income inequality: united states worse than ivory coast

Yeah, I don't post here much anymore. But today's Washington Post had an excellent article today about income inequality, based on recently-concluded research by economists based on US tax returns.

Some of the highlights: in the 1970s, the top 0.1% of earners in the US took in 2.5% of the pay. Now, that same 0.1% take in 10.4% of the total pay - they are four times better paid, while wage earners get about 9% LESS in constant dollars.

Most of that 0.1% are executives - 60%, the breakdown being about 18% at financial firms and 42% at other businesses, so it ain't just the crooks on Wall Street getting rich.

Lawyers are only 6% of that 0.1%, and athletes and media figures only 3%. So for every LeBron James or Lady Gaga out there making big bucks, there are 20 corporate executives.

The difference - James and Gaga do not get to set their own compensation levels. Executives do.

Oh and this article failed to note another issue: the massive decline in the top marginal tax rate. The increase in take-home pay for top executives is even BIGGER than indicated in this study.

In terms of the GINI coefficient (which tracks income equality), we rank way worse than other developed countries like Japan or Germany or France. In fact, according to the CIA, the US is worse than the Ivory Coast and Cameroon.

Banana republic?

the bush economy

For the years 2000-2009, the US economy generated zero net jobs. None, nada.

For eight of those ten years, we were enduring the de facto administration of George W. Bush and Dick Cheney, friends of Wall Street and Big Oil.

It would be not entirely accurate to blame the current economic woes solely on Bush/Cheney. Our financial regulatory system is completely out of whack, due in large part to financial deregulation ("un-regulation" would be a better word) by Congress in the 1990s - mostly Republicans, but some Democratic abettors, legislation signed by Clinton.

But this does underscore the absurdity of blaming Barack Obama for the current economic climate. Not that this would stop Obama haters from doing so; there's isn't a rational opposition.

boring wasn't so bad

Remember when banks were boring? Paul Krugman does. It wouldn't be a bad thing to bring some of that boredom back to the financial sector. Not saying everything should return to 1970, but some serious regulation and oversight - and getting rid of some of the perverse incentives that helped lead to the current financial snafu - would be a nice idea.

It might be boring for the bankers, who may have to settle for being just rich instead of rich and exciting. Too bad.

g20

The G20 summit in London didn't suck. As Steven Pearlstein noted, Obama got most of what he wanted, the US showed flexibility in an international forum, last demonstrated some time before January 20, 2001, and hopefully the agreements will help bring about economic recovery and make another similar financial melt-down less likely.

So although not the be-all and end-all, it worked out pretty decently. And Queen Elizabeth doesn't seem to mind that Michelle Obama made a friendly gesture and touched her.

treasury's new plan

Tim Geithner has a new plan to use $100 billion to help take some bad assets off of the banks' hands so they can start lending again.

It's all complicated. I admit to worrying that the fact that would-be buyers don't think those toxic assets are worth near as much as the would-be sellers think is a fundamental problem. As the Washington Post editors said, "If all goes according to plan, the market know-how of the private firms will lead to maximally efficient deployment of government resources, and taxpayer losses will be relatively modest."

Umm, isn't the so-called LACK of market know-how, aka judgment, the reason we are in this mess in the first place? Not confidence-inspiring.

And I know Paul Krugman, who knows a thing or two, is despairing of the whole thing - which is in essence a nice big fat subsidy, with the taxpayer sharing in the potential upside, but owning 100% of the downside.

But what worries me most about it is that Wall Street LIKES it, and the Dow Jones went way up. We need to get out of the mindset that what is good for Wall Street is necessarily good for America, and away from the misconception that a day or even a week or a month of a rising stockmarket means ANYTHING.

I still think we should wrap up some of these banks like the FDIC does routinely. We don't want to let zombies roam the financial landscape, as was the case for Japan through-out their stagnant 1990s.

self-regulation can kill

It's shocking, simply shocking, that when for-profit organizations are responsible for assessing the safety and soundness of how a business operates, cozy relationships between the auditors and auditees sometimes spring up, and things that should not be acceptable are covered up, swept aside. In fact, sometimes these organizations are actually PAID by the company, let's call them Company A, they purport to be overseeing.

