Paul Krugman has taken some rather interesting stances on the fiscal situation here in the U.S. First up is a piece entitled Fiscal Train Wreck from March 2003,

With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

[…]

Last week the Congressional Budget Office marked down its estimates yet again. Just two years ago, you may remember, the C.B.O. was projecting a 10-year surplus of $5.6 trillion. Now it projects a 10-year deficit of $1.8 trillion.

And that’s way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses. If you take into account ? as the C.B.O. cannot ? the effects of likely changes in the alternative minimum tax, include realistic estimates of future spending and allow for the cost of war and reconstruction, it’s clear that the 10-year deficit will be at least $3 trillion.

[…]

That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 ? make that 3, O.K., maybe 4 ? percent of G.D.P. But that misses the point. “Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen.” So says the Treasury under secretary Peter Fisher; his point is that because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.

What does he say today (well at least in August 2009)? Well, lets take a look,

I respect Jim Hamilton a lot, so I take his criticism seriously — and he raises questions that others raise too about my relatively sanguine assessment of the debt situation. Yet I think that he and others are quite wrong, on several counts.

[…]

But let’s take a slightly later start date: in 1950, federal debt in the hands of the public was 80 percent of GDP, which is in the ballpark of what we’re looking at for 2019. By 1960 it was down to 46 percent — and I haven’t heard that anyone considered America a debt-crippled nation when JFK took office.

So how was that possible? Was it through drastic cuts in defense spending? On the contrary: we’re talking about the height of the Cold War (with a hot war in Korea along the way), and federal spending actually rose as a share of GDP. So yes, it wasn’t entitlement programs, but it wasn’t exactly discretionary either.

How, then, did America pay down its debt? Actually, it didn’t: federal debt rose from $219 billion in 1950 to $237 billion in 1960. But the economy grew, so the ratio of debt to GDP fell, and everything worked out fiscally.

[…]

Jim gets scary numbers about the debt burden by assuming that we’ll have to pay off the debt in 10 years. But why would we have to do that? Again, the lesson of the 1950s — or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels — is that you need to stabilize debt, not pay it off; economic growth will do the rest. In fact, I’d argue, all you really need to do is stabilize debt in real terms.

Note that in 2003 Krugman was just fine looking at the 10 year budget predictions. Now, why that’s silly we just need to alter our perspective. And the new post mentions nothing about Social Security and Medicare whose fiscal/actuarial position has not changed appreciably since 2003.

Now some might argue, and indeed in the comments to other posts people have argued, that during the fat years you trim the deficits or best of all run surpluses and in the lean years run the deficits. Sure, that is a some what simplified version of Keynesian fiscal stimulus. My response is lets make a list of the two situations,

View from 2003:

1. The economy was in recovery.
2. The fiscal outlook was a $1.8 trillion deficit.
3. Social Security and Medicare were in serious actuarial imbalance (tens of trillions of dollars).

View from 2009:

1. The economy is in recession.
2. The fiscal outlook is $9 trillion deficit.
3. Social Security and Medicare were in serious actuarial imbalance (tens of trillions of dollars).

The view in 2003 terrified Krugman, so much so that he took personal action regarding his own finances. Switch to 2009 and, meh guys like Prof. Hamilton are just being alarmists. The view from 2009 is pretty much worse than it was in 2003, and it seems to me that yes, if one was worried about the fiscal outlook in 2003, then in 2009 it is even more worrisome. I agree with James Hamilton,

If the government tries to double taxes on people like me, it’s in real political trouble. If it doesn’t try to double taxes on people like me, it’s in real solvency trouble.

It looks like we may have a problem here.

Thanks to Scrivner.net for the links, and their article is also well worth reading. And yes, I know that this stuff is rather old, but…well Krugman is basically saying the samethings today he did in August, “No worries, we’ll grow our way out of it.”

I was reading this Megan McArdle post about the federal government restricting bonuses to AIG employees. As I was reading, I came across this sentence:

To wit: the traders at AIG are threatening to walk if Ken Feinberg pays them what he says he’s going to pay them, particularly if the company tries too hard to withhold the retention bonuses they were promised in order to stay on board and clean up the mess.

One of the common criticisms about the federal government intervening in the payment of bonuses to employees of bailed-out firms is that if those employees don’t get those bonuses, they’ll leave and go elsewhere.

