These Quotes Should Really Worry You About The Debt Ceiling

Let’s start with this doozy from freshman GOP Rep. Ted Yoho over the weekend: “I think we need to have that moment where we realize [we’re] going broke. If the debt ceiling isn’t raised, that will sure as heck be a moment. I think, personally, it would bring stability to the world markets.”

Oh good, now we have a Congressman who actually believes that breaching the debt ceiling will bring “stability to world markets”. Because nothing says stability and confidence quite like defaulting on one’s debts and obligations.

These next two quotes can work in tandem, but only because they come from mutually exclusive positions:

House Speaker John Boehner on [not] raising the debt ceiling: “We are not going to pass a ‘clean’ debt-limit increase.”

And from the White House we have Treasury Secretary Jack Lew: “[Republicans] need to open the government. They need to fund our ability to pay our bills. And then we’re open to negotiation.”

So we have The White House refusing to sign anything but a clean increase in the debt-ceiling, and Boehner signalling his party’s intent to refuse to pass a clean increase in the debt-ceiling.

Compounded by the fact that Rep. Yoho is not the only member of his party to actually believe that defaulting on the debt-ceiling is a good thing — and good for the economy!! — and you start to wonder if these people can figure this out in the next 10 days. Probably not.

Photo: Medill DC

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Stiglitz On “How Intellectual Property Reinforces Inequality”

In a really brilliant Op-Ed that’s worth reading several times over, Joseph Stiglitz castigates the effect of intellectual property battles on both foreign and domestic inequality, and argues that the SCOTUS case involving Myriad Genetics fully embodies three core themes found in his book “The Price of Inequality”:

“First, I argued that societal inequality was a result not just of the laws of economics, but also of how we shape the economy — through politics, including through almost every aspect of our legal system. Here, it’s our intellectual property regime that contributes needlessly to the gravest form of inequality. The right to life should not be contingent on the ability to pay.”
(…)
“The second is that some of the most iniquitous aspects of inequality creation within our economic system are a result of “rent-seeking”: profits, and inequality, generated by manipulating social or political conditions to get a larger share of the economic pie, rather than increasing the size of that pie. And the most iniquitous aspect of this wealth appropriation arises when the wealth that goes to the top comes at the expense of the bottom. Myriad’s efforts satisfied both these conditions: the profits the company gained from charging for its test added nothing to the size and dynamism of the economy, and simultaneously decreased the welfare of those who could not afford it.”
(…)
“Had that prior knowledge not been publicly available, Myriad could not have done what it did. And that’s the third major theme. I titled my book to emphasize that inequality is not just morally repugnant but also has material costs. When the legal regime governing intellectual property rights is designed poorly, it facilitates rent-seeking — and ours is poorly designed, though this and other recent Supreme Court decisions have led to one that is better than it otherwise would have been. And the result is that there is actually less innovation and more inequality.”

And since the U.S. has sought to impose its intellectual property regime on the rest of the world through bilateral and multilateral trade agreements, Stiglitz laments that the same public policy that is causing undue harm to American inequality, is in turn helping inequality to exacerbate worldwide:

“Economic power often speaks louder, though, than moral values; and in the many instances in which American corporate interests prevail in intellectual property rights, our policies help increase inequality abroad. In most countries, it’s much the same as in the United States: the lives of the poor are sacrificed at the altar of corporate profits. But even in those where, say, the government would provide a test like Myriad’s at affordable prices for all, there is a cost: when a government pays monopoly prices for a medical test, it takes money away that could be spent for other lifesaving health expenditures.”

(photo by Abhisit Vejjajjia

What Just Happened To Obamacare’s Employer Mandate?

The surprising — though not unwelcome — news out of the White House is that the controversial employer-mandate provision in the Affordable Care Act is going to be delayed one-year. Ezra Klein argues for getting rid of it all together:

It’s a bad bit of policy. In fact, when it first emerged during the Senate’s negotiations, I called it “one of the worst ideas in recent memory.” … By tying the penalties to how many full-time workers an employer has, and how many of them qualify for subsidies, the mandate gives employers a reason to have fewer full-time workers, and fewer low-income workers.

