Opinion

Felix Salmon

Counterparties

Felix Salmon
Nov 11, 2010 07:01 UTC

From Obama, the Tax Cut Nobody Heard Of — NYT

MIT Media Lab looking for a new director — MIT

Apple = cheap? — Daring Fireball

Wherein Andrew Ross Sorkin calls Dealbook a “real-time SWAT team”, while driving his car to Fort Wayne — TBN

The Onion’s “Shirtless Biden Washes Trans Am in White House Driveway” story now has over 500,000 pageviews — NYT

Jesse Eisinger’s first Dealbook column — ProPublica

Are the risks worth it for war correspondents, asks Reuters Editor-in-Chief David Schlesinger — Reuters

Irish 10yr bonds yielding 8.5% — FT

Ritholtz now writing for Bloomberg — Bloomberg

Goldman Sachs has fired its head of European block trading — FT

The deficit commission’s plan

Felix Salmon
Nov 10, 2010 22:20 UTC

The pair of deficit commission reports (draft here, list of illustrative cuts here) is depressing on both the big-picture and the little-picture level.

The big picture is in this chart — the proposal gets most of its juice after 2020. Which just happens to be the point at which growth in health-care costs automagically is brought down to GDP + 1% “by establishing a process to regularly evaluate cost growth, and take additional steps as needed if projected savings do not materialize”. But healthcare inflation is a gruesomely difficult nut to crack, and if the CBO simply assumed that it could be solved so easily in 2020, its projections would look much rosier too.

debtcommission.jpg

Beyond that, the biggest savings proposed by the commission are in various parts of the federal payroll. Nothing else remotely moves the needle: the next biggest saving, beyond the punt of the “cut-and-invest committee”, comes from a reduction in the rate of growth of foreign aid. (You’d think that one could find pretty substantial non-personnel costs in the defense budget, but evidently not: a few cuts like the V-22 Osprey don’t even begin to generate savings until 2015.)

Meanwhile, some of the small savings have to be seen to be believed. The deficit commission, charged with coming up with a bold plan to bring the nation’s finances into order, really does propose:

  • Increasing the amount of time spent on instant messenger, to reduce travel costs;
  • “Reduce copying use by putting the default option on copiers to double-sided”;
  • Merging the Commerce Department with the Small Business Administration;
  • Charging a fee to Smithsonian visitors.
  • Etc.

There are some good ideas in this report, and it’s definitely good that people are talking openly in public about raising the retirement age (very slowly: it only hits 69 in 2075) and phasing out mortgage interest tax relief.

On the other hand, bold ideas in terms of new taxes — carbon taxes, wealth taxes, Tobin taxes, consumption taxes, you name it — are nowhere to be seen: as Jonathan Chait says, this is “a plan that’s tilted, overwhelmingly, toward Republican priorities”. Which means a large dash of wishful thinking, a bunch of tax cuts (!), and even a cap on the amount of tax revenues that the government can bring in. How that’s meant to help reduce the deficit I have no idea.

