Monthly Archives: September 2012

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Benefit Corporations Offer A Better Business Model

Someone sent me a good 2011 article from The Nation about “benefit corporations.”  These are a new type of corporation established by law in 10 states in which the company is established to fulfill a public mission.  The key gain from this is that corporations expand from just stockholders put to stakeholders as well and can be held to account for its social impact by independent third party monitors.  This is unlike a normal American corporation in which the sole legal duty is to maximize profits for shareholders.

Even though I am not a big fan of the profit motive and corporate structures, benefit corporations provide an excellent improvement and a basis for future improvements.  Benefit corporations would go hand-in-hand with the movement of worker-owned cooperatives.  If workers owned firms that fulfilled a public good, it would be a great advance in human solidarity.  In the long-term, as such institutions became consolidated I think people would feel more empowered and open to further changes, such as developing cooperative planning models rather than competing.

Election Boycott Debate

See my back and forth with Terri Lee on the idea of an election boycott at ZBlogs.

Voter Boycott is a Misguided Strategy

A posting by Terri Lee on ZBlogs put forth a call to boycott the 2012 elections.   While I absolutely share the belief that there needs to be a culture of resistance and a challenge to corporate control of the two parties, I think an election boycott is not the correct strategy to achieve these goals.  To be clear, I am by no means putting Obama on a pedestal as the leader of a progressive movement and he has often pursued terrible policies.  He is a centrist Democrat as connected to corporate power as being president requires.

Nonetheless, I think a Romney presidency would be far worse in terms of the damage he would do to most Americans.  Paul Ryan’s plan to make Medicare a voucher system is guaranteed to shift medical costs to seniors.  While a single-payer system would be preferable, Obama’s health care reform does more than Romney would ever do to prevent insurance companies from denying claims to people with preexisting conditions.  Obama is far more likely to promote a government stimulus to the economy than Romney.

While in the long term I would like to see something like Participatory Economics replace capitalism and am fully aware that Obama is part of an unfair capitalist system, electing him will do less harm to average Americans.  There are other ways to build a culture of resistance, such as supporting worker cooperatives.

On another level, in 2008, only 57% of eligible voters voted in the presidential election.  That means 43% of the population was already boycotting the election.  Increasing that number is only useful if there is some other political or social activity for them to be engaged in, whether it be the union movement, worker co-op movement or anything else.

 

Health Care Mandate Explained

I came across a Reuters article reporting that 2 million more people than previously estimated will be paying the health care mandate penalty, which got me thinking that a lot of people might not know why there is a mandate to buy health insurance.  Starting in 2014, the Affordable Care Act will prohibit insurance companies from refusing coverage or charging higher premiums for people with preexisting conditions.  This would hypothetically mean that people could wait until they are sick to buy insurance.  To avoid that, everyone is required to receive health insurance through their employer, purchase their own health insurance or pay a penalty charged by the government.  It is basically a deal with health insurance companies that they have to cover everyone, but that the government will make sure they still have lots of customers.  Below is a good video explaining the Affordable Care Act in more detail.  The only revision that needs made (since the video was made in 2010) is that the Supreme Court ruled states cannot be required to take part in the Medicaid expansion.  It’s quite possible that a single-payer system would be better, but this is certainly far better than what people like Paul Ryan want to do with Medicare.  A little tidbit that is well-known but conservatives like to forget, is that the health care mandate was originally thought up by a conservative think tank.

View of Republicans as Deficit Hawks Continues to Be False

I’m repeating a point from a previous post, but it is really worth repeating since we hear the opposite so often.  A recent Reuters/Ipsos poll showed

…more of the registered voters surveyed picked Romney as the candidate who would best deal with the federal government’s budget deficit, at 34 percent, to 29 percent for Obama.

The facts show that there is no reason to feel confident that a Romney administration would do better on the deficit than Obama.  Why?  Because, as I described in a previous post, every Republican administration in the past 30 years (Reagan, Bush I, and Bush II) saw the deficit increase as a percentage of GDP when they came into office.  Clinton reduced the deficit to GDP ratio into a surplus.  The deficit to GDP ratio ballooned in the past four years because of the economic downturn, the Iraq and Afghan wars, TARP money, Medicare Part D and the Obama stimulus.  One could criticize Obama for the the stimulus, but the fact remains that 6 of 9 major studies support the conclusion that the stimulus had a positive effect on the economy, while only 2 say that it didn’t work at all.  One could also criticize him for the Afghan surge (for more than just economic reasons), but he did share that war with Bush II.  More specific to Romney, as Paul Krugman has pointed out, Romney plans to offset his tax cuts by closing tax loopholes, but has not specified how he will do that and experts on the subject have said it’s unrealistic to be able to make up the gap.  Republicans have the image of being better on the debt because they say they don’t like it, while what they actually do shows they are happy to govern with higher deficits.

