"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen

"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Thursday, May 25, 2017

Game of Thrones Season 7 Trailer

2 more seasons.

Tuesday, May 23, 2017

Saturday, May 20, 2017

Thursday, May 18, 2017

Tuesday, May 16, 2017

Saturday, May 13, 2017

Thursday, May 11, 2017


Lessons from the Anti-Globalists by Joseph Stiglitz
The lesson of all of this is something that Scandinavian countries learned long ago. The region’s small countries understood that openness was the key to rapid economic growth and prosperity. But if they were to remain open and democratic, their citizens had to be convinced that significant segments of society would not be left behind. 
The welfare state thus became integral to the success of the Scandinavian countries. They understood that the only sustainable prosperity is shared prosperity. It is a lesson that the US and the rest of Europe must now learn.

universal basic income

No Strings Attached by Ioana Marinescu

Tuesday, May 09, 2017

Blade Runner 2049 trailer 10.6.17

Larry Summers on Yellen, flat Phillips Curve

Less is more when it comes to Federal Reserve policy by Larry Summers

Flat Phills, all around by Jared Bernstein

unionization drive at colleges

 The Higher-Education Crisis Is a Labor Crisis

" A unionization drive at Vanderbilt University shows how austerity in higher education is hurting educators and students."

Wren-Lewis: rightwing populism, economic determinism

Why are the UK and US more vulnerable to right wing populism? by Simon Wren-Lewis

It seems to me that these various explanations are quite compatible with each other. Where what we might call neoliberal policies had been strong - weak unions, declining welfare state, stagnant wages - these policies created a very large group in society that were looking for someone to blame. In a managed economy that allowed the parties of the right either to use nationalism and anti-immigration rhetoric to deflect blame from themselves, or for the far right to capture those parties. As that rhetoric also hit out at globalisation it potentially was a direct threat to global business interests, but those interests could either do nothing about this or felt they could manage that threat.

Monday, May 08, 2017

Krugman on the EU

What’s the Matter With Europe? by Paul Krugman
Which brings me back to the French election. We should be terrified at the possibility of a Le Pen victory. But we should also be worried that a Macron victory will be taken by Brussels and Berlin to mean that Brexit was an aberration, that European voters can always be intimidated into going along with what their betters say is necessary. 
So let’s be clear: Even if the worst is avoided this Sunday, all the European elite will get is a time-limited chance to mend its ways.

Dean Baker on economists


The Wrongest Profession by Dean Baker

March 2017

OVER THE PAST TWO DECADES, the economics profession has compiled an impressive track record of getting almost all the big calls wrong. In the mid-1990s, all the great minds in the field agreed that the unemployment rate could not fall much below 6 percent without triggering spiraling inflation. It turns out that the unemployment rate could fall to 4 percent as a year-round average in 2000, with no visible uptick in the inflation rate.
As the stock bubble that drove the late 1990s boom was already collapsing, leading lights in Washington were debating whether we risked paying off the national debt too quickly. The recession following the collapse of the stock bubble took care of this problem, as the gigantic projected surpluses quickly turned to deficits. The labor market pain from the collapse of this bubble was both unpredicted and largely overlooked, even in retrospect. While the recession officially ended in November 2001, we didn’t start creating jobs again until the fall of 2003. And we didn’t get back the jobs we lost in the downturn until January 2005. At the time, it was the longest period without net job creation since the Great Depression.
When the labor market did finally begin to recover, it was on the back of the housing bubble. Even though the evidence of a bubble in the housing sector was plainly visible, as were the junk loans that fueled it, folks like me who warned of an impending housing collapse were laughed at for not appreciating the wonders of modern finance. After the bubble burst and the financial crisis shook the banking system to its foundations, the great minds of the profession were near unanimous in predicting a robust recovery. Stimulus was at best an accelerant for the impatient, most mainstream economists agreed—not an essential ingredient of a lasting recovery.
While the banks got all manner of subsidies in the form of loans and guarantees at below-market interest rates, all in the name of avoiding a second Great Depression, underwater homeowners were treated no better than the workers waiting for a labor market recovery. The Obama administration felt it was important for homeowners, unlike the bankers, to suffer the consequences of their actions. In fact, white-collar criminals got a holiday in honor of the financial crisis; on the watch of the Obama Justice Department, only a piddling number of bankers would face prosecution for criminal actions connected with the bubble.
There was a similar story outside the United States, as the International Monetary Fund, along with the European Central Bank and the European Union, imposed austerity when stimulus was clearly needed. As a result, southern Europe is still far from recovery. Even after another decade on their current course, many southern European countries will fall short of their 2007 levels of income. The situation looks even worse for the bottom half of the income distribution in Greece, Spain, and Portugal.
Even the great progress for the world’s poor touted in the famous “elephant graph” turns out to be largely illusory. If China is removed from the sample, the performance of the rest of the developing world since 1988 looks rather mediocre. While the pain of working people in wealthy countries is acute, they are not alone. Outside of China, people in the developing world have little to show for the economic growth of the last three and a half decades. As for China itself, the gains of its huge population are real, but the country certainly did not follow Washington’s model of deficit-slashing, bubble-driven policies for developing countries.
In this economic climate, it’s not surprising that a racist, xenophobic, misogynist demagogue like Donald Trump could succeed in politics, as right-wing populists have throughout the wealthy world. While his platform may be incoherent, Trump at least promised the return of good-paying jobs. Insofar as Clinton and other Democrats offered an agenda for economic progress for American workers, hardly anyone heard it. And to those who did, it sounded like more of the same.


