Newshoggers.com

The tax revolt of 2010 (cont...)

By Fester:

People are in pain right now. Twenty million homeowners are underwater, a systemic debt reduction effort is underway, the employment picture now just sucks instead of horrendously sucking, any productivity and compensation gains are getting eated up by health care premiums and energy prices have bounced back up after an easy first half of the year.

In November 2007, I thought one of the dynamics that we would be seeing in 2009 and 2010 would be a property tax revolt. Property owners in bubblicious areas would see their homes go underwater as values and the regional economy that was built on bubble building deflated, and these property owners would be in pain and in a political position to do something about some of their pain:

People who are stuck with mortgages and houses that they can not sell, refinance or service will be looking for help. They will be looking for refinancing deals, special breaks, holds on foreclosures, delays on credit reporting, and most significantly at the local level, assistance on minimizing the quasi-fixed costs. That means support for more heating and energy assistance, lobbying for lower insurance limits for flooding and hurricanes in disaster prone areas with the hope of either dodging the bullets, or shifting those costs to someone, somewhere else, and most importantly, constant and downwardly revising re-assessments without concurrent increases in millage rates...

Homes are the primary asset for most people, and right now homes are under systemic threat as a symptom of a greater problem. People want to make that pain go away without the costs of fixing the greater problems, and engaging in a local government financial death spiral and micro-local education arbitage seems like a decent short term fix, so we'll see a full scale tax revolt in 2010 or no later than 2012 as the last round of housing bubble junk Option ARM mortgage resets will be hitting in 2010/2011 --- what we are seeing now is just the tip of the iceberg

We have seen refinancing deals, special breaks, and holds on foreclosures as federal policy. These efforts have probably brought marginal relief but they have not addressed the systemic problem of way too much debt and not enough carrying capacity. Local governments are just starting to get slammed as the combination of a decent first half of FY 2009 on revenue collection and short term reserves have made the FY-09 budgets austere but not dramatically shrunked. Those reserves are no longer in place for most states as they face massive budget deficits. Balancing those state budgets will often mean school and local jurisdictions that rely on state funds will see a significant hole in their budget that can either be filled by new taxes or spending cuts.

Local taxing authorities will want to maintain assessed values from the bubble peak years and fight like hell against appeals for lower, closer to market values. Politically it is easier to have a low millage rate on an artificially high base than to have a high millage rate on an accurate base. The New York Times reports on this fight:

Homeowners across the country are challenging their property tax bills in droves as the value of their homes drop, threatening local governments with another big drain on their budgets....

The pain at the state level is trickling down to county and local governments. To compensate, about 10 percent of large counties are raising the tax rates associated with home values to minimize the revenue loss, the county association said....

The revenue losses are coming as homeowners prod towns for new assessments, and as municipalities conduct regular revaluations of their real estate. While declining residential values weigh heaviest on many governments, the value of commercial real estate is also sliding as businesses shut down and move out of storefronts or shopping malls....

Mr. Kramer, the assessor in Contra Costa County, said homeowners started swamping his office with requests for new assessments in December. As many as 500 people would call in one day. His voice mail message now begins: “If you’re calling to request an informal review of your property value due to the declining real estate market.”

Contra Costa has now reduced the recorded value of more than a third of the 350,000 privately owned properties in the county....

I still think that there is a significant political opening for demagogues who call for tax cuts uber alles as that will seem to alleviate some of the pain for a little while and when people are getting beaten down, a breather and a break is a very attractive promise.

The CBO Cudgel

By Fester:

The CBO has scored the HELP committee's full healtcare bill. The bill is the complete vision of what Senators Kennedy and Dodd want to do and it includes a reasonably strong public option, Medicaid expansion, comparative effectiveness research and an employer mandate. The goal is to expand coverage by a significant margin and introduce significant and well backed competition in regional health insurance markets that are overwhelmingly quasi-monopolosistic or duopolistic.

The CBO previously scored a partial version of the HELP framework that did not have the public option or the employer mandate in it. That partial scoring produced estimated costs of about 1 trillion dollars but with a significant portion of the population still uncovered. The marginal increase in coverage per dollar over the next decade was not good.

