What computer science can teach economics

http://web.mit.edu/newsoffice/2009/game-theory.html

...

Of course, most games are more complicated than the penalty-kick game, and their Nash equilibria are more difficult to calculate. But the reason the Nash equilibrium is associated with Nash’s name — and not the names of other mathematicians who, over the preceding century, had described Nash equilibria for particular games — is that Nash was the first to prove that every game must have a Nash equilibrium. Many economists assume that, while the Nash equilibrium for a particular market may be hard to find, once found, it will accurately describe the market’s behavior.

Daskalakis’s doctoral thesis — which won the Association for Computing Machinery’s 2008 dissertation prize — casts doubts on that assumption. Daskalakis, working with Christos Papadimitriou of the University of California, Berkeley, and the University of Liverpool’s Paul Goldberg, has shown that for some games, the Nash equilibrium is so hard to calculate that all the computers in the world couldn’t find it in the lifetime of the universe. And in those cases, Daskalakis believes, human beings playing the game probably haven’t found it either.

...

The argument has some empirical support. Approximations of the Nash equilibrium for two-player poker have been calculated, and professional poker players tend to adhere to it — particularly if they’ve read any of the many books or articles on game theory’s implications for poker. The Nash equilibrium for three-player poker, however, is intractably hard to calculate, and professional poker players don’t seem to have found it.

Washington's Blog

Shiller: "Look up 'Bubble' in an Economic Textbook and It's Not There. [People] are Living in a 'Pretend-and-Extend' Environment"

Robert J. Shiller is one of the most prominent American economists and is one of the 100 most prominent economists in the world.

Shiller recently confirmed two points that alternative financial writers have been making for years:

(1) Mainstream economists don't pay any attention to bubbles - even though bubbles always burst, causing recessions or depressions

and

( 2) People are in an extend-and-pretend environment, trying to paper over the severity of economic problems and kick the can down the road

At the Buttonwood economics conference a couple of days ago, Shiller said:

"Look up 'bubble' in an economic textbook and it's not there." (Referring to the shortcomings of the traditional economic curriculum.).

People "are living in a 'pretend-and-extend' environment, waiting for the economy to recover." (Referring to the precarious state of the commercial real estate market and the wave of resets coming due between 2011 and 2013.)

While criticism of American economists' blind spot towards bubbles may be news to Americans, even BIS and the head of the World Bank have previously slammed the Federal Reserve for blowing bubbles and then trying to clean up the mess once they burst. ...

Washington's Blog

What is the current American economy: capitalism, socialism or fascism?

Socialism

Many people call the Bush and Obama administration's approach to the economic crisis "socialism".

Are they right?

Well, Nouriel Roubini writes in a recent essay:

This is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest...

The releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending.

Roubini has previously written:

We're essentially continuing a system where profits are privatized and...losses socialized.

Nassim Nicholas Taleb says the same thing:

After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.

[Interviewer]: But aren't those the very problems we're supposed to be fixing?

NT: They're all still here. Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. Butthe government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient's symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.

....

....

Nobel prize winning economist Joseph Stiglitz calls it "socialism for the rich". So domany others.

Fascism?

Some, however, argue that the economy is more like fascism than socialism. For example, leading journalist Robert Scheer writes:

What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as "financial fascism" [than socialism]. After all, even Hitler never nationalized the Mercedes-Benz company but rather entered into a very profitable partnership with the current car company's corporate ancestor, which made out quite well until Hitler's bubble burst.

And Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because "the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social" (page 416).

This perfectly mirrors Roubini's statement about the American government's bailout plan.

....

Looting

As Examiner.com pointed out in May (it is worth quoting the essay at some length, as this is an important concept), looting has replaced free market capitalism:

Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing
the causes of the S&L crisis and other financial meltdowns. As summarized
by the New York Times:

In the paper, they argued that several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.

In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer [co-author of the paper, and himself a leading expert on economic growth] said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.

The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”

The Times does a good job of explaining the looting
dynamic:

The paper’s message is that the promise of government bailouts isn’t merely one aspect of the problem. It is the core problem.

Promised bailouts mean that anyone lending money to Wall Street — ranging from small-time savers like you and me to the Chinese government — doesn’t have to worry about losing that money. The United States Treasury (which, in the end, is also you and me) will cover the losses. In fact, it has to cover the losses, to prevent a cascade of worldwide losses and panic that would make today’s crisis look tame.

...

Bottom Line

So what do we really have: socialism-for-the-giants, fascism or an economy which calls itself "capitalism" but which allows looting?

Ultimately, it doesn't matter. They are just different brand names for the same basic type of economy. All three systems allow giant businesses which are friendly to the government to keep enormous private profits but to pass the losses on to the government and ultimately the citizens.

Whether we use the terminology regarding socialism-for-the-giants ("socialized losses"), of fascism ("public and social losses"), or of looting ("left the government holding the bag for their eventual and predictable losses"), it amounts to the exact same thing.

Whatever we have, it isn't free market capitalism.

Washington's Blog

The Real Reason That - For the First Time Ever - More Women are Working Than Men

For the first time ever, at least half of all American workers are women. In addition, mothers are the primary breadwinners or co-breadwinners in nearly two-thirds of families.

...

As Wendy Norris, an investigative reporter based in Denver pointed out in a recent interview, the "equality" of women in the workforce is the result of the severity of the financial crisis and the resulting unemployment among men. Specifically, it is well-known that men have suffered the majority of job losses from the rising tide of unemployment hitting America.

Norris also points out that these are lower-paying jobs, as women typically earn less then men.

So what is being celebrated as a sign of progress and equality is actually an indication of the severity of the unemployment crisis in America.

Washington's Blog

An article by economist James K. Galbraith contains a chart - based on information from Moody's and congressional testimony - showing the most bang for the buck from government stimulus programs:

What a dollar of stimulus puts back into the economy when spent on...

(Click here for full image).