DEFICITS AS % OF GDP

 

Romney Thinks Half of Americans Are Lazy (In his own words!)

Mother Jones has released what is apparently leaked video from a Romney fundraiser.  It’s quite revealing that he claims about half of the country is lazy and dependent on government.  See for yourself…

The Fed’s Action and IS-LM

Since I have done a couple posts explaining the IS-LM macroeconomic model and a post on quantitative easing, this will be a quick post discussing this week’s Federal Reserve actions in light of the IS-LM model.  If you need a refresher on IS-LM or how bonds and the Fed work, check out these:

IS-LM Part 1

IS-LM Part 2

Bond and Quantitative Easing Overview

What the Fed has done this week is announce that it will buy $40 million worth of mortgage securities per month until unemployment significantly improves.  A mortgage security is similar to a bond in that if you own it you receive a regular fixed payment.  With a mortgage security, many individual mortgage loans are lumped together and sold by banks, so all the interest that was originally to go to the bank now goes to investors who buy them.  Mortgage securities are also called mortgage bonds.

So what happens when the Fed buys a lot of mortgage bonds?  The price of the bonds increases since demand for them has increased.  Since the interest rate payment is fixed an increased price means a lower yield.  So if a mortgage bond was originally worth $100 and paid 5% interest, the interest payment would be $5.  But if the price increases to $120, then the return on the investment is still $5, giving a lower yield of 4.17%.  Since this is happening on a large scale, the lower yields on mortgage bonds will lead to lower interest rates on mortgages.  Ideally, that will make it easier for home buyers to afford a loan and stimulate the housing market. (As an aside, Slate has a great article from 2008 describing how mortgage securities related to the larger financial crisis.)

Additionally, by buying these bonds, the Fed is injecting large amount of cash into the economy.  Investors who held bonds now have more money they can invest in the economy.  What effect does the IS-LM model predict this will have?   First, that the increased money supply will decrease interest rates.  Since the Fed has been keeping interest rates close to zero anyway, there’s little effect this can have in today’s economy.

MS =Money Supply  MD = Money Demand

The impact of increased money supply will only have benefit if it can increase GDP.  In this case, it can potentially increase GDP by lowering barriers to home buyers by lowering mortgage rates.  However, it can only do so to the degree that there is sufficient demand for housing.  This is a debatable point, but let’s assume that there is sufficient demand and the housing market will improve, increasing GDP.  This means there be an increase in investment in the goods market (the IS curve).  Investment will increase, shifting the IS curve to the right. For reasons explained in part 2 of my IS-LM overview, the LM curve is currently flat since interest rates are basically 0%.  I’ve added to the chart from Paul Krugman’s blog to show what this would look like.

Note the new equilibrium point between the goods and financial markets is at a higher GDP and higher interest rate.  Unfortunately, no one really expects investment to increase beyond the point where the LM curve is flat.  One reason is that since interest rates are already very low, the Fed can’t make it much easier for people to borrow money, which is it’s usual tool for stimulus.  Second, demand for goods and services has to increase to really get GDP going.  Lowering the costs of a mortgage certainly helps, but it does so at the margins, not really affecting aggregate demand in any significant measure.  If Obama wins the election, one can imagine some type of new fiscal stimulus which would have a much greater impact on demand.  As one indicator, consumer confidence is still well below pre-2008 levels.  Consumer confidence is a measurement of how optimistic consumers are about the state of the economy.  So the broad lesson is that the economy could still really use a stimulus from the government.

 

Focusing on Free Speech in Muslim World Misses the Point

With much of the Islamic world protesting what is rightly seen as an anti-Islamic movie, a lot of attention has been given to a perceived cultural divide between the West and Islam, a view which sees Muslims as not understanding what freedom of speech really means.  This may or may not have merit, but before the recent protests there was already a great deal of resentment towards the US and the West that needed only a small spark to ignite.  It seems much more appropriate to focus on this resentment than murky issues about free speech.  It does not excuse the violence of extremists or say that the protesters are factually correct, but it is important to address the underlying issues.

A 2011 Gallup poll of majority Muslim countries found a correlation (.669) between “Approval of the Leadership of the US’ and “how positively countries view Muslim-West relations.”  Gallup used what they call the Muslim-West Perceptions Index (MWPI), in which a higher index indicated a more positive view of the relations with the West.  Despite the “clash of civilization” theory, religion is actually not a major factor in how Muslims perceive relations with the West. As the poll report states,

“In general, those in majority-Muslim countries who say religion is important rank
higher on the MWPI than those in majority-Muslim countries who say religion is
not important. In the West, this is reversed, with people who see religion as important
occupying a lower position on the MWPI, and people who do not see religion as
important occupying a higher position.”