I have a question about this, and I mean this with all sincerity: where will they go to work? Is there a lot of demand for trading jobs right now? I would think that from the general state of the economy, the answers to the above questions are pretty much “nowhere” and “no.” But I can’t find any data one way or the other.

If there isn’t much demand for traders at the moment, then is retention of those traders that big of a concern? After all, if there’s not much demand, there’s probably people who would take any job, even with income restrictions, because $500,000 a year is a lot better than $0 a year.

Does anybody out there know the state of the job market for traders right now?

In a front piece story in today’s NYT, Edmund Andrews warns that the bill is about to come due on the massive borrowing the federal government has engaged in.

Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

[...]

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

[...]

Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.  The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.

[...]

The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.  “What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”

Emphases mine.

This sounds ominous and unsustainable.  But Paul Krugman, recent winner of the Nobel Prize in economics, say these fears are overblown.

As Dean says, the numbers don’t fit the scare story — a decade from now interest payments will reach a level not seen since … 1992. And the market seems unworried, since long-term rates remain low.

The “Dean” is question is Dean Baker of The American Prospect.  He sarcastically titles his post, “In Just a Decade the U.S. Interest Burden Could Be as High as It Was in 1992!!!!!!!”

There is no evidence presented in this article that the rise in interest rates will place the U.S. government in a situation where it will be unable to pay its bills and no one cited in this article makes such a claim.

The article is also completely unbalanced in not presenting the views of any economist who could put the deficit/debt issue in perspective for readers.

Krugman makes the same charge but, oddly, neither of them bother to actually present a counterargument.

Andrews argues that most of the debt is in short-term loans whose price will go up as there becomes more competition for money.  He makes what strikes me as a plausible case that higher interest rates, growth in entitlement spending, and a smaller tax base will make servicing the debt very, very difficult.   Countervailing factors could offset this but neither Krugman nor Baker tell us what they might be.

It’s true that we had gloom and doom forecasts during the 1992 recession.  But we only solved those through the dual magic of the dotcom bubble and the post-Cold War defense drawdown.  It’s not likely that those events will repeat themselves.

Photo by Flickr user kandyjaxx under Creative Commons license.

A CNN poll released today finds that “opinion about which political party is responsible for the severe economic downturn is shifting.”  According to the survey, “38 percent of the public blames Republicans for the country’s current economic problems. That’s down 15 points from May, when 53 percent blamed the GOP. According to the poll 27 percent now blame the Democrats for the recession, up 6 points from May. Twenty-seven percent now say both parties are responsible for the economic mess.”

Similarly, the Gallup tracking poll has President Obama dipping below 50 percent approval for the first time, with 49 percent approving and 44 percent disapproving of the job he’s doing as president.

None of this is surprising, really.  While we may technically be out of the recession, unemployment is now in the double digits for the first time in many Americans’ memory and trending upwards.  Obama’s sitting in the White House and, rightly or wrongly, he gets the blame.

It’s actually rather remarkable that he’s doing as well as he is.   I credit Bush Fatigue.  People were so glad to see his predecessor leave office that Obama still seems good by comparison.

But that won’t last forever.

As longtime readers know, I believe presidents get far, far too much credit for good economic circumstances and far, far too much blame for economic downturns.  But that’s the nature of the game.

The next episode of OTB Radio, our BlogTalkRadio program, will record and air live from 5:30-6:30 Eastern.

Dave Schuler and I will talk about Sarah Palin’s comeback tour and ensuing controversies and President Obama’s Asia trip.  Alex Knapp will join us to provide his legal expertise on the Khalid Sheikh Mohammed trial and Steve Verdon will stop by to discuss the latest national debt milestone. Other topics will likely come up as well.

We’ll also be taking calls at (646) 716-7030. Owing to a high trolls to legit callers ratio, however, we’ll be using the BTR chat feature to screen for legit calls.

You can play the show, subscribe to its feed, or share it with your friends via the widget below:

(Note: The playback automatically updates to the most recent show available. Older shows can be accessed at the show archives.)

I missed this story last week, but apparently Pfizer is abandoning its New London headquarters, and the land that it used the power of government to steal from Kelo et al. now lays fallow.

Susette Kelo’s little, pink house in New London, Conn. — like the houses of all her neighbors — is now a pile of rubble, overgrown with weeds. But Pfizer, the company that called for the demolition in order to build a new research and development plant, announced Monday it is packing up and leaving town in order to cut costs after its merger with fellow drug-giant Wyeth.

[...]