OpEdNews - Article: Defense Spending Creates Fewer Jobs Than Other Types of Spending

OpEdNews - Article: Defense Spending Creates Fewer Jobs Than Other Types of Spending

Yesterday, I pointed out that a study by one of the leading economic modeling companies shows that military spending increases unemployment and decreases economic growth.

I have located a paper by economist Robert Pollin published in 2007 by The Political Economy Research Institute at the University of Massachusetts, Amherst - entitled "The U.S. Employment Effects of Military and Domestic Spending Priorities" - which concludes:

...

[Click image for larger version]

The table first shows in column 1 the data on the total number of jobs created by $1 billion in spending for alternative end uses. As we see, defense spending creates 8,555 total jobs with $1 billion in spending. This is the fewest number of jobs of any of the alternative uses that we present. Thus, personal consumption generates 10,779 jobs, 26.2 percent more than defense, health care generates 12,883 jobs, education generates 17,687, mass transit is at 19,795, and construction for weatherization/infrastructure is 12,804. From this list we see that with two of the categories, education and mass transit, the total number of jobs created with $1 billion in spending is more than twice as many as with defense.

"Military Keynesianism" - the idea that war is the best economic stimulus - is false.

Update: Pollin published an updated version of his paper on October 20, 2009. The abstract summarizes their updated findings:

The authors compare the effects of a $1 billion military investment military and the same investment in clean energy, health care, education, or individual tax cuts. They show that non-military investments create a much larger number of jobs across all pay ranges. With a large share of the federal budget at stake, Pollin and Garrett-Peltier make a strong case that non-military spending priorities can create significantly greater opportunities for decent employment throughout the U.S. economy than spending the same amount of funds with the military.

And here are a chart and table from the updated study:

www.WashingtonsBlog.com

The Raw Story | US trade gap widens with import surge

The Raw Story | US trade gap widens with import surge

Surging imports pushed up the US trade deficit by 18 percent in September, official data showed on Friday in a sign of improving trade flows and a healing global economy.

The goods and services trade gap rose to 36.5 billion dollars, the highest since January, from a revised 30.8 billion dollars in August, the Commerce Department reported.

The figure was higher than anticipated by most economists.

The report showed a rise in both imports and exports, underscoring an improvement in trade flows that had fallen with the global economic slump.

Total September exports were up nearly three percent to 132 billion dollars while imports amounted to 168.4 billion dollars, rising by a hefty 5.8 percent in the biggest percentage increase since March 1993.

Data also showed that the politically sensitive US trade gap with China reached its highest level in nearly a year, at 22.1 billion dollars from the previous month's 20.2 billion dollars.

Daily Kos: Economic Outrage du Jour

Daily Kos: Economic Outrage du Jour

ves Smith at naked capitalism asks "Do Businesses Hate Their Workers?":

In America, it isn’t hard to answer the question in the headline "yes." The oft recited, "Our employees are our greatest asset" is pure Orwellian prattle; most companies treat employees as liabilities, doing everything they can to minimize labor costs, getting rid of workers whenever possible. And this now extends well up into the management ranks, with most people who are still on the corporate meal ticket assigned responsibilities that would have constituted 1.5 to two jobs a decade ago.

And before readers argue that this is a necessary response to globalization, the evidence does not support that view. If companies were simply responding to tougher competition (in this case, lower cost suppliers from overseas), you’d expect to pressure on wages AND profits. Instead, we’ve seen wage stagnation (save at the very top) with (pre bust) record profits.

If you look at past post-war expansion periods, the vast majority of GDP growth went to labor, in the form of increased hiring and higher wages. The post war average (pre the last upturn) was close to 60%; the low was 55%. The jobless recovery lived up to its billing, with under 30% of GDP gains going to workers. By contrast, the portion of GDP growth that went to profits was an all-time record.

masaccio at Firedoglake chimes in:

On Friday, a group of Trade Associations ran a full-page ad in the New York Times demonstrating their loathing for the employees of their members:

Expensive new mandates on businesses will result in lost jobs, lower wages, less flexibility and higher health care costs.

Let me translate that from scary talk to plain English. Business will dump every last cent of the costs of health care on employees. No business will give up a single penny of its profits to keep its workers healthy. Anyone who wants health care has to pay for it at whatever price the insurance companies want to charge, and business will cooperate in shifting costs to workers. And there is nothing you can do about it. The profits we suck out of your labor belongs to us, and you don’t get any. ...

t r u t h o u t | What the CBO Isn't Telling Congress: Climate Change Threatens Million of Jobs

This denial is rejected by most economists who have studied climate change. In a survey of 144 top climate economists released November 4, 2009, by the Institute for Policy Integrity at the New York University School of Law, 84 percent agreed that "the environmental effects of greenhouse gas emissions, as described by leading scientific experts, create significant risks to important sectors of the United States and global economies." A majority stated that sectors that will be negatively affected include agriculture, fishing, forestry, insurance and health services.

But the profound negative economic impact of climate change is being largely ignored or denied in the current public policy debate. This denial threatens to have a significant effect on public policy. For example, testimony October 14, 2009, by Douglas W. Elmendorf, the director of the Congressional Budget Office, states, "Most of the economy involves activities that are not likely to be directly affected by changes in climate." He claims that "a relatively pessimistic estimate for the loss in projected real gross domestic product is about 3 percent for warming of about 7 degrees Fahrenheit (F) by 2100." He cites only two studies, one published in 2004; the other, which he describes as "the most comprehensive published study," was published in 2000, a decade before current research on the impacts of climate change.

This testimony completely ignores the British government's 700-page "Stern Review," widely regarded as the most definitive study so far of the economic impact of global warming, released on October 30, 2006, by former World Bank chief economist Nicholas Stern. It states, "Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century."

...

Such denial leads to a deadly miscalculation of the economic cost of failure to counter global warming. The CBO acknowledges that "unchecked increases in greenhouse-gas emissions" would "probably reduce output over time, especially later in this century." However, the CBO concludes that the net effects on GDP of restricting emissions in the United States are likely to be negative over the next few decades. That conclusion results from a total failure to consider the devastating impact of climate change on the global and US economies, as revealed, for instance, in the "Stern Review."

