Rapping Economists?

Posted: February 17, 2010 | Author: | Filed under: Uncategorized | Comments Off on Rapping Economists?

Why, oh, why, can’t we have better dialogue on Political Philosophy?

Posted: February 5, 2010 | Author: | Filed under: The Media SUCKS, Uncategorized, Voter Ignorance | Tags: , , | Comments Off on Why, oh, why, can’t we have better dialogue on Political Philosophy?

I’m not sure why I even to bother read articles with provocative headlines that ensure you know the conclusion before the discussion even opens. This Washington Post Article by a conservative political science professor Gerard Alexander (also associated with the American Enterprise Institute) just rang all the bells and whistles implied by the title “Why are liberals so condescending?”. If I were to write a similar piece–which come to think of it I’m about to–it would be titled “Why are conservatives so close-minded?”

Okay, right from the get go, he starts with the presupposition that his conclusion is the right one which is pretty much the problem I have with conservatives. They start with the conclusions being firmly grounded in some truth they’ve devised and then let the arguments spew from there. Facts be damned! Full speed ahead! My argument is already moot because of his first paragraph. I’m already trapped by having to argue the argument from the label ‘smug’. I have to prove I’m not smug before I get around to proving him wrong. But what’s worse, being smug or being hypocritical?

Yes, I believe conservatives adhere to ideology over evidence. Still, I try to argue based on fact and reason and expect the deduced conclusion to be so resonant it is self evident. How is this ‘intellectual condescension”? Better yet, how can I successively argue with some one who is so convinced that they’re right from the get-go and from whom you can expect no real evidence? You’re doomed to be the only one that recognizes you’re right in that situation. All you get is argument based on ideological presuppositions with which you disagree. Yes, mind closed. Straw man erected. Straw man knocked down. Argument over.

Every political community includes some members who insist that their side has all the answers and that their adversaries are idiots. But American liberals, to a degree far surpassing conservatives, appear committed to the proposition that their views are correct, self-evident, and based on fact and reason, while conservative positions are not just wrong but illegitimate, ideological and unworthy of serious consideration. Indeed, all the appeals to bipartisanship notwithstanding, President Obama and other leading liberal voices have joined in a chorus of intellectual condescension.

To me, this article is just wrong from the get go and let me tell you why. Let’s just say I take issue with labeling President Obama ‘liberal’ (or socialist or marxist) when he his clearly no such thing. Most conservatives spit the word liberal through the teeth in such a pejorative way that you can’t help but wonder if they even read from the same dictionary. Most liberals–like me– don’t consider Obama to be one of us.

Let me borrow from another liberal economist whose words caught me on a similar subject.Oregon Professor Mark Thoma has a thread called Why is the Left More Successful in Europe? based on an article at the Boston Globe by Edward Glaeser, a professor (economics) at Harvard. Thoma had issues with this statement by Glaeser in the cited article: “A year ago, I wondered if the Obama victory signaled the declining significance of race and an American lurch to the left.” This is Thoma’s response.

What’s new is the observation that the Obama victory didn’t signal a lurch to the left as he thought it might.

People who believe Obama is a far left populist type haven’t been paying attention. Obama himself is no lurch to the left. The far left has been quite disappointed as they’ve unwrapped the gift they received last November. It wasn’t what they asked for or, in may cases, what they thought they were getting. But it shouldn’t have been a surprise.

The election wasn’t so much a lurch to the left as it was a movement away from the right (a different sort of movement conservatism). People didn’t want four more years of anything resembling George Bush. Sure, there’s been some reversion to the mean, there always is with midterm elections, but the election did ratchet our collective politics to the left. Moving the nation further to the left might might very well be a long, slow process, i.e. the long fight predicted above. And Republicans do manage to make lots of noise when they engage the enemy. But they are struggling to hold on to what they have rather than trying to take new ground. It’s the Republicans, not the Democrats, who need to worry about fighting to hold on to their party.

