ACA - The Good, The Stupid and the Smackdown!

By Jeff Simpson

The Affordable Care Act, ie..Obamacare has obviously been all over the news and recently we had the pleasure of seeing the extreme's  

First the Stupid:  

Local fiction writer and unexplainable Journal Sentinel Columnist and Bradley Foundation gopher Christian Schneider took a shot at the Democrats and Obamacare(and miserably failed). 

 Given that the language of modern progressivism is hopelessly rooted in the past, it's no surprise Democrats exhumed this calcified nugget of wisdom last week. In response to a Congressional Budget Office report that estimated Obamacare could effectively reduce the number of American workers by 2.5 million over the next decade, Democrats immediately began explaining how much better off workers will be when they are freed from the suffocating shackles of employment.

Then in response to his silly red-baiting and spewing of excrement, our friend Jay Bullock laid the smackdown on Schneider.  

 Lacking even a trace of self-awareness, early in his op-ed Schneider writes that "the language of modern progressivism is hopelessly rooted in the past," and then he proceeds to red-bait contemporary Democrats in a way that would make the 1950s jealous. Within a few dozen words, Schneider moves easily from Nancy Pelosi to genocide ("The collectivism of agriculture in Russia in the early 1900s led to the murder and starvation of tens of millions of peasants") as if the first thing Nancy Pelosi will do if the Democrats take back the House this fall is organize the death squads.

While its always fun, and yet too easy, to make Schneider look like a fool, the reality of it is, the CBO did NOT say that the ACA will cost 2.5 million Americans their jobs at all!   As Dean Baker puts it:

The CBO assessment was that because people could now get access to health insurance through the exchanges rather than having to get insurance through their jobs, many people might decide not to work or to work fewer hours. This voluntary reduction in work hours is one of the goals of Obamacare, it is not an unforeseen consequence.
There are millions of people who struggle at their jobs with serious health conditions in the hope of reaching age 65 when they can qualify for Medicare. The exchanges will make it possible for many of these people to get insurance at prices they can afford, since insurers are not allowed to discriminate based on pre-existing conditions. As a result, some of these older workers will opt to either retire or to possible work fewer hours at a job that doesn't provide insurance. Giving people this option was one of the main goals of health care reform.
Similarly, there are many workers with young children who would like to be able to either take time off from work to spend with their kids, or alternatively to work at a job part-time. However they may not have this option if their only way to afford insurance is by working at a full-time job. As a result of the ACA these people will work fewer hours.
This also was also one of the goals of Obamacare. Advocates of health care reform thought it would be good if the parents of young children had the opportunity to work less to be with their kids, if that is what they choose to do.
When CBO did its analysis and said that Obamacare would lead to some reduction in work hours, it was saying the ACA would have its intended effect. It was freeing people from health care related job-lock. This is a feature, not a bug.

It really is too bad for all of WI, that Christian Schneider is allowed column space!





Photo from Christianschneiderblog! 

Don't Worry About Think Tanks - They're Meaningless!

By Jeff Simpson

I just had the unfortunate experience of stumbling upon this article by VeraSage Institute - "revolutionary" Think Tank Found Ron Baker:

Don't Worry About the Trade Deficit––It's Meaningless

This is what Adam Smith meant when he wrote, “Nothing can be more absurd than this whole doctrine of the balance of trade.”

The gains from trade are what we import, not export. The purpose of production, in the final analysis, is consumption. The more imports we can acquire for fewer exports, the wealthier we are, either as individuals or as a country.

Other countries face the same realities, and we are no more likely to obtain the goods and services we desire by trading pieces of green paper with other nations than we are to send letters to the North Pole and get gifts from Santa Claus.

Being a creditor or debtor nation simply has no correlation with a country’s standard of living.

First, let's take a look at the "trade deficit":

1. What exactly is the trade deficit?

The U.S. trade deficit we read about most often is only one of several different trade balances reported in official statistics. It’s the merchandise trade deficit, which is actually the narrowest overall measure of America’s transactions with other countries. Thus, it can’t tell the whole story of our trade position with the rest of the world.
The merchandise trade balance, also called the bal­ance on goods trade, is the difference between the total dollar value of U.S. exports of tangible goods (like wheat and turbines) and the total dollar value of U.S. imports of tangi­ble goods (like t-shirts and auto parts) over a specific month, quarter, or year. When imports of tangibles are greater than exports of tangibles, then the trade balance is negative, and there’s a deficit.

How are we doing? Not so well:





   

What does that mean to the US? 