The Fort Trumbull neighborhood Pfizer had bulldozed today consists only of “weeds, glass, bricks, pieces of pipe and shingle splinters,” according to the Associated Press. Nobody has built the high-rise hotel or the luxury condos the city’s planners had envisioned. The credit crunch and housing collapse took the air of out of that grand plan.

And Pfizer’s sparkling R&D facility that was supposed to anchor the city’s “rejuvenation?” It’s being shuttered as a cost-saving measure following Pfizer’s merger with Wyeth. Some of the 1,400 jobs there will move across the river to Groton. Some will be terminated.

The best-laid plans of central planners, it seems, have once again gone awry-unless you look at it from Pfizer’s perspective.

The Hartford Courant reports Pfizer may sell the building and the land, which it got for nearly nothing. Or it may lease it out. So, the drug giant still gets the profits from the government’s taking. But for New London? No more R&D jobs. No development of Fort Trumbull. Just some rubble where families once lived.

Despicable.

Update: I was on vacation last week, so I totally missed the fact that Steve Verdon covered this already. Still, we can keep being mad, right?

Brookins cartoon courtesy Richmond Times-Dispatch via Doug Mataconis.

Barack Obama has been president for just under 10 months but he’s added two trillion to the national debt and will double it by the end of the decade.  CBS’ Mark Knoller:

This latest milestone in the ever-rising journey of the National Debt comes less than eight months after it hit $11 trillion for the first time. The latest high-point is not unexpected, considering the federal deficit for the just-ended 2009 fiscal year hit an all-time high at $1.42-trillion – more than triple the previous year’s record high.

Much of the increase in the deficit and debt is attributed to government spending outpacing revenue – both exacerbated by the recession and the government response to it – including hundreds of billions in bailouts and stimulus spending and tax cuts along with decreased tax revenues due to rising unemployment.

[...]

The National Debt has increased about $1.6 trillion on Mr. Obama’s watch, though less than $4.9 trillion run up during the presidency of George W. Bush.

But the White House budget review issued in August projects that by the end of the current fiscal year on Sept 30th, the National Debt could top $14 trillion.  It gets worse. The same document projects that by the end of the decade, the National Debt will hit $24.5 trillion — exceeding the Gross Domestic Product projected for 2019 of $22.8 trillion.

According to the Treasury Department, the debt stood at $5.727 trillion on January 19, 2001, Bill Clinton’s last day in office, and $10.627 trillion when Bush left office eight years later.  That’s $612.5 billion (or $0.6125 trillion) a year, during which we fought two major wars, had the 9/11 attacks, and at least two major bailouts to deal with a global financial crisis.

We’re thus far averaging $1.92 trillion a year under Obama, or a factor of 3.146 more.   And the government is projecting that we’ll continue spending at this crisis rate for the next decade, more than doubling the current record level?

That ain’t good.

Presumably, we’d have had another major bailout had Bush stayed in office for a third term (were that Constitutionally or politically possible) or had John McCain been elected.  So spending and thus the debt would have escalated substantially regardless.  But we likely wouldn’t be talking about adding a massive health care payment on top of the pile.

The weekend’s most bizarre story is that British cancer specialist Dr. Brooke Magnanti has revealed that she is “Belle de Jour,” the pseudonymous blogger who managed to get several bestselling books and a television movie out of having paid her way through graduate school as a high priced prostitute. Jon Ungoed-Thomas for The Times.

Her identity has been one of the great literary mysteries of the decade after the publication of bestselling books about her secret life as a prostitute.

Magnanti is a respected specialist in developmental neurotoxicology and cancer epidemiology in a hospital research group in Bristol. Six years ago, in the final stages of her PhD thesis, she ran out of money and turned to prostitution through a London escort agency, charging £300 an hour. Already an experienced science blogger, she began writing about her experiences in a web diary that was adapted into books and a television drama starring Billie Piper.

[...]

The scientist, a petite 34-year-old, has no regrets about her 14 months as a prostitute. “I’ve felt worse about my writing than I ever have about sex for money,” she said. Anonymity had become “no fun”, however: “I couldn’t even go to my own book launch party.”

Until last week, not even her agent knew her real name. A month ago she revealed her secret to her colleagues at the Bristol Initiative for Research of Child Health, who were “amazingly kind and supportive”. She was preparing to tell her parents this weekend.

Magnanti said she was working on a doctoral study for the department of forensic pathology of Sheffield University in 2003 when she took up prostitution. “I was getting ready to submit my thesis. I saved up a bit of money. I thought, I’ll just move to London, because that’s where the jobs are, and I’ll see what happens.