The new scoring of the bill that takes into account the actual coverage expansion and cost control measures is pretty damn impressive. From the AP:

The plan carries a 10-year price tag of slightly over $600 billion, and would lead toward an estimated 97 percent of all Americans having coverage, according to the Congressional Budget Office

Not a bad deal at all if we can get 97% coverage in even if there is a reasonable argument that the CBO score is a bit low as made by Jonathan Cohn. The real value of this CBO score with the complete HELP framework including the public option and the employer mandate is that it is a cudgel against the 'centrist' Democrats who don't want the public option overtly because it is 'too expensive' and potentially because it is a threat to major local employers and campaign contributors of regionally dominant health insurance providers. The public option is the best means of cost control and doing without it means a weaker bill for significantly more cost.

US Effective Unemployment Rate: 18.7%

By Steve Hynd

Steve Clemons has published an email from Leo Hindery in which Hindery looks at the aggregate jobless totals and comes up with a figure of over 30 million Americans out of work.

Here is a June 2009 version of the summary that calculates the Effective Unemployment Rate, which is now 18.70%, and the Effective Number of Unemployed, which is now 30,172,000.

There are currently 14,729,000 officially unemployed workers, as just announced. However, this figure does not include the combined 15,443,000 workers either (1) in the "labor force reserve" because they have abandoned their job searches (i.e., 4,278,000) or (2) underemployed because they are "part-time of necessity" (i.e., 8,989,000) or "otherwise marginally attached" (i.e., 2,176,000).

The effective unemployment rate is therefore 18.70%, instead of the official 9.51%.

Since the start of the recession in December 2007, the number of workers who are officially unemployed has increased by 7,188,000, while almost twice as many workers - 13,290,000 - have become effectively unemployed. And all the while, we should have been creating around 2,250,000 new jobs (i.e., 18 months times 125,000 jobs per month) just to keep up with population growth.

In June, the number of workers officially unemployed increased 218,000, while the number of workers effectively unemployed actually decreased 35,000.

That's a lot more than the 9.5% and 14.7 million jobless of the official figures but it is the true extent of America's unemployment problem. Clemons writes that "the gap between the job figures expected and the disappointing economic realities generated may be politically consequential". He's the master of understatement, some days.

Congress has few philospher kings

By Fester:

I like to live in the real world. It is messy, it is confusing, it often produces non-optimal outcomes (depending on the relevant constraints) but it is tangible. I can also live in a normative world where everything is neat, clean, organized and optimized towards the relevant constraints. However that world seldom exists. I often look for satisficing improvements instead of optimal solutions because the improvements are achievable.

I don't understand the critique of Waxman-Markley that Andrew Samwick and others are advancing in that it is a satisficaing improvement but non-optimal on several grounds:

Much as you may like the idea, this is another 1300 pages of complexity and loopholes. Buried in there, I'll wager, are more than enough ways for large organizations (the ones who hire lobbyists) to get all the exemption and evasion they'll need. Consider the alternative of a carbon tax calibrated to achieve the same emission reductions, and applied to all sectors including vehicle fuel consumption. I'm no expert on translating ideas into pages of a bill, but that can't be much. And given that it allows us to do away with the CAFE standards, I figure we've done a great service of dramatically simplifying the whole regulatory process for carbon emissions.

Economically, a clean carbon tax and a clean cap and trade bill will do the same thing. They will both internalize the currently externalize cost of carbon dioxide emissions. There are two big differences. The first is that a a carbon tax is a price certain option while the cap and trade system is a quantity certain feature.  Secondly, cap and trade is economically more efficient as it allows for market discovery of prices of a scarce good instead of hoping that Congress can hit the right number at any given time for optimal economic efficiency for a given amount of emissions.  

 

His argument is that a carbon tax would be neater and less messy.  Lobbyists would not be able to claw out special interest exemptions and transfers and the legislation would be only several pages long.  He is arguing a straw man here in my opinion.  A properly designed cap and trade system could also be written in a fairly short and concise manner as well.