So if US leadership is a key factor about Muslim views of the West, what are their concerns?  In 2010 the Brookings Institute did a poll  in Egypt, Jordan, Lebanon, Morocco, Saudi Arabia, and the United Arab Emirates (the 2011 version is not functioning on their site or at least not on my computer so 2010 will have to do). When asked “What two steps by the United States would improve your views of the United States the most?” the the answers were as follows:

Israel-Palestine peace agreement: 54%

Withdrawal from Iraq: 45%

Stopping Aid to Israel: 43%

Withdrawal from the Arabian Peninsula: 35%

“Protecting Israel” and “Controlling Oil” were the top two reasons given as what was “driving American policy in the Middle East” at 49% and 45%, respectively.  Tied for third at 33% were “Weakening the Muslim World” and “Preserving Regional and Global Dominance.”  By enormous margins, Israel and the United States are viewed as the “biggest threats to you” at 88% and 77%.

Surely Islamic extremism takes advantage of the concerns of the Muslim public, just as white supremacists take advantage of white poverty in the US.  I should add that there are no doubt grievances internal to many Muslim countries, especially since the Arab Spring has altered the political context of the Middle East.  However, we in the US should address our share of their grievances, since they are very real.   It is not enough to address Islamic extremism, just as arresting violent white supremacists does not get rid of the ideology.  Police and/or military action can be necessary in both cases, but we must also address the underlying problems.

I can hardly due justice to those grievances here, except to mention a few points.  It is unrealistic to expect the Muslim world to not have a negative view of the US when it arms Israel to the teeth and will not push for any kind of settlement freeze.  How can the US possibly be seen as an honest broker when it is arming one side?  Let’s also consider recent history.   The US invaded Iraq and Afghanistan and with Israel has threatened Iran, which is right between the two countries.  Put aside any arguments about whether those wars were justified and just look at it from the point view of the average Arab.  Can we really expect them to not be angry at the US?  Are they supposed to welcome the military ventures of the most powerful military in the world and its number one recipient of military aid?  However grotesquely these observations can be distorted by Islamic radicals, I don’t think it is hard to understand why the Arab world harbors resentment towards the US and the broader West.  We are missing the crux of the issue (as are the Muslim protesters for that matter) if we only focus on issues of free speech.

See my previous post for data from the 2011 Brookings Institute poll.

Three Quick Counter-Examples to Free Market Fantasy

It is quite astounding how the role of government in the economy is vastly underrated.  This is especially true of many conservatives who cling to a free market fantasy, but it is often overlooked by liberals as well.  Here are a few snippets of the government role in the US economy:

These are only three examples, but they provide the infrastructure for today’s economy.  Government involvement in their creation was not just incidental, but absolutely fundamental.

Brief Thoughts on Obama’s Speech

To start with what Obama did well, he did make his policy preferences clear on many issues, even though he did not commit to many specific policies.  The exceptions are that Obama did state he wanted to raise taxes on those making more than $250,000 per year, create 1 million manufacturing jobs in four years, and hire 100,000 new teachers by 2020.   Otherwise, it was rather broad, expressing support for things such as addressing global warming, equality for gays, strengthening Social Security, and investing in renewable energy.  While it would be nice to hear more specific policy proposals on these issues, I can’t blame for not doing so.  After all, mainstream Republicans call global warming a hoax, oppose gay rights, want to privatize Social Security, and have never indicated any interest in renewable energy.

There were two specific parts of his speech, though, where I think Obama was sending signals that people wanted to hear, but were very unrealistic.  First, Obama’s goal of 1 million manufacturing jobs and doubling exports are nice hopes, but there are so many factors in play here that he can’t possibly commit to making that happen.  Massively expanding US exports won’t happen unless Europe gets its house in order and that could be a long way off, especially since Germany, the strongest Euro country, is starting to see some worries about future economic decline.  A huge export-led growth based on manufacturing would lead push wages up in this sector, making it hard to keep jobs in the US.  By talking this up Obama did present a good idea, but it was clearly not something he can promise to deliver if reelected.

The second part of his speech that was pure popular appeal was his providing a false sense of empowerment to those who voted for him.  He said the 2008 election was not about him, but about “you.”  He then went on to list policy accomplishments with each followed by “You did that.”  Really?  The population was responsible for the Affordable Care Act, stopping deportation of the children of illegal immigrants, ending the US war in Iraq?  It was one of those statements that is in some broad way true (they wouldn’t have happened if people had not voted for him), but overstates the case completely.  The population was responsible for these accomplishments in the same way they were responsible for Clinton surplus, since he was elected by them too.  This part of the speech presented a false image of Obama as a leader of a social movement, implying that we can be part of a great march of progress if we vote for him.  Obama clearly did have some good accomplishments and maybe there will be progress if he is reelected, but by saying “You did this,” he made people feel like participants when they were mostly spectators.