Mark Thoma said...
Let me repeat my request at the bottom of this comment thread where it is more likely to get noticed:

This (the tone of disagreement) needs to stop, on all sides. I am not interested in trying to figure out who started what. It's been going on far too long to figure out in any case.
Disagreement is fine, but the tone of the disagreement isn't.
It needs to end. I don't have the time to monitor comments effectively, so I hope you will respect this request.

Sunday, May 07, 2017

Wednesday, May 03, 2017

Wednesday, April 19, 2017

center left sellout

pgl said in reply to JohnH...

Let's look at what Krugman said:

"From the beginning, many and probably most liberal policy wonks were skeptical about Bernie Sanders. On many major issues — including the signature issues of his campaign, especially financial reform — he seemed to go for easy slogans over hard thinking."

This is exactly right. Counterpunch may not like this being pointed out but this only confirms what Kurt said.

Reply       Wednesday, April 19, 2017 at 12:51 PM


Monday, April 10, 2017

Tuesday, April 04, 2017

Thursday, March 23, 2017

Tuesday, March 21, 2017

Krugman on DBCFT

A Party Not Ready to Govern by Krugman
Then there’s corporate tax reform — an issue where the plan being advanced by Paul Ryan, the House speaker, is actually not too bad, at least in principle. Even someDemocratic-leaning economistssupport a shift to a “destination-based cash flow tax,” which is best thought of as a sales tax plus a payroll subsidy. (Trust me.)
But Mr. Ryan has failed spectacularly to make his case either to colleagues or to powerful interest groups. Why? As best I can tell, it’s because he himself doesn’t understand the point of the reform.
The case for the cash flow tax is quite technical; among other things, it would remove the incentives the current tax system creates for corporations to load up on debt and to engage in certain kinds of tax avoidance. But that’s not the kind of thing Republicans talk about — if anything, they’re in favor of tax avoidance, hence the Trump proposal to slash funding for the I.R.S.
No, in G.O.P. world, tax ideas always have to be presented as ways to remove the shackles from oppressed job creators. So Mr. Ryan has framed his proposal, basically falsely, as a measure to make American industry more competitive, focusing on the “border tax adjustment” which is part of the sales-tax component of the reform.
This misrepresentation seems, however, to be backfiring: it sounds like a Trumpist tariff, and has both conservatives and retailers like WalMart up in arms.

Sunday, March 19, 2017

DNC chair Perez

Progressives Slam Tom Perez’s New DNC Transition Team

center-left and Zack Beauchamp

Any answer to right-wing populism requires left-wing economics

by eshhou

Why Zack Beauchamp’s piece arguing otherwise is wrong

Zack Beauchamp of Vox has written an article entitled “No easy answers: why left-wing economics is not the answer to right-wing populism.” In this piece, he argues that “tacking to the left on economics won’t give Democrats a silver bullet to use against the racial resentment powering Trump’s success [and] could actually wind up [making] Trump [stronger.]” Matt Bruenighas written about the piece’s odd moral implications; I want to discuss some of the evidence Beauchamp provides, and why I don’t find it all that convincing.


