predictions for negative economic fallout.

The bill for President Barack Obama’s 2013 tax increases comes due April 15, and the first boost in marginal income rates in 20 years is already reducing the U.S. budget deficit without tipping the economy into recession.

“In advance one always hears the squeals of the oxen who would like everyone to think they are about to be gored,” said James Galbraith, an economist at the University of Texas at Austin. “Then it turns out that they are only nicked, and life goes on.”

The U.S. government is projected to collect more than $3 trillion for the first time in the fiscal year ending Sept. 30, a 9.2 percent increase over last year, according to the Congressional Budget Office. CBO forecasts another 9 percent rise in 2015 and estimates that more than half of the increases in revenue stem from tax law changes.

Because of tax increases, spending cuts and economic growth, the federal budget deficit is projected to be 3 percent of gross domestic product this year. That’s less than half its 2012 level and the smallest budget deficit since 2007…

High-income taxpayers face additional levies, effective in 2013, to help pay for Obama’s health-care plan. That means those at the very top of the U.S. income scale face higher marginal tax rates than at any time since 1986…

The high-income tax increase sapped 0.25 percentage points from GDP in 2013, estimates Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. That slight economic drag, he said, shouldn’t continue.

The question of how much tax-law changes affect the economy also plays out in states, where lawmakers have cut taxes in an effort to provide a jolt to businesses or raised them to bridge budget gaps that persisted after the recession.

California in November 2012 approved a temporary increase in the tax on retail sales and set a nation-high tax bracket of 13.3 percent on incomes of more than $1 million. Opponents warned that it would extract a toll in lost jobs, as businesses cut costs or fled to other states.

The reality in California, now benefiting from a reviving real-estate market, has been different. While job growth slowed in 2013 from a year earlier, employers still expanded payrolls by 2.6 percent, faster than the 1.7 percent pace in the U.S., according to U.S. Labor Department data compiled by Bloomberg.

“There’s just no evidence that the income tax increases have had any substantial impact on California’s economic growth,” said Christopher Thornberg…“It just is not the primary driving force the way some people think it is.”

RTFA. Like most serious Bloomberg articles, this one has lots of red meat and reality. Unlike the ideology-driven crap from Tea Party frumps.

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Written by Ed Campbell

April 16, 2014 at 2:00 am

Global trade to gain speed in 2014 and 2015

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containers offloading in Qingdao, Shandong province
Trucks carry containers unloaded from ship in Qingdao, China’s Shandong province

The growth of global commerce will pick up speed this year and next, says the World Trade Organization…Trade will grow by a “modest” 4.7% this year and by 5.3% in 2015, says the WTO.

Next year’s figure, if correct, would be in line with the average growth rate in world trade over the last 20 years…These forecasts are consistent with other figures that show the world economy is gradually recovering from the financial crisis…

The overall impact is that global trade is above its pre-crisis level, but well below where it would have been, had it grown in line with the earlier pre-crisis trend…In fact, that gap is still getting wider and by next year will, on the new forecasts, be 19%.

So the analysis by the WTO does suggest progress…But if world trade and its growth before 2008 was in some sense normal, we are still not back there…

“In addition to creating a permanent shift downward in the level of trade,” said the WTO in a press release…”The global recession of 2008-09 may have reduced its average growth rate as well.”

The agency’s director general, Roberto Azevedo, said that just waiting for an automatic increase in trade was not enough…He called for new trade liberalisation agreements, in particular the negotiations known as the Doha Round…”Concluding the Doha Round would provide a strong foundation for trade in the future, and a powerful stimulus in today’s slow growth environment.”

The new WTO figures confirm that China is now the biggest goods trader in the world…Adding together exports and imports, China leads the United States, which is itself still the biggest trader in commercial services…However, the picture is different if the European Union is treated as a single unit, counting the trade of EU member states with outside nations and excluding commerce within the Union.

On that basis, the EU is the world’s biggest trader.

A significant portion of the whole equation is foreign direct investment, one of those economically rich processes that typically provides jobs and trade at both ends of such agreements. As long as Congressional Republicans control regulations governing FDI, the United States doesn’t stand a chance of improving trade.