 

He is bitching and moaning about basic political incentives here.  A complex bill with exemptions, curlicues and who knows what else in it for concentrated interests is far more profitable to the relevant players than a simple, clean sheet proposal with no exemptions.  Dr. Samwick is implicitly arguing that a carbon tax would be less susceptible to this type of manipulation than a cap and trade regime.  I have severe doubts about that.  We have plenty of evidence that tax bills, even comparatively simple tax bills that are mere modifications of existing tax laws can and will be massively abused with exemptions, exceptions, partially refundable credits, donut hole deductions and anything else that concentrated interests can muster to improve their interests against the counterfactual of a clean bill.  The classic example is the agricultural bill where there are significant subsidies for sugar, mohair, honey and other products because there is a strong lobby for those interests while the public purpose of food security, public health and reasonably low prices for a wide selection of goods is often ignored. 

 

I have yet to see a good political reason why the concessions that the Democrats on the Agricultural Committee wanted and received to weaken the bill and make the bill more complex for cap and trade would not also be granted in a carbon tax system.  I think it is very reasonable to assume that Agricultural Committee Democrats would want land use carbon emissions to be exempted from the carbon tax or at least counted under a friendly system.  Those are the concessions that they basically got in cap and trade, and those would be the concessions they would have wanted from a carbon tax regime.  Otherwise they most likely and there would be nothing. 

 

Now if Dr. Samwick wants to argue that doing nothing now is a superior option as the costs of action and inaction escalate the pressure to pass a much cleaner bill that is more to his liking at some uncertain point in the future, that is a defensible argument.  However that is not the argument he is making.  He is whining that Congress is acting like politicians engaged in politics with attendant incentives instead of philosopher king technocrats who will agree with his preferred solutions.  Me, I’m happy for an improvement with the hope that institutional inertia will lead to a good process and outcome over time. 

 

 

Bunkering in Mexico

By Fester:

One of the things that has been puzzling me about the narco-insurgencies in Mexico has been the fact that the cartels and smuggling gangs have not been hitting the Mexican oil export structure. The Mexican government relies on oil exports for over 40% of the national budget and it gets pays for delivery of a barrel, and not the production of a barrel.

The cartels can most likely fracture the Mexican state and deprive it of vital revenue streams...

the big source of revenue that is immediately vulnerable is the Mexican oil exporting infrastructure. Right now the Mexican government has a sales agreement to supply oil for $70 per barrel until the end of this fiscal year. That agreement only applies to oil that is delivered. Hammering the fairly limited Mexican export infrastructure would be a significant escalation of violence and strategic threat with the possibility of bringing the United States into Mexican territory and precipitating a massive crisis of legitimacy for the Mexican government.

The oil export infrastructure is a bit more robust than the Iraqi infrastructure that was hammered for four years, but not significantly so. There are only a few major pipelines that feed the export ports or cross into the United States. One of those pipelines goes through the most violent city in Mexico before it crosses the border at El Paso, Texas....

Attacking the oil export infrastructure would be a significant escalation as it would be an explicit strike against the legitimacy of the state.

John Robb is passing along a potential reason why the infrastructure has not been attacked. The cartels are bunkering and being parasites upon the infrastructure. Smuggling expertise is being transferred across domains from drugs and people to oil shipments to create new revenue streams for smugglers and other associated actors. Keeping the infrastructure up and operational at near normal levels allows for 'mild' parasitism to occur without drawing a strong response.

I'm still surprised that the pipelines and pumping stations have not been attacked in a systemic manner yet, but the bunkering/smuggling profit angle makes some sense as a counter-incentive.

Disappointment Doesn't Cover It

Commentary By Ron Beasley

To say I'm disappointed in Barack Obama is an understatement.  I'm beginning to think he has no ideology at all only a lust for political power.  He has chosen to not prosecute or even investigate the criminal wrong doings of the Bush/Cheney cabal and in fact in too many cases continued down the same path.  As we have reported here over and over his AF/Pak policy would make Bush and Cheney proud.  He had the opportunity to take on Wall Street and the over inflated financial industry and failed to do so.  He is making one mistake that George W. Bush never made - he's deferring to Congress and the US Congress can't really be trusted to do anything right.