Bottom line

Assuming the Democratic party does not totally abandon redistributive politics, racism will always pose a problem. The question then is: what redistributive programs and policies are most capable of overcoming this and generating cross-racial coalitions? There is little reason to believe that the means-tested programs favored by the Democratic mainstream are more capable of doing this than the more universal programs favored by those on the Left.

Thursday, March 16, 2017

Lisa Hannigan cover of Bowie on Legion

Oh you Pretty Things
Don't you know you're driving your
Mamas and Papas insane

JW Mason: misc thoughts including on health care

JW Mason:
The health policy tightrope. The Republican plan health care plan, the CBO says, would increase the number of uninsured Americans by 24 million. I don’t know any reason to question this number. By some estimates, this will result in 40,000 additional deaths a year. By the same estimate, the Democratic status quo leaves 28 million people uninsured, implying a similar body count. Paul Ryan’s idea that health care should be a commodity to be bought in the market is cruel and absurd but the Democrats’ idea that heath insurance should be a commodity bought in the market is not obviously less so. Personally, I’m struggling to find the right balance between these two sets of facts. I suppose the first should get more weight right now, but I can’t let go of the second. Adam Gaffney does an admirable job managing this tightrope act in his assessment of the Obama health care legacy inJacobin. (But I think he’s absolutely right, strategically, to focus on the Republicans for the Guardian’s different readership .)

Tuesday, March 14, 2017

Krugman and the center-left

Populism and the Politics of Health by Krugman

"This ties in with an important recent piece by Zack Beauchamp on the striking degree to which left-wing economics fails, in practice, to counter right-wing populism; basically, Sandersism has failed everywhere it has been tried. Why?

The answer, presumably, is that what we call populism is really in large degree white identity politics, which can’t be addressed by promising universal benefits. Among other things, these “populist” voters now live in a media bubble, getting their news from sources that play to their identity-politics desires, which means that even if you offer them a better deal, they won’t hear about it or believe it if told. For sure many if not most of those who gained health coverage thanks to Obamacare have no idea that’s what happened.

That said, taking the benefits away would probably get their attention, and maybe even open their eyes to the extent to which they are suffering to provide tax cuts to the rich.

In Europe, right-wing parties probably don’t face the same dilemma; they’re preaching herrenvolk social democracy, a welfare state but only for people who look like you. In America, however, Trumpism is faux populism that appeals to white identity but actually serves plutocrats. That fundamental contradiction is now out in the open."

Sunday, March 05, 2017

SNL on Democrats

SNL on Democrats

at about 3:50

Wednesday, March 01, 2017


They say don't feed the trolls so I guess I shouldn't feed you and your constant need for attention.
Get the message? Either make a substantive response which is on point or STFU!

Friday, February 24, 2017

Thursday, February 23, 2017

"I bet you could operate a nice gas shower."

"I bet you could operate a nice gas shower.
I could see you with a couple of Ses on your collar
Stiff goose in your step."

Tuesday, February 21, 2017

Bernstein on automation

Before you blame the robots, look to the policy (and the data) by Jared Bernstein

Trump and trade, Dean Baker

Trump and Trade: He’s Largely Right by Dean Baker

There are an awful lot of things to really dislike about Donald Trump and his conduct as president to date, but that doesn’t mean everything his administration does is wrong. In particular, there is considerable truth to what he has said about trade costing a large number of good paying manufacturing jobs and hurting the living standards of the middle class.

Unfortunately, rather than acknowledging this point, the media show the same determination as global warming denialists in saying that trade cannot be a problem. We got two examples of this sort of denialism in recent days.

The first was a piece in the Washington Post criticizing Trump adviser Peter Navarro’s view of trade and the trade deficit. While Navarro makes many questionable arguments in pushing his views on trade, his point that the trade deficit can reduce growth and employment is absolutely correct.

