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Tuesday, November 29, 2011

Tax:  Tax Financial Transactions?

... then there's the idea of taxing financial transactions, which have exploded in recent decades. The economic value of all this trading is dubious at best. In fact, there's considerable evidence suggesting that too much trading is going on. Still, nobody is proposing a punitive tax. On the table, instead, are proposals like the one recently made by Senator Tom Harkin and Representative Peter DeFazio for a tiny fee on financial transactions.
... some countries already have financial transactions taxes — and that among those who do are Hong Kong and Singapore.

For more, see Things to Tax by Paul Krugman, November 27, 2011 at NYTimes.com.

Health:  Over Time, Even a Little Too Much Tylenol Can Kill

When it comes to acetaminophen (aka Tylenol or paracetamol), taking slightly too much for a few days may be more deadly than taking way too much all at once.
A staggered overdose was defined as an average of 4 grams per day (8 extra strength pills). Although such an overdose can even occur after one day, the average staggered overdose patient consumed a total of 24 grams.

The chemical used to treated acetaminophen poisoning, N-acetyl cysteine, is meant to protect the liver from the damage of a single overdose, and is unlikely to help patients with staggered overdoses, the researchers write. By the time these patients reach the hospital, much of the damage may already be done.

For more, see Study: Over Time, Even a Little Too Much Tylenol Can Kill by Douglas Main, November 24, 2011 at 80beats.

California:  Pension Tension

Jerry Brown has rolled out his long-awaited proposal to reform publicly financed pensions for government workers, drawing protests from Republicans and Democrats alike.
As a policy matter, paying for pensions, at least in the short term, is a relatively modest problem given the massive scale of the state's fiscal woes; retirement costs account for just 3% of Sacramento's overall budget, and the average public pension is only about $26,000 a year, despite news stories highlighting a relatively small number of outrageous abuses. As a long-term issue, however, it is far more dire; one study estimates that state and local governments face an unfunded future pension liability of as much as $500 billion in California, and retirement costs for cities, counties, and special districts, which administer thousands of plans linked to the state's, are proportionately of much greater magnitude.
... the governor proposed major reforms to restructure the system, which he said would save taxpayers more than $10 billion over the next 30 years. Key elements include:

• Raising the retirement age for most new employees to 67; public workers between 50 and 62 currently can retire with full benefits, depending on the type of work they do.

• Splitting contributions to the system 50-50 between workers and government employers; employees typically now pay a smaller share, and some pay nothing.

• Adopting a hybrid system that would require taxpayers to fund a smaller portion of pensions for new employees, with more financed by private-sector—style 401(k) investment programs.

For more, see Pension Tension by Jerry Roberts, November 3, 2011 at Santa Barbara Independent.

Friday, November 25, 2011

Taxes:  Would Doubling Taxes on the Rich Create More Jobs?

... the top tax rate has been above 70% before, and the economy averaged better than 4% growth.
There are two ways you can interpret this graph. One is that high marginal tax rates seem to create growth! That's probably wrong. Two is that high marginal tax rates coincided with, and did not constrain, years of high growth in the 1950s and 1960s. That sounds more like it.

For more, see Would Doubling Taxes on the Rich Create More Jobs? by Derek-Thompson, November 23, 2011 at The Atlantic.

International:  World Bank Issues Alert on Afghanistan Economy

Afghanistan will suffer a recession in 2014 and beyond after foreign troops leave and aid dwindles, and if the security situation gets worse, the country could face complete economic collapse, according to an ominous report released in Kabul on Tuesday by the World Bank.
Afghanistan faces a difficult decision over whether to go ahead with plans to expand its security forces to 352,000 soldiers, or to scale back to leave more room in the budget for education, health care and infrastructure. There will not be enough money for both, the World Bank report indicates.

For more, see World Bank Issues Alert on Afghanistan Economy by Alissa J. Rubin, November 22, 2011 at NYTimes.com.

Thursday, November 24, 2011

Society:  Fatalism and the American Dream

Of the five nationalities polled, Americans were least likely to believe that success in life was determined by forces outside our control.
Put another way, Americans are (not surprisingly) more likely to believe in the American dream.
These findings are particularly interesting when juxtaposed with a separate report from the Pew Economic Mobility project. That report, which examined economic and social mobility in 10 Western countries, found that Americans actually appear to have less control over their success in life than their counterparts do.

In particular, the educational attainment of a person's parents — a factor usually determined before that person's birth — seems to matter more for mobility in the United States.

“There is a stronger link between parental education and children's economic, educational and socio-emotional outcomes than in any other country investigated,” the report says.

As Richard Wilkinson suggested in a recent TED Talk, if you want to live the American dream — and have greater control over your own likelihood of success — you should probably move to Denmark, where the poor have a better chance of moving up in the world.

For more, see Fatalism and the American Dream by Catherine Rampell, November 23, 2011 at Economix.

