01/18/2013 archive

When Real Interest Rates Are Negative, Taxing Is More Costly Than Borrowing

By Matthew Yglesias, Slate

Posted Friday, Jan. 18, 2013, at 1:15 PM ET

A good article about public policy ought to be making some kind of non-obvious point about the world in order to get people to think about things differently. Simply responding by saying that the suggestion sounds funny is absurd.

You don’t say.

Let’s break this down. You’re the mayor of a city. A storm strikes and ruins a whole bunch of your police cars. Now you need to buy new ones. You have two options for paying for the cars-you can borrow the money and pay the bill ten years from now, or you can raise taxes and pay right now. The case for paying later is pretty clear. In ten years’ time your city’s overall economic output will be higher so the burden of paying off the loan then will be lessened. On the other hand, the case for paying now is also pretty clear-lenders generally expect interest payments in exchange for their loans so the total cost of the debt option is higher. But wait! The city’s accountants show up and point out that it’s currently possible for the city to borrow at a negative real rate. Suddenly the interest costs are off the table as a reason to prefer paying sooner.

So what’s left? Nothing. The city will be richer in ten years, so pay then. The logic becomes especially compelling when you recognize that the city’s income will grow more rapidly under the lower-tax regime that encourages more investment in residential and commercial property and more business activity.

…

Perhaps Linker and I disagree about what kind of reductions in Medicare and Medicaid spending would be optimal, but I have no disagreement that they should be reduced to below their currently projected levels. That said, under any scenario the government is going to be spending money in 2013. The question on the table was should we finance that spending with taxes or should be finance it with borrowing. My view is that with real interest rates below zero, it makes sense to tax less and borrow more. This has literally no relationship to my view about the appropriate level of future government spending.

Moron.

Hat tip Dr. Duncan Black formerly of the London School of Economics, the Université catholique de Louvain, the University of California, Irvine, and, most recently, Bryn Mawr College.

Grown-Ups

It’s funny how the issues changes but the language stays the same. Liberals, in being perfectly right about many things, are silly and irresponsible children.

Well I’m still kind of unhappy that dday has left the building just as I was with Valtin, but his replacement DSWright has highlighted an interesting dichotomy.

Democratic Party Divided As Obama Inauguration Approaches

By: DSWright, Firedog Lake

Friday January 18, 2013 6:47 am

The Democratic Party has always prided itself on having a “big tent.” But representing a diversity of interests is different than representing conflicting interests. As President Obama’s Second Inauguration approaches the divisions within the Democratic Party over wealth inequality and social justice are boiling to the surface.

…

Calling the DLC “center-left” is a bit of a misnomer. The correct division is between Corporate Liberals and progressives. Those that genuinely believe (or are paid to genuinely believe) that the growth of Corporate Power in American society is not only a positive development but necessary for progress. On the other side are the progressives who believe the power of capital – particularly finance capital – has grown to the point of suffocating democracy and the possibility for progress. No easy divide to bridge.

…

In no debate is this divide more clear than on entitlements where Corporate Liberals have decided to swallow right-wing talking points whole despite all evidence to the contrary. They also have, to an embarrassing degree, embraced Wall Street’s worldview on debt. After bailing out the banks – making private debts public debts – the Corporate Liberals have sided with the Republicans to now extract debt payments from the lower classes to pay off that odious debt.

…

And of course the Corporate Liberals’ biggest blind spot, (is) the environment. Despite lofty goals and rhetoric climate change remains unaddressed in any meaningful way. By his own metric Obama has failed on one of the biggest issues of his time.

It will be interesting to see how this divide plays out for the remainder of Obama’s presidency. Neither side of the divide has a compelling reason to lay down.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

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Paul Krugman: The Dwindling Deficit

It’s hard to turn on your TV or read an editorial page these days without encountering someone declaring, with an air of great seriousness, that excessive spending and the resulting budget deficit is our biggest problem. Such declarations are rarely accompanied by any argument about why we should believe this; it’s supposed to be part of what everyone knows. [..]

It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy – and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, that’s already happening.

Vicki Devoli: Who Says You Can Kill Americans, Mr. President?

President Obama has refused to tell Congress or the American people why he believes the Constitution gives, or fails to deny, him the authority to secretly target and kill American citizens who he suspects are involved in terrorist activities overseas. So far he has killed three that we know of.