Ever since the crash in 2008 the bulk of economics profession has agreed that we faced a situation of “secular stagnation,” where the economy faced a persistent shortfall of demand. In this context, anything that boosts demand, such as an increase in government spending, private consumption, or a reduction in the trade deficit, leads to more output and employment.

In this context, the piece’s comment, taken from Harvard University economics professor N. Gregory Mankiw, “that a smaller trade deficit means lower investment along with possibly higher interest rates and less consumption” is completely wrong. If the economy is operating below full employment, as it certainly has been through most of the period from 2008 then reducing the trade deficit certainly can be a net addition to growth. As Mankiw says, “even a freshman at the end of ec 10 knows that.”

In this context, Navarro’s claim that a lower trade deficit could bring in $1.74 trillion in tax revenue over the course of a decade cannot be so easily dismissed even though the Post tells us:

“Hooey, say economists across the political spectrum.”

The key question here is whether the economy is now at potential GDP and whether it is likely to be over the next decade, even with a trade deficit that is close to 3.0 percent of GDP ($538 billion in the most recent quarter). On this question, the Congressional Budget Office (CBO) might be on the side of Navarro.

According to CBO, potential GDP for the 4th quarter of 2016 was $19,049 billion. This is 1.0 percent higher than the estimate of GDP for the quarter of $18,860.8 billion. This means that if CBO is right, if there had been more demand in the economy, for example due to imports being replaced by domestically produced goods, GDP could have been 1.0 percent higher last quarter.

Of course CBO’s estimates of potential GDP are not especially accurate. Its most recent estimates for potential GDP in 2016 are more than 10 percent below what it had projected for potential GDP in 2016 back in 2008, before the severity of the crash was recognized. It is possible it overstated potential by a huge amount in 2008, but it is also possible it is understating potential today. It also hugely understated potential GDP in the mid-1990s, with 2000 GDP coming in more than 5 percent above the estimate of potential that CBO made in 1996. In other words, it would not be absurd to think that the economy could sustain a level of output that is 2.0 percent above the current level. (The fact that the employment rate of prime age workers [ages 25-54] is still 4.0 percentage points below the 2000 peak is certainly consistent with this view.)

Suppose that GDP were consistently 2.0 percent higher than current projections over the next decade due to a lower trade deficit. This would imply an additional $4.6 trillion in output over this period. If the government captures 30 percent of this in higher taxes and lower spending on transfer programs like unemployment insurance and food stamps, this would imply a reduction in the projected deficit of $1.38 trillion over the decade. That’s not quite the $1.74 trillion projected by Navarro, but close enough to make the derision unwarranted.

In terms of how you get a lower trade deficit, Navarro’s strategy of beating up on China is probably not the best way to go. But there is in fact precedent for the United States negotiating a lower value for the dollar under President Reagan, which had the desired effect of reducing the trade deficit.

There is no obvious reason it could not pursue a similar path today, especially since it is widely claimed in business circles that China actually wants to raise the value of its currency. The U.S. could help it.

The second area of seemingly gratuitous Trump trade bashing comes from a Wall Street Journal news article on the Trump administration’s efforts to correct for re-exports in trade measures. Before getting to the article, it is important to understand what is at issue.

Most of what the United States exports to countries like Mexico, Japan, or elsewhere are goods and services produced in the United States. However, some portion of the goods that we export to these countries consists of items imported from other countries which are just transshipped through the United States.

The classic example would be if we offloaded 100 BMWs on a ship in New York and then 20 were immediately sent up to Canada to be sold there. The way we currently count exports and imports, we would count the 20 BMWs as exports to Canada and also as imports from Germany. These re-exports have zero impact on our aggregate trade balance, but they do exaggerate out exports to Canada and our imports from Germany.

If we wanted better data on bilateral trade flows, then it would be desirable to pull out the re-exports from both our exports to Canada and our imports from Germany. This adjustment would make our trade deficit with Canada appear larger and trade deficit with Germany smaller, but would leave our total trade balance unchanged.