Tea Party Confederates and the rest of the Republican Party have done everything they can to sabotage foreign direct investment from China in the United States. Between their Cold War mentality and fear-based ideology leftover from the Bush-Cheney years, FDI from China last year was less than 1% of the total.

Logic makes it clear to the Chinese their investment plans are better served within the European Union and in bilateral agreements with developing nations. That is where they are going to send their money. Americans who want jobs had better start asking questions of the isolationist patriots in Congress who believe their only mandate is to protect the likes of General Electric and the Koch Brothers.

Written by Ed Campbell

April 14, 2014 at 2:00 pm

States the most & least dependent on Federal Government

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Dependent states
Click for large interactive map

The extent to which the average American’s tax burden would vary based on his state of residence represents a significant point of differentiation between state economies. But it’s only once piece of the puzzle.

What if, for example, a particular state can afford not to tax its residents at high rates because it’s receiving disproportionately more funding from the federal government than states with apparently oppressive tax codes? That would change the narrative significantly, revealing federal dependence where bold, efficient stewardship was once thought to preside.

The idea of the American freeloader burst into the public consciousness when #47percent started trending on Twitter. And while the notion is senselessly insulting to millions of hardworking Americans, it is true that some states receive a far higher return on their federal income tax investment than others.

Just how pronounced is this disparity, and to what extent does it alter our perception of state and local tax rates around the country? WalletHub sought to answer those questions by comparing the 50 states and the District of Columbia in terms of three key metrics: 1) Return on Taxes Paid to the Federal Government; 2) Federal Funding as a Percentage of State Revenue; and 3) Number of Federal Employees Per Capita.

Folks living in New Mexico know even without looking where we fit into this picture puzzle. Yup, tied with Mississippi at the bottom of the heap.

Our Republican governor is often spoken off as the hope for moderate Republicans as President or Vice-President in 2016. Right now, our education system battles with Mississippi for the honors of being the worst, unemployment is still increasing while the rest of the country seem to be growing a few jobs and here we are at the bottom.

Thanks, Barry Ritholtz

Written by Ed Campbell

April 10, 2014 at 8:00 am

Fuel from the sea proof of concept — Naval Research Lab

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Fueled by a liquid hydrocarbon—a component of NRL’s novel gas-to-liquid process that uses CO2 and H2 as feedstock—the research team demonstrated sustained flight of a radio-controlled P-51 replica of the legendary Red Tail Squadron, powered by an off-the-shelf and unmodified two-stroke internal combustion engine.

Using an innovative and proprietary NRL electrolytic cation exchange module, both dissolved and bound CO2 are removed from seawater at 92 percent efficiency by re-equilibrating carbonate and bicarbonate to CO2 and simultaneously producing H2. The gases are then converted to liquid hydrocarbons by a metal catalyst in a reactor system…

The predicted cost of jet fuel using these technologies is in the range of $3-$6 per gallon, and with sufficient funding and partnerships, this approach could be commercially viable within the next seven to ten years. Pursuing remote land-based options would be the first step towards a future sea-based solution…

The process efficiencies and the capability to simultaneously produce large quantities of H2, and process the seawater without the need for additional chemicals or pollutants, has made these technologies far superior to previously developed and tested membrane and ion exchange technologies for recovery of CO2 from seawater or air.

Delightful stuff. Field expediency and cost efficiency over time – both potentials addressed in a single experiment.

Thanks, Mike

Written by Ed Campbell

April 9, 2014 at 2:00 am

German cabinet agrees on $11.75/hr minimum wage

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Demonstration by Confederation of German Trade Unions for minimum wage

Germany’s cabinet agreed on Wednesday to a national minimum wage of 8.50 euros ($11.75) per hour – a flagship project for the Social Democrats who share power with Angela Merkel’s conservatives.

The minimum wage will take effect in Europe’s biggest economy from 2015 but will not cover minors, trainees and some interns. Some employers can continue to pay their workers less until the end of 2016 if they are covered by certain collective agreements…

The Bundestag lower house of parliament is due to debate the law in June before passing it in July. The Bundesrat upper house is expected to wave it through after the summer break.

