Wednesday
Oct012014

Most read Realitybase posts in September 2014

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all-out war with Iran by accident.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken. Obviously, it is the latter.

John Maynard Keynes argued in 1933 that globalization had been oversold. A doctrinaire free trader in 1923, in April 1933 Keynes gave a formal lecture, National Self-Sufficiency, to acknowledge that, while economic internationalization has important benefits, it also has important costs, and he makes a case for relatively more self-sufficiency. "National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford, if we happen to want it." He discusses the reasons why we may want it, including the suggestion that, contrary to the assumption just before the start of WWI, when economic globalization was at its highest point ever, peace may be easier to keep if national economies are not highly integrated.  Includes a long quotation from the lecture.

Sunday
Aug312014

Most read Realitybase posts in August 2014

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all-out war with Iran by accident.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

Paul Krugman didn't always have the "Conscience of a Liberal." Describing Krugman's evolution from enthusiastic free trader and conservative economist in the Reagan Administration to self-described liberal. By 2010 he had come to this: "Major growth effects from trade policy, if they exist, must come from unconventional channels.  Conventional trade theory DOES NOT justify claims of huge positive payoffs from free trade. In the politics of trade policy, distributional effects can easily swamp concerns about efficiency."

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken. Obviously, it is the latter.

Thursday
Jul312014

Most read Realitybase posts in July 2014

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken. Obviously, it is the latter.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all-out war with Iran by accident.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

Paul Krugman didn't always have the "Conscience of a Liberal." Describing Krugman's evolution from enthusiastic free trader and conservative economist in the Reagan Administration to self-described liberal. By 2010 he had come to this: "Major growth effects from trade policy, if they exist, must come from unconventional channels.  Conventional trade theory DOES NOT justify claims of huge positive payoffs from free trade. In the politics of trade policy, distributional effects can easily swamp concerns about efficiency."

Wednesday
Jul022014

Most read Realitybase posts in June 2014

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all-out war with Iran by accident.

What will the new economy look like? And when will it be here? The Great Recession officially ended in June 2009 but we didn't know that when this was written in July 2009. Relying on several experts and the data, there did not seem to any good reason to expect a recovery to pre-recession prosperity soon—or ever. (Five years later we are still waiting.)

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

Saturday
May312014

Most read Realitybase posts in May 2014

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all-out war with Iran by accident.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

John Maynard Keynes argued in 1933 that globalization had been oversold. A doctrinaire free trader in 1923, in April 1933 Keynes gave a formal lecture, National Self-Sufficiency, to acknowledge that, while economic internationalization has important benefits, it also has important costs, and he makes a case for relatively more self-sufficiency. "National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford, if we happen to want it." He discusses the reasons why we may want it, including the suggestion that, contrary to the assumption just before the start of WWI, when economic globalization was at its highest point ever, peace may be easier to keep if national economies are not highly integrated.  Includes a long quotation from the lecture.

The US trade deficit is tribute paid to foreigners. And it's big. Nobel laureates Paul Samuelson, Joseph Stiglitz, and Paul Krugman and other prominent economists including Dani Rodrik, Alan Blinder, Martin Wolf, Larry Summers, Dean Baker, and even Alan Greenspan have said that the US middle class is net worse off as a result of persistent trade deficits averaging 3% of GDP.

Tuesday
May062014

Most read Realitybase posts in April 2014

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all-out war with Iran by accident.

John Maynard Keynes argued in 1933 that globalization had been oversold. A doctrinaire free trader in 1923, in April 1933 Keynes gave a formal lecture, National Self-Sufficiency, to acknowledge that, while economic internationalization has important benefits, it also has important costs, and he makes a case for relatively more self-sufficiency. "National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford, if we happen to want it." He discusses the reasons why we may want it, including the suggestion that, contrary to the assumption just before the start of WWI, when economic globalization was at its highest point ever, peace may be easier to keep if national economies are not highly integrated.  Includes a long quotation from the lecture.

US health care efficiency did not go off the rails until about 30 years ago. Updates to this post show that the rate of increase in US life expectancy at birth, especially for females, abruptly slowed in 1982 and that this was apparently unrelated to healthcare spending which continued rising at a very steady rate.