This better measure of trade flows would be useful information to have if we wanted to know what happened to trade with a specific country following a policy change, for example the signing of a trade deal like NAFTA. The inclusion of re-exports in our export data would distort what had happened to actual flows of domestically produced exports and imports for domestic consumption.

The United States International Trade Commission already produces a measure of trade balances that excludes imports that are re-exported. However this measure is still not an accurate measure of bilateral trade balances since it still includes the re-exports on the import side. In the case mentioned above, it would include the BMWs imported from Germany that were immediately sent to Canada, as imports. In principle, we should be able to construct a measure that excludes these items on the import side as well. If this is what the Trump administration is trying to do, then it is asking for a perfectly reasonable adjustment to the data.

This is where we get to the WSJ article. According to the piece, the Trump administration was asking the Commerce Department to produce measures of bilateral trade balances that took out the re-exports on the export side, but left them in on the import side. This would have the effect of artificially inflating our trade deficit with a bogus number. If this is in fact what the Trump administration is trying to do, then we should be shooting at them with all guns. (This is metaphorical folks, I’m not advocating violence.)

However some skepticism might be warranted at this point. No one with a name actually said the Trump administration asked for this bogus measure of trade balances. The sole source listed is “one person familiar with the discussions.”

There was an official statement from the Commerce Department’s Bureau of Economic Analysis (BEA), which collects and compiles the data:

“Any internal discussions about data collection methods are no more than the continuation of a longstanding debate and are part of the bureau’s normal process as we strive to provide the most precise statistics possible.”

I take very seriously efforts to mess with the data. We are fortunate to have independent statistical agencies with dedicated civil servants who take their work very seriously. However we should wait until we have a bit more solid evidence before assuming that the Trump administration is trying to interfere in their independence, as opposed to trying to make a totally legitimate adjustment to the data that the BEA staff would almost certainly agree is an improvement.

Monday, February 20, 2017


4chan: The Skeleton Key to the Rise of Trump

It was still a group of hikikomori — a group of primarily young males who spent a lot of the time at the computer, so much so they had retreated into virtual worlds of games, T.V., and now the networks of the internet. This was where most or all of their interaction, social or otherwise took place. The real world, by contrast, above their mothers’ basements, was a place they did not succeed, perhaps a place they did not fundamentally understand.

Sunday, February 19, 2017


The lessons of 1937 by Christine Romer

Krugman 38 depression, Bernstein dynamic scoring

New Deal economics by Krugman

NOVEMBER 8, 2008

INSERT DESCRIPTIONLimited fiscal force

Now, you might say that the incomplete recovery shows that “pump-priming”, Keynesian fiscal policy doesn’t work. Except that the New Deal didn’t pursue Keynesian policies. Properly measured, that is, by using the cyclically adjusted deficit, fiscal policy was only modestly expansionary, at least compared with the depth of the slump. Here’s the Cary Brown estimates, from Brad DeLong:
Net stimulus of around 3 percent of GDP — not much, when you’ve got a 42 percent output gap. FDR might have been more of a Keynesian if Keynesian economics had existed — The General Theory wasn’t published until 1936. Note in particular that in 1937-38 FDR was persuaded to do the “responsible” thing and cut back — and that’s what led to the bad year in 1938, which to the WSJ crowd defines the New Deal.
If only we could apply dynamic scoring to the rest of life by Jared Bernstein

Baker on taxes, Reich on Republican plan, Weregild, Corey Robin

A Progressive Way to End Corporate Taxes by Dean Baker

Republican tax sham by Robert Reich

It’s time to start thinking about a realignment: 2 things for the left to do by Corey Robin

Thursday, February 16, 2017


They say don't feed trolls so I guess I shouldn't feed you and your constant need for attention.

Sunday, February 12, 2017

Baker on Tax reform, Fernholz on DBCFT

Neil Irwin Warns of Financial Crisis from Corporate Tax Reform by Dean Baker

This is the Republican plot to kill the US corporate income tax as we know it by Tim Fernholz
Yet border adjustment—and the consumption tax behind it—deserves consideration because it is what Trump might propose if he were interested in crafting policy not with the aim of offending trade partners, liberals, and the Republican establishment, but rather with the goal of bringing investment back to the US while still conceding the reality of a globalized economy. It also would fit with the world view of his trade advisor Peter Navarro, who is eager to tear down the global supply chains that undergird the success of US multinationals today. And, together with the other big changes under consideration in Congress, it might actually shift more investment toward the US without the negative consequences of punitive tariffs or the ad hoc cronyism of Trump’s twitter bullying.