Tyler Cowen agrees, and sees the administration going there:

My view is you don’t serve up a delay and PR disaster like this, on such a sensitive political issue, unless you really wish to derail the entire provision.

Evan Soltas piles on:

[T]here is a strong case for getting rid of the employer mandate. Employers shouldn’t sponsor insurance in the first place, as it masks the true cost of care to employees and creates incentives for over-insurance. It also increases the cost of hiring, locks employees into their jobs, and splits the market for insurance into one for individuals and one for employers, which impedes risk-sharing in the individual market.

They’re right: the employer-mandate is bad policy. It’s too complicated, too costly, and it should be repealed.

Barro considers the budgetary consequences of the mandate:

One of his key selling points for the law was that it would cut the deficit. Now that the law has passed, his administration is freer to pursue changes that will raise Obamacare’s cost to taxpayers but improve its effects on the economy. Delaying the employer mandate, perhaps indefinitely, is one way to do that. It’s a better reason than “we couldn’t figure out how to do the reporting.” But it’s not one you can say out loud.

And Jonathan Cohn foresees the upcoming political fallout from this decision:

Employers might quiet down a bit, but the law’s doubters will use this as proof the administration doesn’t know what it’s doing. As Sarah Kliff puts it, it’s trading one headache for another. Or maybe two. Already, conservatives like Erick Erickson are saying it’s unfair to delay the mandate on employers without also delaying the mandate on individuals. Erickson won’t be the last to make this argument, just as he already has plenty of company citing this news as proof that Obamacare is a disaster.

(Photo by flickr user Paul Smith)

Even The Rich Are Stressed About Repaying Student Loans

A research study released by the Urban Institute on Wednesday found that more than half of people with student loan debt seriously worry about paying it off, and that includes full-time workers and those making more than $100,000:

Over half (57 percent) of people with student loans are concerned about being unable to repay them. This concern is far reaching and spans economic and demographic groups, including educational attainment, income, age, and race/ethnicity, among others (figure 3). Student loan repayment concerns are, however, more common among some groups. For example, while a substantial 36 percent of student debt holders with household incomes above $100,000 are concerned about their ability to repay, the percentage is twice that (72 percent) among those with household incomes less than $25,000.

40 percent of those between the ages of 20-29 — yours truly included — owe student debt, according to the report. The total student loan debt stands at a staggering $1.2 trillion, and Pew Research Center found that one out of every five households carries outstanding student debt loans.

Student loan interest rates are also set to double on July 1 for those with federal subsidized Stafford loans, unless Congress steps in and passes something.

The Case For Class-Based Affirmative Action

Eight months removed from hearing what many thought would be a landmark case for affirmative action, the Supreme Court was almost unanimous (7-1) in agreeing that the case should be sent back down to the fifth-circuit court from whence it came. Translation: “we’ll deal with this some other time”.

Why Minimum Wage Should Be $21.72 An Hour

Nick Hanauer educates:

…If the minimum wage had simply tracked U.S. productivity gains since 1968, it would be $21.72 an hour — three times what it is now.

The larger point of his article is to argue for an increase of the federal minimum wage to $15 an hour, in order to solve for the vicious cycle of our burgeoning wealth gap where falling demand will eventually take everyone down:

Financialization And It’s Discontents

For all intents and purposes, the United States economy is in a relatively slow period of growth, leaving economists perplexed in finding out why it’s taken so long for a full, sweeping recovery to take shape. The issue of “financialization” — the burgeoning of the financial sector as a share of GDP — has deservedly received recent attention and research. The phenomena acts as a prime factor in the growth of income inequality, thus hampering growth as a whole.

European Youth Unemployment Should Scare the Hell Out of You

“Look at Greece!! Holy crap!!”

That was my first reaction and I hope you went through something like that because this is truly the most terrifying graph to come out of Europe in a long, long time (Graph courtesy of James Plunkett). Since April of last year, youth unemployment in Greece has risen a percentage point every single month, meaning that by early next year, there may very well be a developed country in the world with 70 percent unemployment – insane in the membrane.

The youth unemployment rate as a whole is at a new record high of 12.2 percent, but the story here is what’s happening to the Millennials in these countries. In Spain, youth unemployment is a staggering 56 percent, and like I noted above, Greece reached a mind boggling 62.5 percent. The worst part is, none of this seems to be getting any better, as the adverse effects of austerity measures are still taking their toll.