Wednesday
Apr022014

Most read Realitybase posts in March 2014

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

How mortgage backed securities increased systemic risk The securitization of mortgages and other debt obligations gives senior tranche holders less risk of individual defaults, but increases the risk to a general economic downturn. The increase in systemic risk was not generally appreciated but is demonstrated by Coval, Jurek, and Stafford in The Economics of Structured Finance. The paper contains exceptionally lucid descriptions of how structured finance works and uses simple examples to demonstrate the sources and magnitudes of systemic risks. This post is my summary of the paper. 

Obama's Legacy—If Any Just before Obama's second inauguration, I examined pundits' lists of first term accomplishments and concluded, "If Obama is going to be remembered as other than a seat-filler, it's going to have to be for something he does in his second term."

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

We don't need a stimulus package—just more tax cuts for the well off—say 36 Republican Senators. When the fate of the stimulus bill was on the line in February 2009, 36 Republican Senators and nobody else voted for an amendment to strike out the entire contents and substitute nothing but permanent tax reductions benefitting high income individuals and corporations.

Will we bring back manufacturing or outsource innovation too? Business leaders and economists agree that innovation needs to be collocated with manufacturing and that good American R&D jobs and most of the benefits of innovation are increasingly moving to Asia. I updated this post with supporting material many times, mostly in early 2010.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

US health care efficiency did not go off the rails until about 30 years ago. Updates to this post show that the rate of increase in US life expectancy at birth, especially for females, abruptly slowed in 1982 and that this was apparently unrelated to healthcare spending which continued rising at a very steady rate.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all-out war with Iran by accident.

Consensus, the ultimate dog's breakfast. In praise of just enough votes. Arguing that supermajority requirements and efforts to achieve bipartisan support for legislation tend to make the results worse, not better, in a legislature where there is little or no ideological overlap between the parties. Obamacare is an example where many diluting, counterproductive, and complicating concessions were made to Republicans but no Republican votes were received in exchange.

Friday
Mar072014

Most read Realitybase posts in February 2014

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

How mortgage backed securities increased systemic risk The securitization of mortgages and other debt obligations gives senior tranche holders less risk of individual defaults, but increases the risk to a general economic downturn. The increase in systemic risk was not generally appreciated but is demonstrated by Coval, Jurek, and Stafford in The Economics of Structured Finance. The paper contains exceptionally lucid descriptions of how structured finance works and uses simple examples to demonstrate the sources and magnitudes of systemic risks. This post is my summary of the paper. 

Obama's Legacy—If Any Just before Obama's second inauguration, I examined pundits' lists of first term accomplishments and concluded, "If Obama is going to be remembered as other than a seat-filler, it's going to have to be for something he does in his second term."

The other American Dream of rising incomes—Horatio Alger stories  One of my earliest and longest inquiries into upward socioeconomic mobility in America. The rate of upward mobility has been declining since 1980, and Horatio Alger stories are now more likely to occur in Denmark, Norway, Finland, Canada, Australia, and other advanced nations than in the US.

We don't need a stimulus package—just more tax cuts for the well off—say 36 Republican Senators. When the fate of the stimulus bill was on the line in February 2009, 36 Republican Senators and nobody else voted for an amendment to strike out the entire contents and substitute nothing but permanent tax reductions benefitting high income individuals and corporations.

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

Will we bring back manufacturing or outsource innovation too? Business leaders and economists agree that innovation needs to be collocated with manufacturing and that good American R&D jobs and most of the benefits of innovation are increasingly moving to Asia. I updated this post with supporting material many times, mostly in early 2010.

US health care efficiency did not go off the rails until about 30 years ago. Updates to this post show that the rate of increase in US life expectancy at birth, especially for females, abruptly slowed in 1982 and that this was apparently unrelated to healthcare spending which continued rising at a very steady rate.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

In reporting about a rigorous statistical analysis showing different rates of intergenerational income mobility, NYT leads with stuff they just made up. The article bungles the reporting of a significant new study by saying that commuting difficulties were found to cause reduced intergenerational income mobility. The study does not say anything like that, as the author (David Leonhardt) clarifies in a blog post pointing out a striking similarity between the map of immobility and the map of race. The Executive Summary of the study is quoted in my post.