There are roughly 5.1 million fewer American manufacturing jobs now than at the start of 2001. And China is to blame for more than one-third of that loss, says a new report.
[See why temp workers are making big job gains.]
The Economic Policy Institute, a left-leaning economic think tank in Washington, D.C., estimates that America. lost 2.7 million jobs as a result of the U.S.-China trade deficit between 2001 and 2011, 2.1 million of them in manufacturing. Wages of American workers have also suffered due to the competition with cheap Chinese labor, EPI says. A typical two-earner household loses around $2,500 per year from this dynamic.

So when someone ties to tell us that the trade deficit has no "correlation with a country’s standard of living" - 2,700,000 unemployed Americans would beg to differ. 

But WAIT, there's more!  Leading economists, Jared Bernstein and (my favorite) Dean Baker teamed up to put this myth to bed recently:

Simply put, lowering the budget deficit right now leads to slower growth. But reducing the trade deficit would have the opposite effect. Not only that, but by increasing growth and getting more people back to work in higher-than-average value-added jobs, a lower trade deficit would itself help to reduce the budget deficit.

Running a trade deficit means that income generated in the United States is being spent elsewhere. In that situation, labor demand — jobs to produce imported goods — shifts from here to there.

When we run a trade deficit, as we have since 1976, we are spending more than we are producing. When that happens, the national savings rate goes into the red. Either private savings (by households and businesses) or government savings, or both, must be negative.

Private savings are usually near zero, with companies net borrowers and households net lenders. The exceptions came during the stock and housing bubbles, when bubble-generated wealth caused household consumption to soar and savings to drop. The housing bubble also led to a surge in home building.

That rise in investment, coupled with the fall in savings, filled the gap in demand created by the trade deficit. But after the housing bubble burst, consumption fell back to more normal levels and construction tanked as a result of overbuilding. The government stepped up and at least partially filled the gap in demand, leading to large negative savings in the public sector, or budget deficits.

In other words, we’ve been bouncing from investment bubble to deficit spending to offset the income that is being drained out of the economy by trade deficits. And now, with the bubble behind us and politicians obsessively focused on lowering the budget deficit, we’ve lost our offsets. Meanwhile, the trade deficit remains a hefty 3 percent of gross domestic product, about $500 billion a year.

How do we fix it?  Bernstein/Baker offer these suggestions:

 First, we could pass legislation that gave the government the right to treat currency management as a violation of international trading rules, leading to offsetting tariffs.

We could also tax foreign holdings of United States Treasuries, making the usual tactic of currency managers more expensive. And we could institute reciprocity into the process of currency management: If a country wants to buy our Treasuries, we must be able to buy theirs (which is not always the case now).

The Obama administration, however, has not taken such measures, preferring instead to try to meet its goal of doubling exports by 2015. But there’s a key word missing from that formulation: “net.”

If you asked me how my basketball team did last night, and I told you, “Great — they scored 92 points!” you’d presumably want to know how many points the other team scored. Unless we’re targeting net exports, or exports minus imports, we’re not in the game.

The administration has other helpful measures in play, including tax credits to incentivize domestic production. But unless we’re willing to go after exchange rates — the value of our currency relative to that of our trading partners — we will not be able to significantly lower the trade deficit.

The impact of doing so would be striking. Suppose the reduction in the value of the dollar cut the trade deficit by two percentage points of G.D.P. This would directly create close to 2.8 million jobs, a disproportionate number of which would be relatively high-paying manufacturing jobs. And that’s not counting the fact that a factory job has a high multiplier effect, creating more work in other sectors to support it.

I would offer another suggestion.  Ship leading free market "think tank" founders(like Ron Baker), over to China and make sure they have a hand in setting THEIR Foreign trade policy.  We could reduce our trade deficit and get people working again immediately!  

As Bernstein and Baker said, Scott Paul also points out "currency manipulation" has to end!   ASAP!  

 

Outsource Schneider

By Jeff Simpson



The all time paid political hack, and sometimes "writer" at Jsonline, Christian Schneider is at it again.   The author of the Kyle Wood Fiasco(of which he was nominated for the rotten tomato in writing awards) is more of a paid advertiser for all things republican, than a serious writer. 

When the republicans get in trouble with some particularly bad piece of PR(which is regularly), say a prominent figure choked a woman, then Schneider comes to the rescue with a piece of fiction for everyone on the right to quote.

It is so nice for Journal Communications to give him this forum.  