“I couldn’t find a professional job in my chosen field because I didn’t have my PhD yet. I didn’t have a lot of spare time on my hands because I was still making corrections and preparing for the viva; and I got through my savings a lot faster than I thought I would.”

When she could no longer afford her rent, she started to think: “What can I do that I can start doing straightaway, that doesn’t require a great deal of training or investment to get started, that’s cash in hand and that leaves me spare time to do my work in?”

Apparently, threats that an ex-boyfriend (whether of the paid or unpaid variety is unclear) would reveal her secret forced her hand.

She claims to have earned £300 a night, which I find baffling on a number of levels.   And says that her blog “will continue for a bit – I’d like her to have a happy ending.”  Which is an amusing double entendre, whether intentional or otherwise.

Her “Secret Diary of a Call Girl” blog was controversial, since it depicted prostitution as glamorous.  Since the blogger was pseudonymous,many speculated that it was a work of fiction, with some claiming the author was a man.  Presuming Magnanti’s claim to authorship is genuine, it’ll be interesting to see what the reactions are.

Well looks like the entire town of New London, Conn. is going to get screwed by Pfizer.

“Look what they did,” Mr. Cristofaro said on Thursday. “They stole our home for economic development. It was all for Pfizer, and now they get up and walk away.”

That sentiment has been echoing around New London since Monday, when Pfizer, the giant drug company, announced it would leave the city just eight years after its arrival led to a debate about urban redevelopment that rumbled through the United States Supreme Court, and reset the boundaries for governments to seize private land for commercial use.

Pfizer said it would pull 1,400 jobs out of New London within two years and move most of them a few miles away to a campus it owns in Groton, Conn., as a cost-cutting measure. It would leave behind the city’s biggest office complex and an adjacent swath of barren land that was cleared of dozens of homes to make room for a hotel, stores and condominiums that were never built.

[...]

After Pfizer completed its $67 billion acquisition of Wyeth, another drug giant, in October, Ms. Power said, “We had a lot of real estate that we had to make strategic decisions about.” She said Pfizer would try to sell or lease its buildings in New London and would “continue to pay our taxes to the city as scheduled.”

The complex is currently assessed at $220 million, said Robert M. Pero, a city councilman who is scheduled to become mayor next month. The company pays tax on 20 percent of that value and the state pays an additional 40 percent, Mr. Pero said. That arrangement is scheduled to end in 2011, around the time Pfizer, which is currently the city’s biggest taxpayer, expects to complete its withdrawal.

“Basically, our economy lost a thousand jobs, but we still have a building,” Mr. Pero said. Then again, he added, “I don’t know who’s going to be looking for a building like that in this economy.”

Basically you suck Mr. Pero. Good job wrecking your town’s economy. Not only has your economy lost thousands of jobs you’ve gone out and wrecked considerale amounts of private property…for nothing. On top of this you’ve spent millions of dollars that could have been spent elsehwere.

Mr. Pero said that he was offended that Pfizer did not notify city officials about the decision before Monday or give them a chance to argue against it or even fully understand it.

Oh the irony. Hmmm how did Ms. Kelo feel?

The Urban Institute’s Eugene Stuerle is not very happy with the health care expansion legislation that is likely to be passed into law. Stuerle argues that the legislation violates the standards of equal justice.

Of course, families in this income bracket pay far more than $14,700 for health care. They get hit by uninsured expenses or covered expenses they have to share-perhaps an average of $5,100 with the $14,700 policy just noted. They also pay fairly large amounts of tax to cover others, such as retirees. In fact, Americans spend about 24 percent of monetary income (wages and interest and the like) on health care. Using a more familiar metric, the total comes to 16 percent of the gross domestic product (GDP), though GDP includes many items that aren’t typically reported as income (such as the rent you save by owning a home).

Congressional health reformers believe that most households shouldn’t pay that much. They propose something closer to tithing. That way, no more than a tenth or an eighth of household income would go to purchase health insurance. This has a nice political ring to it, but here’s the reality: the 24 percent burden is rising and can’t drop without lower cost growth. Congress can only change who pays or temporarily borrow more from China and other creditors.