And now we are seeing all of this at work in health care reform.  Katrina Vanden Heuvel:

God I hope David Broder is wrong. "The President has told visitors," the Washington Post columnist wrote last week, "that he would rather have 70 votes in the Senate for a bill that gives him 85 percent of what he wants rather than a 100 percent satisfactory bill that passes 52-48."

There is a reason the United States has two political parties, they have different ideologies.  This is not new - it's the same ideological conflict that John Adams and Thomas Jefferson were having over 200 years ago but as times changed it became even more pronounced.  I think that both Adams and Jefferson opposed an American royalty/oligarchy.  But oligarchs we have had and when they came to power the results have consistently been catastrophic.  The oligarchs are driven by greed for both power and money.  They gained control of the country in the early 20th century and the result was the Great Depression.  It took an FDR to set things straight and things went pretty well until 1981 when Ronald Reagan and the oligarchs once again took charge.  Once again the result was a massive failure of the economy.  The oligarchs and their political allies the Republicans suffered massive losses in 2006 and 2008.  Unfortunately Barack Obama is no FDR. 

The Republicans claim that the health insurance industry won't be able to compete with a public plan.  That's probably true since as Fester pointed out here  they have no competition in most markets now and as Josh Marshall explains this little fact gets little attention.  Seventy two percent of Americans support a public plan and that includes fifty percent of the Republicans.  But what do we get from the Obama administration?  This:

In an emailed statement to Bloomberg News, Health and Human Services Secretary Kathleen Sebelius said she’s open to the idea of dropping a public health insurance option in favor of a medical-insurance cooperative. “You could theoretically design a co-op plan that had the same attributes as a public plan,” Sebelius said.

The leading co-op proposal in the Senate, offered by Sen. Kent Conrad (D-ND), does not share the attributes of a public plan. Instead, Conrad’s proposal would create multiple state or regional non-profits as a competitor to the private insurance market. As Howard Dean has said of this plan: “The co-ops are too small to compete with the big, private insurance companies. They will kill the co-ops completely by undercutting them, using their financial clout to do it.”

Bloomberg’s Al Hunt asked Sebelius, “[If] you’re willing to compromise on your notion of a public plan…what’s non-negotiable?” Sebelius responded that the final bill has to “have a comprehensive approach that lowers costs.

Change?  Not so much - the oligarchs are still in charge.

Write your member of congress and tell them to vote no on any health care reform bill that doesn't include a  strong public plan.  Make it clear to Obama that we demand real change not bipartisan window dressing.

On the MEND

By Fester:

MEND is a Nigerian insurgent/oil smuggling group that has effectively closed between a fifth to a third of Nigerian oil production potential for the past few years.  Their overt goal is to divert more oil revenue into the oil produce states' economies while a tacit goal may be to get rich smuggling oil.  MEND has been increasing the size and scope of their operations recently. 

Via Agence France Press:

The attack on Bille-Krakrama pipeline, which feeds the key Bonny export terminal in southern Rivers State, was carried out shortly after midnight Thursday.

This and other attacks, as well as future potential attacks against the brittle production network may be able to shut down the entire domestic energy market and force the government into an impossible position of credibility loss.

From the Nigerian Guardian:

Yesterday, the government admitted that it had no more crude for its refineries to process for local consumption.

Consequently, the Warri and Port Harcourt refineries have been shut. The Kaduna Refinery, though functioning, has no crude to process because the Warri plant, which feeds it is shut due to a damage to major pipelines. The only stock, which was reserved, will be exhausted in the next 15 days, the Nigerian National Petroleum Corporation (NNPC) said yesterday.

The corporation's Group Managing Director (GMD), Mohammed Sanusi Barkindo, who painted the pathetic picture of the industry, said in the next 15 days, it will run out of crude for domestic consumption.

The Nigerian government has very few options.  The first and their preferred option is for Alien Space Bats to abduct anyone involved in pipeline sabotage and publicly guarantee the pipeline security so that repair crews can get back to work in the next few days.  This is unlikely. 