This time his masters sent him out to defend.......Mary Burke!  Mary Burke has been taking some major hots for the fact that her company, Trek Bicycles, has outsourced 99.5% of their manufacturing.    This has cost Wisconsinites, JOBS.

Why do they need Schnieder?  That's simple.  If the evils of outsourcing, and how it has helped drive our economy into the ground, ever becomes a real issue in an election, the republicans would take an unprecedented beating.   They long touted the wonders of outsourcing(cheap labor, no rules, no unions), and have done their best to legislate that outsourcing becomes practically mandatory. 

Here is Schneider drivel:

"Offshoring," on the other hand, means moving jobs overseas, where products can be produced cheaper due to lower labor costs. For the workers whose jobs are moved to India, China or Mexico, offshoring — to use a technical economic term — "sucks."

But as is the case with almost everything in politics, outsourcing and offshoring pit concentrated vs. diffuse benefits. While moving jobs overseas costs identifiable jobs in the short term, it allows companies to make products cheaper, helping them grow and create more jobs right back here in the United States.

 And I thought Paul Ryan was ignorant on economics!   

First off, the wonders of outsourcing has brought us to a $38.6 BILLION trade DEFICIT.  To help Schneider out, let's spell it out:

We have brought in $38,600,000,000 worth of goods than we ship out. 

That is $38,600,000,000 more worth of goods that foreign workers made that we have bought, compared to what foreign countries have bought from American workers.  

What does that mean to you?  Record job losses! 

What does that mean to Schneider's bosses?   Pretty much all of the income growth and record profits!

The Polaroid is starting to come into focus.   Let's shake it a little bit more:

Remember this from Schneider:

While moving jobs overseas costs identifiable jobs in the short term, it allows companies to make products cheaper

in 2009 as a result of outsourcing, the Janesville, WI GM plant closed. 

In 2009, the average price of a car was $27,958.
In 2013, the average price of a car was $31, 258(record high).
(Ps: Chris - $31,258 is higher than $27,958)

2300 people unemployed in Janesville.   2300 people whose families had worked at GM for generations, all unemployed.   Now they only have to pay an extra $4000 for car if they want to buy!

These 2300 people who no longer will be building our cars, have spouses, children, bill,s pay taxes for the local school districts, shop at the malls, eat at local restaurants, AND worked hard and built a high quality, affordable product....well at least they used to.

I have no doubt that Schneider can find some CATO based "economist", when they are not busy sticking up for Paul Ryan's austerity budget, about the wonders of outsourcing.  Unfortunately for the rest of us, the real world disagrees. 


I probably expected too much out of someone who gets their business acumen from a reality TV show, but the facts on the ground(as they always do with Chris's column) differ greatly:

 But economists are unanimous that trade, including outsourcing, is hugely beneficial to economic growth at home and abroad."

This is highly misleading for two reasons. First, economists are unanimous in agreeing that trade could have major distributional consequences. And some prominent economists, such as Paul Krugman, have argued that the recent pattern of trade for the United States has had negative distributional consequences for large segment of the U.S. workforce.

The second reason that it is misleading is that economists are unanimous in believing that in the context of below full employment economy, like the one we have seen the last five years, a larger trade deficit implies lower growth and fewer jobs. In this context outsourcing hurts the economy.

Let's hope that Schneider does not get his parenting skills from Keeping up with the Kardashians.

As economist Dean Baker points out, that this is a  bipartisan problem(hence the defending of Mary Burke), not only does outsourcing not work, we have other problems:

At the same time, his trade policy has done little or nothing to expose highly educated professionals like doctors and lawyers to the same competition. This policy has the predicted and actual effect of depressing the wages of less educated workers relative to the most highly paid workers. This policy is exacerbated by maintaining an over-valued dollar, which further depresses the wages of those workers exposed to international competition to the benefit of those who are largely protected.
President Obama has also done nothing to combat the corruption in the corporate governance structure whereby corporate board members are paid hundreds of thousands of thousands a dollars a year to look the other way as top management pillages the company. A policy that subjects less educated workers to the most vigorous possible competition, while maintaining protection for those at the top will redistribute income upward, as we have seen over the last three decades. Both candidates seem to largely support such policies.

 The reality of the situation is, until we start manufacturing in America again we will never have a full recovery, nor will we be the Superpower we once were. 

Americans, not employed by the Bradley Foundation, are starting to get this and its scares the hell out of Chris's bosses!

PS: I do have to give Chris his due though.  He did hit the nail on the head with this line:

(Next up: What "Here Comes Honey Boo Boo" teaches us about the Laffer Curve.)