I’m not above scoring a political point, so I’ll just point out that we’d see a similar thing happening in this country if President Obama focused on what the GOP wants him to – deficit reduction – rather than what he’s been focusing on – growth. If you don’t believe me (how dare ye!), here’s a chart:

The GOP wants the United States to pursue the blue and red lines, not the yellow one.

Your Daily Quote

A future that works (cc photo by Dunc(an))

“Austerity has failed in the UK and it has failed in the eurozone. Its failure was predictable and, by some at least, predicted. It turned a nascent recovery into stagnation. That imposes huge and unnecessary costs, not just in the short run, but in the long term, as well: the costs of investments unmade, of businesses not started, of skills atrophied and of hopes destroyed.

This is not, as many seem to believe, a debate about the short term versus the long term. It is a debate about both the short and the long term, because what we do in the short term shapes the long term. What is being done here in the UK and also in much of the eurozone is worse than a crime, it is a blunder.”

– Martin Wolf, Financial Times

Apple is the Michael Jordan of tax avoidance

Day 360 (cc photo by Pascal)

If there’s one thing Apple can teach us about business, it’s how to keep from paying one penny of tax on over $30 billion in reported income over a 4 year stretch. Here’s how they did it, courtesy of Neil Irwin:

Apple Operations International is registered in Cork, Ireland, but has “no physical presence at that or any other address,” according to the report. Indeed, the corporate entity has existed for 30 years and apparently never had a single employee. Of the three people on its board, all Apple employees, two live in California; 32 of its last 33 board meetings took place in Cupertino, and the Irish director participated in seven of them. Its assets are managed by a Nevada company, and held in bank accounts in New York.

It falls in a strange loophole: Because it is not managed and controlled in Ireland, that nation does not tax its earnings, even at the low Irish corporate income tax rate. And because it is not registered in the United States, it has owed no American taxes.

Not really a shocker, right? I mean, learning how to manipulate tax loopholes is pretty much the only reason business school exists in the first place.

Well, because $30 billion is not a minor sum, and because Apple is the biggest company in the world, the Senate Permanent Subcommittee on Investigations launched a hearing today on Apple’s steps to avoid paying U.S corporate income tax.

The committee hearing itself won’t really solve for anything, but it will allow a bipartisan group of Senators to assail Apple for its dubious dealings. Senator Carl Levin (D-Mich) – charmain of the commitee – had this to say to begin the day:

“The offshore tax-avoidance tactics spotlighted by the subcommittee do real harm. They disadvantage domestic U.S. companies that aren’t in a position to reduce their tax bills using offshore tax gimmicks. They offload Apple’s tax burden onto other taxpayers – in particular, onto working families and small businesses. The lost tax revenue feeds a budget deficit that has reached troubling proportions, and has helped lead to round after round of budget slashing and the ill-advised sequestration now threatening our economic recovery.”

Ranking member John McCain (R-Ariz) followed with a similar statement:

“Apple’s corporate tax strategy reflects a flawed corporate tax system that allows large multinational corporations to shift profits offshore to low-tax jurisdictions. For years, Apple has opted to forgo fully contributing to the U.S. treasury and to American society by shifting profits and circumventing U.S. taxes. In the last four years alone, Apple has avoided paying taxes on $44 billion in income.”

All well and good. At the very least it’s nice to see the Senate working together, even when the irony of lambasting a major corporation for taking advantage of a tax structure they themselves created is something quite amusing. But before we get too ahead of ourselves, let’s check out what Rand Paul (R-Ky) had to say at the hearing:

I am offended by the tone and tenor of this hearing. I am offended by a $4 trillion government bullying, berating and badgering one of America’s greatest success stories.

Tell me one of these politicians up here that doesn’t minimize their taxes. Tell me a chief financial officer that you would hire if he didn’t try to minimize your taxes legally. Tell me what Apple has done that is illegal.

I am offended by a government that uses the IRS to bully groups such as the Tea Party but I am also offended by a government that convenes a hearing to bully one of American’s success stories.