Atrios, DBCFT, Buttigieg

Your Moment Of Zen

Liberals Can’t Wait for Republicans to Adopt the Border-Adjusted Tax by VERONIQUE DE RUGY

Deluded Republicans are accidentally pushing for progressive corporation tax reform by Ben Chu

Everything You Ever Wanted to Know about Border-Adjustable Taxation, but Were Afraid (or too Bored) to Ask by Dan Mitchell

Trump Calls House GOP Tax Plan ‘Too Complicated.’ He May Be Right. by Dan Mitchell

Indiana Mayor Running for D.N.C. Chairman

Joseph A. Buttigieg, professor at Notre Dame.

"He is also the editor and translator of the multi-volume complete critical edition of Antonio Gramsci's Prison Notebooks, a project that has been supported by a major grant from the National Endowment for the Humanities. Several of his articles on Gramsci have been translated into Italian, German, Spanish, Portuguese, and Japanese. He was a founding member of the International Gramsci Society of which he is president. The Italian Minister of Culture appointed him to a commission of experts to oversee the preparation of the "edizione nazionale" of Gramsci's writings. Buttigieg serves on the editorial and advisory boards of various journals, and he is a member of the editorial collective of boundary 2."

Tuesday, February 07, 2017

Setser on Germany

Brad Setser:
I suspect the politics around trade would be a bit different in the U.S. if the goods-exporting sector had grown in parallel with imports. 
That is one key difference between the U.S. and Germany. Manufacturing jobs fell during reunification—and Germany went through a difficult adjustment in the early 2000s. But over the last ten years the number of jobs in Germany’s export sector grew, keeping the number of people employed in manufacturing roughly constant over the last ten years even with rising productivity. Part of the “trade” adjustment was a shift from import-competing to exporting sectors, not just a shift out of the goods producing tradables sector. Of course, not everyone can run a German sized surplus in manufactures—but it seems likely the low U.S. share of manufacturing employment (relative to Germany and Japan) is in part a function of the size and persistence of the U.S. trade deficit in manufactures. (It is also in part a function of the fact that the U.S. no longer needs to trade manufactures for imported energy on any significant scale; the U.S. has more jobs in oil and gas production, for example, than Germany or Japan).

demagogues and stagnation

We’re re-learning today what we should have learned in the 30s…economic stagnation breeds reaction and intolerance
Chris Dillow

how Vancouver got its housing bubble under control

How Vancouver got its housing bubble under control: a lesson for cities like London and San Francisco

Saturday, February 04, 2017

General Strike

Whose Strike? by Alex Gourevitch

Trump voters

The Fight in the Borderlands by Josh Marshall
We hear people constantly saying 'Nothing will change his supporters' minds. They're with him no matter what.' First of all this is enervating defeatism which is demoralizing and loserish. But it also misses the point. It is factually wrong. For the supporters those people have in mind, they're right. They're true believers, authoritarians who are energized by Trump's destructive behavior. But there are not that many of those people. A big chunk of Trump's voters voted for him in spite of their dislike. Those people can be carved away. But Democrats will regain power by winning it in what amount to our 21st century internal American borderlands, not in the big cities or rural areas mainly but in between. So what's happening now to lay that groundwork for 2018?

Friday, February 03, 2017

how to disagree

How to Disagree by Barry Ritholtz

Monbiot on neoliberalism

Neoliberalism – the ideology at the root of all our problems by George Monbiot

When, in 1947, Hayek founded the first organisation that would spread the doctrine of neoliberalism – the Mont Pelerin Society – it was supported financially by millionaires and their foundations. 
With their help, he began to create what Daniel Stedman Jones describes inMasters of the Universe as “a kind of neoliberal international”: a transatlantic network of academics, businessmen, journalists and activists. The movement’s rich backers funded a series of thinktanks which would refine and promote the ideology. Among them were the American Enterprise Institute, the Heritage Foundation, the Cato Institute, the Institute of Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute. They also financed academic positions and departments, particularly at the universities of Chicago and Virginia.