How many epidemics and Katrinas will it take to expose the myth that the US economy is somehow exempt from the threats of climate change? And what terrible price will we pay if we shun the cost of climate protection, but not the far greater cost of climate change?

t r u t h o u t | Massive Defense Spending Leads to Job Loss

t r u t h o u t | Massive Defense Spending Leads to Job Loss

There is a major national ad campaign, funded by the oil industry and other usual suspects, to convince the public that measures to reduce greenhouse gas emissions (GHG) and slow global warming will result in massive job loss. This ad campaign warns of slower growth and the loss of hundreds of thousands of jobs, possibly even millions of jobs, if some variation of the current proposals being debated by Congress get passed into law.

...

However, the oil industry's scare stories about job loss never put it in any context. In these models, any government measure that interferes with market outcomes almost by definition reduces efficiency, leading to less economic growth and fewer jobs. Efforts to slow global warming fall in this category, but so does almost everything else, and many items in the everything else category have a much larger impact.

...

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq war.

Global Insight's model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the 9/11 attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-9/11 build-up was equal to 3.2 percentage points of GDP compared to the preattack baseline. This means that the Global Insight projections of job loss are far too low.

The impact of higher spending will not be directly proportionate in these economic models. In fact, it should be somewhat more than proportionate, but if we just multiple the Global Insight projections by three, we would get that the long-term impact of our increased defense spending will be a reduction in GDP of 1.8 percentage points. This would correspond to roughly $250 billion in the current economy, or about $800 in lost output for every person in the country.

The projected job loss from this increase in defense spending would be close to two million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to two million jobs in the long run.

For some reason, no one has chosen to highlight the job loss associated with higher defense spending. In fact, the job loss attributable to defense spending has probably never been mentioned in a single news story in The New York Times, Washington Post, National Public Radio, or any other major media outlet. It is difficult to find a good explanation for this omission. ...

Center for Economic and Policy Research (CEPR): Cash for Clunkers Drives 3rd Quarter GDP Growth | Facebook

Center for Economic and Policy Research (CEPR): Cash for Clunkers Drives 3rd Quarter GDP Growth | Facebook

GDP grew at a 3.5 percent annual rate in the 3rd quarter, driven by a 22.4 percent jump in car sales, the result of the Cash for Clunkers (C4C) program. This increase in car sales accounted for 42.0 percent of the growth in the quarter. Consumption as a whole, which grew at a 3.4 percent annual rate, added 2.36 percentage points to growth. Other components making large contributions to growth were inventories, which added 0.94 percentage points; national defense, which added 0.45 percentage points; and residential construction, which added 0.53 percentage points, its first positive number since the fourth quarter of 2005.

...

Defense spending continues to be an important factor pushing the economy as it has grown rapidly even as the economy has shrunk. Defense spending now accounts for 5.6 percent of GDP, the largest share since the first quarter of 1993. By comparison, it peaked at 7.6 percent in the 3rd quarter of 1986, at the height of the Reagan build-up. In its last pre-September 11th projections, the Congressional Budget Office projected defense spending for 2009 as 2.4 percent of GDP. ...

inequality-policy-2009-10.pdf (application/pdf Object)

inequality-policy-2009-10.pdf (application/pdf Object)
...
When workers do lose their jobs, the social safety net has many holes. Historically, only about 40 percent of unemployed workers receive unemployment insurance benefits and these are stingy by international standards.13

The large majority of U.S. workers also depend on their job (or their spouse’s job) for health insurance. With the typical employer-provided health insurance plan costing about $5,000 per year for individual coverage and about $13,000 per year for family coverage,14 higher wages alone will not go far in providing quality health insurance, particularly for lower- and middle-income workers. U.S. workers also suffer from a severe time squeeze, which is exacerbated by the lack of any legally required paid time off. U.S. law, for example, does not mandate any form of paid time off for any purpose. As a result, almost one-fourth of U.S. workers have no paid vacation or paid holidays, and the average U.S. worker has only nine days of paid vacation and six days of paid public holidays per year, with many having less than the average.15 Nor does U.S. law require employers to provide paid parental leave.16 In fact, the U.S. law that requires employers to provide 12 weeks of unpaid parental leave has exemptions for employer-size and job tenure that effectively remove a large share of the U.S. workforce from coverage.17 U.S. workers are not even legally entitled to paid (or unpaid) sick days.18 As a result, over 40 percent of U.S. private-sector workers have no paid sick days, and, given the “employment at will” doctrine, are at risk of losing their jobs if they miss work when they are sick. Higher wages alone would do little to give workers the time they seek to handle their many non-work responsibilities.

All of these non-wage issues – the lack of legal job protections, the lack of a safety net for most of the unemployed, the strong dependence of workers on their employers for health insurance, the lack of paid time off, and others – are major challenges for workers at almost all levels of wage distribution. But these problems are particularly acute for low-wage workers, who are not just the worst paid, but also the least likely to have union-representation, the least likely to have employerprovided health insurance (or insurance of any kind), and the least likely to have any form of paid time off.19

Conclusion

In the standard neoclassical economics framework, low wages are simply a symptom of low levels of skill. Wage levels, however, are also a function of unionization rates; the level of the minimum wage; the entire regulatory framework governing the terms and conditions of employment, from job security legislation to paid time off; the size and scope of the public sector; the degree of competition in national and international product markets; and other fundamentally political issues, all of which have little or nothing to do with workers’ skills.

The sharp and sustained increase in economic inequality in the United States over the last 30 years is not a reflection of a national preference for inequality (discussed more blandly as “flexibility”), and not the continuation of an inexorable increase in inequality from 1776 to the present. The last 30 years, in fact, mark a significant departure from a five-decade trend toward greater economic and social equality. What changed was not the demand for skilled workers, but the balance of power between workers and their employers.