Thursday
Feb132014

Most read Realitybase posts in January 2014

The other American Dream of rising incomes—Horatio Alger stories  One of my earliest and longest inquiries into upward socioeconomic mobility in America. The rate of upward mobility has been declining since 1980, and Horatio Alger stories are now more likely to occur in Denmark, Norway, Finland, Canada, Australia, and other advanced nations than in the US.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

What's killing American females? A recent study shows that Americans rank last in life expectancy in a group of 21 high-income countries, that American females are falling behind much faster than American males, and that Americans rank near the bottom in almost all causes of death. Several charts.

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

US health care efficiency did not go off the rails until about 30 years ago. Updates to this post show that the rate of increase in US life expectancy at birth, especially for females, abruptly slowed in 1982 and that this was apparently unrelated to healthcare spending which continued rising at a very steady rate.

We don’t have a Social Security problem; we have an unemployment problem. But for chronic unemployment, there would be no Social Security problem.  We should not raise the SS retirement age because that would increase youth unemployment. The current COLA formula is already unfair to seniors and the proposed change would make it more so.

How mortgage backed securities increased systemic risk The securitization of mortgages and other debt obligations gives senior tranche holders less risk of individual defaults, but increases the risk to a general economic downturn. The increase in systemic risk was not generally appreciated but is demonstrated by Coval, Jurek, and Stafford in The Economics of Structured Finance. The paper contains exceptionally lucid descriptions of how structured finance works and uses simple examples to demonstrate the sources and magnitudes of systemic risks. This post is my summary of the paper. 

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

Offshoring manufacturing was a critical strategic blunder by the US.  When manufacturing is offshored, related technical talent, R&D spending, and innovative success tend to go with it, according to experts at GE, MIT, and Harvard Business School.  Links to more extensive Realitybase posts and other authorities on this theme.

Thursday
Jan022014

Most read Realitybase posts in December 2013

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The other American Dream of rising incomes—Horatio Alger stories  One of my earliest and longest inquiries into upward socioeconomic mobility in America. The rate of upward mobility has been declining since 1980, and Horatio Alger stories are now more likely to occur in Denmark, Norway, Finland, Canada, Australia, and other advanced nations than in the US.

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

Americans have more than enough education to fill 21st Century jobs. A chart shows that only the 3% of workers with Ph.D.s and professional degrees had increasing earnings, while earnings of those with masters and bachelors degrees or some college declined even more than the earnings of those with high school only. The fact of falling earnings is inconsistent with the claim that there is a shortage of college-educated workers.

How mortgage backed securities increased systemic risk The securitization of mortgages and other debt obligations gives senior tranche holders less risk of individual defaults, but increases the risk to a general economic downturn. The increase in systemic risk was not generally appreciated but is demonstrated by Coval, Jurek, and Stafford in The Economics of Structured Finance. The paper contains exceptionally lucid descriptions of how structured finance works and uses simple examples to demonstrate the sources and magnitudes of systemic risks. This post is my summary of the paper. 

Obama's Legacy—If Any Just before Obama's second inauguration, I examined pundits' lists of first term accomplishments and concluded, "If Obama is going to be remembered as other than a seat-filler, it's going to have to be for something he does in his second term."

In reporting about a rigorous statistical analysis showing different rates of intergenerational income mobility, NYT leads with stuff they just made up. The article bungles the reporting of a significant new study by saying that commuting difficulties were found to cause reduced intergenerational income mobility. The study does not say anything like that, as the author (David Leonhardt) clarifies in a blog post pointing out a striking similarity between the map of immobility and the map of race. The Executive Summary of the study is quoted in my post.

Wages for college graduates in the cross hairs of US business. How US employers are driving down domestic wages by offshoring, importing guest workers, and deliberately creating an oversupply of American college grads.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

What's killing American females? A recent study shows that Americans rank last in life expectancy in a group of 21 high-income countries, that American females are falling behind much faster than American males, and that Americans rank near the bottom in almost all causes of death. Several charts.

Saturday
Nov302013

Most read Realitybase posts in November 2013

In reporting about a rigorous statistical analysis showing different rates of intergenerational income mobility, NYT leads with stuff they just made up. The article bungles the reporting of a significant new study by saying that commuting difficulties were found to cause reduced intergenerational income mobility. The study does not say anything like that, as the author (David Leonhardt) clarifies in a blog post pointing out a striking similarity between the map of immobility and the map of race. The Executive Summary of the study is quoted in my post.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The other American Dream of rising incomes—Horatio Alger stories  One of my earliest and longest inquiries into upward socioeconomic mobility in America. The rate of upward mobility has been declining since 1980, and Horatio Alger stories are now more likely to occur in Denmark, Norway, Finland, Canada, Australia, and other advanced nations than in the US.