Sometimes, you end up with another business, let's call them Company B, that decides to inspect the operations of Company A themselves - and find that it is NOT being run in a safe, sound way. But Company B of course has no obligation to blow the whistle on Company A, and so the malfeasance continues unabated until something goes wrong, and people are hurt badly.

In THIS particular instance, I'm talking peanuts. Company A, the Peanut Corporation of America of salmonella fame, and Company B, Nestle, which decided NOT to buy PCA's peanuts after seeing the shit on the floor.

But it sure sounds like Wall Street, doesn't it? Substitute rating agencies like Standard & Poors instead of inspectors like American Institute of Baking International (which gave PCA's operations passing grades). When Standard & Poors and their fellow rating agencies gave AA ratings to securities including all sorts of dubious mortgages, they were essentially telling us all that those securities were safe to consume. In the case of peanuts, several people have died.

The credit rating agencies contributed to destroying Wall Street and the economy by calling those rat-turd infested CDOs "prime investment material."

Even Alan Greenspan now realizes that allowing industries to "self-regulate" (which means "minimally regulate") is NOT effective.

cutting off the nose spites the face

I don't necessarily believe those AIG employees deserve that $165 million in bonuses. But I do believe it is dumb for Congress to pass a law imposing a punitive tax on bonuses of firms that are getting bail-out money.

Yeah, sure there is the question of the rather odd way the financial sector tends to structure its compensation - bonuses are a normal and expected part of the overall pay, just paid out as "bonuses" to keep base compensation down because there are tax advantages for the companies to do that. I'm fine with fixing that loophole.

But in the short run, this bonus tax is dumb because it might cause the leadership - people who get paid bonuses - of some financial institutions to decide to put their personal interest ahead of that of the shareholders and indeed of the country as a whole and decline federal assistance. That may not cause their bank to fail, but it may well constrain their ability to lend. And that will put a damper on the economy, deflating some of the already inadequate stimulus package and keeping the squeeze on credit a little bit tighter.

I'm sure President Obama will sign it, and a lot of people will cheer for it. But it's dumb. To claw back some of that $165 million, we are undermining the effectiveness of the TRILLION dollars-plus the US government and the Federal Reserve have poured into the system.

And besides, as Steven Pearlstein notes, there are other things we SHOULD be riled up about.

misplaced confidence

David Ignatius isn't entirely off base. The current economic crisis IS a crisis, and it is like the phony war at the beginning of World War II - with worse to come, I fear.

But he then criticizes the Obama Administration for not having enough BUSINESS PEOPLE in the CABINET.

Hello, David, have you been paying attention? Who the hell do you think was running Countryside while it churned out more and more mortgages to people who couldn't pay them? Or with insidious terms like "interest only" for five years? It was business people.

Who do you think was working at places like AIG and Lehman Brothers taking those dubious mortgages, dicing them into tiny pieces, blending them with less dubious mortgages and a few mortgages that looked rock solid, and offering them for sale as if the solid portion would make the whole financial instrument less risky? It was business people.

Who do you think was working at the rating agencies like Standard & Poors that then looked at those steaming turd-piles called collateralized debt obligations and other derivatives, and decided they were prime-grade AAA rated instruments? It was business people.

Who do you think is running General Motors and Chrysler and Ford, and decided to put all their eggs in the SUV basket, failing to compete on innovation or economy and therefore shocked, shocked when the market changed? It was business people.

Hell, for that matter, do you remember how after George W. Bush was selected as the de facto President by the Supreme Court, that many assumed he would have a very competent people because it would be staffed by a bunch of MBAs? In other words, even in the case of the failed Bush Administration, it was business people.

Jeez Ignatius, it is okay now to come off of the hero-worshiping attitudes of business people that has dominated the mainstream media in the 1990s and 2000s up until about oh March of 2008 (and can still be found at CNBC and other places, who are too set in their ways to learn).

Yes, many of them are smart and careful and wise and love their mothers. But others of them are shallow or stupid, in their place due to luck and/or connections from college or family (hello George W. Bush).