Too Much: A Commentary on Excess and Inequality

Too Much: A Commentary on Excess and Inequality

A Do-It-Yourself Giant Does It to Workers

Amid double-digit joblessness, two top U.S. corporations cut still another mega merger deal that enriches executives and tosses workers, by the thousands, out onto the street.

November 9, 2009

By Sam Pizzigati

You don’t have to be a high-flyer in high finance to get a kick — and a fortune — out of wheeling and dealing. Greed and grasping, we need to remind ourselves every so often,are still thriving right down on the ground, in America’s oh-so pedestrian manufacturing sector.

The latest case in point: the just-announced $4.5 billion merger deal that will fold the 99-year-old Black & Decker tool-making powerhouse — the folks who brought us the world’s first pistol-grip power drill — into its chief tool-making rival, Connecticut's Stanley Works.

“It’s a match made in heaven,” Stanley flack Tim Perra told reporters last week.

Heaven for who? Not consumers. The new “Stanley Black & Decker” may soon have enough marketplace dominance, says Morningstar business analyst Anthony Dayrit, “to raise prices” on do-it-yourself gizmos that range from power tools to window locks.

And workers won’t find much heaven in the merger either. Black & Decker and Stanley together currently employ a workforce just over 40,000. The merger the two companies announced last week will eventually cost an estimated 10 percent of those workers their jobs, starting with staff at the Black & Decker headquarters just outside Baltimore.

No surprise there. In any big-time merger, at least some employees will always become “redundant.” A newly merged company, after all, doesn’t need two sets of headquarters staff.

But redundancies, after a big-time merger, never seem to show up in executive suites. Top execs at firms getting swallowed up either get cushy positions in the new firm or golden parachutes that ensure them a gentle landing when they leap out into the cold hard world.

Black & Decker CEO Nolan Archibald had to choose between the two. By contract, Archibald could have walked away from the new Stanley Black & Decker with a severance package worth $20.5 million. ...

OpEdNews - Article: One Reason that the Stock Market is Rising While Unemployment is Soaring

OpEdNews - Article: One Reason that the Stock Market is Rising While Unemployment is Soaring

Daniel Gross points out that part of the reason that the American stock markets are going up even though unemployment is rising and the real economy suffering is because multinational corporations headquartered in the U.S. are experiencing strong sales abroad:

Here's a puzzle: The stock markets are doing very well, yet the performance of the underlying economy doesn't seem to justify optimism. The buoyant S&P 500 has risen 53 percent since the March bottom. And while the economy expanded at a 3.5 percent rate in the third quarter, unemployment is high, incomes are stagnant, and consumers are shaky...

It could be that the notion the stock market is an accurate gauge of the domestic economy's temperature is outdated.

The Dow, the S&P 500, and the NASDAQ are primarily indices of large U.S.-based companies, not main street businesses: more Davos than Chamber of Commerce. These increasingly cosmopolitan firms have been busy globalizing and expanding their operations overseas. In 2006, according to Standard & Poor's, 238 members of the S&P 500 broke out revenues between U.S. and non-U.S. sales. These companies notched about 43.6 percent of sales outside the United States. For large companies that had already saturated the U.S. market, the home market was something of an afterthought. In the second quarter of 2007, 66 percent of Coca-Cola's beverage business came from outside North America.

...

The fact that companies based in America are raking in profits from sales abroad is good for American workers, right?

No.

Gross points out that American workers don't benefit because a lot of the goods sold abroad by American multinationals are made abroad:

If companies participated in foreign markets primarily by exporting U.S.-made goods, this shift would be good news for the U.S. economy and workers. But that's not how it works. In fact, in the months after the global credit meltdown, U.S. exports plummeted. They bottomed in April, at $120.6 billion, and though they have been rising, the August 2009 total is still 20 percent below the August 2008 total. Globalization is changing the way we do business. It's not a matter of U.S. companies exporting goods—burgers, soda, cars, software—made in the United States to Beijing but rather, making goods overseas and selling them overseas...

"Based on a Russian fairy tale and produced in Russia using local talent, the film is the latest step in Disney's broad push into local language production," the FT reports. As Disney CEO Robert Iger put it: "We would not be able to grow the Disney brand " if we just created product in the US and exported it to the rest of the world." If Book of Masters succeeds, it will be good for Disney's American shareholders but won't do a whole lot of good for its U.S.-based employees. Or consider American icon General Motors. GM's sales in China are rocking. In the first nine months, the company sold 1.3 million cars in China, including more than 181,000 in September. By contrast, GM in the United States in the first nine months sold 1.5 million cars in the United States, down 36.4 percent from the year before. And in September, GM sold just 156,673 cars in the United States. That growth in China is good for GM's shareholders and for some of its executives. But since most of the cars sold in China are produced there, with parts produced by suppliers in China, rising sales in the Middle Kingdom won't translate into jobs for unionized workers in the Middle West.

...

Well, at least the multinationals are paying a good chunk of taxes into the American economy, right?

Not exactly.

The Washington Post notes:

About two-thirds of corporations operating in the United States did not pay taxes annually from 1998 to 2005, according to a new report scheduled to be made public today from the U.S. Government Accountability Office...

In 2005, about 28 percent of large corporations paid no taxes...

Dorgan and Sen. Carl M. Levin (D-Mich.) requested the report out of concern that some corporations were using "transfer pricing" to reduce their tax bills. The practice allows multi-national companies to transfer goods and assets between internal divisions so they can record income in a jurisdiction with low tax rates...

[Senator] Levin said: "This report makes clear that too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States."