How mortgage backed securities increased systemic risk The securitization of mortgages and other debt obligations gives senior tranche holders less risk of individual defaults, but increases the risk to a general economic downturn. The increase in systemic risk was not generally appreciated but is demonstrated by Coval, Jurek, and Stafford in The Economics of Structured Finance. The paper contains exceptionally lucid descriptions of how structured finance works and uses simple examples to demonstrate the sources and magnitudes of systemic risks. This post is my summary of the paper. 

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Wages for college graduates in the cross hairs of US business. How US employers are driving down domestic wages by offshoring, importing guest workers, and deliberately creating an oversupply of American college grads.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken.

Americans have more than enough education to fill 21st Century jobs. A chart shows that only the 3% of workers with Ph.D.s and professional degrees had increasing earnings, while earnings of those with masters and bachelors degrees or some college declined even more than the earnings of those with high school only. The fact of falling earnings is inconsistent with the claim that there is a shortage of college-educated workers.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

Thursday
Oct312013

Most read Realitybase posts in October 2013

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The other American Dream of rising incomes—Horatio Alger stories  One of my earliest and longest inquiries into upward socioeconomic mobility in America. The rate of upward mobility has been declining since 1980, and Horatio Alger stories are now more likely to occur in Denmark, Norway, Finland, Canada, Australia, and other advanced nations than in the US.

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

In reporting about a rigorous statistical analysis showing different rates of intergenerational income mobility, NYT leads with stuff they just made up. The article bungles the reporting of a significant new study by saying that commuting difficulties were found to cause reduced intergenerational income mobility. The study does not say anything like that, as the author (David Leonhardt) clarifies in a blog post pointing out a striking similarity between the map of immobility and the map of race. The Executive Summary of the study is quoted in my post.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken.

How mortgage backed securities increased systemic risk The securitization of mortgages and other debt obligations gives senior tranche holders less risk of individual defaults, but increases the risk to a general economic downturn. The increase in systemic risk was not generally appreciated but is demonstrated by Coval, Jurek, and Stafford in The Economics of Structured Finance. The paper contains exceptionally lucid descriptions of how structured finance works and uses simple examples to demonstrate the sources and magnitudes of systemic risks. This post is my summary of the paper. 

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

America's foreign trade agreements have not only been bad for jobs and deficits but have actually been bad for trade as well. US trade deficits have worsened by 440% with FTA countries while improving 7% with non-FTA countries. US exports to FTA partners have increased more slowly than have exports to non-FTA partners. Quoting a deputy US trade representative telling Koreans they should expect their trade surpluses to go up after the Korean FTA, which has happened. I name several goals that are more important to US trade negotiators than "trade." Links to data.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

Sunday
Oct062013

Most read Realitybase posts in September 2013

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The other American Dream of rising incomes—Horatio Alger stories  One of my earliest and longest inquiries into upward socioeconomic mobility in America. The rate of upward mobility has been declining since 1980, and Horatio Alger stories are now more likely to occur in Denmark, Norway, Finland, Canada, Australia, and other advanced nations than in the US.

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

"Only the little people pay taxes." Strictly domestic US companies pay federal tax rates of about 35% but because of tax code loopholes multi-national corporations pay very low, and sometimes zero or negative, effective rates. Links to data.

In reporting about a rigorous statistical analysis showing different rates of intergenerational income mobility, NYT leads with stuff they just made up. The article bungles the reporting of a significant new study by saying that commuting difficulties were found to cause reduced intergenerational income mobility. The study does not say anything like that, as the author (David Leonhardt) clarifies in a blog post pointing out a striking similarity between the map of immobility and the map of race. The Executive Summary of the study is quoted in my post.

