Saturday, January 28, 2012

Thursday, January 26, 2012

The Special Interest Tax Break on "Carried Interest"

Here are excerpts from a Bloomberg article on "carried interest" tax rates.  You can find the whole article here ---

Most international investors say a tax break allowing private equity and hedge-fund executives to pay lower tax rates than many average Americans isn’t warranted, according to a Bloomberg survey.

As the release of Republican presidential candidate Mitt Romney’s 2010 tax return heats up debate over a 15 percent top rate on so-called carried interest, two-thirds of those surveyed in the Bloomberg Global Poll say the tax break is unjustified.

Sixty-six percent of poll respondents worldwide said the break isn’t justified, compared with 21 percent who said it is and 13 percent who said they had “no idea.” Among those living in the U.S., 67 percent said the lower rate isn’t justified, versus 27 percent who said it is.

The survey bolsters the position of Democrats who have pushed for years to eliminate the special treatment of carried interest. Romney’s use of the break has renewed scrutiny as President Barack Obama makes economic fairness a theme in his re-election campaign and studies show that income inequality has grown dramatically over the past quarter-century.

Democrats have won high-profile allies on the issue, including billionaire Warren Buffett, Blackstone Group LP co-founder Pete Peterson and New York City Mayor Michael Bloomberg, founder and majority owner of Bloomberg News parent Bloomberg LP. Obama invited Buffett’s secretary to the Jan. 24 State of the Union address to highlight the Berkshire Hathaway Inc. (BRK/A)chairman’s comments that he shouldn’t pay a lower tax rate than his employees.

Taxing carried interest as ordinary income would produce about $22 billion over a decade, according to the nonpartisan Congressional Budget Office.

Christian Thwaites, president and chief executive officer of Sentinel Investments in Montpelier, Vermont, scoffed at complaints that a tax increase would be a blow to the private-equity industry.
“I’m sure they’d scream bloody murder and say this is the end of the world, but I just can’t believe it,” said Thwaites.“There’s plenty of reasons to be in private equity other than just the fact that you get a 20 percent tax improvement.” There are “still going to be pretty decent returns available” even if the tax rate is raised, he said.

Others said they don’t think it makes sense to treat carried interest as anything other than income subject to regular rates.

“It is used to pay bonuses to general partners, and I see no reason why bonuses should not be treated as income,” said Don Lindsey, chief investment officer for George WashingtonUniversity in Washington.

John Boland, co-founder of Maple Capital Management in Montpelier, Vermont, said “if it looks like a duck and quacks, calling it a chicken does not change the fact it is duck, to paraphrase Ronald Reagan.”

Sunday, January 22, 2012

Time for Bi-Partisan Solutions to Our Economic Challenges

Why Was This Man Laughing?

As Felix Salmon says about the chart below, "I was hoping someone would do this — and now The Daily Stag Hunt has come to the rescue. All I can say is, thank you. It turns out that if you’re on the FOMC, then being in a credit bubble is really funny!"


Friday, January 20, 2012

How Big Was the Economic Hole That Needed to be Filled?

The GNP Growth Rate During the Clinton, Bush (43) and Obama Years

As is said, "a picture is worth a thousand words."  Oh, by the way, that big hole was generated under President Bush's watch.

Thursday, January 19, 2012

Job Creation During Clinton, Bush and Obama Administrations

We've heard a lot of discussion about job growth during the Bush Administration's years under its economic policies (including deregulation and lower taxes for "job creators").  Many of those same policies are currently being touted by Republican presidential candidates as the "be all and end all" for continued economic recovery and growth.  But a close look at the data suggest that the years of lower taxes and less regulation (particularly with respect to the financial services industry) didn't, in the past, bring the nirvana the Republicans now say will occur with the same lower tax and deregulation policies.  As Albert Einstein has been credited as saying, "Insanity is doing the same thing over and over and expecting different results."

Job Creation During Clinton Administration

Job Creation During the Bush Administration

Job Creation During the Obama Administration

Job Creation

Economists Scoff at Obama, Romney Myths

Mitt Romney’s campaign would have you believe that every job lost over the past three years is President Barack Obama’s fault. That includes the 820,000 jobs lost in January 2009, even though Obama didn’t become president until the 20th of the month.