COMMENT

Preserving Social Security and Burying the Obama Deficit Commission Proposals on Social Security
By Emeritus Professor of Mathematics, CSULB
President Obama’s National Commission on Fiscal Responsibility and Reform, co-chaired by Alan Simpson and Erskine Bowlers, has issued a doomsday report on “fixing” the Social Security retirement system (OASDI) as a part of its proposals to reduce the Federal deficit. This flies in the face of the fact that, not only has Social Security not contributed a dime to the deficit, it has a $2.52 trillion surplus! Amongst other things, the co-chairs would drastically cut retirement benefits and increase the retirement age to 69. Not a single member of this commission, or of the vast TV/audio/print media, has mentioned nor studied other solutions to the alleged Social Security “crisis”.
There is no crisis and there is most definitely no need to advance the retirement age to 69 nor to cut the retirement benefits. .
Based on the data in the totality of individual income tax returns for the 16 year period of 1993 through 2008, there are easy structural changes that can be made to the Social Security (OASDI) taxation system that will easily provide for sufficient annual contributions and assets growth to take care of the retirement needs of the increasingly aging population for the indefinite future, as well as the replacement of the existing 73-year old REGRESSIVE OASDI taxation system by a PROGRESSIVE one, and without reducing retirement benefits nor increasing the retirement age. Regrettably, the ever-present plethora of “privatization” and “fix-it” advocates are clueless about this analysis.
To illustrate the regressive nature of the OASDI taxation system, the data from the calendar year 2008 shows the following. Tax returns listing an Adjusted Gross Income (AGI) of over $200 K (= only 3% of all tax returns) held 30% of all AGI, yet less than 3% of the listed AGI was paid to OASDI; returns listing over $1 Million (= only 0.23% of all tax returns) held 13% of all AGI, yet less than 0.6% of the listed AGI was paid to OASDI; finally, the $10 million and over AGI class had an average GROSS income (AGI plus all exclusionary gross income) of $37 million, yet paid an average of less than 0.006% to OASDI
By using a progressive tax rate system (applied to ALL INCOME, not merely to salary/wage income) for OASDI, the rate for OASDI payments for 85% of all tax returns (= below $100,000 annually) will be LOWER than the current rate of 6.2%. This is because the total income of this class is in the form of salaries/wages, and everything below the salary/wage cap of $100,000 is taxed at 6.2% for OASDI contributions.
Here are the details for a typical progressive OASDI tax rate system: 4% rate on all income below $30,000 (40.3% of all tax returns in 2008); 5% rate for the range $30,00 to $75,000 (24.6% of all tax returns in 2008); 6% rate for the range $75,000 to $200,000 (22.1% of all tax returns in 2008; currently, those from $100,000 to $200,000 pay as little as 3% to OASDI); 7% for the range $200,000 and up (13.0% of all tax returns in 2008; this group pays from below 3% to as little as 0.006% to OASDI).
In addition to providing more than the annual retirement/disability needs produced under the existing regressive taxation system, the annual OASDI Trust Fund assets at the end of 2009, for each of five progressive tax systems that were analyzed for the 16 year period, would have INCREASED from the current $2.52 trillion (2008) to:
$3.47 trillion for tax-rate system 1; $4.17 trillion for tax-rate system 2; $4.27 trillion for tax-rate system 3; $4.41 trillion for tax-rate system 4; $4.83 trillion for tax-rate system 5.
Clearly, this revised progressive OASDI tax rate system would preserve Social Security, the most successful US government program in history, for the indefinite future, and would silence the plethora of “privatizers” and “fix-it” advocates.

Posted by johnbachar | Report as abusive

Did the midterms kill Keynesianism?

Felix Salmon
Nov 10, 2010 21:19 UTC

Mark Thoma has a depressing column at the Fiscal Times today, saying that the Obama administration’s failed fiscal stimulus threatens the entire idea that the government has a role to play in smoothing economic shocks and protecting the vulnerable from the vagaries of unconstrained capitalism:

We will be much less likely to use fiscal policy in the future, particularly government spending – much to the detriment of any future generations caught in a large downturn. As for the Fed, it still has considerable independence and a job to do in managing the economy, and it will continue to do that job. But the Fed will be far less willing to take bold steps to try to alter the direction of the economy, and far less likely to get the support from Congress it needs for another bailout to prevent a financial meltdown. And if the degree of independence the Fed currently enjoys is reduced through Congressional action, a very real possibility with people like Texas Rep. Ron Paul , a libertarian, as potential members of key oversight committees, even the routine management of the economy by the Fed could be affected.

On this view, Obama’s fiscal policy has been disastrous: not only did it fail to achieve its own stated aims, but it also resulted in “an unmistakable rejection of the government’s more muscular economic and regulatory policies.” As a consequence, we’re backsliding into a laissez-faire world, where calling Obama a Keynesian is if anything even more damaging than calling him a Kenyan.

Thoma concludes:

People should not be left to fend for themselves when they are hit by large negative economic shocks they had no hand in creating, and let’s hope that somehow, despite the emerging trend toward a more hands-off approach and pressures from rising national debt levels, that outcome can be avoided.

I suspect that he will get his wish. Politics is even more cyclical than macroeconomics, and what goes around in midterms tends to come around two years later. So long as an “it’s the economy, stupid” message can win elections, politicians will continue to push fiscal policies aimed at fixing what’s broken. Some of those policies will work better than others, but it’s stretching credulity to believe that the message of the midterms is that no such policies will ever be attempted again.

COMMENT

“.. even the routine management of the economy by the Fed could be affected.”

You should not be saying “routine management by Fed could be affected” … You should be saying “routine mismanagement” by the Fed could be affected. I would say it is a good thing for the world. The management of the economy by Ben Bernanke (and Alan Greenspan) during the building up of the crisis leaves a lot to be desired .. You just need to read Bernanke quotes at various instances prior to the crisis to know how he managed the economy. That he is still having his job is courtesy the Congress.