And further, most business people have no more idea than Ignatius or me or my pet beagle about how to run a government agency, or how to fix the economy.

the best reporting yet on the pathetic state of financial and business reporting

It doesn't pay to "bail out" of an appearance on the Daily Show. Watch this clip, and enjoy it. The first two-plus minutes are Jon Stewart skewering Rick Santelli over his little rant on the floor of the NYSE recently - and for backing out of an appearance.

The rest of the clip is a funny but sobering compilation of things CNBC has gotten wrong over the past couple of years about things like whether AIG would require federal assistance (CNBC said no), about their hardball interview with scam artist "Sir" Allen Stanford (question: is it fun to be a billionaire), about whether Bear Sterns was in trouble (they said no; it collapsed six days later), about whether Lehman Brothers risked the same fate as Bear (CNBC said no; it collapsed three months later), about whether Merril Lynch needed to raise more capital (CNBC said no, they were wrong, and Merril Lynch is no more).

You can hear the audience as the Daily Show intersperses Jim Cramer's boosterish "buy buy buy" advice and softball interviews by lame CNBC personalities with plain graphics pointing out how utterly wrong they were. The audience kinda laughs, but it's a pained groan of a laugh. They get it, that our allegedly top business and financial network was completely in the pockets of the people they purported to be covering. Who were, of course, often the people buying advertising on CNBC and thereby paying the salaries of Maria Bartiromi, Jim Cramer, Larry Kudlow and the rest.

So is it any surprise they failed so completely? Nope. They couldn't afford to succeed. It's as if the sports pages of the New York Times had to rely exclusively on advertising revenues from the Dallas Cowboys, New York Yankees, and Roger Clemens.

So watch, and groan. Once again, the Daily Show is providing the best reporting on top stories for the day. And it's supposed to be the one doing fake news. The others just fake doing the news.

(That embed thing may not be right. Try this link.)

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

let's be more like canada, eh?

We like to make fun of our Canadian neighbors. But you know, they have some good things going for them.

Like health care. Nick Kristof has a good column picking apart the kneejerk reaction to the idea of national health care that "we'll all have to wait months for an operation like in Canada."

Well, a health care system that gives us, at the price of the highest expenditure on health care per capita in the world ($6800), a lower life expectancy than Cyprus and children that die twice as often as in Portugal and women that die in childbirth three times more often than in Greece maybe isn't the grand bargain you think. Especially when you remember that when you lose your job, you lose your insurance too - a double hit.

Maybe the Canadian system isn't so bad.

And now as we pump cash into AIG and Citibank and count the dead and dying banks, we can look north and see a country full of healthy banks. In fact, Canada has the healthiest banking system in the world. Why? A combination of cautious regulation and cautious moves by the banks themselves.

So personally I'd love to be a little bit more like Canada. Although I will draw the line at hockey.

depression?

The news from the Department of Commerce was much worse than expected - US economy shrank 6.2% (annualized) over the last three months of 2008. The New York Times aired out the word "depression" in reporting it. Too early to say but you can't discount it - in any case, this looks like it will be much worse than the 1982-83 recession.

A number earlier this week was even more shocking: 45.7%. That was how much Japan's exports in January 2009 shrank compared to January 2008. Japan's exports to the US were down 52%, and overall car exports down 66%. Those are almost incomprehensible numbers. And they are a reflection of the weakness of the US economy more than that of the Japanese economy.

Will this threaten the assumptions the Obama Administration has made in its budget? Of course. Does that mean Obama should reduce spending requests. Not at all. If anything it further underscores the need for government spending. Ain't nobody else spending. Now is the right time for the government to invest on things like infrastructure, health care, and creating alternatives to carbon-intensive energy sources. The government's spending will keep some people in jobs and some companies in business, and sure as heck won't crowd out any private investment for a while...

close that loophole

Investment partnerships are "bristling" at the idea that their compensation should be treated as income, not capital gains - in other words, that they will face the tax brackets you and I do, not the 15% capital gain rate.