What's killing American females? A recent study shows that Americans rank last in life expectancy in a group of 21 high-income countries, that American females are falling behind much faster than American males, and that Americans rank near the bottom in almost all causes of death. Several charts.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

How mortgage backed securities increased systemic risk The securitization of mortgages and other debt obligations gives senior tranche holders less risk of individual defaults, but increases their risk to a general economic downturn. The increase in systemic risk was not generally appreciated but is demonstrated by Coval, Jurek, and Stafford in The Economics of Structured Finance. The paper contains exceptionally lucid descriptions of how structured finance works and uses simple examples to demonstrate the sources and magnitudes of systemic risks. This post is my summary of the paper. 

Wages for college graduates in the cross hairs of US business. How US employers are driving down domestic wages by offshoring, importing guest workers, and deliberately creating an oversupply of American college grads.

America's foreign trade agreements have not only been bad for jobs and deficits but have actually been bad for trade as well. US trade deficits have worsened by 440% with FTA countries while improving 7% with non-FTA countries. US exports to FTA partners have increased more slowly than have exports to non-FTA partners. Quoting a deputy US trade representative telling Koreans they should expect their trade surpluses to go up after the Korean FTA, which has happened. I name several goals that are more important to US trade negotiators than "trade." Links to data.

Monday
Sep162013

America’s foreign trade agreements have not only been bad for jobs and deficits but have actually been bad for trade as well.  

If you think foreign trade agreements ("FTAs") have been improving America's position in the international trade of goods and services and that we should continue entering into similar FTAs including the pending Trans-Pacific Partnership, here's an opportunity to compare those beliefs with what has actually happened under FTAs.

US exports to non-FTA partners as a group have increased faster than have exports to FTA partners as a group. Yes, that's right. Read it again: US exports to non-FTA partners as a group have increased faster than have exports to FTA partners as a group. Figures here. We've been repeatedly promised that each new FTA will increase US exports, but the actual FTAs we have entered into have slowed the growth of exports. This implies that US trade negotiators may be bad at their jobs, but the reality is that—despite the empty promises—improving the US balance of trade has not been a priority for our (Democrat and Republican) Presidents and their negotiators. Here is how Deputy U.S. Trade Representative Karan Bahtia encouraged a South Korean audience to embrace KORUS FTA negotiations:

Myth #1: The U.S. will get the bulk of the benefits of the FTA

If history is any judge, it may well not turn out to be true that the U.S. will get the bulk of the benefits, if measured by increased exports. From Chile to Singapore to Mexico, the history of our FTAs is that bilateral trade surpluses of our trading partners go up.

Our most recent FTA, with Korea, has resulted in above-baseline imports and below-baseline exports in every one of the 16 months it has been in effect. Graphs here.

The US trade deficit has gotten substantially worse with FTA partners as a group while improving modestly with non-FTA partners. Figures here. Again, getting US international trade into balance has not been a priority for our negotiators. The US has had a trade deficit every year since 1975, and the average deficit has been about 3% of GDP, which is roughly as large as the average federal budget deficit over the same time period.

By 2012, NAFTA alone had eliminated approximately 1.0 million more US jobs than it created. This is based on the Commerce Department estimate that it takes $165,000 in net exports to support one domestic job and the fact that the annual trade deficit between the US and Canada/Mexico increased by $160.2 billion annually from the beginning of the North American Free Trade Agreement to 2012.

We could increase US domestic employment by approximately 3.2 million jobs simply by bringing foreign trade into balance. The US trade deficit in 2012 was $534.7 billion. Dividing by the Commerce Department's estimate of $165,000 of net exports per job gives 3.2 million jobs at stake. To put that in context, America needs to create about 8.3 million new full-time jobs and to upgrade an additional 8.3 million part-time jobs to full-time.

US foreign trade agreements are not really about "trade." The US has a long history of making bad "trade" deals in order to get what it really wants on other matters. What are these more important matters for which the US routinely sacrifices domestic jobs and incurs imprudent levels of foreign debt? The list is long, but these seem to be the most important: Free international movements of capital, opening other nations up to US banks, supra-national legal protections for cross-border investments, enhanced protection of intellectual property, and promotion of e-commerce. To this list, we should add geopolitical considerations, i.e., strengthening the US's political and military influence abroad. All of those have been more important than growing the US economy through balanced trade and having full employment in America.

Hat tip to Ben Beachy for passing on research from Public Citizen's Eyes on Trade blog.