Presidents had never before, to our knowledge, targeted specific Americans for military strikes. There are no court decisions that tell us if he is acting lawfully. Mr. Obama tells us not to worry, though, because his lawyers say it is fine, because experts guide the decisions and because his advisers have set up a careful process to help him decide whom he should kill.

He must think we should be relieved.

On Jan 12, 2010, a devastating 7.0-magnitude earthquake struck the island nation of Haiti. The quake alone killed an over 300,000 people and left 1.5 million homeless. Ten months later a cholera epidemic broke out that has taken nearly 8,000 more lives. More than $9 billion has been donated from the public and private sectors to help rebuild. Yet three years later, there are still nearly 300,000 Haitians living in tents, the cholera epidemic is barely under control and the infrastructure is still a shambles.

‘Lack of national plan’ heightens struggle to rebuild unstable Haiti

by Mike Tran, The Guardian

Political instability, natural disasters and a cholera epidemic, plus a confused aid effort, mean there is still work for Haiti to do

For Father Kawas, who co-ordinated emergency response efforts in 2010 (video), several reasons lie behind the continued existence of tent cities where people swelter during the day and are soaked by evening rains.

But the main one is the government’s inability to acquire land from powerful families around the capital. “I think it’s difficult to rehouse these people because most of the land surrounding Port-au-Prince belongs to very powerful families and those families don’t want to give the land to the state to rehouse people. It’s a very big problem because those families are very powerful and they have many political resources so they can influence the decisions of the state.” [..]

Poverty was cited by Father Kawas as another reason why so many people remain homeless. “They don’t have enough money to rent a house, or to rebuild a house,” he says. “It is difficult for them because most of them don’t work, they have no jobs. NGOs cannot do everything. They cannot rehouse all the people in Haiti.” [..]

Haiti’s state institutions were fragile even before the earthquake and were weakened by the disaster. The Haitian government has received little in reconstruction funds as foreign governments have had little faith in its ability to handle the relief effort. That the government has yet to draw up a national reconstruction plan speaks volumes.

“The big problem for NGOs and for many actors in Haiti is the lack of a national plan for construction,” says Father Kawas. “The government speaks about that but right now, we don’t see this plan and we know that this plan is very important for the country, for the development of the country. For example, the NGOs are working separately, in isolation, and there is no co-ordination, there is no plan [from] the government, so for me it’s a real problem for the development of the country. And the international organisations do the same.”

Father Kawas acknowledges the difficulties in trying to strengthen his government, but urged aid agencies to provide training for public employees, as well as to help parliament and political parties.

“In Haiti, the public administration does not function, it’s a real problem. The government cannot put in practice its policies if the public administration does not function so it’s a real necessity for foreign governments to help the Haitian government find solutions.”

Haiti’s earthquake generated a $9bn response – where did the money go?

by Vijaya Ramachandran, The Guardian

Uncertainty about the scale and outcome of spending following Haiti tragedy highlights need for greater transparency

Saturday (Jan 12, 2010) marked the third anniversary of the tragic earthquake in Haiti that claimed between 230,000 and 300,000 lives. The grim landmark has prompted much discussion about the struggles surrounding reconstruction and also some hope about what may come next.

Most observers agree that the international response to the quake was overwhelming. Haiti received an unprecedented amount of support: more than $9bn (£5.6bn) in public and private donations. Official bilateral and multilateral donors pledged $13bn and, according to the UN Office of the Special Envoy for Haiti, almost 50% of these pledges ($6bn) have been disbursed. Private donations are estimated at $3bn.

Where has all the money gone? Three years after the quake, we do not really know how the money was spent, how many Haitians were reached, or whether the desired outcomes were achieved. In a policy paper published in May, and in a more recent blogpost, we unpacked the numbers, many of which came from the UN Office of the Special Envoy.

