The bottom line of Paul Krugman’s piece  Class Wars of 2012 is:

So keep your eyes open as the fiscal game of chicken continues. It’s an uncomfortable but real truth that we are not all in this together; America’s top-down class warriors lost big in the election, but now they’re trying to use the pretense of concern about the deficit to snatch victory from the jaws of defeat. Let’s not let them pull it off.

This blog is trying to do its part to keep our eyes open.  I hope no one was naive enough to think that the recent election meant we had won and we could all ignore politics for the next few years.  In fact, with the election we just staved off disaster for another few weeks.  Now the same forces that some of us may have thought we defeated are back at it just as if nothing happened.

So now we wait for the answer to the question that President Obama refused to answer in the campaign.  What is going to be different now from what it was in the previous four years of his administration?

The Wall Street Cheat Sheet has the article Is Bernanke Right About the Fiscal Cliff?.

The article starts with a comment by Dallas Fed President Richard Fisher:

Fisher has requested more governmental action because there are limits to what monetary policy can accomplish, Reuters reported. “We at the central bank have been carrying the load and this is a very dangerous predicament,” Fisher said during a lecture in Frankfurt.

This is a point that I have been trying to get across to people ever since the economic downturn started.

The article ends with the comments by Fed Chairman Ben Bernanke:

As Bloomberg reported, the report also “bolster[ed] Fed Chairman Ben S. Bernanke’s view that an agreement on reducing long-term federal budget deficits without abrupt tax increases and spending cuts would remove a barrier to growth.”

I agree with the comment about the spending cuts not being abrupt. I do find it hard to believe that the barrier to growth doesn’t have something to do with doubts about future consumer spending. That might be a minor quibble as the reduction of future consumer spending would be as a result of abrupt spending cuts and abrupt increases to taxes on the consumer.

Somehow, I don’t believe that the consumer is making decisions based on the long term federal budget deficits. If people were really worried about impending inflation, they would be spending now rather than saving dollars that are going to become worthless.

The Daily Show with Jon Stewart has the video titled Legends of the Fault.

John McCain and Lindsey Graham criticize Susan Rice for her Benghazi misstatement, despite their own history with misstatements.

How much more crap do we have to take from the likes of these Senators before we realize that the Senate rules need to be changed? We should not permit these demagogues to block a nomination from the President of a more than qualified candidate of his choosing.

Every person who backs what these two (or three) Senators are doing should be forced to have their memories refreshed by watching this video segment.

If these Senators have an honest reason for blocking this nomination, they ought to come out and tell us what it is, or STFU.

When Condi Rice lied, people died as a result. No matter what Susan Rice said, the consequences are miniscule.

What is the mental illness which is exemplified by people losing all sense of proportion?

From the article Asperger syndrome from childhood into adulthood, comes the following excerpt:

A natural reaction to the mess of everyday life is to establish order (although the greater the success in achieving a set, predictable world, the greater the distress when faced with novelty and change). For a person with Asperger syndrome this reaction may become pathological: for example, the commonplace collection of objects can come to dominate his life as well the lives of those around him, and if all sense of proportion is lost an obsession can lead to criminal offending.

The Daily Kos has the article The nineteen new Republican House committee chairmen are all white males.  The closing remark to the  article is:

Remember all the discussions about the Republican Party learning valuable lessons about the need to reach out and broaden their appeal to women and minorities? It doesn’t look like they are getting off to a very good start.

Here is the picture of the committee chairmen.

The Daily SHow with Jon Stewart has this two part interview with Warren Buffet and Carol Loomis about what she collected over 40 years’ worth of Warren Buffett’s stray thoughts for her book, “Tap Dancing to Work.”

The interview is kind of silly, and Stewart walks all over the important points that Buffet tries to make, but it’s probably worth something to capture this on my blog for future reference.

By the way, I don’t revere everything that Buffet has to say. He recently recommended Jamie Dimon for Secretary of the Treasury which is a a perfectly insane idea. The last thing we need is another Secretary of the Treasury blinded by the myths of Wall Street.