Indeed, as Pulitzer prize winning journalist David Cay Johnston documents, American multinationals pay much less in taxes than they should through a variety of widespread schemes, including:

• Selling valuable assets of the American companies to foreign subsidiaries based in tax havens for next to nothing, so that those valuable assets can be taxed at much lower foreign rates

• Pretending that costs were spent in the United States, so that the companies can count them as costs or deductions in the U.S. and pay less taxes to the American government

• Booking profits as if they occurred in the subsidiary's tax haven countries, so that taxes paid on profits are at the much lower safe haven rate
  

• Working out sweetheart deals with certain foreign governments, so that the companies can pretend they paid more in foreign taxes than they actually did, to obtain higher U.S. tax credits than are warranted
  

• Pretending they are headquartered in tax havens like Bermuda, the Cayman Islands or Panama, so that they can enjoy all of the benefits of actually being based in America (including the use of American law and the court system, listing on the Dow, etc.), with the tax benefits associated with having a principal address in a sunny tax haven.
  

• And myriad other scams

As Johnston documents, the American economy is hurt by the massive underpayment of taxes by the huge multinationals.

On a New Form of Indentured Servitude � The Confluence

On a New Form of Indentured Servitude � The Confluence

There’s so much going on in the USA that warrants attention these days that it’s hard to know where to start. But, since I’m an economist I’m going to start here.

“There are families not eating at the end of the month,” said Stephen Quinn, executive vice president and chief marketing officer at Wal-Mart Stores, and “literally lining up at midnight” at Wal-Mart stores waiting to buy food when paychecks or government checks land in their accounts.

Among the steps Wal-Mart is taking to address the changes in shopping habits, Mr. Quinn listed an overhaul of the retailer’s private-label brand, Great Value, which is promoted in commercials describing how families can fix dinners with Great Value products “for less than $2 a serving.”

The really sad thing about this blurb is that I got it from the Media & Advertising section of the NY Times. It did not come from the op-ed page, it did not come from the business section nor the politics section. It’s there because Walmart is having to work on its product mix to reflect hunger in those families living below the poverty living in one of the richest countries in the world –The United States–and I am deeply ashamed as a citizen of that country to read this anywhere STILL after all these years.

There’s been an academic discussion about the disconnect between what some of our nation’s statistics tell us is going on and the reality on the ground. There was a conference this weekend to talk about re-working the way the nation calculates its GDP. This is extremely important. Because of globalization, we are most likely over stating our performance in way that is throwing off our policy targets. We are losing per capita income from the lowest to middle quintiles and we are hemorrhaging well-paying jobs for our most vulnerable citizens. They are not able to get enough to live on and they are not wealthy enough to buy health care insurance or to pay premium taxes to feed an already over-bloated, costly, and inefficient industry. ...

Unemployment rate expected to hit 9.9% - MarketWatch

Unemployment rate expected to hit 9.9% - MarketWatch

..

The unemployment rate likely rose by a tenth of a percentage point to 9.9%, which would be the highest in 26 years. Some analysts are predicting a 10% or even a 10.1% jobless rate in October.

The faint silver lining is that, according to the survey of economists conducted by MarketWatch, seasonally adjusted payroll losses are projected to decline from 263,000 in September to just 150,000 in October, which would be the fewest jobs lost since July 2008. At its worst point, the economy was shedding about 700,000 jobs a month.

So far during the recession, a total of 7.2 million jobs have been lost, including 5.8 million in the past year. One in 20 private-sector jobs have disappeared.

As grim as those numbers are, they likely understate the number of jobs lost by about 800,000, according to the preliminary estimate for the annual benchmark based on tax records.

...

Editorial - Some Sense on Defense Spending - NYTimes.com

Editorial - Some Sense on Defense Spending - NYTimes.com

Presidents, and those aspiring to be presidents, routinely promise to reform the defense procurement process. And defense contractors, their lobbyists and the military services routinely ensure that never happens.

This year has been refreshingly different. President Obama and his defense secretary, Robert Gates, have made a compelling case for ending weapons programs that significantly exceed their budgets or use limited tax dollars to buy more capability than the nation needs. And Congress has agreed — somewhat.

The $680 billion defense authorization bill signed into law by President Obama last week pares back or cancels billions of dollars in expensive weapons systems that are either anachronistic, redundant, poorly performing or exceed the military’s real requirements. Even with these reductions, the defense bill is one of the biggest in history, in part because of the continuing wars in Iraq and Afghanistan. But it sets an important base line for future cuts that need to be far more ambitious. ...

... The biggest political win was ending production of the Air Force’s F-22 stealth fighter jet after 187 aircraft. Several previous presidents, including President George W. Bush, tried and failed to end the program. The decision by Lockheed Martin and its partners to put plants and other facilities in dozens of states ensured that it had a lot of powerful friends on Capitol Hill.

This time, strategic reality finally trumped high-priced lobbyists. The F-22 was designed for combat against the former Soviet Union and has not been used in Iraq or Afghanistan. The Air Force’s new high-performance F-35 Joint Strike Fighter, a Lockheed Martin weapon that begins production in 2012, should be sufficient. ...

Soros Launches Effort to Battle Free-Market Zeal | Newsweek Voices - Michael Hirsh | Newsweek.com

Soros Launches Effort to Battle Free-Market Zeal | Newsweek Voices - Michael Hirsh | Newsweek.com

"Large swaths of economics are going to have to be rethought on the basis of what's happened." So said Larry Summers, President Obama's chief economic adviser, in an interview in the weeks after the markets crashed a year ago. Yet to a remarkable degree, economic thinking hasn't changed very much at all. (Click here to follow Michael Hirsh).

Now financier George Soros is announcing a $50 million effort to speed things along. This week Soros is gathering some of the leading practitioners of the market-skeptic school, who were marginalized during the era of "free-market fundamentalism," among them Nobelists Joseph Stiglitz, George Akerlof, Michael Spence, and Sir James Mirrlees. He's also creating an "Institute for New Economic Thinking" to make research grants, convene symposiums, and establish a journal, all in an effort to take back the economics profession from the champions of free-market zealotry who have dominated it for decades, and to correct the failures of decades of market deregulation. Soros hopes matching funds will bring the total endowment up to $200 million. "Economics has failed not only to predict and explain what happened but has also failed to protect society," says Robert Johnson, a former managing director at Soros Fund Management, who will direct the new institute. "That's what the crisis revealed. The paradigm has failed. There is no guidance."