Fed needs to be ended if you want sound management of the economy!

Posted by killben | Report as abusive

The Assurant plunge

Felix Salmon
Nov 10, 2010 19:09 UTC

Shares in Assurant fell off a cliff this morning, on volume a good order of magnitude greater than is normally seen. What’s going on?

aiz.tiff

CNBC, this morning, was nice enough to cite my story from yesterday as the reason for the move, despite the fact that I added no new information to that which was already included in the American Banker article by Jeff Horwitz. But Horwitz’s story was out all day—I got sent the link just after 1pm, and it was definitely being passed around via email over the course of the afternoon, as the stock went basically nowhere. My post appeared after the market closed, and suddenly this morning Assurant shares plunged at the open.

If my post had anything to do with the move, I think it was due to framing: the American Banker headline, appropriately for a banking trade mag, concentrated on the mortgage servicers, while my headline talked about an “insurance scandal.” I also pulled out a powerful fact from 2,200 words in to the 3,000-word story—that Assurant’s force-placed insurance unit has accounted for $811 million of its $879 million in profits during the last two years.

Finally, I noted something Horwitz mentions only at the very end of the story—that the kind of activity he’s talking about is already illegal, under Dodd-Frank. That means that as soon as there’s a critical mass of publicity around the issue, someone somewhere is likely to crack down on this activity. Maybe regulators don’t spend a lot of time doing close reads of American Banker stories—but they do pay attention when people start talking explicitly about scandals.

Fundamentally, however, I think that what we’re seeing is a function of the amount the stock market in general has risen of late. Assurant is trading around $36 today, which is where it was as recently as the end of August; it was lower than $30 in February, and often something quite small is enough to spark a substantial drop in the share price if there’s a lot of nervousness in the market. The stampede of people rushing to sell Assurant stock this morning says to me that there’s a fair amount of fear in the market right now. And given the high degree of correlation in the market, I wouldn’t be at all surprised to see a big drop in broad indices one morning soon.

COMMENT

It is no surprise to me that Assurant’s stock price plunged. Especially after the whole Force Placed Insurance scandal. I guess what goes around, comes around…
Force Placed Insurance

Posted by ForcePlaced | Report as abusive

Why Google’s cutting back on bonuses

Felix Salmon
Nov 10, 2010 16:18 UTC

I love the way that Google is giving all its employees a 10% pay rise, and cutting back on payment in the form of bonuses and equity. CEO Eric Schmidt has, in a very Googlish way, got hard numbers on what his employees want, and so he’s giving it to them:

We’ve heard from your feedback on Googlegeist and other surveys that salary is more important to you than any other component of pay (i.e., bonus and equity). To address that, we’re moving a portion of your bonus into your base salary, so now it’s income you can count on, every time you get your paycheck.

Google, like most successful high-tech companies, wants to be a place where people love to work—and where they work all the better because they love to work there so much. That’s why it’s big on perks like free food, or luxury buses with fast wifi from San Francisco to Mountain View.

Of course, employees love to be paid well, too. And for any given level of annual pay, it’s entirely reasonable to want it in the form of a regular paycheck, rather than lumped into a bonus.

Employers prefer bonuses to paychecks for four main reasons:

  1. They force employees to stay with the company, or lose their bonus.
  2. They’re great from a cashflow perspective: instead of paying for labor as it’s performed, you pay for it months in arrears.
  3. They’re not considered salary when giving out raises — that 10% raise, I’m sure, is on base salary, not total annual compensation.
  4. When times get tough, it’s a lot easier to cut bonuses than it is to cut salaries.

All of these have equal and opposite reasons why employees don’t like bonuses. And on top of that, both managers and employees loathe the round of bureaucracy and performance review which always accompanies such things.

Google has more reason than most companies to minimize its bonuses. (Nice one-off gestures like its $1,000 holiday gift are something different.) For one thing, it’s sitting on so much cash, and interest rates are so low, that the cashflow benefits of a bonus system are de minimis. On top of that, it doesn’t want to force its employees to remain unhappily at Google just so that they can cash their bonus check when it arrives: it wants them to want to stay at Google. And as for salaries and raises, those are set by the external market for talent and are very unlikely to fall.

As a result, none of the standard reasons for paying employees in bonus form really obtains. Google’s employees might now find it easier to leave if they find a better opportunity elsewhere, but that will just force Google to continue to put a lot of effort into being the most attractive place to work that it can possibly be.