The dilemma is that system sabotage is so cheap to execute and capital non-intensive MEND can credibly shut down the domestic pipeline system (and their own smuggling revenue streams) in the face of a large search and destroy sweep mission that will look good on TV but do nothing for security on the ground.

The Nigerian government can either concede the primary political goals of MEND and hope that there is enough internal policing and social cohesion to have all actors associated with MEND adhere to the agreement, or they can see their budgets blown up.  If local refined product production is shut down, the Nigerian government can either spend valuable hard currency on imports or see their entire urban economy come to a standstill.  The Nigerian government is in comparatively decent financial shape as they had been running decent size current account surpluses for the past few years so there may be cash reserves available to finance a few months of imports but MEND will have the ability to keep Nigerian hard currency cash flow negative for as long as they would like. 

Trade is in irons

By Fester

Slowing trade is real as the combination of decreased consumption, increased transportation costs and severe credit availability concerns over the winter has reduced trade and the hope of someone having an export led recovery. Here are three quick notes:

Brad Setser on Chinese-Japanese trade flows:

But there is now real way to put all that positive gloss on Japan’s 41% year over year fall in exports. It is an epic fall.

Japan’s May 2009 exports were even a bit lower than its April 2009 exports. There may be some benign explanation for the slight dip in May, but I don’t think there is any way to suggest that the Japan’s May trade data suggests a robust global recovery.

The Big Picture on US durable goods and capital expenditures which is the stuff that makes stuff that can be exported or substituted for imports:

Non defense capital goods ex aircraft, the pure cap ex component, rose a solid 4.8% but after drops in the two prior months and is still down 23.1% y/o/y...

One caveat, the inventory to shipments ratio rose to 1.90, the highest since ‘92....

And finally Menzie Chinn doing some econometrics that make my head hurt on a global trade chasm:

The annualized drop in non-oil goods imports was 60.5% in 2009Q1 (log terms), while that of non-agricultural goods exports was 51.5% (both in log terms)...

So right now, there is a massive drop in global trade and very little import substitution going on that requires new capacity. The only good news with this data is that the argument on multiplier effects of stimulus spending should be strengthened as the leakage due to propensity to import is probably lower than the models' assumptions. But yeah, this is the doldrums.

Fungibilility and non-inteference

m

By Fester:

The United States and the West have very little leverage in Iran. Global trade is falling fast, global credit is far less available now than it was three years ago, and oil prices are going up again in dollar terms past Iran's break even point. The US military is tied down in two wars, the rest of NATO either can not or will not deploy additional forces to Afghanistan to act as fungible units to free up US forces. There are not too many obvious and effective leverage points avaialble to nation states that want to lend support to the protesters or to harm the current regime.

The only plausible leverage point is economic. A complete embargo on the oil as a means of pressuring the ruling elite is being proposed. We know that sanctions have worked wonders on quickly overthrowing the Castro regime in Cuba.... instead of allowing the elites to blame outside actors for their own failings.
Raymond Lears at the Huffington Post proposes this idea without thinking through the consequences.

Though the United States does not currently import Iranian crude, the fungiblity of oil is such that our government espousing such a boycott would carry a meaningful impact. The cutoff of Iranian oil shipments through a buyer's boycott is entirely feasible in the structure of today's oil market. Inventories throughout the world are filled to overflowing, supertankers are loaded with 100's of millions barrels oil, lying at anchor at sea waiting for customers or storage on shore....Without the income from oil, Iran's dictatorship will be increasingly vulnerable.

There are several significant practical road blocks to this.

First is the political-economic one of domestic political support in Europe or Japan --- all of those economies are under as much or more pressure than the US economy with consumers retrenching, concerns about jobs and concerns about debt levels --- where is the political support for individuals to pay another ten to fifteen percent per gallon/liter if the boycott was 100% effective? That to me seems like the quickest way for a government to lose its mandate as they would be effectively be placing a regressive tax that would mainly be a transfer from oil consumers to non-Iranian oil producers.