Americans do tend to be a conservative lot, but not quite in the way that either Glaeser argues in his article or Alexander argues in his. There’s a dialectic going on here that seems to me to miss a bigger picture. When I read the rant on the dismissive attitudes of liberals cited by Alexander, I find utter hypocrisy. He dismisses liberals in the same way he accuses liberals of dismissing his sociopolitical arguments. Then, when I return to the Glaeser article where he tries to explain what slow changing people Americans really are, all I can think is these two guys spend way too much time either on the east coast or in their offices at their respective campuses.

There’s an oversimplification here on both sides on the motivation of the American electorate who, to me, is just figuring out who they can trust after years of bamboozling by both sides. Who even knows what most people think being liberal or conservative represents after years of framing based on political ads and talking heads? How can you have civil discourse when every one is name calling instead of defining themselves?

Let me demonstrate the essential Alexander argument with this quote from the article. He borrows not only from Obama but the big giant talking Cheeto; another person whom I believe is NOT a liberal in the traditional sense of the word. He also quotes Paul Krugman, Howard Dean, and Jon Stewart as examples of condescending, liberal elites. Of course, he trots out the ultimate Obama snafu made during the campaign of speaking of bitter working folks clinging to god, guns, and bibles. Offensive yes? Liberal elitist? I don’t think so. It’s just your basic class snobbery.

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Stupid Banker Tricks

Posted: February 4, 2010 | Author: | Filed under: U.S. Economy, Uncategorized, Voter Ignorance | Tags: , , , | 2 Comments

I have a really great guy in our library that takes care of the business college that digs up some of the most interesting reports and

sends out the links. It’s kind’ve like having my graduate assistant back but on a different level. He doesn’t do grades, but he keeps me current on things I used to follow when I spent more time at my desk and less time in my car driving across bayous and lakes.

I became aware of all the issues surrounding the unbanked, predatory lending practices, check cashing companies, and abusive credit card fees when I spent 5 weeks in Omaha right after Hurricane Katrina.  A very old friend of mine–a math teacher at the community college I once taught at for a few years when my eldest was a toddler–took me to a seminar filled with social workers who were complaining how many of their clientele were being gamed by fraudulent lending practices.  I returned to New Orleans to spend a lot of time researching things and predicted it was one big house of cards that would bring down the economy eventually.  The research was interesting but turned out to not be ‘glamorous’ enough for publication.  The other thing was I was basically told my assertions that these practices would bring down the economy part was over the top because, well you know, financial innovation is such a handy dandy thing and these sweethearts were just offering up much needed services to under-served consumers. Yeah, right.

So, this study from the Center for Responsible Lending showed up in my email this morning. I admit to having spent a huge amount of time looking at their studies about 4 years ago, but was told to quit the line of research by my peers. I switched to something more marketable. This report is very useful and it outlines a lot of the new tricks that credit card issuers are using to get around credit card reform. Banks are taking steps to ensure we continue our indentured servant status.  I’ve now torn up all by two credit cards and I’m on the verge of just saying no to all loans and credit cards; big or small. Here is a list of ways they’re getting around new legislation to curb their excesses. The name of the report is Dodging Reform and you should at least read the Executive Summary and check out the charts. (Yes, I like nifty charts as well as nifty graphs.) Here’s the stated purpose of the study.

Faced with pending and proposed reforms designed to protect consumers from a series of unfair charges, credit card issuers have established or expanded the use of at least eight hidden charges across more than four hundred million accounts. The May 2009 Credit CARD Act addressed the hidden and deceptive pricing strategies that had been the most costly to credit card users. However, some issuers appear to be working to compensate for part of this lost revenue by instituting or accelerating new practices that increase hidden costs on consumers. Some of the tactics discussed here are not well known, while others are known.

Since the FIRE Lobby has us all in a state of borrower beware, I’d like to outline some of the worst of these new abusive practices for you. These are hidden charges that will cause your credit card balance to compound and keep you paying them forever.