When Google was small and growing fast, a pay system based on bonuses and equity made sense: the company could be so much larger at the end of the year than it was at the beginning that it could afford to pay out much more money than it could have sensibly committed to paying employees a year earlier. What’s more, the stock was a great bet.

Now, however, Google is a much more mature company, with 23,000 employees in countries all over the world. Good for it for listening to those employees, and for paying them in a grown-up manner.

COMMENT

Felix,

this is amazing, companies like Google, Thomson Reuters are great places to work.

Arvind Pereira
http://arvindpereira.weebly.com

Posted by pereiraarvindin | Report as abusive

Learning from Ireland

Felix Salmon
Nov 10, 2010 14:52 UTC

I love the way that the WSJ today covers the collapse of Ireland’s banking system, and with it the country’s fiscal leadership. There’s little if any actual news here, but that’s a feature, not a bug: it frees up the WSJ‘s writers and editors to present the big-picture narrative in as clear and compelling a manner as possible, without having to overemphasize some small factoid which they happen to be breaking.

The story reads like one of those epic lyric tragedies of old, where no one ever learns from their mistakes, and errors simply compound endlessly. First, the Irish government, convinced that the country’s banks were suffering from a liquidity crisis rather than a banking crisis, decided to solve that problem in the way that only a government can — with a blanket guarantee of substantially all of the banks’ liabilities.

But of course the banks were fundamentally insolvent, and so began a series of cash drains on the government, each one meant to be the last and final. First there was €1.5 billion for Anglo, and €2 billion each for Bank of Ireland and Allied Irish. Then there was another €7 billion for Allied Irish and Bank of Ireland. Then Anglo’s losses reached €20 billion, with another €48 billion “at risk” of default. And where are we now?

The total capital injected into banks by the government so far: €34 billion, with at least another €12 billion on the way. The bailouts mean Ireland will run a government deficit equal to 32% of its gross domestic product, the highest figure ever in any euro-zone country. Skeptics say a still-sinking property market will next sour residential mortgages, inflating the government tab even more.

Yes, this inconceivably enormous bailout tab—32% of GDP would correspond to an annual deficit of $4.7 trillion here in the U.S., or something over $40,000 per household—has been run up on commercial real-estate losses alone. If and when Ireland’s residential mortgages start defaulting, the country is surely toast.

Bankers, auditors, regulators, politicians—all of them made the same mistake, in Ireland, which was to believe the numbers they were being shown. Numbers are like that: once they’re printed and ratified, they become perceived as hard facts, in the way that merely verbal statements never are. If a politician says “our banks are solvent,” that’s a contentious statement; if PricewaterhouseCoopers comes out with a massively overoptimistic take on the strength of Anglo’s loan book, backing up an official-looking report with lots of numbers and institutional authority, people simply believe them implicitly.

One of the authors of the article, Charles Forelle, has a great accompanying blog entry in which he explains that Ireland’s crisis came out of the blue: it wasn’t a slow-moving train wreck like Portugal. And even with hindsight, it would have been incredibly hard for either the Irish government or the European Union to prevent the build-up of bad loans.

That blanket guarantee of banks’ liabilities, of course, was entirely preventable, and in hindsight a very bad idea. While the banks’ smaller depositors deserve to remain whole, their other lenders should have taken much larger haircuts by now. Instead, they’ve been bailed out by Irish taxpayers, which doesn’t seem fair at all. The Irish government is sovereign, of course: it could always unwind that guarantee if it wanted to. But at this point, it’s too late to do that, since unwinding the guarantee would immediately precipitate a massive run for the exits and a monster sovereign collapse.

One of the key lessons we’ve learned in this crisis is that any time a small country takes pride in its large and profitable international banks, everything is liable to end in tears. Big banks are too big to fail, which means their national governments have to bail them out—but when the banks are as big or bigger than the government in question, such a bailout becomes politically and economically disastrous. My feeling is that no government should ever allow its banks to become too big to bail out, because no government can credibly promise not to bail out such banks should they run into difficulties.

If you look down the Financial Stability Board’s list of the top 30 systemically-important financial institutions, there are definitely a few on there which look like they’re too big for a national bailout. The two big Swiss banks certainly are, and possibly the two big Spanish banks, too; then there’s six insurers as well. I have no idea what can be done about this: no one’s going to blunder in and force UBS and Credit Suisse to break themselves up just because they happen to be based in a small Alpine nation. But the lessons of Iceland and Ireland should wear heavily on any government with an oversized financial sector.