It includes the 726,000 jobs lost in February 2009, before any of Obama’s policies had gone into effect. This suggests that Romney holds a deeply ambitious view of a president’s power to influence the labor market -- a view, as we’ll see, that’s not shared by economists who were responsible for White House economic policies in recent administrations.

Romney, too, discounts the president’s power when he highlights his own record in Massachusetts. In fact, Romney’s campaign asks us to believe that every job created in Massachusetts while he was governor was Romney’s doing. Obama might deserve the blame for the jobs lost on his watch, butGeorge W. Bush, who was president during Romney’s governorship, gets no credit for the jobs created on his. Romney also claims that every job created by any company that Bain Capital LLC had a hand in should also be credited to Romney -- even if the job was created long after Bain separated from the company. Heads, I created a job; tails, you lost one.

The Obama campaign isn’t much better. They want credit for every job created, but not for every job lost. They also want Democratic economic policies to get credit for the jobs created under Bill Clinton’s presidency (what tech bubble?) and for Republicans’ economic philosophy to take the hit for the financial crisis that began during Bush’s administration (what Clinton-era opposition to the regulation of derivatives?).

Governor Rick Perry’s campaign, meanwhile, assigns Obama responsibility for every job lost nationwide, but Perry gets credit for every job created in Texas. Neat trick. And he, like all Republicans, wants the jobs created under President Ronald Reagan added to conservatism’s side of the ledger.

Believing the Unbelievable

To buy much of this requires you to hold deeply ridiculous beliefs about the American economy. You must believe that Obama bears responsibility for events that predate his presidency and deserves applause for the demand created by aging cars and worn-down machinery. You must believe that Congress, which controls fiscal policy, and the Federal Reserve, which controls monetary policy, bear little or no responsibility for the economy, but that the president, who controls neither fiscal nor monetary policy, is the primary driver of job creation. You must believe that governors have absolute power over state economies and that global demand is irrelevant. You must also renounce belief in Christmas -- or at least its influence on the consumer-driven economy.

Virtually no one really believes these things. But partisans and the news media routinely act as if they are true. They make up a useful shorthand that is arguably good for the political system: Better for presidents to believe re-election hinges on economic performance than, say, on the quality of their attack ads.

It would be even better if voters had a consistent benchmark for judging a president’s performance. The question --and it’s a tough one -- is how to separate the very real influence a president has on the economy from the myriad other factors that weigh on whether consumers spend and businesses hire. I put the issue to an exclusive club of economists who have an unusually fine-grained understanding of what a president can and can’t do: the former chairmen of the president’s Council of Economic Advisers. I asked each the same question: How much of national job creation during a presidency can we properly attribute to the president?

In Their Words

“Very little,” wrote Harvard’s Martin Feldstein in an e-mail. Feldstein led the council under Reagan, and he didn’t see much role for the president in normal economic times. “The key is growth of population and labor force participation. Policy --primarily monetary policy -- affects cyclical conditions and therefore the unemployment rate. Fiscal policy is usually irrelevant but with interest rates at the current level there has been a role for fiscal policy.”

Laura D’Andrea Tyson, a Berkeley economist who served under Clinton, emphasized the need to consider timing in our evaluations. “There are significant lags between the time a President proposes a policy, the time it is enacted by Congress and the time necessary for it to take effect,” she wrote to me.“These lags should be taken into account in measuring the economy’s job performance under a President. The first year probably should not count at all in terms of assessing the effects of a new Administration’s policies.”

N. Gregory Mankiw, a Harvard economist who served as the council chairman under George W. Bush, directed me to a blog post he had written on the subject. “Randomness is a fact of economic life,” Mankiw wrote, “and it would be a mistake to judge a president by the economic outcome during his administration. It is better to look at the decisions the president made, and to acknowledge that the outcome is a function of those decisions and many other factors not under his control. As an economist, I have views about what best practices are for economic policy, and I judge presidents by how closely they adhere to those principles.”