The first practice is called “pick-a-rate” and impacts around 117 million accounts according to the study. This is basically a practice that puts you on a variable interest rate. Since the FED has signaled their willingness to return to higher interest rates within a the year, do not get on one of these plans! Your rate is bound to increase if it hasn’t already. The trick though, is that the APR actually is computed in a way to be higher than the rate you pick and the details about the rate are buried in the fine print. These are the problems according to the study.

  • Hidden “pick-a-rate” pricing charges consumers APRs 0.3 percentage points higher ona verage than traditional pricing.
  • Pick-a-rate results in a total cost to consumers of $720 million per year and may reach $2.5 billion per year if the practice becomes the industry standard.

There are a lot of nifty graphs that show the impact of interest rate changes on the pick-a-rate plans. These things will get incredibly more expensive as we return to a more normal set of interest rates and monetary policy.

A second practice is that of using Minimum Finance Charges. This practice is aimed at the people who partially pay off their balances every month.

In 2001, the minimum finance charge for 7 of the Top 8 issuers was $0.50. By 2009, most issuers charged a dollar or more as their minimum finance charge, with the highest being $2.00. Currently, they average $1.28.6 Borrowers pay more than $430 million annually as a result of minimum finance charges and that figure is rising as these charges are increased.

Again, the graphs in the study will say everything you need to know here. These charges are expected to skyrocket this year for the top 8 issuers. As this market gets more concentrated into the hands of those eight top issuers, their practices are becoming more in sync with each other in keeping with the game theory model of rivalry. (The McClatchy graph up top will show you exactly how concentrated this market is becoming.) You’ll not be able to avoid these if you EVER take a cash advance on your credit card so DO NOT DO THIS.

These minimum finance charges take effect when a consumer borrows money—a cash advance—on their credit card, but the amount borrowed is low enough (or the interest rate is low enough) that the finance charge would normally be below the minimum. For example, if a consumer charged $50 on their credit card, had an interest rate of 12% and did not pay the balance in full, they would normally owe 50 cents in finance charges. But if the issuer had a minimum finance charge of $1.50, they would instead be required to pay this amount

Variable rate floors are the third practice to worry about. Basically, your issuer will tell you that your interest rate is “variable,” but it only goes up from its starting value and never down. Again, in a situation where interest rates are probably going to increase, this is a bad situation. Don’t get a card with these terms.

Other practices to watch include compression of balances categories into tiered late fees. This practices applies the highest late fee amounts to smaller balances and is predicted to cause in 9 in 10 consumers to pay the highest fee. Inactivity Fees are now being instigated which charge you an annual fee if you do not use a card. They are aware that closing an account impacts your credit card rating so many folks just keep them open for that reason or for precautionary purposes. You’ll now pay for that privilege.

They are also a series of fees being planned for balance transfers, cash advances, and international transactions. The deal is that none of these practices were addressed by the Credit Card Act of 2009 which effectively makes the new law behind the times already. The proposed Consumer Financial Protection Agency would have the ability to identify these practices and control them. I’m not sure if you remember me mentioning recently in the news that Senator Dodd is now actively considering dropping the clause in the proposed financial reform that would create this entity. This is really bad news.

Senate banking committee Chairman Sen. Christopher J. Dodd (D-Conn.) has discussed jettisoning plans for a standalone Consumer Financial Protection Agency, as part of an effort to secure bipartisan support for legislation to reform financial regulation, said people familiar with the matter.

One possibility raised during recent talks between Dodd’s staff and Republican counterparts would be to assign new consumer protection powers to another agency. Such a compromise might offer an opportunity for Dodd to preserve the goal of expanding safeguards while appeasing Republicans who have chafed at any suggestion of a new agency.

“If there’s a bipartisan deal, that’s likely how it’s going to come out,” said one Democratic aide, who was not authorized to speak on the record about the discussions.

President Obama proposed last June the creation of an agency to protect consumers against abuses in mortgages, credit cards and other forms of lending.