Employer lobbies say blah, blah, blah.

Of the 28 states in the European Union, 21 have minimum wages. EU states without minimum wages tend to have smaller low-wage sectors than Germany and a bigger proportion of their workers are covered by collective wage deals between unions and employers.

Then, we have the United States where our courageous Democrats are considered too radical for Republicans and the rest of the right-wing crowd for offering a proposal that wouldn’t match inflation since the last update years ago – by the time the change took place. Assuming it ever gets past the Party of No in Congress.

Just one more moment to look back over the half-century or so since the end of WW2 and consider our victory in the War in Europe and what the losers have achieved compared to the winners.

Written by Ed Campbell

April 2, 2014 at 8:00 am

How a Predator Drone really works

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Courtesy of the Onion

Thanks to Barry Ritholtz, my 2nd favorite Recovering Republican

Written by Ed Campbell

April 1, 2014 at 6:38 am

Has China left behind traditional fixed growth targets?

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three
Lou Jiwei, Xi Jinping and Zhou Xiaochuan

“Isn’t it now time for China to abandon the concept of a growth target?”

That was the question I asked Chinese Finance Minister Lou Jiwei this week at the 15th annual China Development Forum, which brings together top Chinese officials and an international delegation of academics, leaders of multilateral organizations, and business executives. Having attended the CDF since former Premier Zhu Rongji initiated it in 2000, I can attest to its role as one of China’s most important platforms for debate. Zhu welcomed the exchange of views at the Forum as a true intellectual test for China’s reformers.

It was in that spirit that I posed my question to Lou, whom I have known since the late 1990’s…I have always found him to be direct, intellectually curious, a first-rate analytical thinker, and a forward-looking advocate of market-based reforms. He is cut from the same cloth as his mentor, Zhu…

While it may seem like splitting hairs, continuing to frame the economic goal as a target sends a message of determined and explicit guidance that now seems at odds with the government’s market-oriented intentions. Wouldn’t dropping the concept send a far more powerful message? Isn’t it time for China to let go of the last vestiges of its centrally planned past?

Lou’s response: “Good question.”

China, he went on, is in fact moving away from its once single-minded emphasis on growth targeting. The government now stresses three macroeconomic goals – job creation, price stability, and GDP growth. And, as evidenced by the annual “work report” that the premier recently submitted to China’s National People’s Congress, the current emphasis is in that order, with GDP growth at the bottom of the list…

This is particularly relevant in light of the important threshold that has now been reached by the structural transformation of the Chinese economy – the long-awaited shift to a services-led growth dynamic. Services, which now account for the largest share of the economy, require close to 30% more jobs per unit of output than the manufacturing and construction sectors combined. In an increasingly services-led, labor-intensive economy, China’s economic managers can afford to be more relaxed about a GDP slowdown…

RTFA. Few economists have the experience, personal knowledge of Stephen Roach on China. I mentioned in a recent post about the fight against corruption that economics and commerce fit more into my personal interests. You may find the topics dull as a hoe handle; but, if you haven’t curiosity about what’s going on in the whole world and how events will affect your own life – you may as well settle back and let some priest or pundit run your life.

Here’s where Doctor Roach ends up on this particular occasion. For more, read his latest book, Unbalanced: The Codependency of America and China.

Since Deng Xiaoping’s reforms of the early 1980’s, less and less attention has been paid to the numerical targets of central planning…China’s most senior fiscal and monetary policymakers – Lou Jiwei and Zhou Xiaochuan – are close to taking the final step in the long journey to a market-based economy. Their shared interpretation of flexible growth targeting puts them basically in the same camp as policymakers in most of the developed world. The plan is now a goal-setting exercise. From now on, fluctuations in the Chinese economy, and the policy responses that those fluctuations imply, need to be considered in that vein.