COMMENT

Dear Mr Salmon,

If you read the following from today’s “Irish Indepenndent” you’d learn how some senior Irish civil servants hid the truth they knew from the Irish people, simple as that. This crisis could have been at least curtailed…if it weren’t for our incompentent government at the Department of Finance who ordered their officials not to tell what the OECD, were telling them, that the boom had already ended, that the bubble had burst. But no, we went on to have another election where they (the Government) were saying everything was dandy, it was more like “Dangly”.

follow the link,

htDrag the underneath link to your browser.tp://www.independent.ie/opinion/ editorial/we-were-denied-the-awful-truth -2415851.html

We were denied the awful truth – Editorial, Opinion – Independent.ie

Posted by IrishGiggle | Report as abusive

Counterparties

Felix Salmon
Nov 10, 2010 04:29 UTC

David Leonhardt smacks around the gold bugs — NYT

Awesome old tool — Wired

So You Want To Start A Web Startup? — TechCrunch

Everything you ever wanted to know about the Nicaragua-Costa Rica border, and Google Maps — Ogle Earth

COMMENT

I loved the whole article on the multi tool!

Amd it’s good to know what the river dredging was really all about at the border.

Posted by hsvkitty | Report as abusive

The force-placed insurance scandal

Felix Salmon
Nov 9, 2010 22:31 UTC

American Banker’s Jeff Horwitz has a spectacular piece of reporting today about goings on in an obscure corner of the mortgage-servicing world known as force-placed insurance. Essentially, if a homeowner fails to keep up their insurance premiums, then their loan servicer will step in and buy an insurance policy on their behalf, to ensure the home remains insured. It’s all perfectly sensible in theory. But in practice, it’s ripe for abuse, especially when the servicer owns the insurer.

Consider one case found by Horwitz. A homeowner had a $4,000 insurance policy, which was paid by the loan servicer, Everbank, from an escrow account. But Everbank allegedly let that insurance policy lapse, allowing it to replace the policy with a different policy, this one costing more than $33,000. The insurer, a subsidiary of Assurant, then paid Everbank a $7,100 kickback for giving it such a lucrative policy — and, writes Horwitz, “left the door open to further compensation” down the road.

$7,100 is an insanely enormous amount of money for a loan servicer to make on a single property: the average loan servicer makes just $51 per loan per year. And of course it’s not the servicer paying that $33,000 insurance premium — that money is ultimately paid by the investors who bought the loan. Those investors are, understandably, not happy.

There are lots of variations on the force-placed insurance scam. For instance, JPMorgan Chase buys overpriced insurance from a third-party insurer, which then reinsures the property with JPMorgan Chase. This is doubly evil: it not only means that investors are paying far too much money for the insurance, but it also means that, as both the servicer and the ultimate insurer of the property, JPMorgan Chase has every incentive not to pursue claims on the houses it services. Investors, of course, would love to recoup any losses from the insurer, but they can’t bring such a claim — only the servicer can do that.

Then there’s the practice of back-dating insurance — essentially, buying insurance against an event which you know for a fact hasn’t happened. Horwitz talked to attorney Jeff Golant, who was trying to sort out his mother’s mortgage:

His client was current on her mortgage and claimed the lapse of insurance coverage on her home was the result of her previous insurer’s error. Much of the new policy’s coverage was redundant, Golant said, duplicating flood and wind policies that had remained in place. Moreover, charging her for retroactive hurricane protection, for a year when there had been no significant storms, struck Golant as inherently ridiculous.

“I really thought they’d added an extra digit,” he said.

The National Association of Insurance Commissioners says that policies “should not be back-dated to collect premiums for a time period that has already passed,” but the practice seems to be commonplace in the world of force-placed insurance. As is the existence of extremely cozy relationships between insurer and servicer:

The case got stranger when Golant’s client visited the address listed for the insurer in an unsuccessful attempt to sort things out, he said. While the people there claimed to represent the servicer, they were operating out of an office belonging to a force-placed policy insurer since acquired by QBE Insurance Group.

Golant didn’t understand why the insurer would be speaking on behalf of the servicer. But shortly after he began asking questions about the relationship between servicer and insurer, the case settled. Confidentially. At the insurer’s request…

According to both Assurant’s SEC filings and the marketing materials of a subsidiary of rival QBE Insurance Group, the insurers don’t just write policies on request — they also enter into long-term agreements to detect uninsured properties in their clients’ servicing portfolios and perform other back-office functions. It was precisely such an arrangement that Golant’s first client ran into when she tried to visit her servicer, he says — the insurance company employees had taken over the servicer’s role.

