Export troubles

Jordan Fraade
Jun 27, 2014 21:50 UTC

Almost immediately after his election as House Majority Leader, Rep. Kevin McCarthy (R-Calif.) suggested that he would try to effectively kill the U.S. Export-Import Bank when its charter expires in September. The bank provides low-interest loans to foreign companies, who then use that loaned money to buy U.S. goods. Big U.S. manufacturers—companies like Caterpillar and Ford—love the bank because it makes it easier for them to export their goods. Many conservatives, especially those who lean libertarian, see the bank as a vehicle for the government to give arbitrary special favors to companies.

It doesn’t matter, Jared Bernstein says. Even with the Ex-Im Bank’s flaws, it’s worth keeping. Bernstein points out that the stock price of Boeing, one of the companies that benefits most from the Ex-Im Bank’s cheap loans, plummeted just after Eric Cantor lost his primary (Cantor was one of the Ex-Im Bank’s staunchest supporters). The stock price fell to $132 from $138 that week, erasing all gains from the year so far, reports the NYT. Boeing closed at $128.54 today. It’s all well and good to inveigh against the bank’s “crony capitalism” in theory, Bernstein says, but people’s livelihoods are still at stake: “Imagine the upheaval to communities where Boeing is such a strong presence if the hard right shuts down the bank.”

Joe Nocera is not amused by McCarthy’s proposal either. In addition to helping American companies by providing low-interest loans to foreign companies that want to buy our stuff, he says, the Export-Import Bank “costs the taxpayers nothing — not only does it support itself through the fees and interest it charges for its services, it also regularly sends money to the Treasury to reduce the debt, some $2 billion over the last five years.” And Matt Yglesias claims that Fair Value Accounting, the account methodology that the bank’s critics often use, doesn’t offer a compelling argument against the Ex-Im Bank’s record of profits.

While it’s tempting to look at the raw dollar amount that the Ex-Im Bank adds to the nation’s coffers every year, says economist Veronique de Rugy, the bank is still an example of crony capitalism at its worst. She writes, “It’s easy for Ex-Im defenders to point to the visible beneficiaries of government largess … It is harder, but in many ways more important, that we consider the invisible costs of political privilege, like market distortions, resource misallocation, job losses, and destroyed potential.” Dean Bakeralso says good riddance. He concedes that “it is possible to make an argument for the Ex-Im Bank,” but he doesn’t think it’s a very good one. Baker says that “by diverting capital to the winners picked by the Ex-Im Bank, we are raising the price of capital for other firms,” who tend to be smaller business. Danny Vinik agrees, saying this is one issue where populists from both parties can join hands.

Paul Krugman can’t really make up his mind. The Ex-Im Bank is counterproductive because mercantilist trade policy is a bad idea — except when mercantilist trade policy is a good idea, like right now, he says.  — Jordan Fraade

On to today’s links:

Rich People Problems
Court rules Whole Foods can’t list one price and charge another  - Shan Li

Tax Arcana
Turns Out, if You Cut Taxes, You Get Less Tax Revenue - Josh Barro

The Internet
The internet is blue because Mark Zuckerberg is red-green colorblind (and some other reasons) - John Herrman

Bitcoin
“If anyone wants to start a Bitcoin exchange, I would say, ‘Be sure to have 24-hour security guards’” - Rob Wile

Damn Kids
World’s Meanest Economist wants to end summer vacation - Bridget Ansel

Democracy at Work
The Big Four accounting firms are not so excited about Hong Kong’s electoral reforms - Adam Minter

Not So Sovereign Debt Problems
Puerto Rico is trying to thread the needle between “we need to restructure our debt” and “guys chill everything’s fine” - Cate Long

Bratinomics

Jordan Fraade
Jun 13, 2014 21:33 UTC

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Three days after the Primary That Shook the Universe, we know what next year’s Congress won’t include: House majority leader Eric Cantor. In his place there will be lots (more) partisan rancor, a decent chance of another debt-ceiling battle, and an economics professor named David Brat. Brat ran at Cantor from the right, and his academic pedigree means that he’s left a long paper trail over the years.

When Brat gave credit to God in his victory speech, it wasn’t just posturing. “In his writings, Brat seems eager to fuse Christianity and the generally secular field of academic economics”, says Kevin Roose. Brat’s work often focuses on what makes countries rich or poor, and he closely links Protestant beliefs with free markets. In a 2004 paper he wrote, “give me a country in 1600 that had a Protestant-led contest for religious and political power and I will show you a country that is rich today”. Protestantism, he says, “provides an efficient set of property rights and encourages a modern set of economic incentives”. That’s not an entirely new idea. “Sociologist Max Weber said essentially the same thing (only much, much better)” back in 1905, saysCandida Moss.