Education:  The Wrong Inequality

in Scranton, Des Moines, Naperville, Macon, Fresno, and almost everywhere else. In these places, the crucial inequality is not between the top 1% and the bottom 99%. It's between those with a college degree and those without. Over the past several decades, the economic benefits of education have steadily risen. In 1979, the average college graduate made 38% more than the average high school graduate, according to the Fed chairman, Ben Bernanke. Now the average college graduate makes more than 75% more.

Moreover, college graduates have become good at passing down advantages to their children. If you are born with parents who are college graduates, your odds of getting through college are excellent. If you are born to high school grads, your odds are terrible.

In fact, the income differentials understate the chasm between college and high school grads. In the 1970s, high school and college grads had very similar family structures. Today, college grads are much more likely to get married, they are much less likely to get divorced and they are much, much less likely to have a child out of wedlock.

Today, college grads are much less likely to smoke than high school grads, they are less likely to be obese, they are more likely to be active in their communities, they have much more social trust, they speak many more words to their children at home.

Some research suggests that college grads have much bigger friendship networks than high school grads. The social divide is even starker than the income divide.

For more, see The Wrong Inequality by David Brooks, October 31, 2011 at NYTimes.com.

Tuesday, November 22, 2011

Diversion:  Mystical India Vacation

We just returned from this very interesting tour of northern India: Mystical India, 2011 at odysseys-unlimited.com -- with an extension to include the Pushkar Camel Fair.

Politics:  How Should I Vote in the Republican Primaries 2012?

To see which Republican candidate best matches your positions on issues, see How Should I Vote in the Republican Primaries 2012?, November 22, 2011 at The Telegraph.

Economics:  The Greek Debt Fallout

The euro zone's ongoing crisis talks have raised the specter of 60% haircuts for the Greek government's creditors. Not surprisingly, the cost of insuring Greek debt against default keeps hitting fresh highs. As of Tuesday [October 25th] afternoon, Greek credit default swap (CDS) protection stood at 5969.36 basis points, meaning that it would cost €5.97 million to insure €10 million of Greek debt for the next five years.

Because so much bank debt is bought together with insurance, many of the counterparties to Europe's Greek debt burden are American institutions. If Greece or any of Europe's other troubled sovereigns were to default on their debt obligations, the American financial sector would take a palpable hit.

According to the Bank for International Settlements, U.S. creditors own just 5% of direct exposure to Greek debt. But they are also indirectly exposed to at least 43% of such debt through CDSs, which total upwards of €25 billion. This equals about half of the European Central Bank's direct Greek exposure of €52 billion.

Meanwhile France's BNP Paribas, Groupe BPCE and Societe Generale, along with Belgium's Dexia, Germany's Commerzbank and Deutsche Bank and Dutch ING Groep, together hold more than more than €130 billion in Greek, Portuguese and Italian debt. The most exposed is France's BNP Paribas, with more than €37 billion in the troubled European countries' debt. The most exposed German institution, Commerzbank, holds more than €15 billion. More worrying still, markets have woken up to the interconnectedness of Europe's banking and sovereign-debt woes just as Europe's 90 largest banks (which this summer completed the EU's so-called stress tests) queue to roll over a total of €5.4 trillion of debt in the next two years alone.

A large write-down of Greek sovereign debt would cripple the country's banks unless they are refinanced instantly by the ECB or the European Financial Stability Facility. Along with their sovereign exposures, French banks hold up to 20% of Greek bank debt, or about €25 billion in a conservative estimate. German banks' exposure to Greek banking debt is just as high, with the state-owned Hypo Real Estate's holdings alone accounting for €8 billion, according to Barclays Capital.

As for the ECB, it would not only suffer heavy losses on its own holdings of Greek bonds in the event of a default. Having received those bonds as collateral from European banks with liquidity constraints, it might also have to call the loans and return the bonds to those banks, or ask them to make up the lost value of the collateral with cash. The banks would then need to find almost €330 billion in cash to pay back the ECB or compensate it for the losses brought about by the collateral default. The ECB might even invite questions as to its own solvency, though which European government would be ready and willing to recapitalize it is an open question.

Loud and persistent voices have recently called for the creation of a European TARP. Simply put, the idea is that European banks on the verge of collapse would be buying bonds from a special government-funded vehicle that is itself stocked full of bonds issued by some of those same insolvent European governments. The banks will then use these bonds as collateral to borrow money from the ECB, which is underwritten by European governments. The ECB would end up holding the loans to undercapitalized and almost insolvent banks, as well as bonds backed by debt issued by insolvent countries as collateral. Is it any wonder the ECB has resisted Greek haircuts for so long?

It's become fashionable to compare Greece and the CDS-swamped euro crisis to the Lehman Brothers meltdown. Given the true scale of the problem though, it's hard not to worry that Europe's crash, and the ripple effects around the globe, could be even worse.

For more, see The Greek Debt Fallout by Athanasios T. Ladopoulos, October 26, 2011 at WSJ.com.