“Unfortunately,” he concluded, “that evaluation process is not quite as simple and objective as the reader might have hoped for. But I don’t think there is a better alternative.”
Austan Goolsbee, the council chairman under Obama, tried to lay out a four part test: “Everyone kind of knows they need to ask what conditions was the person handed, what did they do, what was happening elsewhere, and what would have happened if he wasn’t there?”

Those questions, Goolsbee admitted, are tough to answer. But whatever the answer is, it needs to take into account that the president’s control of the economy is at best incomplete.“Despite continued scrounging around in the basement,” Goolsbee said of his time in the White House, “I was never able to find the lever you flip that lets the economy grow and create jobs.”

The Nonsense of "Regulating" Super PACs

Wednesday, January 11, 2012

Some Thoughts About Economic Data and Politics --- Using Last Friday's Jobs Report as an Example

Here's a research article from Brian Wesbury (one of the more objective economists in my view) who comments about some of the negatively espoused by those who want to believe the current Administration has not done/can not do anything right when it comes to the economy (or much else for that matter.)  See the article @

Nonsense Arguments About Jobs

The better the employment reports get, the more ridiculous the assertions from those who deny the improvement.

Take Friday’s report, which was the best since the economic recovery started. Private payrolls rose 212,000, while the number of hours per worker and earnings per hour went up as well. As a result, total workers’ earnings are more than keeping pace with inflation. Even the unemployment rate went down again and is now at 8.5%, almost a full point below where it was a year ago.

These numbers are pretty good. Nonetheless, anyone who stated the obvious, and pointed out the good news, was berated by media and especially in the blogosphere. Our observation is that most of these arguments against optimism are driven by politics and border on the ridiculous.

One claim is the numbers are being manipulated by the government to help President Obama…if President Bush was in office, unemployment would be 12%.

But if the numbers are being manipulated, they’re doing a pretty poor job. Why not claim a higher growth rate for civilian employment – which usually happens anyhow in normal recoveries – which would let them show some combination of a lower unemployment rate or higher labor force participation rate? And why would they usually have to revise up their payroll numbers after the initial report each month? Wouldn’t they want the good news out as soon as possible? Of course, we point this out knowing full well that the conspiracy crowd already thinks we are part of the conspiracy.

Another argument is that the "real" unemployment rate is 15.2%, not 8.5%. This is a reference to the Labor Department’s U-6 rate, which includes discouraged workers, marginally attached workers, and those working part-time who say they want full-time jobs. But as we have explained many times before, since its inception in 1994, the "real" unemployment rate (U-6) is always, in both good times and bad, higher than
the regular unemployment rate – by between 65-85%. Right now it’s 79% higher. In other words, the so called real unemployment rate tells us nothing we wouldn’t otherwise know by just looking at the regular unemployment rate.

Others are saying the unemployment rate is down only because people are leaving the labor force. This has resonated lately, because the labor force has contracted by 170,000 in the last two months. But those monthly numbers are volatile and the jobless rate is down 0.9 points from a year ago, during a period when the labor force expanded 780,000, or 0.5%.

One recent claim is that a "real" recovery would have 250,000 jobs per month. This is a made up number which means nothing other than "we aren’t there yet." We all want more growth, not less. But, just because the number of new jobs has not reached a non-scientifically based threshold means nothing. Let’s not make up reasons to be disappointed when the numbers are getting a little bit better every month.

Some pessimists notice that this past month, a job category for couriers & messengers was up 42,000, so that shows some problems when these jobs disappear next month. But the same temporary pop in couriers & messengers happened last December and job creation accelerated this year. Moreover, don’t let that one category deflect attention from the fact that
every major category of jobs increased in December, from construction and manufacturing to retail and leisure.

We get it. The job market isn’t perfect. We wish we were back at 5% unemployment right now and there are plenty of reasons to point fingers and argue that things should, and could, be better. We do that plenty. But using each monthly employment report as a pretext to put forward spurious arguments and vent about our national state of affairs, which we all knew about in the days before each report as well, suggests an attempt to politicize the economic data. And as we all know, facts and politics don’t always mix very well.