The countervailing effect is that the boycott would not be effective as Iran would still be able to export several million barrels of oil per day to a different customer set.

We know that China has two primary current foreign policy concerns. The first is to maintain its supply lines for crucial raw materials. This is fueling the expansion of Chinese trade with Brazil and Australia as well as backing the Chinese influence push into Africa. Iran already has decent to good ties with China and as a customer of last resort, those ties would strengthen. The second major foreign policy concern for China is a concerted effort to push for a precedent of international non-interference in the internal affairs of nation states. China and its oil buyers will not be a part of a buyers' embargo.

The end result is public diplomacy masturbation as the embargo would be toothless while giving the current hardliners a validation of their story that they and the rest of the Iranian people are being pressured by foreign, colonialist influences. That is not a good solution

Lucy's Football

By Fester:

Ian Welsh has the outline of the Senate Finance Committee’s health insurance plan. The shorter version of the short version is that it sucks. Here is the short version of the plan:

1) Lower the medicaid coverage rate from 150% to 100% of the Federal poverty line, 133% for kids and pregnant women (once you have the baby, too bad for you)

2) Subsidies stop at 300% of the poverty line (was 400%)

3) No Public Option mentioned

4) Insurance exchanges at the State level

5) Must buy insurance unless it costs more than 15% of your income

6) A fine if you don’t buy insurance unless you’re below the Federal poverty line

For the most part, as Walker discusses, this is actually identical to or slightly worse than the plan put forward by America’s Health Insurance Plans (AHIP). Yes, worse than the insurance industry’s plan. Remarkable. Baucus is really earning his campaign donations these days…. Without a public option, the insurance companies will have no check on their prices, let alone pressure to actually reduce them. Because people will be forced to buy bad insurance, they’ll hate the plan, and because “reform” has been passed, we’ll have to wait another 10 or 12 years for another shot....

Tim at Balloon Juice is very curious why Obama is not actively selling a strong public option proposal.

Watching Democrats try to fix health care I see a photo negative of the Bush years. Here is an issue with obvious urgency. Setting aside our shameful infant mortality rate, uninsured rate and other statistics, medical bills are by far the leading cause of personal bankruptcies. Insurer misconducy wrecks lives every day in every city in America. The right options are obvious and relatively few in number. Huge majorities support doing the right thing.

Even self-interest is similarly one sided. Remember how much Republicans invested in realigning the destroying Social Security? Imagine if they had an issue that would realign the country in their favor and instead of huge majorities violently hating it, most Americans strongly supported what they wanted to do. Republican strategists would give two of their first three kids for a shot at an issue with this much going for it....

I hear that Obama supports the public option. That would mean more if it felt even a little more urgent than his idea that we should have a college football playoff series.

Belaboring the obvious, people who care about what they’re doing normally enter negotiations with some firm goal in mind. Most would agree that it is moronic to make negotiating itself the point.

Many others, including Steve have noted that if a major and effective health financing reform bill passed with either a pathway to de facto single payer for baseline care or at least a strong public option, major fundraising avenues will be closed off to some of the current veto points in the Senate and the House. I think that is part of the problem with the Democrats.

However, I would like to get a little more cynical for a moment. What if healthcare reform is to Democrats what abortion and anti-feminism is to Republicans in that both are seem by significant portions of their respective bases as high salience issues that are best served by never fully addressing? Gotta keep the activists in line and ready to donate and phone bank for two more incremental steps in the 'right' direction instead of attempting to systemically change the constraints of power and the political process.

Tim is right that an effective public plan option would be a system changer that would effectively tilt the political playing field to Democrats for at least a generation or two in much the same way that Social Security and Medicare are high salience, high effectiveness boundary conditions for Democrats to lean on. However the Democrats who would benefit from these changes are not neccessarily the Democrats who are currently in power or more importantly, currently occupying critical blocking positions. So reform that can shave off several points of GDP on health expenditures, improve coverage and re-align US politics is not a winning solution for the key set of stakeholders; instead their winning solution is to do just enough to avoid overwhelming political costs and pressure.