It might be tempting to dismiss all this as a war of words among brainiacs. It's not. The critical issues being discussed in Washington about the future regulation and control of the financial industry—the very nature of Wall Street and the health of the economy—depend on this battle of ideas. What led to wholesale deregulation in the '90s and '00s wasn't just Wall Street lobbying money. It was also that key legislators and policymakers, among them Larry Summers, persuaded themselves that deregulation was sound economics and good policy, and that markets and Wall Street institutions could take care of themselves. Many of those views have been discredited by the crisis. But in the absence of a new paradigm of economics, confusion still reigns in Washington. With no new concept of the proper role of government and regulation in the economy, of the proper balance between the markets and their minders, the old school still dominates.

And some of the economists whose work was most prescient, and most ignored, remain marginalized.

Exhibit No. 1: the late Hyman Minsky, a bushy-haired dissident at the University of California, Berkeley, and Washington University who saw into the heart of financial-market mania perhaps more deeply than anyone else. Minsky's "Financial Instability Hypothesis," which he developed in the '60s, held that success in financial markets always breeds its own instability. The longer a boom lasts, the less market players consider failure a possibility; as a result, careful borrowing, lending, and investment inevitably give way to recklessness and speculative euphoria. Margins and capital cushions come to be seen as unnecessary. At a certain watershed point—sometimes called a "Minsky moment"—the foreordained collapse begins. The most speculative bets crash, loans are called in, asset values plunge, and the downward spiral feeds on itself. That's what happened over the last two years.

Minsky was in effect filling in many of the intellectual blanks left by John Maynard Keynes on the critical question of how financial markets affect the "real" economy. Nonetheless, an assessment of Minsky in 1997, a year after he died, concluded that his "work has not had a major influence in the macroeconomic discussions of the last thirty years." Since the current crash, Minsky has been rediscovered by economic pundits, and now a few economists are struggling to turn his insights into a model of how the economy really works. ...

Food Stamps Will Feed Half Of US Kids, Study Says

Food Stamps Will Feed Half Of US Kids, Study Says

CHICAGO — Nearly half of all U.S. children and 90 percent of black youngsters will be on food stamps at some point during childhood, and fallout from the current recession could push those numbers even higher, researchers say.

The estimate comes from an analysis of 30 years of national data, and it bolsters other recent evidence on the pervasiveness of youngsters at economic risk. It suggests that almost everyone knows a family who has received food stamps, or will in the future, said lead author Mark Rank, a sociologist at Washington University in St. Louis.

"Your neighbor may be using some of these programs but it's not the kind of thing people want to talk about," Rank said. ...

Growing Unequal? Income Distribution and Poverty in OECD Countries

Growing Unequal? Income Distribution and Poverty in OECD Countries

Growing Unequal? brings together a range of analyses on the distribution of economic resources in OECD countries. The evidence on income distribution and poverty covers, for the first time, all 30 OECD countries in the mid-2000s, while information on trends extending back to the mid-1980s is provided for around two-thirds of the countries.

The report also describes inequalities in a range of domains (such as household wealth, consumption patterns, in-kind public services) that are typically excluded from conventional discussion about the distribution of economic resources among individuals and households. Precisely how much inequality there is in a society is not determined randomly, nor is it beyond the power of governments to change, so long as they take note of the sort of up-to-date evidence included in this report.

...

Did You Know ? (income inequality)

The gap between rich and poor and the number of people below the poverty line have both grown over the past two decades. The increase is widespread, affecting three-quarters of OECD countries. The scale of the change is moderate but significant.

[Table 11.1. Summary of changes in income inequality and poverty]

Income inequality increased significantly in the early 2000s in Canada, Germany, Norway and the United States. But incomes in Greece, Mexico and the United Kingdom became more equal.

[Figure 1.1. Gini coefficients of income inequality in OECD countries, mid-2000s]

[Figure 1.2. Trends in income inequality]

The rise in inequality is generally due to the rich improving their incomes relative both to low- and middle-income people.

[Table 1.1. and Table 1.2. Trends in real household income by quintiles, Gains and losses of income shares by income quintiles]

Income Distribution and Poverty data
in Gapminder Graphs

The Gapminder Graphs allow you to unveil the interactions between income Distribution and Poverty data over time.

�� Are You Ready for the Next Crisis?������ : Information Clearing House - ICH

Are You Ready for the Next Crisis? : Information Clearing House - ICH

October 26, 2009 "Information Clearing House" -- Evidence that the US is a failed state is piling up faster than I can record it.

One conclusive hallmark of a failed state is that the crooks are inside the government, using government to protect and to advance their private interests.

...

Another conclusive hallmark is rising income inequality as the insiders manipulate economic policy for their enrichment at the expense of everyone else.

Income inequality in the US is now the most extreme of all countries. The 2008 OECD report, “Income Distribution and Poverty in OECD Countries,” concludes that the US is the country with the highest inequality and poverty rate across the OECD and that since 2000 nowhere has there been such a stark rise in income inequality as in the US.

The OECD finds that in the US the distribution of wealth is even more unequal than the distribution of income.

On October 21, 2009, Business Week reported that a new report from the United Nations Development Program concluded that the US ranked third among states with the worst income inequality. As number one and number two, Hong Kong and Singapore, are both essentially city states, not countries, the US actually has the shame of being the country with the most inequality in the distribution of income.

The stark increase in US income inequality in the 21st century coincides with the offshoring of US jobs, which enriched executives with “performance bonuses” while impoverishing the middle class, and with the rapid rise of unregulated OTC derivatives, which enriched Wall Street and the financial sector at the expense of everyone else.

Millions of Americans have lost their homes and half of their retirement savings while being loaded up with government debt to bail out the banksters who created the derivative crisis.