Monday
Sep022013

Most read Realitybase posts in August 2013

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post)  Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all out war with Iran by accident.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

In reporting about a rigorous statistical analysis showing different rates of intergenerational income mobility, NYT leads with stuff they just made up. The article bungles the reporting of a significant new study by saying that commuting difficulties were found to cause reduced intergenerational income mobility. The study does not say anything like that, as the author (David Leonhardt) clarifies in a blog post pointing out a striking similarity between the map of immobility and the map of race. The Executive Summary of the study is quoted in my post.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

What's killing American females? A recent study shows that Americans rank last in life expectancy in a group of 21 high-income countries, that American females are falling behind much faster than American males, and that Americans rank near the bottom in almost all causes of death. Several charts.

How mortgage backed securities increased systemic risk The securitization of mortgages and other debt obligations gives senior tranche holders less risk of individual defaults, but increases the risk to a general economic downturn. The increase in systemic risk was not generally appreciated but is demonstrated by Coval, Jurek, and Stafford in The Economics of Structured Finance. The paper contains exceptionally lucid descriptions of how structured finance works and uses simple examples to demonstrate the sources and magnitudes of systemic risks. This post is my summary of the paper. 

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

Thursday
Aug012013

Most read Realitybase posts in July 2013

While Some Cities Conquer Economic Issues with High Tech Masters Programs, Others Struggle. (Guest Post) Education researcher Bree Hernandez says there is projected to be good jobs growth for STEM graduates but these jobs are destined to be concentrated geographically. She suggests that low-tech communities can improve their chances of becoming technology hubs by establishing STEM programs in local colleges and universities.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

US health care efficiency did not go off the rails until about 30 years ago. Updates to this post show that the rate of increase in US life expectancy at birth, especially for females, abruptly slowed in 1982 and that this was apparently unrelated to healthcare spending which continued rising at a very steady rate.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

What's killing American females? A recent study shows that Americans rank last in life expectancy in a group of 21 high-income countries, that American females are falling behind much faster than American males, and that Americans rank near the bottom in almost all causes of death. Several charts.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

How mortgage backed securities increased systemic risk The securitization of mortgages and other debt obligations gives senior tranche holders less risk of individual defaults, but increases the risk to a general economic downturn. The increase in systemic risk was not generally appreciated but is demonstrated by Coval, Jurek, and Stafford in The Economics of Structured Finance. The paper contains exceptionally lucid descriptions of how structured finance works and uses simple examples to demonstrate the sources and magnitudes of systemic risks. This post is my summary of the paper. 

H-1b, the "Outsourcing Visa" How H-1b and L-1 visas are being used and abused by US employers to outsource millions of high-tech jobs and to bring in low-wage indentured servants to fill jobs vacated by firing high-wage citizen incumbents.

The other American Dream of rising incomes—Horatio Alger stories One of my earliest and perhaps my longest inquiry into upward socioeconomic mobility in America. Spoiler alert: The rate of upward mobility has been declining since 1980, and Horatio Alger stories are now more likely to occur in Denmark, Norway, Finland, Canada, Australia, and other advanced nations than in the US.

Monday
Jul222013

In reporting about a rigorous statistical analysis showing different rates of intergenerational income mobility, NYT leads with stuff they just made up.

Today's NYT top-right front page story, Geography Seen as Barrier to Climbing Class Ladder, devotes a lot of space including a graphic based on the following map to a new study, The Economic Impacts of Tax Expenditures Evidence from Spatial Variation Across the U.S. by some pretty eminent young economists at Harvard and Berkeley.

The graphics and the paper show there were indeed substantial differences in intergenerational income mobility between 1980-81 and 2010-11 depending on where the younger generation lived at age 16, i.e., in 1996-97. The story leads with an anecdote about the long commute of a part-time worker in Atlanta and says "this geography appears to play a major role in making Atlanta one of the metropolitan areas where it is most difficult for lower-income households to rise into middle class and beyond according to a new study that other researchers are calling the most detailed yet of income mobility in the United States." But that is just plain wrong—the study doesn't say anything remotely like that and the researchers apparently did not even look at commuting distances, mass transit availability, or other geography issues. These are their key findings in the Executive Summary:

We find substantial variation in mobility across areas. Our measures of mobility are not significantly affected by accounting for differences in cost-of-living. We do find higher rates of upward income mobility in areas with high rates of economic growth over the past decade, but the vast majority of the difference in mobility across areas is unrelated to economic growth. Hence, we believe our statistics provide a reasonably accurate picture of prospects for upward mobility across areas for children raised in the 1980's and 1990's.