Three years after the devastating earthquake in Haiti, we’re joined by Jonathan Katz, author of “The Big Truck That Went By: How the World Came to Save Haiti and Left Behind a Disaster.” The earthquake on January 12, 2010, ultimately resulted in the deaths of roughly 300,000 people and left more than 1.5 million homeless in what was already the poorest country in the Western Hemisphere. A cholera epidemic, widely blamed on international U.N. troops, killed almost 8,000 people, making more than half a million sick. Today, despite pledges of billions of dollars in international aid, rebuilding has barely begun, and almost 400,000 people are still living in crowded camps. After four years of reporting in Haiti, Katz joins us to discuss where the reconstruction effort went wrong

There is hope for Haiti, despite what the critics say

There is still a long way to go.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

January 18 is the 18th day of the year in the Gregorian calendar. There are 347 days remaining until the end of the year (348 in leap years).

On this day in 1865, the United States House of Representatives passes the 13th Amendment to the Constitution, abolishing slavery in the United States. It read, “Neither slavery nor involuntary servitude…shall exist within the United States, or any place subject to their jurisdiction.”

The Thirteenth Amendment to the United States Constitution officially abolished and continues to prohibit slavery and involuntary servitude, except as punishment for a crime. It was passed by the Senate on April 8, 1864, passed by the House on January 31, 1865, and adopted on December 6, 1865. On December 18, Secretary of State William H. Seward, in a proclamation, declared it to have been adopted. It was the first of the Reconstruction Amendments.

President Lincoln was concerned that the Emancipation Proclamation, which outlawed slavery in the ten Confederate states still in rebellion in 1863, would be seen as a temporary war measure, since it was based on his war powers and did not abolish slavery in the border states.

History

The first twelve amendments were adopted within fifteen years of the Constitution’s adoption. The first ten (the Bill of Rights) were adopted in 1791, the Eleventh Amendment in 1795 and the Twelfth Amendment in 1804. When the Thirteenth Amendment was proposed there had been no new amendments adopted in more than sixty years.

During the secession crisis, but prior to the outbreak of the Civil War, the majority of slavery-related bills had protected slavery. The United States had ceased slave importation and intervened militarily against the Atlantic slave trade, but had made few proposals to abolish domestic slavery, and only a small number to abolish the domestic slave trade. Representative John Quincy Adams had made a proposal in 1839, but there were no new proposals until December 14, 1863, when a bill to support an amendment to abolish slavery throughout the entire United States was introduced by Representative James Mitchell Ashley (Republican, Ohio). This was soon followed by a similar proposal made by Representative James F. Wilson(Republican, Iowa).

Eventually the Congress and the public began to take notice and a number of additional legislative proposals were brought forward. On January 11, 1864, Senator John B. Henderson of Missouri submitted a joint resolution for a constitutional amendment abolishing slavery. The abolition of slavery had historically been associated with Republicans, but Henderson was one of the War Democrats. The Senate Judiciary Committee, chaired by Lyman Trumbull (Republican, Illinois), became involved in merging different proposals for an amendment. On February 8 of that year, another Republican, Senator Charles Sumner (Radical Republican, Massachusetts), submitted a constitutional amendment to abolish slavery as well as guarantee equality. As the number of proposals and the extent of their scope began to grow, the Senate Judiciary Committee presented the Senate with an amendment proposal combining the drafts of Ashley, Wilson and Henderson.

Originally the amendment was co-authored and sponsored by Representatives James Mitchell Ashley (Republican, Ohio) and James F. Wilson (Republican, Iowa) and Senator John B. Henderson (Democrat, Missouri).

While the Senate did pass the amendment on April 8, 1864, by a vote of 38 to 6, the House declined to do so. After it was reintroduced by Representative James Mitchell Ashley, President Lincoln took an active role in working for its passage through the House by ensuring the amendment was added to the Republican Party platform for the upcoming Presidential elections. His efforts came to fruition when the House passed the bill on January 31, 1865, by a vote of 119 to 56. The Thirteenth Amendment’s archival copy bears an apparent Presidential signature, under the usual ones of the Speaker of the House and the President of the Senate, after the words “Approved February 1, 1865”.

The Thirteenth Amendment completed the abolition of slavery, which had begun with the Emancipation Proclamation issued by President Abraham Lincoln in 1863.

Shortly after the amendment’s adoption, selective enforcement of certain laws, such as laws against vagrancy, allowed blacks to continue to be subjected to involuntary servitude in some cases.

The Thirteenth Amendment was followed by the Fourteenth Amendment (civil rights in the states), in 1868, and the Fifteenth Amendment (which bans racial voting restrictions), in 1870.