The problem gets serious when these arithmetical contradictions get woven into legislation. And we’re already on a slippery slope there.
Take the Senate Finance Committee efforts at health reform that have garnered so much attention. Under one version, households with $54,000 of income would get a subsidy of almost $10,000 toward the $14,700 health insurance policy that Congress has decided that they can’t afford. The first catch 22 is that since these subsidies are so expensive, Congress plans to exclude from getting the subsidy those households that get health insurance in lieu of higher cash wages from their employer.

This is unfair. It violates the fundamental principle of equal justice. People in similar circumstances should be treated similarly under the law.

The notion of justice here that Stuerle is referring to is often called horizontal equity and holds that people in similar circumstances should be treated similarly. In this case they are not.

There is also the distorting effect that related penalty on not providing health insurance for workers. There is a $400 cap on the penalty in one case. Could this lead to employers who are in that situation dumping their workers health care and taking the penalty? And, if you have less than 50 employees you are exempt from the penalty, and this provides a subisidy to small businesses.

Then there is the tax subsidy for employer provided benefits.

Here’s yet another complication. Congress is holding fast to today’s regressive tax subsidy for employer-provided health insurance, which can be worth $2,000 to $6,000 per family. This benefit, an exclusion from tax of compensation received as health insurance, would be valuable enough to some employers—especially those with highly paid employees who aren’t eligible for the new individual subsidies—to keep them from dropping insurance coverage. It is also probably one reason why the Congressional Budget Office estimated that a Senate Finance Committee version of health reform would cause a drop of only about 3 million in employer-provided coverage over the next 10 years. John Shields and Randy Haught of the Lewin Group, in a study for the Peter G. Peterson Foundation, estimated that when fully implemented, this same Senate Finance bill would cause one set of employers to drop insurance coverage for 19 million people but another set to add coverage for 12 million.

Considering the new and old subsidies together gets complicated. Still, many low- and middle-income earners paying through an employer by accepting lower cash wages would lose out big time. They would get thousands of dollars less in subsidy than families making an equivalent amount of total compensation in cash and then getting insurance from the type of insurance exchange that the reform bills would establish.

All in all, the current legislation is going to have many bizzare incentives and it could very well result in less desirable outcomes. For example, what if small employers who grow over time simply never offer health insurance like large employers today? If the penalty is not sufficiently large then these firms will essentially be getting a subsidy as will the workers. A wealth transfer from those who do work for employers who provide health care benefits to those who do not.

And the current legislation completely fails to address the issue of cost. So when President Obama stated,

Soaring health care costs are unsustainable for families, they are unsustainable for businesses, and they are unsustainable for governments, both at the federal, state and local levels.

It wasn’t serious enough to actually warrant addressing. And if one were to look at history we see that government has a rather bad record when it comes to health care and costs. As my co-blogger Dave Schuler has noted, for the past several years Congress has failed to reduce Medicare reimbursement rates. Also, the U.S. takes up the health care issue, legislatively, about once every decade or two. So the idea that the issue of costs will be addressed later is not very reassuring considering it might be 15 years later. At which time we can probably expect health care to be consuming at least 20 – 25% or GDP and who knows how much of our federal budget. And given the inability of politicians to reduce spending it will likely add to our already large debt and growing deficits. Or to put it differently, the trillion dollar deficits? Get used to them. You thought Bush was a spendthrift, you ain’t seen nothing yet.

This is why I don’t consider the legislation passed by the House of Representatives and what the Senate is working on to be health care reform. It will expand and entrench our current system. A system that people have already agreed is broken. Will it be easier to reform the cost side of the issue when you take the current system and expand and further entrench it? Such thinking is simply delusional. Refroming any system will create losers as well as winners. My guess is that the winners will be more motivated, a smaller group, and have better funded lobbyists.

So I agree with Eugene Stuerle when we rights,

Done the right way, I believe that Congress could get more equal justice, higher levels of basic insurance coverage for Americans, and lower costs all in the same package.

I agree from a theoretical perspective this is possible, but from a politically feasible standpoint I’m more inclined to think it is impossible.

Not only did the government lose its case against two top Bear Stearns managers but at least one juror came away wanting to invest with them.

Prosecutors missed the mark so widely in the fraud trial of Bear Stearns Cos. hedge fund managers Ralph Cioffi and Matthew Tannin that a juror said after their acquittal she would invest with them if she had the money.

[...]

The funds collapsed in 2007, as did Bear Stearns itself less than a year later. The defendants, according to juror Serphaine Stimpson, were made “scapegoats for Wall Street.”

[...]