It remains unclear if the President will fight to keep the agency in the legislation. I shudder every time I see the the words “secure bipartisan support” because that usually means that congressional Democrats will cave to their Republican counterparts at the first sign of disagreement. The banking industry appears to have both parties captured.

“This is the litmus test about whether Congress is serious in their efforts to overall financial regulation,” said Travis Plunkett, legislative director for the Consumer Federation of America. “If they can’t take consumer protection out of the hands of regulators who failed” at that task before, he added, “then they’re not really serious about doing things differently than in the past.”

Heather Booth, executive director of Americans for Financial Reform, a coalition of nearly 200 consumer, labor and civil rights organizations, on Friday urged Dodd “not to cave to the big banks and their armies of lobbyists.”

Given my take that they’ll cave under the least bit of pressure, it is definitely a borrower beware environment. Again, find out what opportunities you may have with a credit union in your area that is mutually owned by its depositors and see what arrangements it has made with a credit card provider if you must have credit cards. Check out this report and be sure to look for these things in the fine print. You can’t afford not to examine these details because you’ll be indentured to these jerks for a long period of time if you miss the imposition of these terms and fees.

A Dismal Outlook from ‘Not a gay Science’

Posted: February 1, 2010 | Author: | Filed under: Uncategorized | Comments Off on A Dismal Outlook from ‘Not a gay Science’

“Not a “gay science,” I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science.”

I’ve been perusing several economic sources for better news since this Monday’s GDP growth announcement for the 4th quarter was higher than anticipated.  This was mostly due to a better of inventory re-ordering and really didn’t set any one’s hair on fire.  The markets were up so I was thinking maybe the budget announcement today was going better than I thought possible.  Serves me right to try to be an optimist among dismal scientists.  I think I would characterize the market today as slap happy.  What I found in the devilish details follows and, of course, mostly sourced from the British Press whose economy is so wrapped up with ours they could hardly be wishing us harm.
I introduced you to the Volcker Rule which is a modest attempt at reviving something akin to the Glass Steagall Act of 1933. The Financial Times is reporting that the Senate will either ‘significantly modify’ or drop the rule. Evidently the new spirit of bipartisanship is the same as the old spirit of bipartisanship, the Republicans say no to everything responsible and reasonable and the Democrats cave immediately. As I said, the proposed regulations are tepid by the old standards but still too much for the laissez-faire Republicans who would rather enable monopolies than promote true market capitalism. I thought we had basically had it with the excesses of Reagan Bush Crony Capitalism and voted the buggers out. Silly me!

Speaking to this news service on Thursday, Shelby said if Democrats push forward with the proposals they risk unravelling much of the bipartisan support already reached regarding the passage of financial regulatory reform in the Senate. Shelby said that the Obama administration risks losing Republican support for the bill if they begin to “politicise” the issue.

However, Shelby said he expects to hold a meeting with Banking Committee Chairman Chris Dodd (D-CT) regarding the way forward on regulatory reform in two weeks time. A Democratic banking committee staffer confirmed that the meeting between Dodd and Shelby will be critical as Dodd needs to determine the level of bipartisan agreement and the timing of bringing the bill through committee and on the Senate floor.

With the election of Republican Scott Brown to the Senate, the Democrats no longer have the necessary 60 votes to force through a Regulatory Reform package, and any bill will need at least some Republican support to pass. A Dodd staffer said the senator is likely to quietly drop or modify many of the recommendations in the Volcker rule to ensure Republican support for regulatory reform.

“Chris is retiring so he wants to end his career with an important regulatory reform bill and he wants to make the bill bipartisan,” the staffer said. “He is not going to risk bipartisan support to make the White House happy.”

The Democratic staffer said there is an ongoing debate among members of the banking committee about whether the Volcker rule would effectively push risk out of regulated markets and thus ultimately create more risk to the financial system.

HuffPo is even reporting that Frank Luntz is penning memos that demonstrate a willingness to kill any attempt to regulate anything in the financial services sector which is akin to showing the barbarians the secret location to your daughters and silver during a Viking raid. It’s a virtual talking points instruction memo for enabling moral hazard via active promotion of information asymmetry.