Frontline’s October 21 broadcast, “The Warning,” documents how Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin, Deputy Treasury Secretary Larry Summers, and Securities and Exchange Commission Chairman Arthur Levitt blocked Brooksley Born, head of the Commodity Futures Trading Commission, from performing her statutory duties and regulating OTC derivatives.

After the worst crisis in US financial history struck, just as Brooksley Born said it would, a disgraced Alan Greenspan was summoned out of retirement to explain to Congress his unequivocal assurances that no regulation of derivatives was necessary. Greenspan had even told Congress that regulation of derivatives would be harmful. A pathetic Greenspan had to admit that the free market ideology on which he had relied turned out to have a flaw.

Greenspan may have bet our country on his free market ideology, but does anyone believe that Rubin and Summers were doing anything other than protecting the enormous fraud-based profits that derivatives were bringing Wall Street? As Brooksley Born stressed, OTC derivatives are a “dark market.” There is no transparency. Regulators have no information on them and neither do purchasers.

Even after Long Term Capital Management blew up in 1998 and had to be bailed out, Greenspan, Rubin, and Summers stuck to their guns. Greenspan, Rubin and Summers, and a roped-in gullible Arthur Levitt who now regrets that he was the banksters’ dupe, succeeded in manipulating a totally ignorant Congress into blocking the CFTC from doing its mandated job. ...

G-20 Manufacturing: A Look At The Numbers | OurFuture.org

G-20 Manufacturing: A Look At The Numbers | OurFuture.org

It's fairly common to refer to the world's wealthier nations as industrialized nations, though with the advent of outsourcing and widespread export-oriented development strategies, that term isn't as precise as it used to be. Then even if it were precise, discussions of global economic issues often involve numbers that we're ill-prepared to digest and have little to compare to; all the numbers just sound ridiculously large. This is an attempt to quantify industrialization and break it down for comparison among the 20 largest national economies.
...
A policy solution focused on boosting wages for the general world population might create enough demand to reverse that trend in declining manufacturing employment. Though in the current recession that seems unlikely. A U.S. Census Bureau report indicates that median U.S. income dropped 3.6 percent from 2007-2008, suggesting that a decline in consumer spending power was in full swing before the financial meltdown and subsequent tightening of the credit markets.
...

G20 (w/o EU, +Iran)	Population*	2008 GDP**	2008 Mfg output**	Mfg:Population	Mfg:GDP
Germany	82,140,000	3,649,468,713,255	767,173,986,290	9,340	21%
Japan	127,704,000	4,910,691,611,512	1,044,573,591,840	8,180	21%
Italy	59,855,000	2,303,058,798,157	381,043,924,161	6,366	17%
United States	304,060,000	14,096,716,929,022	1,830,682,964,800	6,021	13%
Canada	33,311,000	1,502,198,148,431	195,141,329,938	5,858	13%
United Kingdom	61,399,000	2,666,266,099,179	323,014,231,511	5,261	12%
France	62,048,000	2,856,528,838,542	306,279,105,638	4,936	11%
South Korea	48,607,000	929,123,721,319	230,763,192,037	4,748	25%
Australia	21,374,000	1,016,897,316,528	100,814,383,824	4,717	10%
Mexico	106,350,000	1,081,683,289,858	196,798,970,122	1,850	18%
Russian Federation	141,800,000	1,676,587,800,343	256,176,482,781	1,807	15%
Argentina	39,876,000	333,322,390,163	70,904,305,110	1,778	21%
Turkey	73,914,000	741,448,415,136	117,362,508,155	1,588	16%
Saudi Arabia	24,646,000	467,600,800,000	38,736,800,000	1,572	8%
Brazil	191,972,000	1,595,497,752,838	237,337,404,166	1,236	15%
China~	1,325,640,000	4,327,024,438,542	1,399,427,894,063	1,056	32%
South Africa	48,687,000	276,445,740,280	46,691,753,078	959	17%
Indonesia	228,249,000	510,779,261,184	139,528,690,939	611	27%
Iran	71,956,000	346,611,390,279	36,510,371,841	507	11%
India	1,139,965,000	1,253,859,848,115	188,135,054,712	165	15%

Resources

* - 2008 population data (pdf); World Bank figures
** - 2008 GDP and Manufacturing output in current US dollars; United Nations figures
~ - UN manufacturing data for China isn't separated out from mining and utilities, used a 78% multiplier on the UN-supplied figure.

One in six Americans in poverty, new study finds | Raw Story

One in six Americans in poverty, new study finds | Raw Story

The level of poverty in America is even worse than first believed.

A revised formula for calculating medical costs and geographic variations show that approximately 47.4 million Americans last year lived in poverty, 7 million more than the government's official figure.

...

The NAS formula shows the poverty rate to be at 15.8 percent, or nearly 1 in 6 Americans, according to calculations released this week. That's higher than the 13.2 percent, or 39.8 million, figure made available recently under the original government formula. ...

* About 18.7 percent of Americans 65 and older, or nearly 7.1 million, are in poverty compared to 9.7 percent, or 3.7 million, under the traditional measure. That's due to out-of-pocket expenses from rising Medicare premiums, deductibles and a coverage gap in the prescription drug benefit.

* About 14.3 percent of people 18 to 64, or 27 million, are in poverty, compared to 11.7 percent under the traditional measure. Many of the additional poor are low-income, working people with transportation and child-care costs.

* Child poverty is lower, at about 17.9 percent, or roughly 13.3 million, compared to 19 percent under the traditional measure. That's because single mothers and their children disproportionately receive non-cash aid such as food stamps.

One Nation, Under Illusion : Information Clearing House - ICH

One Nation, Under Illusion : Information Clearing House - ICH

October 13, 2009 "Boston Globe" -- -The hoariest and most oft-repeated cliche in American politics may be that America is the greatest country in the world. Every politician, Democrat and Republican, seems duty bound to pander to this idea of American exceptionalism, and woe unto him who hints otherwise. This country is "the last, best hope of mankind,'' or the "shining city on the hill,'' or the "great social experiment.'' As if this weren't enough, Jimmy Carter upped the fawning ante 30 years ago by uttering arguably the most damning words in modern American politics. He called for a "government as good as the American people,'' thus taking national greatness and investing it in each and every one of us.
...
In the end, government has inspired Americans far more than Americans have inspired their government. They are too busy boasting.

