Sunday, January 22, 2012

taxes, SOPA, keystone XL, the great gatsby curve, et al, week ended Jan 21st

it was a bit of a weird week, because a number of the stories which garnered the most press & posting fell out of the purview of what i'd normally cover; namely the saber rattling with iran, the internet protest against the "stop online piracy act"(SOPA), and election year politics, & most specifically the tax situation of mitt romney, who admitted that only he paid around 15% taxes on proceeds from his vulture capital ventures, which precipitated a feeding frenzy in the left econ blogosphere as dozens of posts were produced showing how the wealthiest americans only paid a maximum of 15% tax on capital gains (paul krugman mustve had a half dozen posts on it all by himself), or less tax than those making $34,000; sadly, its all been said before, several times, in several contexts, ie, by warren buffett, who noted that his secretary was taxed at a higher rate, and by others in regards to the top 25 hedge fund earners who garnered $22.07 billion in 2010, and who by virtue of the special treatment of their earnings, paid taxes at a lower rate than the typical middle class household...anyhow, all of this rehashing did bring back an old graph of interest, which is included here to the right, showing effective tax rates for certain ranges of income, from those below $34,390, who average a 6.7% tax rate, to the 4 high bars of incomes between $74,700 and $345 million who all pay an average around 21% of their income in taxes, to the 400 richest households, who all take in more than $345,000,000 yet pay only 16.6%, less that the rest of the high brackets...

  even if you werent online wednesday, i imagine you heard something about the protest against SOPA & its senate sister PIPA, as most news outlets at least gave mention to the fact that wikipedia had shut down (you can read the Wikimedia press release here)... the two bills had their origins with the music & movie industries, who wanted to stop pirated downloading of their works...but the bill was so all inclusive that it would also hold liable not only those who copy copywritten material (like yours truly), but also website owners such as facebook & wikipedia where the public might post such material, & even anyone who linked to such a site, and also would effectively require every blog administrator to police his comment section for such material posted by anonymous outsiders...those in violation could have their IP addresses blocked, or would no longer be recognized by their domain name servers (ie, www.google.com would no longer get to google)...as a result of the protest over 100 websites shut down (list here), most linking users to a petition to be sent to congresscritters & the administration...by thursday key congressional sponsors of SOPA abandoned the bill, and at least 18 senators withdrew their support from PIPA...but dont be surprised if it comes back in another form, as most in congress still believe in possession of ideas & ownership of thoughts, and the independent power of the internet runs counter to the ongoing attempts to impose a police state in this country...

  you might recall the Treasury’s 3rd request to raise the debt ceiling, a provision of the 'debt control act', was withdrawn over the holidays to allow congress to lodge their protest votes; as a result of the delay, the borrowing limit was approached this week, which necessitated the same kind of accounting gimmickry we saw last august; on tuesday, the Treasury started dipping into federal pension funds in order pay government bills, while waiting the mandatory 15 days for congress to weigh in on the debt limit increase; even if they would attempt block it, obama could veto that, so this should be resolved by next week…in addition to the payroll tax cut, unemployment rations & the doc fix, which were only extended till february, congress will also likely be taking up roughly four dozen other temporary tax cuts that expired at the end of last year

most of you have probably also heard that the Obama administration turned down the permit to build the Keystone XL pipeline this wednesday, an action forced by the congressional attachment of a 60 day deadline on it to the year end bill which extended the payroll tax cut and unemployment insurance; although the decision is already being used politically, there was really no alternative to denying the permit at this time; approval of the original pipeline route was delayed in part because it would cross over the permeable nebraska sandhills, putting at risk the ogallala aquifer, the water source for parts of 8 states, a very real possibility since the Keystone XL's leak detection system would not register spills less than 700000 gallons per day (1.5-2% of its capacity)...there is no reason to hurry to complete this pipeline now; we've crapped up enough of this country (& the planet) already without rushing helter skelter headlong into a 1700 mile pipeline across the some of the most  sensitive landscape in the country... make no mistake, every drop of oil from the alberta tar sands will eventually be exploited, and this pipeline &/or others from alberta will be built...they will be built because all of us continue to put gas in our cars, continue to purchase food which is shipped half way across the county (if not halfway around the world), and those who exploit the oil will continue to be driven by our dependence; furthermore, the oil will be extracted because even those who protest the pipelines drive or fly to the protests in conveyances run on petroleum distillates...like it or not, civilization as we know it is dependant on oil, and the planet is running out...but i am not in the "drain america first" camp on energy policy; our future energy security is best served by leaving what oil we have in the ground...since oil will become scarcer & more difficult & expensive to extract, as long as this country can get relatively cheap oil shipped to us from overseas in exchange for our fiat currency we should do so, the oil we have within our borders is better than money in the bank, because it will only become more valuable as easy to exploit fields are depleted...