Matt O’Brien writes that “in an unpublished 2005 paper, [Brat] insists that ‘[Adam] Smith was from a red state,’ because ‘the culture and context which produced him was overwhelmingly Protestant’”. Patrick Iber points out that Brat, in his dissertation, ascribed very high importance to capital used for research and development — capital that he said is best generated through decentralized government structures and free markets.

Brat’s free market beliefs won’t necessarily make him as friendly to Wall Street as Cantor. Brat “attacks ‘crony capitalism’ from the right”, says David Weigel, who notes Brat doesn’t call for more regulation, but does believe in the prosecution of illegal behavior on Wall Street. One of Brat’s biggest criticisms of Cantor was that the majority leader was too eager to give out special favors to big business. The corporate world has “lost a major defender of their favored policies—from the beneficial tax treatment of private equity income to immigration reforms favored by the country’s biggest tech companies”, Jia Lynn Yang writes in the Washington Post. (One of the biggest issues that Brat campaigned on was immigration, painting Cantor as too lenient toward undocumented migrants because he supported a modified version of the DREAM Act.)

Perhaps the most critical of Brat so far has been Georgetown economist Harry Holzer, who said in an email to Timothy Noah, “If Christianity is so crucial, what explains the explosion of growth in China, India and other Asian countries (did they experience an explosion of Christianity that I missed)?”. – Jordan Fraade

On to today’s links:

Planned Obsolescence
The 747, one of the most iconic planes in history, is losing serious market share -David Yanofsky

Mea Culpas
Krugman on being wrong - Paul Krugman

Bitcoin
Aaaaand the first major U.S. university to start accepting bitcoin is…Dinesh D’Souza’s old stomping grounds - CoinDesk

Your Daily Outrage
“Because this disaster is playing out a bit at a time, such that our expectations slowly adjust, we tolerate it” - Ryan Avent

Technically Speaking
The end of the internet is upon us (or at least the end of IPv4) - Ars Technica

New Normal
United Airlines is changing its frequent flier program to benefit high rollers - Bloomberg View

Charts
Economic growth, state by state - Vox

Cephalopods
“We have influence, but it’s the softest of the soft power, the softest of the soft influence,” Mr. Blankfein said - WSJ

The tax break everyone likes

Mar 4, 2014 23:28 UTC

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President Obama has released his budget for the 2015 fiscal year; you can read Shane’s massive guide to that 1656-page document here. The most striking detail, Shane writes, is Obama’s proposed expansion of the Earned Income Tax Credit, which provides direct cash transfers to low and moderate-income workers; the official case for the increase is made by the chair of Obama’s Council of Economic Advisors, Jason Furman, in the journal Democracy.

Tim Fernholz says that Obama is tackling income inequality “with a twist of the tax dial.” Zachary Goldfarb has the details: the proposal would effectively double EITC so that many working families would get 15.3 cents back on every dollar they earn up to $6,570, for a maximum of $1,005. The current rate is 7.65 cents, for a maximum of $503. Jackie Calmes adds that the proposal raises the annual maximum income levels to qualify for the EITC, and lowers the minimum age to 21 from 24 (though students still don’t qualify). It also makes the EITC more generous for childless workers, an idea that MIT economist David Autor told Calmes “just makes a lot of sense”.

This is all projected to cost about $60 billion, and Obama proposes to pay for it by closing the carried interest loophole and various other tax loopholes used mainly by the wealthy. David Wessel points out that many of the same loopholes are closed in David Camp’s tax reform plan.

Indeed, the EITC itself has broad bipartisan support. Jonathan Chait writes that it is a poverty-fighting method that Republicans have long favored: in fact, they have been proposing it for a while (see the AEI, Glenn Hubbard, and Marco Rubio). In January, Greg Mankiw wrote that “what is most disappointing about the president’s proposal [to increase the minimum wage] is that the federal government has the option of using the much better Plan A. It is called the earned-income tax credit”.

The EITC has proved to be one of the most effective tools for both fighting poverty and encouraging work. People are only eligible for the EITC if they are employed. According to the Center for Budget and Policy Priorities, “EITC expansions between 1984 and 1996 accounted for more than half of the large increase in employment among single mothers during that period”. A paper by Molly Dahl at the CBO found that women who were encouraged to find work in order to qualify for the EITC advanced in their jobs and saw their incomes rise, at least in the few years that the researchers studied.