The article, Sorry, Warren Buffett, Jamie Dimon probably wouldn’t make a great Treasury Secretary, gets at why I think Warren Buffet is crazy on this particular thought of his. The article describes what the job of Secretary of the Treasury is and why types like Dimon and Geithner are so wrong for the job.

I am not sure I totally agree with the author’s assessment of some previous Secretaries of the Treasury, but it does give to a hint at where else we might find decent Secretaries of the Treaury outside of Wall Street.

Some quite good Treasury secretaries haven’t had particularly deep knowledge of finance or economics, but made up for it with skill navigating the halls of power. Think Lloyd Bentsen under Clinton (a former senator), James Baker under Reagan (previously a lawyer and White House chief of staff), and John Connally under Nixon (a governor of Texas).

The Daily Ticker has the story and interview Taxing Wealth Is the Answer for Boosting Long-Term Growth: Dan Altman.

Economist Daniel Altman is proposing something completely different on the tax front — a system that taxes wealth rather than revenue. It’s not intended to raise more revenues but rather to reduce inequality which, he says, threatens growth.

“Wealth inequality is making the pie smaller for all of us,” Altman tells The Daily Ticker. It limits opportunities, which reduces productivity, and ultimately lowers “living standards for all of us in the long term.”

Altman, an adjunct professor at New York University’s Stern School of Business and author of four books, says wealth inequality in the U.S. has been rising steadily for the past 20 years.

“It’s at a crazy high level that you only see in very poor countries, and it’s starting to threaten growth,” he says.

I have two previous blog posts in July 2011 about the idea of a wealth tax We Really Need a Wealth Tax and Wealth and Tax Distribution.

The first link just above is a better explanation for why we need a wealth tax than the one provided by Dan Altman in the interview in this post.

The last link above really shows the difference between the distribution of taxes versus the distribution of wealth.

I should also mention my post Time For A Wealth Tax? of August 2010.

The Federal Reserve Bank of San Francisco has the technical paper Highway Grants: Roads to Prosperity? on its web site. The abstract for the paper is:

Federal highway grants to states appear to boost economic activity in the short and medium term. The short-term effects appear to be due largely to increases in aggregate demand. Medium-term effects apparently reflect the increased productive capacity brought by improved roads. Overall, each dollar of federal highway grants received by a state raises that state’s annual economic output by at least two dollars, a relatively large multiplier.

Near the end, the paper addresses some differences between this result and previous published results.

Our estimated multipliers are noticeably larger than those typically found in the literature on the effects of government spending. For instance, in a recent survey, Valerie Ramey reports multipliers between 0.5 and 1.5 (see Ramey 2011b). One possible reason for the wide differences is that we consider a very different form of government spending. Most of the literature concentrates on the multiplier effect of military spending. But such spending is arguably nonproductive in an economic sense. By contrast, government investment in infrastructure, such as roads, can raise the economy’s productive capacity. In that respect, it can have a higher fiscal multiplier. Another difference is that we concentrate on the multiplier effect on GSP, while the literature typically studies the effect on U.S. GDP as a whole.

This last part goes to the irony of Republican claims that governments don’t create jobs, but cuts in defense spending will cut jobs.  In fact, government defense spending is less efficient at creating economic output than infrastructure spending.  If the defense spending multiplier is really 0.5, then this would mean that annual economic output is raised 50 cents for each government dollar spent on defense.  Depending on where that government money came from, defense spending could actually lessen economic output.

People not familiar with the fancy statistical methods used by economists these days may have qualms at the way the result was derived.  It is probably worthwhile to maintain a modicum of skepticism at such deep data mining.

Bloomberg News has the article Buffett Mocks Norquist Idea on Taxes Thwarting Investment.

“Let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased,” Buffett wrote. “Only in Grover Norquist’s imagination does such a response exist.”

Well, actually, the rich and ultrarich are already stuffing their ample funds in their mattresses even in the current low tax rate environment because they cannot find better investments in the current recessionary environment.  Swiss Bank accounts and financial derivatives that make money when the economy falters are the equivalent of a mattress for the ultrarich and for corporations that are sitting on trillions of dollars of “cash” with nowhere to invest.  HP had $11 billion to “invest” to buy a British company that they now claim is worthless.  Just think of the years of tax write-offs they get for this.