"Obama's plan would essentially treat investors who use their own capital to buy and sell businesses differently than the managers of the partnerships. Investors would be taxed at the capital gains rate; managers would be liable for income taxes. "

Sounds reasonable to me. It was a big fat juicy loophole. And I'm sure the managers can get by on the relative pittances they would have to endure if they pay the higher taxes.

revolution?

It's a bit dizzying. President Obama and his administration are going to propose big changes in health care funding explicitly aimed at "getting health-care reform done this year" as White House domestic adviser Melody Barnes said.

I really want this to work. But I still can't be sure it will. GOP leader John Boehner says "Everyone agrees that all Americans deserve access to affordable health care" then immediately starts carping about taxes on small businesses. Hey, a lot of small businesses will be relieved to be out from under the stress of having to support health insurance for their employees, a situation where sometimes a catastrophic illness for an employee can become an insupportable burden on the business as well.

And lo and behold, the budget includes revenue from a cap and trade scheme on carbon emissions in 2012. To finish that this year, as well as health care and doing whatever it takes on the banks and economies, would be a challenge. Republican Senator John Barrasso (who's he? Wyoming) called the climate thing "a trillion-dollar climate bailout."

Dude, if we could bail out our climate for only a trillion dollars, it would be the single best investment in humanity's history.

I think David Broder is actually right for once - it is a bit of a gamble. But I don't think Obama has much choice. The tanking economy makes the current health care "system" even WORSE for Americans as many of us are laid off and therefore at exposed risk of bankruptcy and worse from medical conditions no longer covered. And we may be too late on the climate anyway - Congress needs to do something realistic, especially before the year-end UN climate change conference in Denmark.

a few sane republicans

There are 41 Republican Senators and 178 Republican Congressmen, precisely 3 (all in the Senate) of whom supported the recently-passed stimulus package.

There are 22 Republican Governors. Four of them recently signed a letter (with 14 Democratic Governors) praising the Obama Administration's economic plan - and according to the New York Times, more would have signed but for political pressures within their states.

The sane and brave governors were Florida's Charlie Crist (too bad he's gay, he'll never go further in Republican national politics), California's Arnold Schwarzenegger, Vermont's Jim Douglas, and Connecticut's Jodi Rell. Crist was even out in public with Obama recently campaigning on behalf of the stimulus package.

So, why did fewer than 2% of national Republicans vote for the deal (7% of Senate, 0% of House), but 18% of the governors have publicly praised Obama? First, the governors are dealing with the practical impacts on the ground of the economic crisis - it is screwing state budgets, for one thing. Second, they may be less surrounded by fellow ideologues than the far-right Republican rump in Congress. And third, these governors don't have the luxury that their House counterparts do of campaigning in electoral districts often tailor-made to produce and support right-wing zealots - they have to win elections at the state level, including big cities and other Democratic strongholds.

republicans bemoaning stimulus package, still

The Republicans' complaint? This stimulus bill isn't Republican enough. That is, it spends ... on the wrong people, by not giving tax cuts that benefit the wealthy and the EMPLOYED enough.

McConnell moans, "I think it may be time ... for the president to kind of get a hold of these Democrats in the Senate and the House, who have rather significant majorities, and shake them a little bit and say, 'Look, let's do this the right way,'" McConnell said. "I can't believe that the president isn't embarrassed about the products that have been produced so far."

Oh boo fucking hoo. First, Obama bent over backwards with House Republicans to meet them part of the way. Hell, 1/3 of the $819 billion is TAX CUTS - admittedly, not Republican Tax Cuts since they aren't all aimed at the yacht and summer home set. It is the Republicans who should be embarrassed at taking a clearly partisan/ideological line and enforcing a zero-vote policy in the House.

And second, yes the Democrats have a majority - quite a large one. They should use it. The GOP used much narrower majorities throughout the 2001-07 period to ram ideological bits of legislation through Congress. Remember the famous Rove strategy as implemented by DeLay, that all you need is 50% + one? They were happy to pass things 219-216 or 51-49. In fact, they'd count the votes and even give some vulnerable Republicans permission to vote "no", not bothering to make any concessions to try for any Democratic votes. Now all of a sudden, McConnell is moaning that a 58-41 majority (pending the outcome in Minnesota's recount/court case) shouldn't really count if zero of the 41 Republicans are happy?

