Links New Year’s Day!

Sydney New Year’s Eve 2009 Sydney Morning Herald (hat tip Crocodile Çhuck). They mean 2010, but the article title is 2009, go figure. Fireworks are part of Sydney’s branding, and this year was another spectacular display.

In memory of Sam Guardian (hat tip reader John C)

Tasmanian devil facial cancer origins ‘identified‘ BBC

The Twelve Most Tarnished Brands in Tech Technologizer

Which states are facing the worst budget deficits in 2010? Christian Science Monitor (hat tip reader Michael T)

More ammo for the bazooka Rolfe Winkler

China Property Bubble May Lead to US-Style Real Estate Slump Bloomberg (hat tip Jim Chanos)

Harsh lessons we may need to learn again Joseph E. Stiglitz , China Daily (hat tip reader Eric P)

“Is Our Tax System Helping Us Create Wealth?” Economist’s View

Economix: Lessons Learned but Not Applied Simon Johnson (hat tip reader Don B).

Antidote du jour:

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  1. gordon

    I found it interesting that the discussion thread for David Cay Johnston’s piece “Is Our Tax System Helping Us Create Wealth?” devolved into an argument about social mobility in the US. This was because Johnston used contrasts between the tax outcomes over time for the top and the bottom of the income scale to make his point. Obviously, the old argument “Sure, we have big social inequality, but it doesn’t matter because social mobility means that talent can rise to the top no matter where it starts from” is still alive and kicking.

    I have never been impressed by this argument. First, it demonstrates a degree of indifference to poverty which could be expressed only by a monster or an economist.

    But second, and maybe more dangerously, it is a subtle invitation to a dangerously circular argument. That is, if there is social mobility then those at the top have the most talent because they are at the top. We have recently seen how little talent those at the top of Wall St. possess, but the social mobility argument would justify their remaining at the top because, of course, there are no more talented people below them. There couldn’t be, because of social mobility…

  2. CrocodileChuck

    Ou est le deuxieme installment des ‘Antidotes du Jour’?? (a la promesse de 31 decembre)

  3. fresno dan

    Economix: Lessons Learned but Not Applied Simon Johnson
    “Prompt action needs to be taken to maintain financial stability, by moving quickly to support healthy institutions. The loss of confidence in the financial system and episodes of bank panics were not caused by early and necessary interventions in insolvent institutions. Rather, these problems were exacerbated by (a) a delay in intervening to address the problems of mounting nonperforming loans; (b) implicit bailout guarantees that led to an attempt to “gamble for redemption”; (c) a system of implicit, rather than explicit and incentive-compatible, deposit guarantees at a time when there was not a credible amount of fiscal resources available to back such guarantees; and (d) political distortions and interferences in the way interventions were carried out…” Larry Summers.

    Do as I say, not as I do.
    And I couldn’t have made the argument for not bailing out failures any better.
    It does make me wonder what the reason the administration thinks saving these financial institutions really is . Is it that they are so big and are such a significant portion of the economy that our situation is not analogous to Korea??? A cynic might postulate that its campaign contributions – but I still believe these people really believe in “of the credit, by the credit, for the credit.”

    I have had no job and no credit. I can live without credit, but I can’t live very long without a job.

    1. DownSouth

      Larry Summers comes from an entire school of thought that has no higher principles other than prostituting itself to its financial overlords.

      The hypocrisy, the double standards shriek at us as if we were living an Edvard Munch painting:

      A set of principles permitting greater opportunity or liberty to one than to another, especially the granting of greater sexual freedom to men than to women.

      There was a Chinese movie released some years back called “Raise the Red Lantern.” Set in the 1920s, the film tells the story of a young woman who becomes one of the concubines of a wealthy man during the Warlord Era. Nineteen-year-old Songlian, whose father has recently died and left the family bankrupt, marries into the wealthy Chen family, becoming the fourth wife or rather the third concubine — or, as she is referred to, the Fourth Mistress — of the household. Master Chen, the master of the house, offers a penetrating symbol of the sort of power and wealth that Larry Summers has chosen to serve, the blatant double standards he is willing to champion.

    1. craazyman

      That’s pretty good. I’m a professor of contemporary analysis as the University of Magnonia and I’ve studied this issue carefully, starting from 30,000 BC when they made the Cave Paintings, which clearly show a fully formed consciouness and intelligence equal to our own.

      I have developed a set of 16 equations that describes the economy, loosely it is d(GNP)/dt = d(M + D + MV + EC + TV)/dt / d(POP*WF)/dt : where M = Money, D = Debt, MV = Money velocity, EC = Equity Capital ratio, TV = Three Variables, POP = population and WF = Work factor (or “what the fuck” — an expression of intentionality on the job, loosely correlated with income).

      YOu may have stumbled over TV = Three variables, which I define as N + I + F, where N = nature, I = imagination and F = Fate.

      The immigrant factor is easily the most important contributor to the “TV” aspect of my equation. In fact, many statistical regressions show that it is not only the primary factor, but the determinative factor, and that I and F are easily the most powerful of the three factors. N can operate both as a stimulant and a depressor of economic activity. An asteroid hitting the earth would be a depressant. A hurricane, perversely, acts as a stimulant by creating the necessity of rebuilding, which requires manpower.