Horwitz has found one case where an $80,000 property was being insured for $10,000 a year, and also notes that at Assurant, “the unit handling force-placed insurance has accounted for $811 million of its $879 million in profits during the last two years.”

The good news here is that there’s a specific provision in the Dodd-Frank act requiring that force-placed insurance be “bona fide and reasonable”. The bad news is that it’s far from clear who is in a position to enforce that particular law. And in the meantime, loan servicers would seem to have every incentive to drag out delinquencies as long as possible, if doing so means they get massive insurance revenues. Or the kickbacks associated with them.

COMMENT

I was a victim of forced insurance- it goes back a few years and I vigorously protested. I was not notified for half a year so it was back dated and I was refused the opportunity to back date just as Wachovia had one.

my insurance agency had not informed me of the deficiently and in fact one storm where I had damage I was not covered and had to pay for damage myself
what is the statutes of limitation at the time Wachovia played a game. Since then I got a threat of place insurance when my agent did not sent the endorsement . That forced insurance fee was $56,000. I suspected fraud by Wachovia and will examine file . What is the statute of limitation . I talked to an attorney about itt at the time, but he said I would be wasting my time.

Posted by thoma | Report as abusive

Brad DeLong’s fiscal manifesto

Felix Salmon
Nov 9, 2010 19:53 UTC

Brad DeLong is fed up with vague hand-waving from technocrats, Bob Rubin very much included, who call for the government to make difficult decisions without being remotely explicit about what such decisions might entail. So he comes up with his own seven-point “platform for the bipartisan technocrats of the center”, which “everybody centrist and deficit-hawkish in the reality-based community should be willing to commit to today”.

It’s a provocative and very useful contribution to the fiscal debate, if only because it has exactly zero probability of ever being enacted. But the thinking behind it is solid:

The principal sources of uncertainty in American economics right now are three: we don’t know how the long-run fiscal gap will be closed (but we think it will be), we don’t know how our health-care system will be reformed and transformed (but we know it will be), and we don’t know what our policy toward global warming will be in a generation (but we know that we will have one). The best things the government could do to diminish uncertainty would be to: (1) commit immediately to the full implementation of the version of RomneyCare-plus-cuts-in-Medicare-and-taxes-on-gold-plated-health-plans that was this year’s PPACA, (2) commit immediately to a long-run climate policy in the form of a carbon tax coupled with research incentives for future energy technologies, and (3) commit immediately to a plan to cover the long-term fiscal gap.

The most striking part of DeLong’s plan is not the strict 10-year PAYGO, which would apply not only to extending middle-class tax cuts but also to a second stimulus. Instead, it’s the carbon tax. In contrast to most proposals out there, DeLong’s carbon tax would not be revenue-neutral: half of it — about $73 billion per year, or $635 per household — would go straight to deficit reduction, rather than being used to fund extra spending.

The other half of the revenues from the carbon tax would be used to match extra contributions to Social Security accounts — you could add up to 2% of your Social Security wages to your account, which would then be matched two-for-one by carbon tax revenues.

That, of course, leaves nothing to offset the regressive nature of the carbon tax, the burden of which is disproportionately borne by poor families in rural areas. (And in fact it’s worse than that: poor black families have significantly larger carbon footprints than poor white families, which makes a carbon tax not only regressive but also racially highly charged.)

If you were building a national taxation structure from scratch, you’d definitely include a carbon tax in there somewhere — and probably some kind of Tobin tax, too, not to mention a wealth tax and possibly some kind of consumption tax as well. But of course we’re not building anything from scratch, and the implementation of any new tax is always going to be politically fraught, especially in an environment where most Republicans are never going to vote for any new tax of any description. (See California’s fiscal situation for a good example of where that leads.)

All of which just goes to underline that the likes of Rubin talk gravely about the importance of profound fiscal reform, they know — or they should know — that there’s no way it’s ever going to happen.

DeLong, then, has performed two important services here. He’s translated technocratese into stark policy proposals, and he’s demonstrated that the technocrats in question might as well be talking about giving every US family a free unicorn for all that their wishes will ever come true. Let’s hope (against hope) that when the technocrats continue the debate, they’ll have been paying attention to both messages.

COMMENT

And to think how you have attacked Gretchen Morgenson!

Posted by DanHess | Report as abusive
  •