Thursday, February 02, 2017



The Auerbach Tax and Automobile Multinationals

Bloomberg reports:
A proposed tax on imports that President Donald Trump is said to be warming to could upend the competitive landscape for carmakers, boosting Ford Motor Co. while hindering manufacturers that rely more on overseas factories including Toyota Motor Corp. House Republican leaders have proposed a so-called border-adjusted tax, which would place a levy on vehicles imported into the U.S. and fully exempt those exported. Though Trump initially deemed the idea too complicated, White House Press Secretary Sean Spicer last week said it was under consideration and could help pay for a wall along the Mexico border. The overhaul to the U.S. tax system could hand an advantage to Ford, Honda Motor Co. and General Motors Co., which rely the least on imported vehicles among major automakers. The shake-up would also undermine Toyota
Is Bloomberg assuming a fixed yen/$ exchange rate so these border adjustments boost exports and discourage imports? Greg Mankiw and Paul Krugman take a very different view. Greg breaks down this Destination Based Cash Flow tax as a three-fer:
Impose a retail sales tax on consumer goods and services, both domestic and imported; Use some of the proceeds from the tax to repeal the corporate income tax.; and Use the rest of the proceeds from the tax to significantly cut the payroll tax.
Greg is assuming the rise in sales taxes is greater than the cut in income taxes, which is not clear. But let’s hear from Paul:
Greg and I disagree on whether replacing profits taxes with sales taxes is a good idea, but agree that all of this has nothing to do with trade and international competition – because it doesn’t. I suspect, however, that Greg is being naïve here in assuming that we’re just seeing confusion because border tax adjustment sounds as if it must involve competitive games. There’s some of that, for sure, but one reason the competitiveness thing won’t go away is that it’s an essential part of the political pitch. “Let’s eliminate taxes on profits and tax consumers instead” is a hard sell, even if you want to claim that the incidence isn’t what it looks like. Claiming that it’s about eliminating a dire competitive disadvantage plays much better, even though it’s all wrong.
Alan Auerbach – the proponent of this idea – joined with Douglas Holtz-Eakin to state why this competitiveness argument is all wrong: These two (AHE) wrote:
Unlike tariffs on imports or subsidies for exports, border adjustments are not trade policy. Instead, they are paired and equal adjustments that create a level tax playing field for domestic and overseas competition; Border adjustments do not distort trade, as exchange rates should react immediately to offset the initial impact of these adjustments. As a corollary, border adjustments do not distort the pattern of domestic sales and purchases
So if this is not going to advantage Ford and GM to the disadvantage of Toyota, could something else be driving Ford’s support and the opposition from companies like Toyota. I have been looking more at the transfer pricing angle objecting to this claim from AHE:
Border adjustments eliminate the incentive to manipulate transfer prices in order to shift profits to lower-tax jurisdictions
A lot of people read this and think transfer pricing manipulation goes away. But this is clearly wrong if our trading partners have positive corporate tax rates that are sourced based. Even AHE admits this later:
Thus, the multinational would have no incentive to use transfer prices to shift profits away from the United States, even if the tax rate in the foreign country is very low. Indeed, it would benefit by shifting profits to the United States, to reduce the taxes it pays in the low-tax country.
Lawrence Summers adds:
Businesses that invest heavily, hire extensively and export a large part of their product will have negative taxable income on a chronic basis .. Fourth, the combination of a sharply lower rate, new opportunities for tax arbitrage and the fact that any revenue gains from bringing overseas cash home are one-shot means the Federal revenue base would erode. The result would be cuts in entitlement payments to consumers who spend heavily, tax hikes on individuals and reductions in government spending. Over time, this will slow growth and burden the middle class.
He is correct about the “new opportunities for tax arbitrage" which is what I referring to with my Trump Toaster Oven example where I noted:
While currently Tiffany might want to raise the intercompany price – she knows the IRS could object. Of course Auerbach’s DBCFT would change her incentives as she might want to lower this price to only $80 to eliminate the Canadian income tax – assuming the Canadian Revenue Agency does not object.
Of course the Canadian Revenue Agency would strongly object. Toyota is a lot like our example. The Auerbach proposal would raise its U.S. taxes and give it an incentive to ship their cars to the U.S. at cost costs only. Toyota’s 10-K indicates that its 2015 sales were $260 billion with over $100 billion to the U.S. Its operating margin was 10 percent with the U.S. getting about half of that on its U.S. sales. So on U.S sales, Toyota has U.S. profits near $5 billion and Japanese profits near $5 billion – both taxes at fairly high rates. The Auerbach tax would give Toyota the incentive to have all $10 billion sourced in the U.S. But one would certainly expect the Japanese tax authorities to strongly object. Summers example reminds me of Boeing which sells over $90 billion a year with 58 percent of those sales to foreign customers. It currently incurs near $1.9 billion in U.S. taxes given its 7.5 percent profit margin and the fact that it allocates over 95 percent of its income to the U.S. The Auerbach tax would cut this tax bill to zero. It would also cut the U.S. tax bill for companies such as Starbucks. So what about Ford and GM? Alas Dylan Matthews has this all wrong with:
For example, suppose that a car company — let’s just call it, uh, General Motors — makes $1 billion in profit manufacturing cars in the US and selling them domestically and exporting them to subsidiaries abroad. That would normally subject it about $350 million in taxes, since the US has a 35 percent corporate tax rate. But GM could instead have its foreign subsidiaries pay $1 billion less for the cars they buy from the US branch of the company. That wipes out GM’s US profits, leaving it with no US tax liability and shifting the profits to the subsidiaries abroad. If those subsidiaries are in countries with a low or nonexistent corporate income tax, that could wind up being a very good deal ... This makes most tax evasion schemes pointless.
I doubt Dylan looked at the 10-K filings of either Ford or GM when he drafted this base erosion fairy tale. Ford sources less than 17 percent of its income to foreign affiliates and GM sources almost none of its income abroad. So the Auerbach tax would represent a major reduction in their U.S. tax bills. These foreign affiliates are not in tax havens unless you think Canada, Mexico, and our European trading partners have zero corporate tax rates (hint – their tax rates are 20 percent or more). Think of their operations as having a European component and a North American component. The European affiliates produce and distribute cars paying royalties back to the U.S. parent. Under the Auerbach proposal, they might want to increase those royalties to bleed their European affiliates dry. But of course the tax authorities in France, Germany, and the UK are not stupid. In North America, Mexican maquiladoras make the components, Detroit assembles, and a Canadian distributor sells to Canadian customers. The Auerbach tax would give Ford and GM the incentives to manipulate transfer pricing to strip all Canadian and Mexican income so the last line from Dylan that I quoted is quite wrong. But it would also be wrong to assume that the Canadian Revenue Agency and the Mexican authorities would just roll over.