Stimpson said she came into the trial thinking both Cioffi and Tannin were guilty of the fraud, insider-trading and conspiracy charges. She said she began to have second thoughts as the testimony progressed and defense lawyers “tore the government witnesses apart.” “We just weren’t 100 percent convinced,” said Stimpson, 27, an office coordinator at Brooklyn College. “As the witnesses began to testify, I had my doubts.”

Key parts of the government’s case relied on e-mails written by the defendants.  The men claimed in e-mails and conversations with investors to be adding their own money to the funds in the months before their collapse, the U.S. alleged. Neither man added any money to the funds, once valued at $20 billion, prosecutors said.

The defense argued Cioffi and Tannin were innocent of any wrongdoing and had remained honestly optimistic about the funds’ health. E-mails which the men sent were more ambiguous than the government alleged, the lawyers for the two men said.

Jenny McCaughey, of Deer Park, on New York’s Long Island, served as the jury forewoman. She said the e-mails presented by the government as evidence cut both ways. “They said one thing and another thing,” McCaughey said. “The government didn’t give us enough evidence to go on.”

Aram Hong, a juror from Woodside, Queens, said the exchanges between Cioffi and Tannin shown to the jury proved to her that the two men were working “24-7” to save the funds in the months before they collapsed. She noted a defense exhibit that showed the fund managers were working at 4 a.m. “If this was really a fraud case, they wouldn’t have worked that hard,” said Hong, 27, a food and beverage director at the Iroquois Hotel in midtown Manhattan, adding that she would invest with the two men if she had the money.

This is a fascinating outcome, in that jurors were naturally disposed to convict.  These companies collapsed when dubious business practices finally proved unsustainable, helping take down the global economy.  And these guys were making millions!

But it certainly looks as if, at a minimum, these guys were overcharged.  They may well have been guilty of malfeasance and failure to perform due dilligence, although whether that rose to a criminal level I can’t say. But fraud seems a ridiculous charge given the evidence.

Reason’s Nick Gillespie has a bit of fun with the UPS-FedEx fight to make a larger argument about unions.

What’s particularly amusing about this is that, rather than seeking to get the favorable regulatory treatment that FedEx enjoys, UPS is fighting to put FedEx under the same onerous rules.

I’m reminded of the old joke about the Russian who gets a wish from a genie and complains that his neighbor has two cows while he only has one.  The genie asks, “So, would you like a second cow?  Or a third?”   “No,” says the peasant.  “I want you to kill one of my neighbor’s cows.”

via Glenn Reynolds

The recently passed health care “reform” noted by James below is going to have another impact some have noted, but many have not given much thought too. It will, in effect, make labor more expensive. When something becomes more expensive for firms then tend to use less of it. They will substitute away from it if possible, or failing that hire fewer workers, and in some cases simply shut down. Other firms might relocate to other countries. The bottom line effect is to make employing labor more costly. Not exactly a brilliant move when the unemployment rate has just hit 10.2%.

This will also have a further adverse impact on the fiscal situation. To the extent that the labor market takes longer to recover because of this legislation tax revenues will be lower, and thus the deficit higher and the public debt will grow faster. This kind of effect is probably not included in the CBO’s $1.1 trillion dollar cost of health care “reform”.

The House passed a trillion dollar bill that will force Americans to buy health insurance, force even small businesses to provide health coverage, and require insurance companies to cover pre-existing conditions.  (The last, as I have previously argued, makes it something other than “insurance.”)

Lori Montgomery and Shailagh Murray for WaPo:

Hours after President Obama exhorted Democratic lawmakers to “answer the call of history,” the House hit an unprecedented milestone on the path to health-care reform, approving a trillion-dollar package late Saturday that seeks to overhaul private insurance practices and guarantee comprehensive and affordable coverage to almost every American.

After months of acrimonious partisanship, Democrats closed ranks on a 220-215 vote that included 39 defections, mostly from the party’s conservative ranks. But the bill attracted a surprise Republican convert: Rep. Anh “Joseph” Cao of Louisiana, who represents the Democratic-leaning district of New Orleans and had been the target of a last-minute White House lobbying campaign. GOP House leaders had predicted their members would unanimously oppose the bill.

Democrats have sought for decades to provide universal health care, but not since the 1965 passage of Medicare and Medicaid has a chamber of Congress approved such a vast expansion of coverage. Action now shifts to the Senate, which could spend the rest of the year debating its version of the health-care overhaul. Majority Leader Harry M. Reid (D-Nev.) hopes to bring a measure to the floor before Thanksgiving, but legislation may not reach Obama’s desk before the new year.