I guess not everyone was enjoying the party. It’s hard to take Paul seriously in decrying government bullying and badgering when it’s been people like him that have been so amazingly successful at keeping Congress from developing a competent corporate tax code in the first place. He attempts to play himself off as some new-age tax rationalizer, but Paul’s only concern has ever been tax slashing, and if indeed Congress were to move to rationalize the corporate tax code to make Apple pay its share, we’d be in store for another day long filibuster.

Can we really fault Apple and applaud Congress when all Apple did was take advantage of a tax structure that Congress itself set up? Public indignation is all well and good, but until these same Senators attempt to reform the corporate tax code, this is all political spectacle.

Only 27 percent of college graduates work in a field related to their major

According to this new study from Jaison Abel and Richard Dietz of the Federal Reserve Bank of New York, the vast majority of college graduates end up working in a field in no way related to their major. 73 percent, to be exact:

Other than the point about 27 percent of college graduates ending up in a job closely related to their major, the chart also shows that a lot of college graduates are underemployed: only 62 percent of graduates had a job that even required a college degree in 2010. Their research also shows that if you move to a big city (surprise), the chances of ending up in a job related to your degree rises.

Some good news out of Washington: the US is no longer going broke!

Breath a nice long sigh of relief friends, it’s not all scandals and bad news out of Washington. The Congressional Budget Office released its latest budget projections, and guess what? It looks like the debt disaster that every single political wonk in America has obsessed over is solved for. Well, at least until 2023.

When the CBO estimated future deficits back in February of this year, they found that deficits were falling smoothly and health care costs were slowing overall. The difference between that report, and this report, is that now they found that the deficit is falling even faster than they accounted for and health care costs are decreasing quicker as well. The CBO cut their projections of US debt in 2013 by about $200 billion, and the overall deficit over the next 10 years by $600 billion. Translation: this is good news.

But with all good news, comes a little bad news. If you’re wondering why this will only last about a decade before deficits rise again – not by much, mind you – it’s because by 2023, baby boomers will be mostly retiring and interest rates will rise. Our parents strike again.

Vindicating the Obama economic recovery strategy, in one chart.

In the ongoing austerity debate, and given the state of the depressed global economy, both the timing and relevance of this chart could not be better:

Since the 2008 financial meltdown, US recovery has been way better than the Eurozone, and it’s not even close. But the most interesting thing about the chart isn’t that we’re performing better, growth wise, than Europe – we’re all pretty well versed by now in the economic catastrophes of the Eurozone project. What’s more interesting is the example of the UK. Keep in mind that the GOP wants the US to pursue the blue and red lines, not the yellow one. Well, now we have a clear cut example of what happens to a state – in this case David Cameron’s conservative UK – when it chooses to reduce national debt, rather than focus on growth.

The world can end extreme poverty by 2030: don’t get too excited

From everything I’ve read about poverty in the world, I’ve never once come across a strategy to eliminate it that didn’t almost entirely depend on seemingly utopian if-then scenarios: if the world, or a particular country were to do “such and such” then poverty would be eliminated and we’d be able to concentrate on other things – like saving the planet from ourselves. So when I hear Jim Yong Kim, the World Bank President, say that the world can realistically end extreme poverty by 2030, I can’t help but have my first impression be, “yeah right buster, show me the facts.”

Well, a new Brooking’s Institution study by Laurence Chandy, Natasha Ledlie and Veronika Penciakova, argues that there’s a good chance that Kim is right and the world can indeed eliminate extreme poverty.

Higher rate of homeownership can actually make unemployment worse

Over at WonkBlog, Brad Plumer cites a new study – or rather a new working paper by economists Andrew Oswald and Dartmouth’s David G. Blanchflower, that so far has found that homeownership has an even bigger and wider effect on unemployment than anyone has realized. Here are the core findings:

We find that rises in the home-ownership rate in a US state are a precursor to eventual sharp rises in unemployment in that state.

A doubling of the rate of home-ownership in a US state is followed in the long-run by more than a doubling of the later unemployment rate.

Using homeownership rates as a variable to discern what attributes most to the rise in unemployment isn’t necessarily a new strategy for economists, but it is one that has previously been criticized by many in the field.