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.

President Obama has a web page The President’s plan to keep your taxes low and reduce the deficit. If we can pass this around so that the measures of social media show strong support for the President, he will be in a much stronger bargaining position. Do not under-estimate your own powers using social media.

Here is the graphic that goes along with the page mentioned above.

Admittedly, this story is not as strong and detailed as some of my other posts. Still, our strongest action might be to let the opponents know that there is some sort of a mandate.

Talking Points Memo has the article Labor Unions Launch Six-Figure Ad Blitz Opposing Spending Cuts To Medicare, Medicaid, Education.

One running theme of deficit reduction negotiations is that both parties support domestic spending cuts in their opening bids — Republicans demand them, and Democrats champion them alongside tax increases for high income earners.

Now a coalition of three labor unions — AFSCME, SEIU and National Education Association — are launching a six-figure ad buy pressuring swing-state Senate Democrats and targeted House Republicans to oppose spending cuts to Medicare, Medicaid and education — three items that neither side has taken off the table in talks about defusing a looming austerity bomb.

Here is one of the items in the ad campaign.

Compare this ad to my previous post Econ (There Is No) Crisis 12 – Deficits & the Debt.

Here is a very interesting video explaining a lot of things about our economic situation. Of course, it goes by too quickly to do any fact checking or analysis of what the author is presenting. However, if the facts and figures are as best as we know how to calculate and estimate, then it provides a lot of data for making the discussion more rational.

This post is expecially dedicated to WayneP. I hope he likes it.

The Real News Network has the video clip Did Anonymous stop Karl Rove from Stealing Ohio again? of the Thom Hartmann program.

If you believe in conspiracies and counter-conspiracies, then this would explain why Mitt Romney was so shocked by his loss and why Karl Rove just knew that the outcome of the Ohio vote would not match what the experts were predicting.

Could there be such a massive conspiracy without some insider eventually spilling the beans?

If this is all true, it shows a way of preventing voter fraud other than lawsuits that could drag on for years. Just out-con the con-men. The FBI and other agencies seem to be able to stop all terror plots in this country by running sting operations and catching the perpetrators in the botched attempt that the agency caused to be botched. If these agencies cannot think to run similar operations to stop voter fraud, then maybe it takes a private enterprise to do the job. What an irony that the Romneys and Roves who always tout private enterprise over government interference could have been stopped by a private enterprise.

The Real News Network has the interview Black Report: Craziness on Three Continents.  Here is an anti-spoiler alert – the Middle East does not figure in the craziness.

BLACK: Second continent is that President Correa of Ecuador wasn’t available to weigh in on this because he was in Spain dealing with their craziness. So this is the Ibero-Americas conference, in which the prime ministers of Spain and Portugal and the heads of state of Latin American nations get together. And Correa and a number of other of his counterparts tried to convince the Spanish prime minister that the austerity provisions that he’s imposed that have led to Great Depression levels of unemployment were catastrophic disasters.

Here’s the kicker. The prime minister of Spain responded, no, you’re wrong; you don’t understand; we’re following the policies that were so successful in Latin America—austerity. Now, this is hilarious, of course, because, first, he’s telling the Latin Americans they don’t know their own history and he does, and second, of course, the Latin America leaders have so many very strong progressives precisely because they were elected on the promise to fight the Washington consensus, which is the austerity program that was imposed on Latin America and caused so much harm there. So we have an effort by the colonies to try to save the mother country, and instead, the mother country is responding with fictions about the histories of Latin America and telling the Latin American presidents they don’t understand their own histories.

If I didn’t know better, I think I know better, maybe my sister’s claims that the end of the world is coming might be true.

Do you know what this guy is talking about?

I think you should.