James Pethokoukis doesn’t have any specific arguments against the EITC increase, but is generally wary of a budget that increases the federal tax burden to 19.2%. “In the history of the American Republic, the total federal tax burden has only once topped 19% during peacetime”, he writes. — Shane Ferro and Ryan McCarthy

On to today’s links:

The Fed
3 big questions about the Fed’s ability to keep the financial system safe – David Wessel

Facebook
Facebook wants to get into the drone business – TechCrunch

Wonks
Free money for everyone: the Fed should have “the power to hand out checks to the American people” – Ryan Cooper
Economists say Paul Ryan misrepresented their research – Rob Garver

Charts
RadioShack is doomed, and so are traditional retailers – Derek Thompson

Alternative Currencies
The most dangerous man in bitcoin: US attorney Preet Bharara – Max Chafkin

Bad Data
The problem with living wills: we can’t accurately forecast our own desires – Jerome Groopman and Pamela Hartzband

Oxpeckers
“Choire and Alex are tired, broken men who have taken this thing as far as it can go” – The Awl
Jonah Peretti on what BuzzFeed can learn from the history of journalism – Medium

Trends
Airlines try to make elite status mean something – Matthew Klein

Study Says
Social media activism satisfies people’s need to look good in front of their friends – Org Theory

Hilarious
“Sign right here—when the flood waters hit, you’ll see how Allstate responds” – McSweeney’s

Your Dystopian Future
DRM for coffee – Robinson Meyer

Alternative Currencies
Japan is going to regulate and tax Bitcoin like shiny rocks and other commodities – Nikkei

Equals
Is there a gender gap in tech salaries? (hint: yes) – Guan Yang

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Default scenario

Oct 7, 2013 21:56 UTC

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It’s week two of the government shutdown, and with 10 days to go before we hit the debt ceiling, there is one big question as to what would happen if the US defaulted on its debt. Is it merely bad for the US’s image — or would it initiate economic apocalypse?

Yalman Onaran says a US default would be worse than the Lehman bankruptcy, noting that it “will be an economic calamity like none the world has ever seen”. Stephen Gandel identifies four different reasons to freak out over the possibility of default. All four revolve around the fact that a lot of market systems are based on the assumption Treasuries won’t default, and no one is quite sure what happens if they do. The Treasury Department, meanwhile, is set up to make its payments on time and in full, and its payments are not prioritized.

On the other side of the debate, Nick Cawley points out that the markets remain relatively calm. Treasury yields are at the lowest they have been in two months, likely because while payments may be delayed, investors are reasonably certain they will eventually get their money. “Keep calm, carry on and watch out for U.S. Treasurys to push higher”, he writes.

But hitting the debt ceiling is about a lot more than missing a payment to creditors. Where the government shutdown mostly affects discretionary spending (think National Parks and furloughed workers), a default would start to affect mandatory spending programs like Social Security and Medicare. Brad Plumer takes a deep dive into whether the — or exactly how — the Treasury Department can prioritize who to pay in the event that the US breaches the debt ceiling, and still avoid a default. The short answer: it’s incredibly complicated and may not be possible. Furthermore, “to acknowledge that payment prioritisation is possible would enable the Republicans to force the president to use it”, says Cardiff Garcia.

Paul Krugman thinks hitting the debt ceiling will be a disaster, even if the economy manages to avoid a Lehman-like catastrophe:

[The government] would be forced into savage spending cuts, around 4 percent of GDP, that wouldn’t just cause hardship (Surprise! No Social Security for you this month!) but amount to a severely contractionary fiscal policy, sending us into recession if it lasted any length of time.

–Shane Ferro

On to today’s links:

Good Points 
The “non-essential” parts of the government that are shut down are actually quite essential – Mike Konczal

Bold Moves   
Not just a safety net, but a floor: the Swiss might give every adult a guaranteed income – Reuters

The Oracle 
Warren Buffett’s Berkshire made $10 billion lending to firms during the crisis – WSJ

Long Reads   
“Life swaps,” “creators” and how San Francisco’s entrepreneurial culture is changing the country – Nathan Heller

Twitter   
At what price Twitter? A wonky guide to its IPO valuation – Aswath Damodaran
Twitter could be valued at $20 billion after it starts trading – Bloomberg

Billionaire Whimsy 
What happens when two billionaires rescue America’s biggest union-owned bank – Max Abelson

Questions to Which the Answer Is No One Knows
“Why is the Fox newsroom full of absurdly giant iPads?” – Gizmodo

Hope/Change/Etc.
“Obamacare may well be the best thing Washington has done for American small business in decades” – James Surowiecki

Alpha
Renowned investor concludes Steve Jobs just wasn’t that nice – Business Insider

Charts
The US loan-to-deposit ratio is at its lowest level in 30 years – Sober Look

Wonks
Raise your hand if you know how the Treasury’s payment system works – Cardiff Garcia

Twitter
“Twitter can be a magical wealth-creation machine powered mostly by hot air” – David Carr

Pivots
JP Morgan wants to get into the dissertation advisory and review business – Inside Higher Ed

Billionaire Whimsy
Bill Gates invests in fake meat – Fast Company

Bitcoin
An analysis of Silk Road’s impact on Bitcoin – Genesis Block

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