[...]

The House legislation would for the first time require every individual to obtain insurance, and would require all but the smallest employers to provide coverage to their workers. It would vastly expand Medicaid and create a new marketplace where people could obtain federal subsidies to buy insurance from private companies or from a new government-run insurance plan.

Though some people would receive no benefits — including about 6 million illegal immigrants, according to congressional estimates — the bill would virtually close the coverage gap for people who do not have access to health-care coverage through their jobs.

Carl Hulse and Robert Pear for NYT:

Handing President Obama a hard-fought victory, the House narrowly approved a sweeping overhaul of the nation’s health care system on Saturday night, advancing legislation that Democrats said could stand as their defining social policy achievement.

[...]

Democrats were forced to make major concessions on insurance coverage for abortions to attract the final votes to secure passage, a wrenching compromise for the numerous abortion-rights advocates in their ranks.

Many of them hope to make changes to the amendment during negotiations with the Senate, which will now become the main battleground in the health care fight as Democrats there ready their own bill for what is likely to be extensive floor debate.

Democrats say the House measure — paid for through new fees and taxes, along with cuts in Medicare — would extend coverage to 36 million people now without insurance while creating a government health insurance program. It would end insurance company practices like not covering pre-existing conditions or dropping people when they become ill.

[...]

Some Democrats said they voted for the legislation so they could seek improvements in it. “This bill will get better in the Senate,” said Representative Jim Cooper, a Tennessee Democrat who has been outspoken in his criticism of some provisions of the bill but decided to support it. “If we kill it here, it won’t have a chance to get better.”

[...]

The House legislation, running almost 2,000 pages, would require most Americans to obtain health insurance or face penalties — an approach Republicans compared to government oppression.  Most employers would have to provide coverage or pay a tax penalty of up to 8 percent of their payroll. The bill would significantly expand Medicaid and would offer subsidies to help moderate-income people buy insurance from private companies or from a government insurance plan. It would also set up a national insurance exchange where people could shop for coverage.

This measure barely passed the House, where Democrats enjoy a solid majority in which most Members are Gerrymandered into uncompetitive seats.  And there are many Jim Coopers among the Yeas: People who would have voted Nay if they were not so confident the Senate would produce a much less radical bill, ensuring any measure that reaches the president’s desk will be less mild.  I’m pretty sure they’re right.

Still, this is a rather staggering measure passed by the House.  If this became law, the poor would be significantly poorer and small businesses would be even less competitive with the big box stores.  During a very weak economy with an unemployment at ten percent, no less.  Oh, and insurance rates will go up for the rest of us, too, as companies amortize the cost of absorbing people who have costly illnesses — who will by definition be a net drain on the pool from Day 1 — by passing it on to the rest of us.

Presumably, the rationale behind these moves is to wreck the current system entirely, making a government system the only alternative.  Certainly, it’s not a good faith measure to improve the current system.

I get that the status quo is far from perfect.  Young, healthy people often can’t afford health insurance.  (I went without during my graduate school days, for example, unable to justify spending $250 a month out of a $750 stipend to cover the incredibly unlikely event of getting seriously sick.)  The poor clog up our emergency rooms.  People are stuck at their job because they’d lose coverage at an otherwise preferable job.  Dealing with insurance companies can be a nightmare.

This bill helps address some of those problems, at least at the margins.  But it exacerbates others.

Moreover, this plan does nothing to address the fundamental problem with the status quo:  The unsustainable skyrocketing in health care costs.    If the Senate were to somehow pass the identical bill, we’d cover more people — a good thing in and of itself — but at a higher per unit cost.  That means an even greater share of GDP would go to health care from the beginning with no additional constraints on the escalation of costs.

It looks like the Obama Administration’s brilliant political jujutsu move of using “jobs saved or created” is making its way around some of the economics blogs again. First up is Brad DeLong’s attack on Allan Meltzer. Meltzer wrote the following,

There is no greater recognition of the failure of the stimulus program to create jobs than the efforts to mislead the public into believing the program had saved thousands, or millions, of jobs. One can search economic textbooks forever without finding a concept called “jobs saved.” It doesn’t exist for good reason: how can anyone know that his or her job has been saved? The Administration can make up any number it pleases. The number has no meaning…