Written by Ed Campbell

March 31, 2014 at 2:00 pm

The IMF is interesting to US policymakers for the wrong reason

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The International Monetary Fund is an immensely useful organization, able to deliver substantial amounts of financial and technical assistance at short notice to almost any place in the world. It also has the great advantage of almost always being perceived as incredibly boring…

In the realm of international economics, being perceived as boring confers power to the extent that it allows major decisions to be made without a great deal of external scrutiny. From 1918 to 1939, international economic cooperation was hard to come by – in large part because all of the attempted deals were put together at high-profile international conferences. Following the creation of the IMF in 1944, many of the same decisions became routine, a lot less interesting, and much easier to implement…

The US does not dictate what happens at the IMF, but it does have a disproportionate influence. Given the Fund’s origins in helping to rebuild Europe after World War II, European countries are also very well represented on its executive board and in terms of ownership shares (and thus voting weight on important decisions).

One major goal in recent decades has been to shift representation at the IMF somewhat away from Europe and toward the world’s emerging markets. These countries’ global economic and financial significance has grown rapidly, yet they have relatively little representation at the Fund.

A package of reforms has been agreed. Like most products of international negotiations, the agreement is not perfect; but it does move the ball forward…These reforms need to be agreed, in legislative form, by the US Congress before they can take effect. For whatever reason, President Barack Obama’s administration did not push this item hard in 2013 and early 2014 – and the agenda of encouraging further IMF reform has therefore languished.

The Obama administration proposed to tie IMF reform to the presumably imminent approval by Congress of funding for Ukraine. This is sensible legislative tactics but not appealing as an economic strategy. In effect, the administration tried to make the IMF more interesting, particularly to encourage Republicans in the House of Representatives to support the reforms.

The latest indications are that the Republicans will not be so enticed. But the bigger problem is that Ukraine does not really need a massive loan from the IMF. What Ukraine needs is a sharp reduction in corruption, as well as real legitimacy (through the ballot box) for people who want to rein in the influence of oligarchs – a group that has sapped the economy through plunder and incompetence over the past two decades.

Mostly, what looks like happening is typical of Congress and Congressional Republicans. Money for war is always available – so, the White House and the Pentagon will make Ukraine aid sound like war is imminent.

The need to reform the IMF and why – will probably be swept under the rug.

The need to reform Ukraine will simply be ignored. Most of Congress has no interest in anything concerned with real reform vs. the phoney sort they talk about all the time. The kind that means screwing working people even more.

Written by Ed Campbell

March 31, 2014 at 2:00 am

A policy of self-serving hypocrisy towards Russia

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The United States has once again twisted itself into a rhetorical pretzel. As when it threatened military action against Syria if a “red line” was crossed, the Obama administration’s rhetoric about Russia and Ukraine goes far beyond what it will be willing and able to enforce.

Earlier this month, President Obama warned that America would “isolate Russia” if it grabbed more land, and yesterday, he suggested that more sanctions were possible. Likewise, Secretary of State John Kerry said the Group of 7 nations were “prepared to go to the hilt” in order to isolate Russia.

But Washington’s rhetoric is dangerously excessive, for three main reasons: Ukraine is far more important to Vladimir V. Putin than it is to America; it will be hard for the United States and Europe to make good on their threats of crippling sanctions; and other countries could ultimately defang them…

The fundamental problem is that the Obama administration doesn’t want to bear the costs associated with an active foreign policy. That’s understandable. A December Pew poll revealed the lowest level of public support for an active American foreign policy since 1964.

This domestic pressure was on display in Syria. Mr. Obama’s error was not that he backed away from military action and accepted Russia’s proposal to rid Syria of chemical weapons. The mistake was that he drew a red line that would have been more costly to back up than the United States was willing to tolerate. America lost credibility internationally for failing to make good on its threat.

Unfortunately, the Obama administration is repeating this mistake in Ukraine…

“Isolating Russia” as if it were Iran or North Korea isn’t a threat America can feasibly make good on. Just because Mr. Putin is acting like the leader of a rogue state, his country cannot be considered as such. Russia boasts the world’s eighth-largest economy. Given the exposure of American corporations to Russia, there would be serious pushback from the private sector if Mr. Obama tried to relegate Russia to rogue-state status. The Obama administration needs to preach what it will ultimately practice. Otherwise Washington’s credibility will erode further as it walks back its words.