Using the statistics we constructed, we turned to the question of whether the differences across areas in relative and absolute mobility are driven by tax expenditures. We found a significant correlation between both measures of mobility and local tax rates – which are tax expenditures for the federal government because they are deductible from federal income taxes. We found a weaker correlation between state EITC policies and rates of intergenerational mobility.

Although tax policies may account for some of the variation in outcomes across areas, much variation remained to be explained. To understand what is driving this variation and better isolate the effects of the tax expenditures themselves, we considered other sets of factors that have been proposed in prior work. Here, we found significant correlations between intergenerational mobility and income inequality, economic and racial residential segregation, measures of K-12 school quality (such as test scores and high school dropout rates), social capital indices, and measures of family structure (such as the fraction of single parents in an area). Each of these correlations remained strong even after controlling for measures of tax expenditures. Likewise, local tax policies remain correlated with mobility after controlling for these other factors.

We caution that all of the findings in this study are correlational and cannot be interpreted as causal effects. For instance, areas with high rates of segregation may also have other differences that could be the root cause driving the differences in children's outcomes. What is clear from this research is that there is substantial variation in the United States in the prospects for escaping poverty. There are some areas in the U.S. where a child's chances of success do not depend heavily on his or her parents' income. Understanding the features of these areas – and how we can improve mobility in areas that currently have lower rates of mobility – is an important question for future research that we and other social scientists are exploring. To facilitate this ongoing research, we have posted the mobility statistics by area and the other correlates used in the study on our website.

Regrettably, several in the economics blogosphere are taking seriously the NYT invention that commuting distances are the main cause of low intergenerational income mobility.  The study itself is worthy and no doubt advances our understanding of some of the actual causes, but the NYT story is a distraction. 

Tuesday
Jul092013

Most read Realitybase posts in June 2013

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The minimum medical loss ratio provision in the healthcare bills will raise healthcare prices. Doing the arithmetic to show the perverse incentive this Obamacare provision gives insurers to allow medical costs to go up in order to increase insurer profits.

What's killing American females? A recent study shows that Americans rank last in life expectancy in a group of 21 high-income countries, that American females are falling behind much faster than American males, and that Americans rank near the bottom in almost all causes of death. Several charts.

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

The Recession Is Coming! The Recession Is Coming! (Republished with corrected chart.) December 2007 post with charts showing America's middle class had already been in recession for 7 years and asking if we really care about them.

Wages for college graduates in the cross hairs of US business. How US employers are driving down domestic wages by offshoring, importing guest workers, and deliberately creating an oversupply of American college grads.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

The Copenhagen meeting on global climate change failed in part because economists' blather about "efficiency" distracts from the real issues. This is a detailed analysis of the effects that imposing a single price on all CO2 emissions would have on coal, natural gas, and petroleum. For example, a price of $80/ton would increase the price of coal by a factor of more than 7 and would substantially end the use of coal while increasing the use of natural gas and even petroleum. The same carbon price would increase the price of gasoline only 80 cents per gallon and would be a negligible inducement to reduce consumption because 80 cents/gallon is not a lot of money for drivers of cars are that are becoming very fuel efficient because of CAFÉ standards. The real issue is that valuable reserves of fossil fuels must be left in the ground, and nobody knows how to do that politically.

Monday
Jun102013

Most read Realitybase posts in May 2013

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying global competitiveness of American business, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency; and proposing a solution.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

Wages for college graduates in the cross hairs of US business. How US employers are driving down domestic wages by offshoring, importing guest workers, and deliberately creating an oversupply of American college grads.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

What's killing American females? A recent study shows that Americans rank last in life expectancy in a group of 21 high-income countries, that American females are falling behind much faster than American males, and that Americans rank near the bottom in almost all causes of death. Several charts.

Executives inflate their own compensation with stock repurchase programs.How corporations drive up stock prices by buying back stock instead of investing in the business, triggering a Warren Buffett rant quoted here.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken.

Friday
May172013

Would it be a scandal if the IRS had approved all those Tea Party applications for tax exempt status?