DBCFT and Gorsuch

The Prospects For Tax Reform in 2017 Are Dimming by Howard Gleckman


Wednesday, February 01, 2017


Idiot's Guide to DBCFT, Ryan Style by Allison Christians

Understanding the Republicans’ corporate tax reform by Bill Gale

A Modern Corporate Tax by Alan J. Auerbach (Center for America Progress)

Sunday, January 29, 2017

Saturday, January 28, 2017

Reagan, too tight monetary policy, appreciating dollar

Must-Read: Dani Rodrik: What Did NAFTA Really Do? by DeLong
As I wrote to Dani: The U.S. went from 30% of its nonfarm employees in manufacturing to 12% because of rapid growth in manufacturing productivity and limited demand, yes? The U.S. went from 12% to 9% because of stupid and destructive macro policies–the Reagan deficits, the strong-dollar policy pushed well past its sell-by date, too-tight monetary policy–that diverted it from its proper role as a net exporter of capital and finance to economies that need to be net sinks rather than net sources of the global flow of funds for investment, yes?

Wednesday, January 25, 2017

Thursday, January 19, 2017

Piketty and Buttigieg

Long live populism! by Thomas Piketty

Pete Buttigieg

Son of a Gramsci scholar.

Friday, January 13, 2017

Monday, January 02, 2017