A more hard-line response is not the answer. Mr. Obama was right to rule out the military option; diplomacy is America’s only viable path forward…

The Obama administration should focus on supporting Kiev rather than punishing Moscow. That means using its leverage with Europe to ensure that this support sticks, and that Ukraine’s new government does nothing to provoke an extreme response. This will require an acknowledgment of Russia’s core interests and America’s limitations — and an end to empty threats.

There are about three historic levels to the context of this antagonistic complexity. Most of which is viewed with greater clarity outside the United States than within. Not unusual.

On the longest historic stage, Americans forget we acquired foreign territory much in the same way Albanians did Kosovo, Russians did Crimea. We moved in and colonized economic expansion and then used our [foreign] military might to guarantee the freedom of our colonists to secede. In case you never read a history book, that’s how we got Texas, New Mexico, Arizona, California, Utah and a chunk of Wyoming and Colorado.

Nearer in time, lacking an adjacent border, the US invasion of Afghanistan and Iraq – especially the latter – didn’t have a damned thing to do with protecting our nation. Not on that scale, nothing to do with what we set out to accomplish and failed.

Pretending there is nothing comparable between the secession of Kosovo and the Crimea is patent leather revisionism. The voting population of Kosovo was skewed by incomers as much or more than Crimea – over a shorter period of time. The politics of each differs; but, international codes are cobbled together in an attempt to function independent of local politics. Whether they succeed at it or not.

Written by Ed Campbell

March 30, 2014 at 2:00 pm

Smart small business owners support raising minimum wage

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Sen. Robert Casey, CEO Clifton Broumand and Sen. Cory Booker

Small business leaders joined Senate Democrats on the Hill Thursday to lend their support to a push to raise the federal minimum wage to $10.10.

Flanked by business owners who said they experienced measurable benefits to paying their employees above the minimum wage, Sens. Robert Casey of Pennsylvania, Cory Booker of New Jersey, Ed Markey of Massachusetts and Richard Blumenthal of Connecticut said the impact of such a move would go far beyond the individual worker.

“We know that 70 percent of the economy is driven by consumer spending,” Casey said. “If you put more dollars in the pockets of consumers, not only do you have that overarching economic benefit to the country, but of course small businesses especially benefit.”

But the more powerful testimony came from John Cooper, Clifton Broumand and Scott Nash, who told stories of their employees who “were more like family” and stayed with their companies for decades because they could count on a “a fair wage for a fair day’s work.”

Broumand, who owns Man & Machine Inc., which makes medical-grade waterproof keyboards and mice, said that paying his employees well meant they were more innovative and loyal.

“Inevitably as a business owner, you’re not going to get as much money initially, but I’ve found that productivity by people who have less stress, who are happier in their jobs, actually increases substantially every time they’re getting more money,” he explained. “And therefore, it doesn’t take that long for me to actually become more productive and actually make more money…”

Cooper, president of Spectronics Corporation, a Westbury, N.Y. company that builds ultraviolet lamps for forensic and fingerprint analysis, said more than 70 percent of his company’s employees had been there for more than 10 years.

A higher minimum wage will result in increased employee retention, which means lower costs for hiring and training new workers,” he said. “It will allow workers to buy essentials they cannot afford now and most of the money they spend will go right back into local businesses.”

“Raising the minimum wage might have a short impact on our profits, the bottom line, but in the long run, it benefits our workers, and it benefits me as owner of the company as well,” he said. “So it’s a win, win.”

One of the most interesting experiments by any nation as we we headed into the global crash of the Great Recession was that portion of German industry that tried an alternative to the dole. Work hours were cut; but, workers were not cut loose from their jobs into unemployment. They may not have had a boatload of work to do; but, factories were maintained; tasking skills were continued as was training; plans were studied and trialed – and when the turnaround barely began to be felt, German industrial capacity was ready to move and grow, produce and benefit the whole country’s economy.

All at a cost less than traditional measures. All without displacing workers from their place of employment often for decades. All without hiring new workers requiring one to three years of experience to get up to the productivity levels of staff let go to the dole. A stroke of success beyond the comprehension of the American government, particularly Congress. Unfortunately.

On a smaller scale, these small business owners are talking about the same concept and practices.

Written by Ed Campbell

March 28, 2014 at 8:00 am

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