In any case I think he will be unhappily mistaken. I suspect some of the GOP Senators will break ranks. First, some of them like the two GOP Maine senators Snowe and Collins, show dangerous signs of sanity and independent thinking. Second, several GOP Senators are up for re-election in 2010. Unlike their House colleagues, Senators have to win an entire state, not just a district gerrymandered to produce ultra-rightist victories. They may not want to be on record opposing a bill that is designed to create jobs for little people, to improve health benefits and unemployment benefits for little people, while defending their pro-fat cat record...

dissing fdr

Amity Shlaes is on a one-woman campaign to discredit Franklin Delano Roosevelt's economic record, aka the New Deal. She's at it again, today the Washington Post giving her the white space for her slippery and ultimately wrong arguments.

She's full of crap and false statements. I'm too lazy to go into detail.

Check out Edge of the American West, which has had several excellent entries about her (most recent one here, although I bet there will be a new one this week!). Or read Paul Krugman, who knows a thing or two about economics.

that flushing sound you hear...

... Is the sound of the US and global economies going down the toilet. More lay-offs in the US. Even more stunning to me was the announcement out of Tokyo that Japan's factory production was down 9.6%. That is a massive drop - and as much as anything, reflects the weakness in Japan's top export market, the US.

More numbers here, none good.

And yet the Republicans still are calling for the tried and failed policy of tax cuts to stimulate the economy. It's beyond that. Tax cuts trickle in thru the year, so their complaint that government spending won't take effect immediately applies to their preferred policy too.

But that doesn't matter because it would help the Republican Party's base - the Wall Street fat cats that got $20 billion in bonuses. Same that they got in 2004, when business was good. So it isn't rewarding performance, is it? Of course, they will say - with straight faces - that they need to pay those bonuses to keep people from leaving.

Why try so hard to retain people that have collectively brought Wall Street to the brink of collapse? Maybe it's time they fired everybody and started over. There are lots of unemployed who'd be glad to give it a shot.

consistent republicans

So good to see the Republicans are remaining true to their ideals. For example, they oppose the planned stimulus package. SoDak Republican Senator John Thune worries it will make the big deficit even bigger, in keeping with the Republican policy that only Republican presidents and Republican Congresses may blow out the budget by spending on Republican priorities like tax cuts for the rich, and guns.

Charles Grassley of Iowa fears that giving money to the states for Medicaid is a bad idea. Grassley all of a sudden wants some sort of fiscal discipline on state governors; the fact that this would help the poor is in direct contravention to the GOP standard "help the rich, soak the poor" policy.

Meanwhile, in the real world, even MICROSOFT is laying off people for the first time ever.

signs of the times

First sign: Circuit City is finito. All 567 stores are closing, and 34,000 employees will lose their jobs.

Second sign: foreclosures are rising. This story focuses on Southern California. One interesting tidbit that refutes the bullshit line some conservative Republicans are pushing about how this whole crisis was allegedly caused by banks being "forced" to give mortgages to people who weren't qualified is the fact that now, the Post believes, "the number of prime mortgages in delinquency exceeded the subprime loans in danger of default."

Wait till some of those adjustable rate mortgages start moving way up in 2010 and 2011. This could get much uglier.

Third sign: the New York Times writes about people Harvard bankruptcy expert Elizabeth Warren advising people to conduct "financial fire drills" in case you lose your job. Gist of the story: look for ways to cut spending (really do a married/no children couple need THREE cars?), consider borrowing, and make any investments you have more conservative.

remember social security privatization?

Allan Sloan does. And here he points out some of the real risks it would have involved. The essence: a couple that happened to retire in late 2007 could have ended up with Social Security payouts as much as 50% higher than a couple that retired in late 2008, even given that they had the exact same portfolio at the time the 2007 couple retired. Why? Bad luck on timing for the 2008 retirees, nothing more.

Timing the market is difficult and risky. Even RISKIER when your retirement relies on it.

Privatizing Social Security. A dumb idea. Let's not repeat it, OK Team Obama?