Since the Laffer Curve might be one of the few things (besides Congress) that has less credibility left than Honey Boo Boo

 

Now we know why Scott Walker placed this billboard in the shuttered GM plant grounds.  He felt that he was creating jobs by laying off 2300 fellow Wisconsinites. 

Compromise???

How is that possible when the republican party has this attitude over negotiations in Congress?  

Republican Obstruction is a much greater threat to everyday Americans than the "fiscal cliff".  

Redistribution

The Mitt/Mutt republican presidential team are desperate to get an attack that will stick on President Obama to take some of the heat of the sinking ship that they are sailing!

Now they drudged up a 14 year old tape of President Obama, highly edited it and are trying to use make that scandalous.  However the problem with their logic is, while there has been much talk about redistribution, it is the republicans that have been doing it for the past 30 years!

As my favorite economist, Dean Baker, points out on the Ed Show recently:

Visit NBCNews.com for breaking news, world news, and news about the economy

Three Economists!

1. Paul Krugman was on the Colbert Report recently explaining that if you want to see Romney Economics in action - check out Ireland

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2. Dean Baker wrote a column recently stating that he does not understand why the liberals keep stating that all republicans want is to leave the market's alone, when in reality what the right wants is very big government(tilted in their favor).

Pick an issue, any issue, and you will almost invariably find the right actively pushing for a big role for government. However, for conservatives the goal is not ensuring a decent standard of living for the bulk of the population. Rather the goal is ensuring that money is redistributed upward. And, of course, the conservatives are smart enough not to own up to their use of the government.

Just to take a few easy ones, why would any market-oriented opponent of big government support the existence of too-big-to-fail banks (TBTF)? These TBTF banks operate with an implicit subsidy from the government. Lenders expect the government to step in to back up these banks debt if they fail, as happened on a massive basis in 2008. As a result, TBTF banks can borrow money at lower interest rates than would be possible in a free market. The amount of money at stake is substantial, possibly more than $60 billion a year. This is more money than is at issue with the Bush tax cuts to the wealthy. This $60 billion is money that is redistributed from the rest of us to the biggest banks in the country, their top executives and their shareholders, all courtesy of big government.

To take another easy example, drug patents raise the price of prescription drugs by close to $270 billion a year above their free market price. This is roughly five Bush tax cuts to the wealthy. Patents are government-granted monopolies. Since prescription drugs often are necessary for a person's health or even life, people will pay almost anything for a drug if they can afford it or can get their insurance to pick up the tab. Patents imply very big government since the government will imprison anyone who produces a drug without the patent holder's consent.

In recent years the big government has been actively working to extend Pfizer and Merck's patent monopolies to the rest of the world through NAFTA, CAFTA and other recent trade deals. Patents are currently used as a mechanism to finance prescription drug research. But there are other more efficient mechanisms, such as the prize system suggested by Nobel Prize-winning economist Joe Stiglitz. Alternatively, we could simply increase and redirect the $30 billion in public money that goes to support biomedical research each year through the National Institutes of Health.

3. Jared Bernstein asks "What part of Austerity doesn't work do you not understand"?

First, some facts. By austerity I mean attacking recession by cutting spending and raising taxes – the opposite of Keynesianism, which dictates that if the private sector isn't spending enough money to get the economy moving, the government needs to temporarily step in and supply the juice (aka "stimulus").

Europe and the UK are committed to austerity, and – But that doesn’t explain the U.S., the U.K., and most others who continue to blithely go down this bumpy road. For that, I think we need to reflect on what the great economist Joe Stiglitz refers to in his new book on inequality (I recently interviewed Joe for these pages – should be up soon) as deficit fetishism, the prime symptom of which is the inability to distinguish between good and bad deficit spending

• For Republicans, deficit reduction is a cudgel to bash government. They are ideologically opposed to social insurance, stimulus, infrastructure investment, and everything else, but they gussy this up as an economic argument about markets and debt burdens on future generations. Worse, for them it’s mostly rhetoric. Since Reagan, it’s the Republicans who’ve run structural deficits (Obama’s deficits are largely cyclical—very much a function of the recession).

• Drawing the wrong lessons from the Clinton surpluses: The last time the federal budget was in surplus was at the end of the Clinton years. Economic growth was strong, unemployment very low (below 4% for a few months in 2000!), and financial markets were booming (due, in no small part, to the dot.com bubble, but that’s a different story). These were the years of the alleged bond vigilantes, bond traders who would punish governments by dumping their bonds if they thought their fiscal policy was irresponsible. I’m not sure there ever was such a menace—what led to the late 90s surpluses were a reasonable set of tax rates and strong (albeit bubbly) growth. But whatever…the main point is that fiscal policy during the Clinton years made sense: deficits fell as the recovery gained strength. By no measure does that imply that austerity makes sense in recession.