Everybody including President Obama, Congress, and the chattering class seem to agree that it was a scandal that IRS bureaucrats slow-walked applications by Tea Party groups for tax exempt status under Internal Revenue Code Section 501(c)(4).  The acting commissioner of the IRS has been fired, and John Boehner wants to know who is going to jail, but is there really a scandal here and if so what exactly is it?  Suppose eminently fair-minded and smart people—like you and me, for example—were running that IRS bureaucracy in Cincinnati.  What would we have done with the numerous applications from new Tea Party groups? 

Section 501(c)(4) of the Internal Revenue Code allows tax exempt status for “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare . . . .”  IRS regulations, rulings, and court decisions summarized here have developed a body of law about what kinds of political activities are permitted and what kinds are not.  The IRS regulations give examples including this one:

Example (2) Organization B conducts research, seminars, forums, and other educational programs for the public on issues of public concern. It also engages in substantial lobbying activities. Its activities are under the direction of a Board of Directors whose members were appointed by the national committee of a major political party. It selects issues to study based on the needs of the party, and receives substantial financial support from the party. B's activities are not primarily "educational," given their partisan nature; accordingly, it does not qualify for exemption under IRC 501(c)(4). 

So here we are, you and I, having responsibility for processing exemption applications and it is reported to us that our processing unit is receiving a large number of applications from organizations that have the word “party” in their names and/or describe political activities as amongst their purposes.  Uh oh, there’s an even more delicate problem:  Most of those applications are coming from organizations with “Tea Party” in the name, such as Georgia Tea Party for a Free America.  We know, because we do read the mainstream media, that there is a nationwide Tea Party movement that works on tax issues, health care, and other public issues, that it is generally hostile to government and especially to the IRS, and that at least some parts of it are partisan in that they select, fund, campaign for, and ultimately elect their preferred candidates for public office.  Indeed, there is a “Tea Party Caucus” of several dozen Republican Members of Congress. 

Staff have requested guidance. What are we going to tell them?  Well there are some things we know for sure, aren’t there?  We know we can’t approve applications from organizations with names like Santa Monica Democratic Club or Peace and Freedom Party of Los Angeles County or California Republican Warriors without some very careful scrutiny because the faces of all those applications scream at us that their primary purpose is to influence partisan elections.  In fact, it could be a major scandal if we approved any of those applications--even if the files contained solid evidence that the names of the organizations were completely misleading, couldn’t it? 

What are our options?  We can agree, can’t we, that we cannot favor, or appear to favor, any one political party or ideology, but that we are legally obliged to deny tax exempt status to any group that engages in partisan political activities and to grant tax exempt status to groups that do qualify?  Clearly, our directive to staff should apply to all applications that use the word “party” in the organization name and/or that state that one of the purposes is to select, fund, or support political candidates because our directive must apply even-handedly to liberal and conservative groups alike.  But the harder question is how to direct staff to handle such applications? 

We could direct that they all be approved.  However, it seems clear that some of these organizations are not entitled to exemption under Section 501(c)(4), and we would face a public scandal and disciplinary action if we approve them despite the obviousness of their disqualifying partisan purposes. 

We could deny all applications that lack clear evidence that they are non-partisan despite their names.  Those denied can appeal, and the final decisions will become somebody else’s problem.  Of course, instead of or in addition to appealing, they may go public and try to embarrass and influence us by creating a public sense of scandal. 

We could process each application, with enhanced questioning and scrutiny, and issue timely decisions to the applicants even though staff will have great difficulty articulating solid distinctions between those that are approved and those that are denied.  Staff will hate doing this because they think these tough decisions are above their pay grade.  They are reasonable to think that, are they not? 

We could keep requesting more information until we run out of questions to ask and then, if necessary, defer decisions until somebody above our pay grade makes a policy decision. 

Is there any other option?  What do you think we should do?  I’m counting on you to get this right. 

If these questions seem difficult, try these:  What policy directives should be issued by the new IRS management that has just taken over this week?  Should it approve all the Tea Party exemption applications?  None of them?  Flip coins?  Instruct front-line reviewers to clear the backlog of decision-making within 30 days applying only existing published guidelines?  Form a team of more senior reviewers to make individual decisions on each of the Tea Party applications?  If so, what guidance will they have that the front-line reviewers haven’t had?  Should the new acting commissioner personally review all these decisions?