so, this decision to reject the pipeline route is already being used politically to accuse obama of costing the country jobs during a time of high employment...supposed numbers being bantered around by the right wing talkers are that the pipeline would employ range from 20,000, which was the number claimed by pipeline’s owner TransCanada, to more than 250,000 jobs claimed by the US Chamber of Commerce...putting aside the obvious contradiction voiced by those who say government spending on infrastructure doesnt create jobs but oil pipeline company spending on infrastructure does, an earlier study on jobs created by the construction of the keystone pipeline by the Cornell University Global Labor Institute (40 pp pdf) indicated there would only be between 500 and 1400 temporary construction jobs for americans, & only 50 full time long term jobs, because the other jobs would be taken by those canadians already employed by TransCanada, the company that will be building the pipeline...if we want to create jobs in energy infrastructure, we would be better served by starting the move to renewables such as wind and solar, as other wise nations are doing; belgium, germany & switzerland are building renewables & phasing out their nukes; both denmark & portugal already have significant wind power, and scotland is well on their way to being 100% renewable energy by 2020…even oil rich countries such as dubai & the arab emirates are building significant solar installations...

there were a handful of economic reports out this week worth mentioning…according to the NAR, sales of previously owned homes rose 5% in december over sales in november on a seasonally adjusted basis; the 3rd consecutive monthly gain; on the other hand, the census reported that housing starts declined 4.1% in december to 657,000, again a seasonally adjusted rate; although that’s nearly 25% above the rate of last december, we will still end 2011 with the least total new homes completed since the census started tracking completions in the '60s…industrial production rose 0.4% in december, which is a better number than apparent considering that utilities output fell 2.7% due to unusually warm weather; the same report from the Fed showed the capacity utilization rate for total industry rose to 78.1%, which means over 20% of our industrial capacity is still idle, which means tax cuts to spur investment will be just about useless…intermodal rail traffic was up 7.4% for the week, so the decline in the 1st week of january appears to have been noise…and the CPI inflation rate was virtually unchanged, as declining gas prices offset higher prices for other items…next month will likely reverse that trend, since gas prices have been rising for 4 weeks in a row, mostly due to iranian tensions…

ever since OWS & the 99% woke up the economists, there have been a plethora of posts & papers on the degree that inequality has become a problem in this country over the last three decades...this week was no exception; what garnered the most attention was a graph produced during a speech by Alan Krueger, the chairman of the obama's economic advisors, which for reasons beyond me he dubbed the great gatsby curve…what the chart shows for several countries on the horizontal axis is the Gini coefficient, a widely recognized measure of a society’s inequality, wherein 0 is complete income equality, ie, everyone is paid the same, and 1 would be a hypothetical country where one person earns all the income…the vertical axis shows a measure of intergenerational mobility, which is the relationship between one’s relative income and that of his or her parents; in this, zero means a country would have equality of opportunity; ie, the offspring of the poor can earn as much as the kids of the rich; a score of 1 means relative income of the offspring of each generation would be exactly equal to that of its parents, in other words, would have no opportunity to advance past that of its parent’s class…what krueger is showing is that not only are we the most unequal of the countries graphed, which we already knew, but that there is a correlation between inequality and intergenerational mobility, such that among the wealthier countries of the world, the US is the one which affords it’s children with the least opportunity to advance

this is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me

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