There is nothing wrong with self-satisfaction or national pride. But the incessant trumpeting of our national superiority to every other country in the world is more than just off-putting and insulting. It is infantile, like the vaunting of a schoolyard bully that his Dad is better than your Dad. It is wrong. And it might be dangerous both to ourselves and to the rest of the world.

Consider what it means. By what standard is one nation any greater than any other nation? Yes, the United States has vast material resources - we rank eighth in gross domestic product per capita - but we also have, according to the Organisation for Economic Cooperation and Development, the "highest inequality and poverty rate'' in the world, outside of Mexico and Turkey, and things are getting worse. Nothing to boast of there.

Yes, we have a relatively high median income, but our standard of living as measured by the Human Development Index of the United Nations ranks us only 15th in the world, behind, among others, Norway, France, Canada, and Australia. Are they better than we are? Even our home ownership rate trails that of the citizens of Canada, Belgium, Spain, Norway, and even Portugal.

Yes, the United States has the best system of higher education in the world, but, according to an Educational Policy Institute report, we rank 13th in the affordability of that education, and we are much less successful with lower education - 11th in the percentage of the 25 to 34 population with a high school diploma and 22d in science education.

And though Americans love to crow about the "best health care'' in the world, the fact is that according to the World Health Organization Index, we actually rank 37th in the quality of our health care. And we are still the only industrialized country in the world without a national health care system.

Even when one considers anecdotal evidence - "If this isn't the greatest country then why do so many people want to come here?'' - the case isn't particularly persuasive. Mexicans cross the border to the United States for economic opportunity. Turks go to Germany, Indians and Pakistanis to Great Britain, Arabs to France. This isn't a sign of our special greatness, just a sign that desperate people seek a more powerful economy for their betterment.

The point of all this isn't that America doesn't have a lot to be proud of. It does. The point is that just about every country has a lot to be proud of, and America has no more right to assume it is the greatest nation in the world than does France, Switzerland, China, or Russia.

None of this would make much difference if the self-congratulation was just harmless bragging. But there are consequences. A country that believes it is the greatest in the world is also less likely to be constrained by that world. One could argue that the Iraq war was a direct result of a sense of national infallibility. So was our willingness to torture, our reluctance to admit our mistakes in Afghanistan, our culpability in the global recession, and our foot-dragging on global warming. Such a nation is also less likely to introspect or to strive for true greatness because it believes its greatness has already arrived. ...

The Associated Press: Summers: Bush era set stage for economic troubles

The Associated Press: Summers: Bush era set stage for economic troubles
...
In a letter to House Republican leader John Boehner, White House chief economic adviser Lawrence Summers said Obama "is committed to not repeating the fiscal mistakes of the last eight years."
...

Summers in his letter was especially critical of fiscal policies during the Bush presidency.

"Every major policy enacted during this period violated the principle of paying for new proposals," he wrote. "These policy decisions were the primary driver that turned historic projected surpluses into record deficits."

Summers promised to review the Republican suggestions, which included small business tax exemptions and lowering the 15 and 10 percent tax rates for all taxpayers.

Dylan Ratigan: The Cost of Corporate Communism

Dylan Ratigan: The Cost of Corporate Communism

Lately I have been using the phrase "Corporate Communism" on my television show. I think it is an especially fitting term when discussing the current landscape in both our banking and health care systems.

As Americans, I believe we reject communism because it historically has allowed a tiny group of people to consolidate complete control over national resources (including people), in the process stifling competition, freedom and choice. It leaves its citizens stagnating under the perpetual broken systems with no natural motivation to innovate, improve services or reduce costs.

Lack of choice, lazy, unresponsive customer service, a culture of exploitation and a small powerbase formed by cronyism and nepotism are the hallmarks of a communist system that steals from its citizenry and a major reason why America spent half a century fighting a Cold War with the U.S.S.R.

And yet today we find ourselves as a country in two distinctly different categories: those who are forced to compete tooth and nail each day to provide value to society in return for income for ourselves and our families and those who would instead use our lawmaking apparatus to help themselves to our tax money and/or to protect themselves from true competition.

If you allow weak, outdated players to take control of the government and change the rules so they are protected from the natural competition and reward systems that have created so many innovations in our country, you not only steal from the citizens on behalf of the least worthy but you also doom them by trapping the capital that would be used to generate new innovation and, most tangibly in our current situation, jobs.

We are losing the opportunity cost of all the great ideas that should be coming from the proper deployment of that 23.7 trillion in capital. Everything from innovation in medical delivery systems to accessible space travel, free energy to the driverless car; all of these things may never come to bear because those powerful individuals who have failed, been passed over by technological advancements, innovation and flat-out smarts, have commandeered our government to unfairly sustain their wealth and power.

Unfortunately, they use our wealth and laws not only to benefit their outdated, failed companies, but also spend a small pittance of their ill-gotten gains lobbying and favor-trading with politicians so the government will continue to protect them from competition and their well-deserved failure.

The massive spike in unemployment, the utter destruction of retirement wealth, the collapse in the value of our homes, the worst recession since the Great Depression have all resulted directly from the abdication of proper government.

Even with all that -- the only changes that have been made, have been made to prop up and hide the massive flaws on behalf of those who perpetuated them. Still utterly nothing has been done to disclose the flaws in this system, improve it or rebuild it. Only true rules-based capitalism ensures constant adaptation and implementation of the latest and best practices for a given business, as those businesses that don't adapt fail, and those who deploy the latest innovations to their customers benefit, prosper.

Read more at: http://www.huffingtonpost.com/dylan-ratigan/the-cost-of-corporate-com_b_312516.html ...