Nine months after he penned a memo laying out the arguments for health care legislation’s destruction, Republican message guru Frank Luntz has put together a playbook to help derail financial regulatory reform.

In a 17-page memo titled, “The Language of Financial Reform,” Luntz urged opponents of reform to frame the final product as filled with bank bailouts, lobbyist loopholes, and additional layers of complicated government bureaucracy.

“If there is one thing we can all agree on, it’s that the bad decisions and harmful policies by Washington bureaucrats that in many ways led to the economic crash must never be repeated,” Luntz wrote. “This is your critical advantage. Washington’s incompetence is the common ground on which you can build support.”

Luntz continued: “Ordinarily, calling for a new government program ‘to protect consumers’ would be extraordinary popular. But these are not ordinary times. The American people are not just saying ‘no.’ They are saying ‘hell no’ to more government agencies, more bureaucrats, and more legislation crafted by special interests.”

If these things come to pass, you might as well give Bernie Madoff a get out of jail free card. His crimes and misdemeanors will seem paltry compared to what will come. If you were hoping to buy yourself out of indentured servitude from your privateering financial middle man with your own well paying job (we should all have those $100,000 million dollar bonuses for acting on government tips), forget it. CEA Chair Christina Romer has dropped the other shoe on the unemployment data. I knew that structural unemployment was bad, but I had no idea until this came out. (Yes, it’s The Economist, again. Why oh WHY do I have to consult the foreign press to get to the bottom of things?) I have no idea where they are going to find customers for businesses or tax receipts for government with this nasty bit of data.

OMB head Peter Orszag is giving a press conference just now with Christina Romer, head of the Council of Economic Advisors, on the president’s Fiscal Year 2011 budget. Ms Romer explained the economic assumptions underlining the budget forecasts. She noted that expected fourth quarter-over-fourth quarter real GDP growth would be 3% in 2010, 4.3% in 2011 and 2012, and would average 3.8% in the five years thereafter. These figures are in line with Fed projections.

She then gave the unemployment forecast. At the end of 2010, the unemployment rate, according to the administration’s forecast, will be 9.8%. At the end of 2011, the rate will be at 8.9%. And at the end of 2012, after the next presidential election, the unemployment rate will be 7.9%.

Deficit reduction has a lot to do with the strength of the economy.  It also has a lot to do with people finding jobs so they pay taxes and buy things that also come with taxes.  Balancing the budget with this kind outlook for unemployment is playing Russian roulette with more than one bullet in the chamber.   Increasing taxes is likely to choke off a recovery but so is any increase in interest rate that could come from a skittish market that doesn’t fell comfortable with the Orzag scenario presented today of a budget deficit coming in around 10% of output eventually even though the Obama administration says that level is unacceptable and wants to bring down to 3%.  However, we put the national defense budget off the table along with medicare and social security so there’s really no place to go.  Even sunsetting the Bush tax cuts that went to households over $250,000 at this point isn’t going to cut it.  We’ve had 8 years of two wars and no war bonds sold to any one.  The silly thing compounds, you know, even when the interest rate is low.  Where’s Cheney with his deficits don’t matter mantra now?

If this is the most likely or the best scenario, consider my investment advice to be a gun and a rocking chair for the front porch. Oh, and make a big ol’ fort like fence around your Michelle Obama Organic Nutritious Great Recession Victory Garden. You’re going to have to use the butter and eggs money for your bullets.

Influence Peddling is not a First Amendment Right

Posted: January 23, 2010 | Author: | Filed under: Uncategorized | Comments Off on Influence Peddling is not a First Amendment Right

If you want to figure out what’s wrong with our government you need only look at how money enters the process. The Supreme Court just enabled influence peddling on an entirely new level this week. Campaign Financing laws all over the country will now be challenged by conservative and pro-business rent seekers. Consumer, workers, and the policy process will be much worse off, if that’s even possible to imagine.