Be that as it may, what would Warren Buffet know about investing?

Buffett managed funds for investors from 1956 to 1969 through partnerships. Taxes never led any of his clients to forgo an investment during that period, he wrote today, even though the capital gains rate was as high as 27.5 percent and the top marginal rate was at least 70 percent.

“Under those burdensome rates, moreover, both employment and the gross domestic product increased at a rapid clip,” Buffett wrote. “The middle class and the rich alike gained ground.”

Buffett continued to make investments under Berkshire, a textile maker he took control of in 1965 through a partnership. Since then, he has built the firm into a business with operations in insurance, retail, energy, freight and manufacturing. Its market value as of Nov. 23 was $220 billion. Buffett is the company’s largest shareholder.

In an environment with lots of good investment opportunities, people are going to invest almost no matter what the tax environment is.  (Notice, I said “almost”. High taxes might put somewhat of a damper on investment at the very time when such a damper is needed.)

The next time the Speaker of the House tries to convince you it is a bad idea to raise taxes on “the job creators”, think about what Warren Buffet has said.  Perhaps he knows a thing or two about business that the Speaker has no clue about.

Warren Buffet’s piece is an OpEd in the New York Times headlined A Minimum Tax for the Wealthy.  What Buffet wrote is actually:

 SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

I like the original better than the Bloomberg excerpt.

For the debt obsessed, here is another quote from the article:

Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.

Something to think about.  Can you figure out why Buffet would take this position on the debt?

The New York Times has published Paul Krugman’s piece Grand Old Planet.  Talking about Senator Marco Rubio’s interview in GQ magazine, Krugman said:

…Mr. Rubio was asked how old the earth is. After declaring “I’m not a scientist, man,” the senator went into desperate evasive action, ending with the declaration that “it’s one of the great mysteries.”

What was Mr. Rubio’s complaint about science teaching? That it might undermine children’s faith in what their parents told them to believe. And right there you have the modern G.O.P.’s attitude, not just toward biology, but toward everything: If evidence seems to contradict faith, suppress the evidence.
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But the same phenomenon is visible in many other fields. The most recent demonstration came in the matter of election polls. Coming into the recent election, state-level polling clearly pointed to an Obama victory — yet more or less the whole Republican Party refused to acknowledge this reality. Instead, pundits and politicians alike fiercely denied the numbers and personally attacked anyone pointing out the obvious; the demonizing of The Times’s Nate Silver, in particular, was remarkable to behold.

With respect to Nate Silver you can infer a much more sinister reading of the GOP after looking at my previous post Did Anonymous stop Karl Rove from Stealing Ohio again?

The reason why Nate Silver’s reputation had to be was destroyed was to cover the theft of the election that the Republicans knew was in the works.  Of course, the Republicans didn’t know that a bunch of computer hackers would thwart their plans.

I have no way of knowing if this counter-conspiracy theory is true, but I like to spread the rumor anyway.  It sounds so very plausible.

Thanks to RogerG for posting a link to the Krugman article on his Facebook page.

The Economist has the article James Bond economics sub-titled “Casino Royale was all about the financial crisis ”

MANY villains from the James Bond film franchise had madcap schemes for getting rich, like building solar power plants. Some, however, were far more pedestrian: drug lords, water monopolists, and corrupt Soviet generals. The most interesting of these (from an economist’s perspective, anyway) was Le Chiffre, 007’s antagonist in Casino Royale:

Le Chiffre’s business was similar to many other financial firms. He secured cheap funding by issuing deposit-like liabilities. This was pretty easy, since Le Chiffre promised his clients “no risk in the portfolio,” easy access to their savings, and “a reasonable rate of return.” In the days before Bernie Madoff, who wouldn’t want to bank with a man offering that deal? Besides, Le Chiffre’s clientele had few alternatives. Unlike Mr Madoff, however, Le Chiffre actually generated significant alpha for his investors thanks to insider trading, which is far from a unique strategy.

Read the article for more details of how Le Chiffre was just another arm of the financial crisis.