      This means that all economic models that don’t take the TV factors into account are totally useless.

      Another way of putting this is what happened when they protested former President Bush in India one time, there was a protestor with a sign that said “Yankee Go Home! And Take Me with You!” It’s a well-known fact that immigrants don’t protest and worry about economic policy. They just work, eat, drink and have children. This really forces one to think and to adjust equations to take N + I + F into account.

      Since I’m not an immigrant, myself, I will bitterly complain about economic policy. Somebody has to. ha ha ha.

      1. Steve2241

        As an esteemed faculty member (ha ha ha) of that (second-rate) University of Magnonia, perhaps you will appreciate this additional “Ponzi data point”. Oh, and drill it into your head, too.

        “What we are facing down today is a fifty year Ponzi scheme. Drill that into your head folks – for fifty years we have created false output gains, with the last 40 of those years having between 15-20% of each year’s supposed “GDP” not created by the work of people, but by BORROWING MORE MONEY which will have to be repaid with interest.”,-Where-Were-Heading-2010.html

  4. emca

    I once thought the mania for turning real estate into personal wealth was unique to the U.S. Reading about real estate – eh, froth – in the U.K., Australia, Eastern Europe over the last three years, and now China, I think I need to reassess the exclusivity of that conclusion. In this country though, we are in more advance stages of the real estate paradigm, the question being here: how can we right the bloated, drunken edifice on the playing field for yet one more time around?

    The opening shots of battle were fired this (last?) Christmas eve with the get-out-of-jail-free cards to Fred’n’Fan, but I’m sensing now a schism; on one hand we have the call for tighter standards, reform and the due-diligence missing the first time around, and on the other the desire to preserve the systemic monster create and nourished by just the opposite tack. Its somewhat like a church built upon sand onto which we are now going to substitute a base of bedrock for our ceremonial excesses.

    I don’t see the resolution here, but then I don’t have the extraordinary powers of creative insight Mr’s Geithner, Bernanke, Summers et al. nor Obama’s sermonizing incantations of ‘yes we can’ echoing amidst the chambers to help me. I only know I am not a believer.

    Yet to paraphrase Shakespeare’s immortal Hamlet (I believe) the plan is afoot and all that remains is to watch and wait. Only the weak falter in times of stress and confusion, any gloom and doom is counterproductive and tis better to say you know the way when hopelessly lost.

    My only other comment is: Are you taking notes China?

  5. emca

    One more comment; How peaceful the sleep of the predator.

    Your picture reminds me of my Canis lupus (pupus) familiaris, although they’re only wannabe wolves.

    Good New Year to you and yours Yves!

  6. David

    New Years Eve is the day before New Years Day so in this case it will be the last day of 2009 of course.

    1. Yves Smith Post author

      This may be a Commonwealth vs. US convention thingie…like which side of the road to drive on :-). Have seen some US MSM use upcoming year in their New Year’s Eve designation, and even have a program from a concert I saw last night with the same designation….

  7. David Cay Johnston

    ….was about the direction taken in the discussion at another blog prompted by my Tax Notes column comparing the very top income earners to the bottom 90 percent, aka the vast majority, in 1961 and 2006.

    Like the other blog, this one also quickly drifts off course and then sails away. It seems to me that this lack of rigor in examining issues is (along a tendency of many posters to be smug rather than contemplative) one of the great shortfalls of blogs.

    So in the hope that people might steer back to the issue, what do posters here think of the fact that we have shifted the tax burden down and of the effect of the tax system on the distribution of incomes and on wealth?

    The top had their income tax burden cut more than 10 times as much as the vast majority, whose modest income tax cuts were wiped out by higher payroll taxes, which are insignificant to the very top. And, of course, we have used excess payroll taxes since 1984 to help cut the tax burden on those at the top, together with government borrowing.

    The data I analyzed shows that those at the very top (avg income $263.3 million in 2006) bear the same burden as taxpayers making $50k to $75k, a lighter burden than those at $75k to $10m and a lighter burden of just income taxes than those at $500k-$1m). That is not progressive.

    Keep in mind that individual income taxes are just one part of the entire system; that payroll taxes now are about equal to individual income taxes; and that in addition to these levies we have other federal taxes, state and local taxes and a huge diversion of taxes to pay interest.

    All of the individual income taxes paid from Jan, 1 to mid-June will equal interest on just the federal debt, much of which is deferred through pay-in-kind bonds.

    Is our tax system greasing the economy or, as I have argued based on the official data, is is redistributing up? Is our tax system helping us create wealth, or at least prosperity?

    1. gordon

      I actually found the diversion into inequality and mobility at Economists View interesting, which is why my comment was about the “mobility excuses inequality” business. I wasn’t surprised that the redistribution upwards that you discussed in your post provoked that kind of thread.

      Tax-based redistribution upwards sits alongside the War on Labour (anti-union policies, offshoring, winking at illegal immigration), tolerance of oligopoly/monopoly, weak Govt. investment and refusal to restructure industrial policy as part of a set of policies all of which promote inequality. In that sense, the issues you raised are part of a larger inequality picture, so “drift” of the discussion thread towards the larger issue isn’t such a bad thing, IMHO anyhow.

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