Economist Jeffrey D. Sachs has piece at SciAm worth viewing. It’s called Fixing the Broken Government Policy Process; Greater transparency and limits on lobbyist influence would promote better long-range strategies. He believes there are four sources that have broken down the government policy process.

First is a chronic inability to focus beyond the next election. “Shovel-ready” projects squeeze out attention to vital longer-term strategies that may require a decade or more. Second, most key decisions are made in congressional backrooms through negotiations with lobbyists, who simultaneously fund the congressional campaigns. Third, technical expertise is largely ignored or bypassed, while expert communities such as climate scientists are falsely and recklessly derided by the Wall Street Journal as a conspiratorial interest group chasing federal grants. Fourth, there is little way for the public to track and comment on complex policy proposals working their way through Congress or federal agencies.

Most of his examples come from the policy area of sustainable development. I’ve been railing on about the ridiculousness of the ethanol subsidies going to corn for some time. I’m certain it will eventually lead to food shortages and it certainly is a costly way to creating alternative energy programs. Sachs ably explains this policy mishap well. The desire for sustainable development and new energy is a good one, but the ethanol industry and it’s influence peddling/rent seeking waylaid tax dollars for its constituents at the cost of effective policy. He explains how the private sector can waylay many good public welfare policies.

These failings take a special toll on the challenges of sustainable development because there is no quick fix, for example, for the challenge of large-scale reductions in greenhouse gas emissions. Instead of getting long-term strategies for adopting low-carbon energy sources, upgrading the power grid, encouraging electric transportation and so on, we are getting cash for clunkers, subsidies for corn-based ethanol, and other ineffective and highly costly nonsolutions delivered by large-scale lobbying.

Some free-market economists say sustainable development should be left to the marketplace, but the marketplace now offers no incentive to reduce carbon emissions. Even putting a levy on carbon emissions, either through a carbon tax or carbon-emission permits, will not be sufficient. The development and deployment of major technologies potentially crucial to more sustainable energy—such as nuclear power, wind and solar power, biomass conversion and transport infrastructure—are matters of systems design requiring a mix of public and private decision making.

Herein lies the policy challenge today. When we let the private sector enter into public decision making, we end up with relentless lobbying, money-driven politics, suppression of new technologies by incumbent interests and sometimes miserable choices devoid of serious scientific content. How can business and government work together without policies falling prey to special interests?

As we’ve seen more and more money pour into politicians, we’ve seen more and more policies benefit specific industries at the cost of the treasury and long term, effective policy that would benefit the nation. In light of this recent Supreme Court decision that basically adds accelerants to the already massive fire, what’s a citizen to do?

Sachs suggests that we should at least push for more transparency in the lobbying process. This is of course something this administration promised and then left on the campaign floor with the confetti pretty quickly. They went behind close doors with Big Pharma nearly immediately and went running for friendly audiences the minute that townhall meetings turned ugly. It’s difficult for any administration that tries to control their message and their image to really wallow in the democratic process. This is especially true when the Pol in question finds the only thing clean about the process to be prepackaged speeches in front of adoring crowds. Sach’s suggest we look to the web to find ways to bring the public into the policy process.

He also suggests that the government get busy writing laws to keep lobbyists in check. Actually, he suggests that laws be written to ensure they cannot write checks.

Currently lobbyists are still allowed to contribute massively to congressional campaigns and to political action committees. The largest lobbying sectors—including finance, health care and transport—have spent billions to promote policies that favor narrow interests over broader public interests. A major step toward reform would be to prohibit campaign contributions by individuals employed by registered lobbying firms. The right of individuals to make campaign contributions would not be infringed, but they would have to make a choice between their lobbying activities and their personal financial contributions to the political process.

SCOTUS has just turned the world of campaign finance reform upside down. At the moment, Obama has publicly recognized the issue. Will he give the issue more than just casual lip service? We need to start forcing the issue. I can’t believe that any group of people that came out of the Chicago Way are going to suddenly develop allergies to influence peddling.

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