Brad points to this partial quote by Milton Friedman,

Suppose the [Federal Reserve] System… had accompanied the measure by purchase of government securities [for cash]… as called for by the “classic” remedy for an internal drain…. [L]et $1 billion be the amount…. What would have been the consequence?… Reserve purchases of $1 billion… would have meant an increase of $1,330 million in high-powered money… would have permitted a multiple expansion of deposits…. Even if… the deposit ratios would have fallen as much as they did–and for the deposit-currency ratio, the fall in so short a time was the largest on record–the result would have been to cut in half the decline in the stock of money…. Only a moderate improvement in the deposit-currency ratio–a decline from 8.95 to 7.10 instead of 6.47–would… have enabled the stock of money to be stable…

You might be wondering, “What the….?” Well, what Friedman is saying is that if the Fed had taken expansionary policy with regards to the money supply it would have stopped the Great Depression, or at least it wouldn’t have been Great, and probably not even a depression. In other words, isn’t Friedman doing the samething that Meltzer is saying is impossible?

Well it depends. The above quote it from The Great Contraction and I haven’t read it and so I don’t know the context in which Friedman couched his argument or what is missing in the ellipses in the quote Prof. DeLong has quoted. But, if Friedman is making an analysis given a specific model, then his argument might be valid…in the context of that model. In fact, Prof. DeLong writes,

You can critique models. You can critique parameters. You can critique parameters. You can critique how the calculations are done, but you cannot deny their existence, for the kind of counterfactualcalculations [sic] that Milton Friedman does are, of course, the steady diet of what economists and other policy analysts do every day.

This leads me to believe that, indeed that Friedman is making his statements within the context of a specific model.

Paul Krugman decides to pile on by making the following comments,

But it’s not just Meltzer — Greg Mankiw has done the same thing.

They should be ashamed of themselves.

The Obama administration’s “jobs created or saved” is just a way of saying “other things equal” in non-economese. Of course it makes sense to ask how many more people are working than would have been the case without a given policy — and every administration makes assertions along those lines. During the 2001 recession and its aftermath, how many times did the Bush administration claim that the recession would have been worse without its tax cuts? And while many of us quarreled with that claim, I don’t think I ever argued that other-things-equal arguments are nonsense on their face.
The willingness of conservative economists to fall in line behind such cheap shots says something sad about them, not about the Obama administration.

Mankiw responds,

Here is what I wrote on the topic last February:

The 4 million job number is a counterfactual policy simulation of what the stimulus will do based on a particular model of the economy. As such, I have no objection to someone citing it in a policy discussion. In fact, macroeconomists use models to generate figures like this all the time. I have even done it myself.

But as an answer to the question “how can the American people gauge whether or not your programs are working?… What metric should they use?”, citing the 4 million job figure is a non sequitur, or more likely a diversion. A metric has to be measurable, and the actual number of jobs “created or saved” by the policy will never be measurable from any data source.

That is, I do not object to claims such as,

A: “Based on our models of the economy, we believe there would be X million fewer jobs today without the stimulus.”
But it is absurd to suggest that you can say,

B: “We have measured how many jobs the stimulus has saved or created, and the number is X.”

Economists are capable of making statements such as A, but it is beyond our ken to make statements such as B. Statement B is,of course, much stronger than statement A, as it purports to be based on data rather than on models. Unfortunately, we are hearing statements like B much too often from administration officials. A good example is here, where can you “learn” that 110,185.36 jobs have been created or saved in California alone.

Yes that is right, because of Obama’s brilliant policy there is a 0.36 person employed now that otherwise wouldn’t be employed. Of course, the use of the phrase “jobs saved or created” is baloney. If the President or his spokespeople had said, “Well, according to our analysis we think it is likely that 4 million jobs will be saved or created with this stimulus package…” they’d be home free. But that isn’t what they say. This is what they say,

Question: The American people have seen hundreds of billions of dollars spent already, and still the economy continues to free-fall. Beyond avoiding the national catastrophe that you’ve warned about, once all the legs of your stool are in place, how can the American people gauge whether or not your programs are working? Can they — should they be looking at the metric of the stock market, home foreclosures, unemployment? What metric should they use? When? And how will they know if it’s working, or whether or not we need to go to a plan B?

Answer: I think my initial measure of success is creating or saving 4 million jobs. That’s bottom line No. 1, because if people are working, then they’ve got enough confidence to make purchases, to make investments. Businesses start seeing that consumers are out there with a little more confidence, and they start making investments, which means they start hiring workers. So step No. 1, job creation.–emphasis added

Whoops.