Eric Hovde the Trilogy!

Two days ago we brought you the story of Eric Hovde, whining about and asking for prayers to stop, the media from incessantly talking about the poor people in our country! Then yesterday we pointed out, with the help from economist Dean Baker, that the root of Hovde's fear is NOT the debt crisis, but in fact Hovde's complete lack of knowledge and understand out the way our Government works. Now today, thanks to some great research from Cory @ Eye on Wisconsin, that maybe the guy who on a whim just randomly buys multi million dollar houses to live in might not be the best person to talk about or help us recover from the deficit. Especially since he is doing everything in his power to keep from disclosing his own financial records! Hovde, 20 year Washington DC resident, recently had to move back to Wisconsin to run for the Senate. So he picked up this little fixer upper on a whim. Of course when you can buy a $2 million dollar plus home as a vacation home, there are two things that are important to you. 1. Be very happy that your dad was rich and 2. try to avoid the poor people at all costs(they bring the property value down dont you know). The question is how long will he keep the home after he loses?

Eric Hovde is Scared of the Boogeyman...

Yesterday we brought you the story of how Eric Hovde is sick and tired of reading stories about poor people in America.  He prays that these incessant stories stop, because Jesus also was sick and tired of hearing about poor people. 

Lets refresh our memory:




Now let's look at this a little deeper than what we did yesterday.   First of all he is dead wrong on media coverage as the debt gets tremendously more coverage than the unemployment crisis.  That is a minor problem with Hovde's ramblings.  The major problem is the end where he says this:

 He also implored the people who were at this Q & A to read "the best book ever written on the debt issue" - This Time Is Different: Eight Centuries of Financial Folly by "two of the greatest economists of our time" Carmen Reinhart and Kenneth Rogoff.  

Hovde said that they found out "empirically" that if a government gets more than 90% debt to their economy, and it stays that way for 3 years, you are left with only two choices, both utterly disasterous - 1. default or 2. major debasement of the currency which causes hyper inflation. 
Hovde then went on to say "folks we are at 100% and its scary.  It scares the heck out of me. I am 6' 3" and not much scares me."  

This was followed up with NO questions, just a quick laugh line where the reporter wanted it be known he did not write the sob story about the person who could not get food stamps.   Since no state reporter would do a follow up to this I thought I would.  

I contacted one of the nation's leading economists, Dean Baker,  to see if Hovde has a legitimate fear about our debt crisis. Here is his answer in full:

Japan has had a debt to GDP ratio of over 100 percent for more than a decade. It is not in any danger of default (at least the financial markets don't think so -- they are lending it money for 10-years at less than 1.0 percent interest) and it has deflation. Obviously this is not some sort of law of nature.

Furthermore, Hovde obviously does not even understand what debt means. Much of the debt we owe to ourselves -- literally. The Fed holds more than $3 trillion in government debt. The Fed is part of the government. We pay interest to the Fed, which then refunds the interest to the Treasury. Is that going to bankrupt us? Not where I learned my economics.

Also, debt itself is an incredibly arbitrary measure. Suppose we sold off assets to reduce the debt -- then is everything cool? It would be according to your hedge fund friend's logic.

In short, Reinhart and Rogoff are both good economists, but they end up being really sloppy here. Nations usually run-up large debt because they faced serious economic problems -- as was the case with us in the last 5 years. However, they have confused the trouble caused by these economic problems with troubles caused by the debt. If an otherwise healthy economy suddenly finds itself with large amount of debt, as the U.S. did after WWII, when its debt to GDP ratio was 116 percent, the debt will not be a big issue. That is what history teaches us.

So Mr. 6 foot 3, Washington DC resident, who wants to be our Senator, is scared of the 'debt crisis", but he might as well be scared of the boogey man or the dark for all of the good it does him.

How can someone who understands so little about our economy actually seriously run for a position as important as United States Senator?  An even better question is why would a room full of reporters NOT do a follow up story? 

PS:  Again please give some support to Tammy Baldwin so we do not let another empty suit buy one of our Senate Seats!

Also, if you have had too much lately of Paul Ryan ( R - Wall St) lies and Ron Johnson's flat out idiocy, then go buy Dean Baker's books and learn some actual economics!  I recently read "Plunder and Blunder" and highly recommend it.